By Mark Wineka
mwineka@salisburypost.com
The city of Salisbury will seek to issue up to $36.5 million in debt for the startup of its fiber-optic cable utility and several other capital projects.
Before approving a financing resolution Tuesday, Salisbury City Council members took considerable time to defend their pursuit of establishing a $30 million-plus cable utility, especially in a struggling economy.
City officials continue to say their business model will work and the cable utility will make a profit within four years of its rollout if it reaches a market penetration of 28 percent or more.
If the project were a total flop, they added, it would cost upwards of 9.5 cents per $100 of assessed value on the city’s property tax rate. But they expressed confidence the utility will become self-supporting, make a profit and pay off the debt spread over multiple years.
“Our stockholders are you,” City Councilman Mark Lewis told Tuesday’s audience.
Lewis predicted Salisbury’s cable system will offer a better product at a lower cost, and the utility will have the advantage of “local determination” in which decisions are made for the community not the shareholders of companies such as Time Warner Cable and AT&T.
“I tell you, people are hungry for this,” Lewis said.
The council heard from several supporters of the project, many of whom described it as necessary to give Salisbury residents and businesses a competitive advantage.
But one resident, Henry Buck, questioned why the city is getting into the cable business.
He asked whether Salisbury had enough committed customers. How did it plan to succeed with fiber-optic cable when competing private companies don’t see it as profitable? Will everyone in Salisbury face an additional charge on their water-sewer bill, even if they don’t take the cable service?
Will taxpayers be allowed to vote on the proposal? And what happens if wireless technology supercedes cable in years to come?
The proposed utility would put the city into the business of offering cable television, telephone and Internet services. With its fiber-optic cable, the “Fiber to the Home” project would provide customers with greater bandwidth, translating to much faster speeds and greater capacity for data.
If existing providers, such as Time Warner and AT&T would provide fiber-optic cable to all their customers, “we’d step aside,” Lewis said.
But those companies, with their infrastructure already in place, have no incentives to take fiber-optic cable to homes and won’t for many years in areas as small as Salisbury, city officials said.
When they do make upgrades, they added, the incumbent providers will focus first on large metropolitan areas with greater populations.
Mayor Pro Tem Paul Woodson said he was “a very conservative fellow,” who would not be in favor of the risk if he didn’t think it could lead to creating jobs.
Mayor Susan Kluttz said the city has not taken getting into the cable business lightly and has been working on the goal for more than two years. Providing fiber-optic cable to a community is a relatively new economic development tool, she said, but it’s a responsibility of local officials to look for ways to help make up for the loss of jobs.
Councilman William “Pete” Kennedy said many cities have been successful with this initiative. (Bristol, Va., was mentioned several times Tuesday.) The council members are putting their political future on the line if it doesn’t work, Kennedy said.
Councilman Bill Burgin said if he thought for one minute the council would have to raise taxes 9.5 cents per $100 valuation for the cable utility, he would oppose it. In fact, Burgin said, he would consider the project a failure if any tax dollars have to be committed toward it.
Burgin predicted that people will still watch television, use the Internet and talk on telephones, even in a recession. If the financing numbers continue to hold up, Burgin said, he was committed to seeing Fiber to the Home through.
The city’s technology services manager, Mike Crowell, said wireless technology addresses mobility needs, but it won’t be able to provide the bandwidth fiber-optic cable already does.
Despite a Salisbury delegation’s recent trip to New York, the city’s credit rating with Standard and Poor’s and Moody’s remained the same for outstanding general obligation (GO) bonds.
Standard and Poor’s gives Salisbury an “A+/stable” rating on GO bonds, and Moody’s reconfirms an A-1 rating. The city wants to use series 2008 certificates of participation (COPs) for the acquisition, installation and construction of the fiber-optic system and to fund various capital improvements in the current budget.
For those projects, Standard & Poor’s gave the city a bit lower long-term rating of “A/stable,” and Moody’s issued a lower but comparable “A-3” rating for COPs.
Overall, Standard & Poor’s opinion said Salisbury should be able to maintain a solid financial position. Its low debt burden and limited future needs “should allow it to support the telecommunications project until the enterprise becomes financially self-sufficient,” the credit rating agency added.
Management Services Director John Sofley said the current economic conditions could force the city to include a $3 million to $3.5 million debt service reserve, which investors are requiring as security.
Another option for the city would be to get an insurance policy. It is still waiting on a quote for bond insurance, which if granted could help reduce the interest rate on the bonds.
If insurance is not available, the city will have to include the debt service reserve as part of the financing package, which also projects $31 million for the cable utility and $2 million for capital projects.
The other capital projects include work on three city parking lots, replacement of the elevator in the old City Hall building, upgrades at fire stations, a new 800 trunking system antenna and more.
Sofley said the projected sale date of the certificates of participation (which would not require voter approval) is Nov. 20.
Credit markets seem to be loosening, Sofley said. Private, negotiated sales such as the one Salisbury would participate in are occurring, he said, and $1.7 billion to $1.8 billion was issued in municipal markets last week. Double that amount is expected this week, according to Sofley.
The best interest rate on certificates of participation is 6.5 percent now, Sofley said. While the rate is not as low as the city would like, the business model for paying off the debt still works, Sofley said.
Those speaking for the fiber-optic cable utility included Mike Miller of the Miller Davis agency; Paula Bohland, vice president of Downtown Salisbury Inc.’s board; James Meacham, executive director of the Rowan County Tourism Development Authority; and Robert Van Geons, executive director of the Salisbury-Rowan Economic Development Corp.
Salisbury attorney Dick Huffman and architect Karen Alexander also sent letters endorsing the project.