Testimony - Mayor Weinberger

STATE OF VERMONT PUBLIC SERVICE BOARD

Petition of City of Burlington d/b/a Burlington Telecom, for a certificate of public good to operate a cable television system in the City of Burlington, Vermont (In Re: Petition to Effectuate Settlement and Resolve Outstanding CPG Violations, and Request for Associated Approvals)

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Docket No. 7044

PREFILED TESTIMONY OF MAYOR MIRO WEINBERGER

ON BEHALF OF THE CITY OF BURLINGTON

May 29, 2014

Mayor Weinberger’s testimony addresses questions and comments presented in the Public Service Board’s April 4, 2014 and May 14, 2014 Orders.

STATE OF VERMONT PUBLIC SERVICE BOARD

Petition of City of Burlington d/b/a Burlington Telecom, for a certificate of public good to operate a cable television system in the City of Burlington, Vermont (In Re: Petition to Effectuate Settlement and Resolve Outstanding CPG Violations, and Request for Associated Approvals)

) ) ) ) ) ) (

Docket No. 7044

PREFILED TESTIMONY

OF MAYOR MIRO WEINBERGER ON BEHALF OF THE CITY OF BURLINGTON

1. Introduction 1

Q1. Please state your name, occupation, and business address. 2

A1. My name is Miro Weinberger. I am the Mayor of the City of Burlington, Vermont (the 3

“City”). My business address is City Hall, 149 Church Street, Room 34, Burlington, 4

Vermont 05401. 5

6

Q2. What is the purpose of your testimony? 7

A2. My testimony addresses questions and comments presented in the Public Service Board’s 8

April 4, 2014 and May 14, 2014 Orders. 9

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Q3. The Board has expressed concern that the City’s misconduct has severely damaged the 11

essential trust that is a prerequisite for effective regulation and regulatory relationships 12

and that the City must make significant efforts to repair its regulatory relationships in this 13

proceeding. How do you intend to do that? 14

Docket No. 7044 Prefiled Testimony of Mayor Miro Weinberger

May 29, 2014 Page 2 of 8

A3. I decided to run for mayor of the City of Burlington and was elected by the Burlington 1

voters in March of 2012 with a primary goal of restoring the City’s fiscal health and the 2

trust of the taxpayers in City government. Like the Board, I was appalled by the 3

misconduct of my predecessors and particularly the expenditure of taxpayer funds to pay 4

for Burlington Telecom, despite clear legal prohibitions against such expenditures and the 5

lack of public knowledge or authorization for doing so. Since my election, I have 6

focused substantial amounts of my time and that of my senior staff and outside counsel to 7

create a path forward to resolve the legal, fiscal and regulatory problems faced by 8

Burlington Telecom. I have required Burlington Telecom to demonstrate that its 9

operations are focused on delivering excellent public service within a responsible and 10

sound financial structure. I have also required that the dealings of BT be as publicly open 11

as they can be in the competitive and legal environment in which we find ourselves. 12

13

Q4. Did the City consider direct expenditures by the City as an alternative to the proposed 14

sale/leaseback bridge financing to make the contemplated $6 million payment to 15

Citibank? 16

A4. We did, but for numerous, compelling reasons, we rejected that approach. The City has 17

no funds other than taxpayer dollars that would be available to make the $6 million 18

payment to Citibank. However, state law, the City’s charter, and prior orders by this 19

Board have restricted the City from directly expending taxpayer dollars on Burlington 20

Telecom. 21

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In March, for the first time in ten years, the City had to ask City taxpayers to increase the 1

property tax rate by 4.93% just to meet operating expenses; this included a 2.9% increase 2

which voters approved in March. While the tax increase was approved, the school 3

budget, which represented an approximately 10% increase, was not. If the legal 4

impediments had not existed and the City had asked the voters to add $6 million to the 5

budget, for a tax increase of more than 20%, I have no doubt that request would have 6

been defeated. Adding an additional $6 million to the City budget would have meant an 7

additional 17 cents or a 20% increase in the tax rate. To fund an additional $6 million 8

payment, the City would have to incur debt. 9

10

Q5. Could the City incur debt or recourse financing as an alternative to the proposed 11

sale/leaseback financing to make the contemplated $6 million payment to Citibank? 12

A5. No. First, debt or recourse financing would require the pledge of taxpayer assets. 13

Section 62 of the City Charter prohibits the City Council, or any officer of the City, from 14

making a pledge of any of the assets of the City, except for certain annual bond issuances 15

that are already assigned to the City budget and except for an emergency, unless that 16

pledge is approved by two-thirds of the voters. The legal limitations that required the 17

City to use the municipal lease financing arrangement with Citibank in the first place still 18

govern this transaction. 19

20

Even were we legally allowed to use taxpayer funds this way, I would question the 21

prudence of asking the taxpayers to bear the risk of losing that additional $6 million on 22


May 29, 2014 Page 4 of 8

top of the $16.9 million already spent—particularly when a private individual (Raymond 1

C. Pecor, III), backed by a bank (Merchants Bank), is willing to take that risk. While it is 2

possible that such borrowing would save the City’s having to share the profits of any 3

eventual sale with the private lender, it is also quite possible that recourse borrowing 4

could result in substantial new taxpayer losses. The telecommunications industry is 5

highly competitive, capital-intensive, and innovative and BT’s positive cash flow (before 6

debt service payments) since 2010 is by no means a guarantee of continued business 7

success in the years ahead. In my first speech to Burlington voters, I pledged that on my 8

watch the City would not speculate with taxpayer dollars. From my perspective – and I 9

expect the perspective of a large majority of Burlington residents – taking on new BT 10

recourse financing would constitute a significant speculative risk. 11

12

Furthermore, it is worth underscoring the risks associated with BT, particularly as they 13

relate to further investment by the taxpayers. Telecom, internet, and video present 14

unusual dynamics where business practices are constantly subjected to disruptive forces 15

both from changes in technology, market demands, and mergers and acquisitions. 16

Exposing further taxpayer funds to speculation in this marketplace is simply not prudent. 17

Moreover, a basic condition of the Citibank settlement is the sharing of future proceeds, 18

if any, from a sale of the enterprise. Consequently, if Burlington had the ability and voter 19

resolve to fund the settlement, half of the excess proceeds would be split with Citibank. 20

Under the Pecor Bridge Lease Financing, each $1.00 of excess proceeds from a sale over 21

the next three years provides Burlington with a realization (or recovery) of $.25 while 22


May 29, 2014 Page 5 of 8

returning $.50 to Pecor. If Burlington funded the settlement, it would eliminate the Pecor 1

portion ($.50), but only realize half of that amount because of sharing with Citibank. In 2

short, Burlington would be asking its taxpayers to take a significant risk with the 3

opportunity to realize only half of the return set by experienced special situation investors 4

submitting competing bids, and at a 20% increase in the tax rate (or substantial new 5

recourse borrowing). Instead, under the current proposal, Burlington gets its $.25 without 6

any future taxpayer exposure. Risking an additional $6 million to recover another $.25 is 7

not a wise use of municipal funds. 8

9

Q6. What do you see as the long-term future of BT? 10

A6. In my campaign and since that time, I have supported the recommendation of the Blue 11

Ribbon Commission that the best way to ensure that Burlington Telecom ratepayers 12

continue to receive the valuable services BT provides, and to provide the best possibility 13

for some recovery to the taxpayers and Citibank, was to pursue the involvement of a 14

private partner or investor. I see the current proposed arrangement as the best route 15

forward for a number of reasons: (1) the future of the continued viability of BT depends 16

on an infusion of new capital, and for the reasons stated above, that capital cannot come 17

from Burlington taxpayers; (2) after two years of work we have not found any other path 18

forward that will allow the City to meet the terms of the Mediated Settlement Agreement 19

with CitiBank and meet the requirements of our Charter, state law, and our CPG; (3) the 20

prior administration’s expenditure of $17 million on BT without public awareness and 21

despite various prohibitions of such expenditures makes further Burlington taxpayer 22


May 29, 2014 Page 6 of 8

spending on BT a non-starter with many city residents; and (4) I believe there are 1

inherent challenges that prevent a local government department from operating a 2

telecommunications system like BT successfully over the long term, given the dynamic, 3

capital intensive, and competitive environment in which a telecommunications entity 4

operates. My goal, therefore, has been to find a private purchaser or investor willing and 5

able to take over the operations of BT. My hope was that that sale or investment, 6

combined with some future municipal interest in the entity, would provide sufficient 7

funds for us to resolve the dispute with Citibank and recover the taxpayers’ investment, at 8

least in part. 9

10

Unfortunately, our experience has found that the Citibank lawsuit was a major 11

impediment, and no private purchaser or investor was willing to invest in BT with that 12

lawsuit pending. The outstanding Public Service Board violations also created regulatory 13

uncertainty that has been an obstacle to securing a new long-term purchaser or investor. 14

The pending settlement, if consummated, will allow us to re-approach potential partners 15

and investors without the overhang of litigation and regulatory uncertainty. 16

17

Q7. Is the current proposal the only viable option to maximize the future recovery for the 18

City’s taxpayers, minimize the losses they will otherwise bear as a result of the City’s 19

past conduct, and completely resolve the $33.5 million litigation with Citibank? 20

A7. Yes, with the exception of a materially similar proposal from a competing special 21

situation investor, the current proposal is the only viable solution we have found after two 22


May 29, 2014 Page 7 of 8

years of focused work and negotiations on this issue. As explained in Mr. Dorman’s 1

testimony, the only viable alternative to the Pecor financing that ever surfaced in over the 2

four years of exploration was the Rosemawr term sheet (commitment letter) attached as 3

Exhibit Petitioner Supp. TD-2 (5/29/14) to Mr. Dorman’s testimony. The terms of the 4

current proposal, however, are clearly more favorable to the City and its taxpayers by 5

offering a lower interest rate, lower initial fee, lower monthly payments, lower debt 6

service, and by allowing the City to share 50% of the sale proceeds for 36 months instead 7

of 30 months. 8

9

It should be noted that decisions to 1) agree to the bridge financing solution, and 2) select 10

the Pecor/Merchants proposal over the Rosemawr proposal were shared with the City 11

Council which unanimously voted to accept the terms of the proposed Pecor Bridge 12

Lease Financing in March 2014. 13

14

The long-stated goals of my administration for BT include protecting taxpayers from any 15

further BT-related losses; maintaining and preserving BT’s service to its ratepayers; 16

restoring the City’s credit rating; and securing the opportunity to recover a portion of the 17

$16.9 million spent by the City on BT prior to 2010. The Mediated Settlement 18

Agreement and the current Pecor Bridge Lease Financing are major steps towards 19

achieving each of those goals. Furthermore each of these steps ensures that the taxpayers 20

are not at risk for bearing any future losses from BT in either the form of continued 21

litigation or from a direct expenditure of City funds or a recourse loan. As such, I view 22


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the current proposal as critical to resolving the problems of BT for the City and its 1

taxpayers. 2

Documents

Testimony - Mayor Weinberger