MONTPELIER, Vt. – Burlington officials are staunchly defending a settlement deal to resolve the Burlington Telecom saga. The deal has to get approval from the Vermont Public Service Board whose members are posing strong questions about whether it is the best resolution for Burlington’s taxpayers.
Tuesday the board held all day technical hearings about the settlement agreement. Public Service Board attorney Lars Bang-Jensen asked dozens of questions but one statement summed up the answer he’s trying to get at.
“There’s an explicit obligation, responsibility on the board that taxpayers don’t, in no event, bear any losses from the $16.9 million investment,” Bang-Jensen said.
Burlington taxpayers lost $16.9 million when the Kiss administration invested the money into Burlington Telecom. The money was lent from Citibank, which in turn sued Burlington.
In February Burlington and Citibank reached an agreement to settle. Citibank would get a little north of $9 million. Private investors Trey Pecor, President of Lake Champlain Transportation Company, and Merchants Bank would provide the city with $6 million to pay for the settlement.
In return Pecor gets a split of the profits when/if Burlington Telecom is sold to a third party. Here’s how it works…
Sold in less than 36 months – 50% to Pecor
37-48 months – 65% to Pecor
49-60 months – 75% to Pecor
60 months – 90% to Pecor
Whatever percentage Burlington is left with is then split down the middle with Citibank.
Burlington officials have not gotten an independent appraisal for Burlington Telecom and while they have a value for the business in mind they would not share that number in front of the Public Service Board.
For example if Burlington Telecom is sold for $10 million in less than 36 months this is how the money breaks down…
Pecor- $5 million
Burlington- $2.5 million
Citibank- $2.5 million
That does not include a $5.5 million lease on Burlington Telecom the city would likely have to pay off before any sale. The city also has to pay Citibank $1.3 million from revenues and $500,000 from its insurance carrier.
Fair for Taxpayers?
It’s this formula that leaves the Public Service Board wondering whether Burlington’s taxpayers are ever going to see their $16.9 million again.
The line of questioning from Lars Bang-Jensen and others suggests the board is wondering why the city didn’t seek a revenue bond instead of a private financer.
CAO Bob Rusten and Terry Dorman, founder of Dorman & Fawcett and a consultant for the city, told board members that finding a company to finance a deal involving the troubled Burlington Telecom isn’t easy.
“There wasn’t a revenue bond for us, for BT,” Dorman said.
Dorman and Rusten explained that since BT is a ‘distressed asset’ most investors want to steer clear from it.
They also said that there might not have been enough time to find a lender before the city was supposed to go to trial with Citibank.
“Would Citibank have been willing to wait until we could find out if in fact we would have those funds?” Rusten said.
Board members kept pressing on the idea of a revenue bond, which would also require two-thirds approval from Burlington voters.
The city’s legal counsel Kimberly Hayden from Downs, Rachlin & Martin tried putting the question to rest by asking Forman what would happen to the settlement if Burlington all of a sudden opted for a bond.
“I just think it voids the settlement,” Forman responded.
The Vermont Public Service Board did not make a decision at the meeting and no date is scheduled for when one should be expected.
They still have major questions to be answered. Member John Burke wondered whether if Pecor and his group called Blue Water, have the best interest of the city in mind.
No future meeting has been scheduled yet.