Charles City fiber board asks another $200,000 in city line of credit

By Bob Steenson, bsteenson@charlescitypress.com

The Charles City Telecommunications Utility Board of Trustees is asking the City Council for an additional $200,000 line of credit to help secure the financing needed to create a fiber optic broadband network in the community.

A joint telecommunications board and City Council workshop meeting was held Monday evening, where City Administrator Steve Diers, who has been working with the utility board, explained that the board is looking at using revenue bonds instead of direct borrowing to finance the project.

The utility had been looking at direct borrowing, with loans to be repaid with revenue coming from selling internet, television and telephone service. Now the utility is looking at issuing revenue bonds, which would still be repaid through service revenue, but which cost more upfront to issue.

“What the telecom is respectfully asking is that the city consider increasing the amount of the line of credit,” Diers said, extending the cap from $1 million to $1.2 million.

“I don’t think they’ll come close to using that, but just so they have the capacity there as needed to go forward and work toward bond issuance for this project,” he said.

“As before, the plan with this project — it’s all revenue based — when those bonds are issued, the city would be reimbursed that line of credit at that time,” Diers said.

“We’re getting close. We just need to focus in on a little bit different direction than what we had been looking at, and this additional amount of funding should help us get it there,” he said.

Council member Phoebe Pittman asked, “What has been the major hurdle so far in getting financing? You had hoped to have it already by this point.”

Diers answered as he has before, saying this is the first time this sort of project has been attempted to be funded this way, rather than having an municipal electric utility that could back the financing.

“We were trying to do this all directly through a bank placement. All the things that are happening in the world are having an impact, and one of them is this kind of being a new way of financing some project like this,” he said, while adding there was “maybe some uncertainly with it.”

“We’re so close, and we’ve had a number of regional and local banks involved in the mix, and the local banks have been very supportive in this discussion, it’s just getting all those final pieces together. We’re not quite there with this direct approach,” he said.

“What they’ve seen in the bond market, with rates coming down, that’s looking like a much more attractive option to go that route, to get a rate and a term that’s workable for our plan, and could be a way to really lock this thing up and get it done,” he said.

Michael Maloney, with D.A. Davidson & Co. of Des Moines, a financial consultant to the utility board, said, “We have secured more funding than we need for the project at this point. The key is really about getting the terms that are most beneficial to the startup and long-term benefit of the project.

“We have funding secured through the United States Department of Agriculture, through a program with those folks, just not on terms that we feel are favorable enough to pursue,” Maloney said. “There was a significant amount of time to go through some of those hoops. We just think with the shifting dynamic within the capital market we can get a more effective, longer-term option by going this route.”

The City Council can’t take official actions at a workshop session. Diers said the council could take action on a formal request at its Sept. 8 meeting, being held on Tuesday that week rather than Monday because of Labor Day.