Charles City fiber broadband system funding still not complete

By Bob Steenson, bsteenson@charlescitypress.com

Funding for Charles City’s proposed multi-million dollar broadband fiber system continues to remain elusive, but people involved with the project say the end is in sight.

And in order to keep operating while working on that funding, the Charles City Telecommunications Utility Board of Trustees will go before the Charles City Council on Monday evening to ask for an addition to the $1 million line of credit the council authorized to cover fiber start-up costs.

The utility board of trustees met again this week, spending much of the meeting closed to the public to discuss “financial information and pricing strategies” under an exemption to the Iowa Open Meetings Law.

Ten out of the last dozen trustee meetings have included closed sessions, to talk about rates, financing or picking a general manager.

The “up to $22 million” in revenue-backed funding authorized by the trustees was expected to be approved by late June or early July in some plan schedules.

Members of the board or city officials have said they hoped to have funding wrapped up by July 7, then July 21, then July 28, and finally by the meeting this week on Tuesday, but the trustees came out of closed session once again without taking any official action.

However, Michael Maloney, with D.A. Davidson & Co. of Des Moines, one of several financial consultants to the board of trustees, said at the meeting this week that the board is close enough to finalizing funding that he feels comfortable directing the board’s bonding attorneys, Dorsey & Whitney, to begin preparing some of the official documents for the financing.

Steve Diers, the Charles City city administrator, who has helped guide the project since the beginning and who has worked for the board of trustees since it was authorized by the City Council last November, said after the meeting that the financing problem continues to be that this is the first time a city in Iowa has tried to form a municipal broadband utility without an electrical utility to provide backing.

“The holdup seems to be that we can’t get everything that we want to get placed directly with a bank,” he told the Press. “We’ve split this up into a couple of pieces and we have a strong local bank participation. It’s just that the other piece that’s regional bank level that we’re looking at we haven’t been able to close that gap.”

Originally, the hope had been that the project – initially estimated to cost $15 million, with $13 million of that construction and $2 million in initial operating funding – could be financed by direct borrowing, with the revenue from the system used to repay the loans.

Now, Diers said, the board is looking at selling revenue bonds, still backed by the revenue from the system, but having to go through the bond market.

He said the bond market is favorable now, so that route should result in competitive rates and terms.

Diers again said the board is not considering using general obligation bonds for financing. GO bonds would pledge the city’s taxing authority to back the bonds, so that if revenue couldn’t pay them off it could fall on taxpayers.

Asked if there is a chance the project simply isn’t economically viable, Diers said the numbers they are currently working with still show the project can be paid off with revenue generated by sales of services, at the same suggested service prices that were released earlier, and with the same minimum 40% community subscriber “take rate.”

The board anticipates a take rate of 70% in the community, he said, but will be able to make the system pay for itself at just 40%.

Diers said, “There’s always a chance” that the project will prove not viable, but “if we didn’t think that there was a good chance, a strong chance, of this getting done, I think we would be looking to either cease going forward or look at other options.

“This is the first time anything like this has ever been done,” he said. “We’re kind of creating that path and finding our way through. It sounds very favorable. It’s just going to take some more time and effort and a little bit more upfront expense.”

Board Chairperson Cheryl Erb said that the past months with the coronavirus and the need for people to work or attend school from home just shows how important a fast, reliable broadband system is.

“We are more determined and committed to seeing this project successfully through,” she said. “We know there is a need and a demand for fiber in Charles City. It is the new highway. … I think I can speak firmly for the board on that, that we are more committed towards the project.”

Trustee Danny Wilson Jr. said the derecho storm last week shows the importance of having an internet system underground, with redundancies to prevent loss of service.

Diers said it looks like now it will be several more weeks to get the financing complete.

“It’s certainly going to delay the start of the project, possibly until spring,” he said. “It could be construction better part of next season and could flow into 2022, I suspect, but when we have a firm understanding of dates and timelines for when financing will in place, then we’ll know that for sure.”

For now, he said, the low bidder on the major construction part of the project, ADB Utility Construction of Missouri, has said it will honor its $6.36 million bid and is still eager to be part of the project.

Parts of the project, including signing the contract with ADB, hiring a general manager or proceeding with remodeling of the building that will be used as the data center, remain on hold until funding is secured, he said.

“If 2020 has taught us anything it’s the need for internet – consistent, high quality, with good customer service, and we owe that to the citizens of Charles City,” Diers said.

Erb agreed. “That would be the most strong statement that I could make. We see the need. We know that this is something that will help all of Charles City, everyone basically from zero to 99, in aspects that they may not even comprehend at this time. We know the need is there. We know the demand will be there.

“I have more people ask me when, when, when,” she said. “We just want to make sure it’s right, and we will get it done.”