Charles City broadband board broaches idea of GO bond funding

By Bob Steenson, bsteenson@charlescitypress.com

Partnership options in a Charles City municipal broadband network could range from direct control by the city’s Telecommunication Utility Board, to essentially turning everything over to a private entity to run, according to a consultant.

The utility board has been discussing ways to reduce the cost and/or scope of a municipal broadband utility, bring in a partner or partners, or find new ways to finance the project  — including, for the first time now, the idea of letting non-customers help pay for it.

The Telecommunications Utility Board spent most of a meeting last week listening to consultants discuss options that have been necessitated by the board’s inability to find affordable financing for the system as it was originally designed, to be owned and operated entirely by the city.

The board went through a couple of months last fall trying to put up to $22 million in financing in place, until finally being informed by their consultants that it wasn’t going to happen at that time with that proposal.

After a wide-ranging explanation at the meeting last week of potential ways to make the financing more attractive to investors, financial consultant Michael Maloney brought up “GOs” — general obligation bonds.

“I know it’s something that we’ve been reticent to discuss,” said Maloney, the senior vice president with D.A. Davidson & Co. of Des Moines.

“I’m not advocating for, and I’ve not discussed it with anybody involved here, but the last door in terms of potential enhancements for the financing plan would be related to the city’s issuance of general obligation bonds.”

Since the beginning of the broadband project planning, now many years ago, one of the important talking points was that the system would be paid for with revenue from selling internet, video or phone services to customers. In effect, the argument was, if you didn’t subscribe to any of the services, the system wouldn’t cost you anything.

Issuing general obligation bonds would divide up part of the cost of the network among all the property tax payers in the community, or at least put them on the hook if revenues were insufficient to repay the bonds.

“Obviously, that’s a consideration that would need to go to the voters,” Maloney said. “I’m not advocating for that. I’m just giving the full story of what’s out there. I don’t necessarily believe that would need to be for the whole project, but I think the feedback from the investor space is (the city needs) “some skin in the game.”

The only board member to comment on the idea was Danny Wilson Jr., who said it was worth at least getting information about what a general obligation bond issue might look like.

Wilson started to make a motion to support getting more information, but City Attorney Brad Sloter said that wasn’t an action item on the agenda at that meeting.

The board spent most of the time listening to the consultants explain issuing a request for information — an RFI — to be sent to a number of businesses that might be interested in partnering with Charles City on a broadband network.

Maloney said the RFI is being kept broad on purpose.

“The one thing to point out is this is inviting a menu of feedback,” Maloney said. “Open-mindedness is an important factor here.”

He said, “There’s a range between, the partner comes in and does everything and you give them keys and they run the show, to the city’s heavily involved through the utility over a period of time, and everything in between. This is less about the board dictating the terms up front, but understanding you could get all kinds of feedback and working from there.”

The RFI is a 10-page document that talks about objectives, gives the project’s background and why the board thinks a new broadband utility is needed and would be supported by the community, then goes into what the board is looking for as far as partnership suggestions and the backgrounds of the companies and organizations responding.

The goal of the utility is to “ultimately provide cost-competitive, reliable, high-capacity, gigabit speed broadband to all Charles City residents, businesses, and anchor institutions through an area-wide fiber-to-the-premises (FTTP) network or similarly performing technology.”

The RFI says, “Responses are welcome from any entity with a track record of providing excellent broadband services and the ability to meet these goals. This may include incumbent service providers, competitive providers, nonprofit organizations, public cooperatives, nontraditional providers, and any other interested, capable entities in a manner consistent with Iowa telecommunications and municipal city laws.”

Curtis Dean, president of SmartSource Consulting LLC of Grimes, another utility board consultant, said he had a list in mind of at least eight firms that might be interested in some aspect of partnering on a Charles City project.

Companies he mentioned included ImOn Communications, OmniTel and Butler-Bremer Communications. Others like CLTel in Clear Lake and Router 12 in Mason City may have interest in partnering on the fiber transport aspects that would link Charles City to Mason City over fiber lines to the west and link Charles City to New Hampton, Waverly and Cedar Falls to the east.

“There’s a decent number on there. If we want to post this national, you might get some others that aren’t on our list already,” Dean said.

Maloney then said he wanted to “step back and give some high-level context for what the board is trying to do in terms of the fiber infrastructure build-out project and financing.”

All of the options being considered have one goal, and that is reducing the amount of outside financing that will be required for the project, he said.

The three options are:

• Partnering, so some other businesses or organizations add financing or cover some of the cost of the assets in return for involvement in the network.
• Coming up with more inside funding such as general obligation bonds.
• Phasing the project, either in timing or scope.

Maloney said everyone realized that not everyone in the city was going to be connected to a broadband network on the same day once the system was being built, but that it would occur over a time period.

“So there was some implicit phasing considerations that were already part of that plan,” he said.

“What I’m suggesting is something more explicit,” he said, such as defining the first phase as building the main fiber ring in the city, the connections for transport lines and an initial buildout to customers in a limited area.

“If the board meets those considerations, it unlocks the ability to finance or complete a second phase of additional buildout,” he said.

“It doesn’t mean that you don’t get to the same end result. It doesn’t necessarily mean that the timing’s particularly different. It just means that there is a trade-off between what the board is trying to do in the community and what a group of investors would do — taking a smaller bite with a path to the full approach,” Maloney said.

“Perhaps that’s already been evaluated as a non-starter, but I think it’s worth kicking some of the dust off and refreshing that conversation, whether with the existing team members or perhaps someone who’s willing to at least do a review,” he said.

The next specific goal for the Telecommunications Utility Board will be to evaluate any responses it gets from its RFI to potential partners.

The board set its next meeting for 4 p.m. Tuesday, Feb. 23. The board has been meeting over Zoom videoconference.