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Charles City broadband utility board again discusses bonding, other options

Charles City broadband utility board again discusses bonding, other options
Board members, consultants and others attend a Zoom meeting Tuesday afternoon of the Charles City Telecommunications Utility Board of Trustees.
By Bob Steenson, bsteenson@charlescitypress.com

Members of the Charles City broadband utility board had another discussion this week on the possibility of using general obligation bonds backed by property taxes to help finance a community fiber project, but again made no decisions on the idea.

The Telecommunications Utility Board of Trustees first heard from its consultants at its meeting earlier this month about the possibility of using GO bonds to show potential investors the city of Charles City had “skin in the game” regarding the broadband system.

Michael Maloney, senior vice president with D.A. Davidson & Co. of Des Moines and one of the city utility board’s financial consultants, said the idea of using general obligations bonds isn’t necessarily the difference of whether the project can get financing or not, but rather how quickly and how widely the system is built.

“This is by no means a prerequisite,” Maloney said. “It’s just talking as we evaluate potential next options and related financing whether this was something that the board felt was worth considering as a potential enhancement to maybe accelerate the project or scope of the project sooner than would otherwise be available.”

Another piece of the broadband network puzzle could become known within the next couple of board meetings.

Requests for information — RFIs — were sent out to businesses and organizations after the utility board meeting earlier this month to solicit possible partnership ideas.

Those RFI responses are due March 5, so the utility board unofficially agreed to wait until they see those responses before making any decisions on a general obligation bond option.

Charles City Administrator Steve Diers said the feedback from potential partners who respond to the RFI will help show what the city has to do regarding financing, and whether it needs to look seriously at GO bonds.

Since the board was unable to come up with financing last fall at terms that were economically feasible for the up to $22 million needed, it has been looking at ways to reduce the amount of funding required and/or make the project more attractive to investors.

Three ways to do that, the board’s consultants have laid out, are phasing the timing and/or the scope of the project, finding partners able to provide some additional financing, or using general obligation bonds to back part of the city’s share of the project.

The project had been intended from its beginning many years ago to be supported entirely by the revenue that would come from selling internet, video and telephone services to customers in the city.

But Paul Donna, managing director with Robert W. Baird & Co. who is located in St. Paul, Minnesota, and who worked with Maloney to try and find financing, said the investors they approached wondered about the city’s involvement.

“It was an underlying theme from every potential investor we talked to,” Donna said. “Even though it was in bold letters that this is a revenue transaction, everyone asked the same questions: ‘What can the city do?’ ‘Is the city behind it?’ ‘What kind of enhancement can they put behind it?’ And the answer was, ‘The city’s not putting any enhancement behind it.’”

Donna said he understands that the issue of using GO bonds is not only a financial question, but also a political one.

Even if the utility board began pursuing a GO option immediately, it’s unlikely anything could happen in that regard until almost the end of the year.

A GO bond issue in the amount Maloney suggested — $3 million to $4 million — would require approval by city voters. State code allows bond referendum special elections in March or September, or with a general election in a city election year. It’s too late to consider a March special election.

The process to issue GO bonds for city purposes would require the City Council to hold a public hearing then vote to put the measure on the ballot. In Iowa, bonding questions must pass by more than a 60% majority.

Diers said there are a lot of steps involved in planning a bond issue, and even to get it on the ballot for the November election “we’d have to start hustling pretty quick.”

“We’d have to start having those discussions with the council, so see if that’s a way forward. We’d have to check our debt capacity, see what’s the availability there, see what the city has planned for future projects and how that all might be impacted,” Diers said at the Tuesday utility board meeting.

Utility board member Danny Wilson Jr. wondered why the board was just hearing this month that a problem potential investors had was not enough city “skin in the game.”

The problems finding financing started five to seven months ago, Wilson said. “I’ve never heard it said that we didn’t have enough skin in the game to be of serious consideration to investors.”

If the board had known that general obligation bonds might need to be considered they could have approached the city half a year ago, he said.

Maloney said it had been “quite clear” from the beginning that “there was an expectation that this was not to be something that would be part of the financing package.”

The reason to bring it up now, Maloney said, is the dynamics of financing keep changing.

Dave Fridley, a partner in FARR Technologies of Sioux Falls, was part of the Zoom meeting Tuesday, and he said his company has taken a look at the Charles City project and identified areas where his company could assist.

He said his company has successfully completed many similar projects, including recently the Vinton and the New Hampton broadband projects in Iowa.

“All these projects are similar, but they all have their own challenges,” Fridley said.

Fridley said even under the best assumptions the Charles City fiber project is probably at least a two-year project.

Since the city is divided by the Cedar River, he said it would make sense to do the part of the city north of the river in the first year, since that is where the central office and data center would be located, then do the part of the city south of the river the next year.

Diers said Wednesday that Fridley had been contacted to take a look at the Charles City project because of FARR Technologies’ involvement in the New Hampton project.

“They’ve been involved in that process and we know if them, so as we’ve been talking through what our next steps would be, to get this thing going and off the ground, the thought came to mind to reach out to them and see if they had any thoughts or input,” Diers said.

The next utility board meeting will be 4 p.m. Tuesday, March 9. The board likely will not have an in-depth analysis of the RFI proposals by then, but will at least be able to see the scope of the responses.

 

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