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Charles city telecom board accepts higher city line of credit, gets ready for bonds

By Bob Steenson, bsteenson@charlescitypress.com

The Charles City Telecommunications Utility Board of Trustees on Tuesday formally accepted an additional $200,000 in its line of credit with the city as it moves toward an expected final resolution in the next couple of months for financing a new fiber optic broadband system.

The board had initially borrowed up to a million dollars from the city for the expenses involved in getting the system designed and ready for construction, but coming up with the financing needed to actually build the project has taken several more months than expected, and that million dollars has mostly been spent.

The plan now is that the documents for soliciting bids for up to $17 million in municipal revenue bonds will be ready to be approved at the telecom board meeting set for Sept. 29, with the actual financing coming through in October or early November.

In addition, the telecom board is planning to borrow about $3 million from other private sources, likely banks including at least one local bank, to be used for working capital until the system is established and bringing in revenue.

All loans, costs and expenses are expected to be covered by the eventual revenue coming from selling broadband, television and telephone services to residences and businesses in the Charles City city limits.

During a public hearing on the city loan agreement, Chip Baltimore asked how the total up-to-$1.2 million would be repaid to the city if financing for the broadband project doesn’t come through.

Baltimore is a former Iowa legislator from Boone and an attorney who, now as part of the Washington, D.C.-based Taxpayers Protection Alliance, has been an outspoken opponent of municipal broadband projects across the state.

Charles City City Administrator Steve Diers said the City Council is aware there is a possibility the loan wouldn’t be repaid.

Mayor Dean Andrews said, “If we don’t extend this $200,000, the city’s a million dollars in the hole already with no project. The only way for this project to proceed is by extending this extra credit.”

Andrews said most of the additional $200,000 will be used to pay for the costs of issuing the up-to $17 million in municipal revenue bonds, plus continuing to pay ongoing expenses.

“These are all bills that, except for the issuance of the bonds, would have been paid already by the utility had the financing come through when we wanted it to,” Andrews said. “The utility keeps getting expenses, but they would be paying those on their own had the money come through earlier.”

A spreadsheet on expenses for the project shows almost $984,000 has been paid out as of Aug. 27.

The largest part of that, by far, has gone to Lookout Point Communications, a Minnesota company that has helped with the initial feasibility studies, business plan, engineering for the outside plant (the actual fiber and controllers in the community) and transport links to hook up to broadband networks.

Total paid to Lookout Point as of Aug. 27 was more than $646,000.

Another large expense went to purchase the former City Tap building for almost $188,000. That building will be used for the data center as well as administrative, service and sales offices.

No other expense so far has been in the six-digit range.

SmartSource Consulting LLC of Grimes received more than $44,500 for feasibility studies and work on marketing, and more than $15,500 went to Kielkopf Advisory Services LLC of Des Moines for financial and staffing work.

Attorneys received more than $22,000, including counsel for selling the bonds, a human resources attorney regarding employment, and Charles City’s city attorney, Brad Sloter, for legal services for the telecom board.

More than $20,600 was paid to reimburse the city of Charles City for the salary during time spent by Diers, the city administrator, working on telecom business.

The overall budget for the project up to the point where actual outside construction begins is listed as almost $1.19 million.

The largest amounts yet to be spent are $150,000 for the cost of preparing for and going through the municipal revenue bond sale, almost $343,000 to Lookout Point and NewCom Technologies for construction oversight and another almost $33,000 for transport link design, and $65,000 to Mason City architect Gary Anderson of SA Architects for designs and bid and construction oversight for remodeling the data center building.

Also at its regular meeting Tuesday, the telecom board agreed to spend $17,000 with Causey, Demgen and Moore, a certified public accounting firm from Denver, to “verify the information contained in the business plan and accompanying pro forma cash flow projections” to provide information to potential revenue bond bidders.

Baltimore, the municipal broadband opponent, said during public comments at the beginning of the meeting, “The phrase ‘independent review of the business plan’ is really very misleading.”

“It really is nothing of the sort. … The CPA firm is only required by the terms of engagement to do the math based upon all your projections and assumptions. They’re not going in to analyze those projections and assumptions to see if those are reasonable or feasible at all,” Baltimore said.

“This is not really an independent review of the business plan, it’s just simply math-checking. This is the classic garbage-in, garbage-out kind of review. If you put garbage into it because you do or do not … have the assumptions analyzed, you’re going to get garbage out if those assumptions are no good,” he said.

Michael Mahoney, senior vice president with D.A. Davidson & Co. of Des Moines, a consulting firm that is helping organize the project financing, said the telecom will be marketing the revenue bonds to multiple potential investors.

“This is going to provide some guidance for those sufficiency analyses that individual investors on the bank side would otherwise run independently,” he said.

“It’s both information and reassurance there,” Maloney said. “I think there’s additional benefit of just having additional eyes on the math as we tighten up the assumptions ahead of bonding. … This is helping us dictate the terms that we expect to complete the bonding.”

Also at the meeting, the board again closed the meeting to the public for a while to talk about “financial information and pricing strategies” and “proprietary information.” Almost all of the meetings in the last several months have included closed-door sessions.

 

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