Debt ratio surprises City Council, in a good way
By Emily Ford
SALISBURY — City Council members were pleasantly surprised by their first quarterly financial report, which they said shows Salisbury is in good fiscal shape.
“Our city is sound,” Councilman William “Pete” Kennedy said. “The sky is not falling, as some people might want to say, because we started Fibrant.”
Incumbents can use the information presented Tuesday to defend their decision to launch the fiber-optic broadband utility, Kennedy said.
Fibrant, which competes with private providers to sell Internet, cable TV and phone services, has drawn criticism because the city sold $33.56 million in bonds in 2008 to build the network. Since then, Fibrant has had to borrow from other city funds for operating revenue.
Even with Fibrant’s debt, the city has reached only 20 percent of its legal debt limit, Assistant City Manager John Sofley said.
The city’s debt limit is $233 million. The current total net debt applicable to that limit is $47.5 million, leaving a legal debt margin of $186 million.
Councilman Paul Woodson said he expected the city’s debt percentage to be higher.
“This should make us all feel a little better,” he said.
In the past decade, the city’s debt peaked at 22 percent in 2009, reflecting the bond sale.
In 2001, the debt reached 19 percent. It fluctuated between 11 percent and 12 percent between 2004 and 2007, and fell to its lowest point — 8 percent — in 2008.
The city generated net income of $6.1 million in the first quarter of 2011-12, Sofley said. He presented revenues and expenditures for the city’s four major funds — general fund, Salisbury-Rowan Utilities, Salisbury Transit and Fibrant.
“We are doing very well as a city overall,” he said.
While the general fund and Salisbury-Rowan Utilities had a combined net revenue of $6.6 million, Salisbury Transit had a net loss of $83,027 and Fibrant lost $422,813.
Fibrant had to make a debt service payment — $868,297 — in the first quarter, accounting in part for the large loss, Sofley said. The utility is scheduled to pay $1.7 million toward debt service this year.
Fibrant, which has 1,380 subscribers, generated $463,521 in revenue from subscriptions in the first quarter, or 11 percent of the $4.1 million budgeted for subscriptions in this fiscal year. The utility used a $1.2 million loan from the water-sewer reserve fund to cover operating expenses during the first quarter.
Fibrant, which launched in December 2010, needs 4,500 subscribers by 2014 to be successful. That’s about a 25 percent market share.
Councilman Brian Miller warned that people can take the numbers in Tuesday’s report out of context.
“We need to educate people about what these reports mean,” he said.
Fibrant’s loss must be seen in the context of a large debt service payment, he said.
Likewise, $2.3 million in revenue for Salisbury-Rowan Utilities in the first quarter was due in part to the hot, dry summer. The general fund’s $4.3 million revenue reflects early property tax payments.
“There are different usage patterns at different times of the year,” Miller said. “It doesn’t mean we’re overcharging.”
City Council needs to do a better job educating the community about how the city works and “where these numbers come from,” he said.
The transit fund lost money because the city is waiting for state reimbursements, which will come later in the year, Sofley said.
“This is exactly the level (of information) I was looking for,” said Mayor Pro Tem Maggie Blackwell, who requested the financial reports and Fibrant numbers from city staff last spring.
Blackwell and Miller suggested putting the information in graphs and charts as well, for ease of understanding. Miller also asked staff to post the information on the city’s website.
Contact reporter Emily Ford at 704-797-4264.
City Council members were given financial information about the city-owned Internet, phone and cable-TV provider:
Since December 2010:
• 1,380 total subscribers
• 1,057 video
• 830 phone
• 1,150 Internet
First quarter 2011-2012:
• $463,521 revenue from subscriptions
• $1.2 million borrowed from water-sewer reserve fund
• $1.2 million operating cost
• $868,297 to pay down debt
Total: $422,813 net loss