Sobering news for Fibrant
Salisbury officials received a wake-up call this past week when Moody’s downgraded the city’s bond rating out of concerns for the debt and risk taken on by Fibrant, the city’s high-speed broadband utility.
It was sobering to hear some of Moody’s concerns. Here are a couple of the major ones:
• Fibrant has under-performed since its 2010 launch. It lost $4.1 million last year and has borrowed $7.6 million from the capital reserves of the city’s other enterprise, Salisbury-Rowan Utilities. Moody’s says Fibrant is not living up to city promises it would be self-supporting, and it will have a difficult time meeting subscriber and revenue projections.
• The city has no plan for paying back principal to the water and sewer reserve fund and fails to include repayment of the loans in the Fibrant budget. So far, the city has been paying back only the 1 percent interest on the internal loans.
In short, Moody’s concluded Fibrant is overleveraged.
Downgrading a city’s bond rating is not common because, as a Moody’s spokesman said, “By and large, municipalities are fairly stable enterprises. Not too many cities engage in this type of risk, which is getting financially involved in some sort of endeavor that is ... non-essential.”
Risk? Non-essential? Those should be troubling words for city officials, and one wonders whether Moody’s had these same concerns when it gave the city much higher bond ratings in the past.
So how should the city react? Get out of the high-speed fiber business now and absorb the losses? Sell Fibrant’s existing infrastructure and customer base to a utility such as Time Warner, AT&T or Duke Energy? Double or triple its efforts at gaining new subscribers and expanding the system?
Just when city officials probably thought they were past some of these old arguments and complaints about Fibrant, Moody’s downgrade brings them back again.
Taxpayers are understandably looking at the bottom line, and they’re no doubt putting Fibrant on the clock. If Fibrant doesn’t make enough money to pay its debt, Salisbury City Council would be obligated to raise property taxes to cover it.
But it would be a mistake to wave a white flag and underestimate the hunger for computer speed and memory that’s coming. With the technology and infrastructure in place, Fibrant still has the potential to attract a new population of investors, computer programmers and start-up businesses that would not otherwise even consider Rowan County.
A recent New York Times story about Chattanooga’s high-speed fiber network and others like it said it best: “The systems are the leading edge of a push for ever-faster Internet and telecommunications infrastructure in a country that badly lags much of the world in the speed and costs of Web connections.
“Telecommunications specialists say that if the United States does not keep its networks advancing with those in the rest of the world, innovation, business, education and a host of other pursuits could suffer.”
Giving up on Fibrant now would be the true downgrade.