City-owned telecom drains VT taxpayers of millions, bails on access pledge

By Bruce Parker | Vermont Watchdog

BURLINGTON, Vt. — A city-owned telecommunications provider sounded like a good idea a decade ago. But as Burlington Telecom seeks to settle a $33 million debt with Citibank, the taxpayers of Burlington are wondering where the city’s money went. Some are wondering if they’ll ever get service.

“Our biggest concern is the city’s decision to sell Burlington Telecom. By selling, the city has no chance to recoup the money that is owed the taxpayer,” Lauren-Glenn Davitian, executive director of CCTV Center for Media & Democracy, told Vermont Watchdog.

Davitian, who oversees Channel 17 Town Meeting Television, a public access cable channel serving 25,000 households in Chittenden County, urged the Vermont Public Service Board on Tuesday to reject the sale of the municipal telecom to a private investor.

Launched in 2002 as a fiber-optics money-making venture for the city, Burlington Telecom experienced financial trouble before defaulting on interest payments to Citibank in 2010. After a lengthy legal battle, Citibank in February agreed to settle its $33 million lawsuit for $10.5 million plus an ownership stake in a new, privately held company.

According to a plan backed by Mayor Miro Weinberger, Burlington seeks to repay Citibank using a $6 million interim lease obtained through a local lender. The city also wants to renege on its obligation to expand cable and Internet service to all residents as mandated.

Burlington Telecom has long been mired in controversy.

In 2008, former Burlington Chief Administrative Officer Jonathan Leopold secretly diverted $16.9 million from the city’s general fund to prop up the cable and Internet provider. A citizens’ lawsuit filed against Leopold in 2009 has failed to retrieve any of that money.

Norman Williams, lead counsel in the suit to recover the $16.9 million, said much of that cash is still unaccounted for.

“There’s at least $5 million that we don’t know where it went,” Williams told Vermont Watchdog.

“Some of the $16.9 million was used to pay back the city’s cash pool at the beginning, and some of it was used to cover operating deficits. After that, they had about $10.2 million that they used for capital expenditures. The question is, what capital expenditures?”

According to Williams, Leopold’s claim that $10.2 million was used for capital expenditures — namely, customer hookups and stringing cable lines — doesn’t add up. Roughly $4 million is accounted for by the telecom’s reported 2,500 customer hookups at the time, estimated to cost $1,600 each. Another $1 million was spent running 10 miles of cable lines, Williams said.

“Basically that’s your $5 million. So, it wasn’t all used for hookups and line stringing. … (The other) $5 million was used for something else. We don’t know what that was. There’s never been an audit … it’s just not explained what happened to that money.”

Williams said as much as $15 million in taxpayer money could be recovered through insurance, since Leopold was bonded and may have breached his duty of faithful performance as chief administrative officer for the city.

A newer controversy relates to Burlington’s request to be released from providing cable, phone and Internet access to Burlington residents — a slight to taxpayers who subsidize Burlington Telecom.

As discussed in Tuesday’s open hearing with the Public Service Board, the city has asked to bail on the citywide build-out of infrastructure mandated in the Certificate of Public Good.

“There’s about one-fifth of the city that Burlington Telecom cable doesn’t even go past their house. So they cannot even sign up if they wanted to. That seems the height of unfairness to me that you’re forced to subsidize a business that you can’t even participate in if you wanted to,” Williams said.

The city’s request is tied to the financials of the settlement.

“The taxpayers don’t retrieve much if it’s sold to a private entity … The reason they want to take out this provision is because Burlington Telecom is worth just about nothing if you have to build out the whole city. That’s the problem. But if you don’t build out the city you’ve just forced taxpayers to pay for something that they can’t even use.”

While Davitian said public access will survive whether or not Burlington Telecom becomes a private company, she argues the public should have been part of the decision-making process.

“The decision to sell Burlington Telecom was not made with significant public process … if this is going to be sold, then we need to follow process that we do with pretty much every other public asset we’ve ever had in the city of Burlington in the last 30 years.”

For Williams, the city’s plan completely ignores the legal rights of taxpayers.

“The Legislature made clear that the taxpayers were not supposed to be taking any risk at all with Burlington Telecom. Lo and behold they have taken a hit.”

Contact Bruce Parker at bparker@watchdog.org