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October 14, 2010

Regulators Affirm the Obvious: Burlington Telecom Violated Laws. So, Now What?

Gavel The Vermont Public Service Board confirmed this week what a hearing officer surmised in late August: Burlington Telecom engaged in a "wanton disregard" for key provisions in its state license.

BT failed to abide by two strictly-worded conditions by not repaying money it borrowed from the city and not completing the network's buildout on time, the PSB noted in its ruling issued late Tuesday. The PSB also believes the city is in violation of its own charter provision designed to keep taxpayers from being on the hook for BT's financial losses.

Over a three-year period, BT ended up borrowing more than $17 million from the city.

The PSB has ordered the city and Burlington Telecom to begin providing bimonthly updates on their negotiations with CitiCapital, starting October 31, and on any other efforts to come into compliance with its certificate of public good (CPG).

By year's end, BT must provide the PSB with a proposal for how it will complete the citywide buildout of the fiber telecommunications network (Condition 17) and repay the $17 million owed to taxpayers (Condition 60), as well as come into compliance with the city charter and not put taxpayers at risk for BT's losses (Condition 56).

The October 31 report will include any updates on talks with CitiCapital, the outside lender that loaned BT $33 million via a lease-purchase finance deal. The PSB cautioned BT about filing too much information under seal.

"The board generally disfavors the filing of material under seal, and this is especially true when, as in this proceeding, there is a strong public interest for greater disclosure and public knowledge with taxpayer funds at risk," the board noted in its ruling.

The PSB expressed concern that protracted talks with CitiCapital could delay settling the CPG violations or further compromise city taxpayers.

The PSB wants BT to ensure that the city, and its financial advisors, are "fully aware of the legal restrictions on the use of city funds that would be applicable to any settlement or restructuring of Burlington Telecom's indebtedness to CitiCapital. To present the board with an outcome to these negotiations that the Board would be unable to support because of existing statutory restrictions would be a most unfortunate result for all concerned."

Most unfortunate indeed.

The city was asked to allay those financing concerns in its forthcoming progress reports.

With Halloween also comes another trick, or maybe treat: The deadline CitiCapital has given the city to renegotiate a payment plan for its $33 million lease deal with Burlington Telecom. City officials only describe those talks as "ongoing."

The end of October could bring some finality to other inquiries into BT's financial dealings. A financial review being conducted on behalf of the Department of Public Service is near completion. Onsite work was completed the week of September 20. The report may be completed within the next month, said DPS attorney Geoff Commons, but he offered no guarantees.

Attorney General BIll Sorrell tells Seven Days that he, too, expects a debriefing from Orleans County State's Attorney Keith Flynn during the last week of October.

Meanwhile, a citizen lawsuit against BT continues to plod along in Superior Court in Burlington. Jonathan Leopold, the city's chief financial officer, who is also named in the suit, sought qualified immunity from the charges. A judge ruled against him, but he has appealed that ruling.

Just how serious were BT's transgressions? Plenty serious. The PSB agreed with the hearing officer's blunt assessment calling BT's multi-year financing scheme a "wanton disregard" for the rules that govern its cable television CPG. BT objected to the term.

"While not contesting the hearing officer's specific findings with respect to violations of Condition 60 of its CPG, Burlington Telecom objects to the hearing officer's characterization of Burlington Telecom's admitted conduct as a 'wanton disregard' of this condition of its CPG and the related city charter provision," the PSB noted in its ruling. "Based on the number, magnitude and duration of Burlington Telecom's admitted violations of Condition 60 of its CPG, the words 'wanton disregard,' as commonly understood, are an appropriate characterization of Burlington Telecom's behavior, and, therefore, we do not modify the hearing officer's characterization. This is not to suggest, however, that the degree of Burlington Telecom's scienter with respect to these violations has been factually or legally established."

That last line might offer some solace to BT's lawyers, but certainly not yet to the taxpayers who are out $17 million.

In a footnote to its use of "wanton disregard," the board noted that Black's Law Dictionary defines "'wanton' as 'unreasonably or maliciously risking harm while being utterly indifferent to the consequences' and defines 'wantonness' as 'conduct indicating that the actor is aware of the risks but indifferent to the results.' Burlington Telecom's admitted conduct and disregard of Condition 60 of its CPG evinces, at minimum, an unreasonable and careless indifference to the condition, behavior that falls within these definitions."

BT, consider yourself schooled on the term "wanton."

Mayor Bob Kiss said the city would not appeal the PSB ruling.

“The PSB decision yesterday confirms the city’s prior acknowledgment of non-compliance with Burlington Telecom’s Certificate of Public Good," said Kiss. "The proceedings before the board were initiated by the city, and the city has acknowledged non-compliance with conditions of the CPG related to the buildout and the use of pooled cash."

Kiss added, "A successful BT means a more successful Burlington. As these issues move forward, the City — with the assistance of the firm of Dorman & Fawcett — will continue doing the necessary work to ensure that BT provides high quality services at a good value to the Burlington community."

Dorman & Fawcett took on a greater role in managing BT after the city-owned telecom's former general manager, Chris Burns, left Burlington to join a telecom firm in Alaska. Dorman & Fawcett's involvement comes at a substantial cost to taxpayers, along with the cost of other consultants hired by the city to sort out BT's fiscal mess.

In the meantime, BT inked a six-figure deal with Champlain College to help the four-year college connect its satellite campus and student housing in Winooski to its main computer network in Burlington. The deal came nearly one year after the BT's financial fiasco first became public.

Read the full Public Service Board Order: Download 7044OrderReSummaryJudgment

"this was prudent and the taxpayers are not at risk.” - Jonathan Leopold
"The use of pooled cash relative to Burlington Telecom does not place city finances or taxpayer dollars at any additional risk." - Bob Kiss

"Jonathan was not acting alone" - Bob Kiss
"It was me, and I'm not ashamed of it" - Jonathan Leopold

I think you can augment that definition of wanton with the above quotes as examples.

Didn't one of our candidates for Auditor (guess which one) also make a public statement in 2008 stating that everything was fine with BT and there was nothing to worry about?

The same candidate who's now blasting the current Auditor for not catching the embezzlement in Newport.

The same candidate whose friend and campaign aide is now trying to get the video of the Salmon drunk driving arrest so he can embarass Salmon?

The shovel Mayor Kiss used to break ground at the new Health Center recently is not big enough to get out of this hole he and the CAO have put us in.
This is not a theoritical hole but a hole that will bury BT as we know it and leave us taxpayers well below the surface on the way to financial recovery of 17 million plus.
We must pull ourselves up by the bootstraps, and work to recovery and stability.
This cannot be done with Kiss and Leopold putting on the boots though.
We must move forward, without Kiss and Leopold as leaders, but with Kiss and Leopold as taxpayers only.
The Mayor and CAO must resign and resign now so we may move forward with solutions to the problem they created.
No trust can be given to their leadership as I am not convinced they feel that hiding this issue from us was a bad idea. Denial still seems to be the way of the Mayor and CAO. Gosh if I was building and ice climbing area in an old building filled with pigeon crap(again) I would have a lot of confidence in dealing with the Mayor and CAO, and if the Ice Factor does have confidence in the Mayor and CAO, What does that say about the Ice Factor?
The Mayor and CAO must resign so we may move forward without their flawed leadership.

So, now what?

This calls for the same methods used by other Progressive Governments. Grab the complicit individuals in business and political office, give a quick show trial, followed by a public execution.
Gouge their estates for whatever remuneration is possible for the taxpayers.

You want to live in a Proggy milieu, go the whole Prog Hog.

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