Salisbury incumbents pin hopes on success of Fibrant

Published 12:00 am Wednesday, October 19, 2011

By Emily Ford
Editor’s note: This is the second in a two-day series about the Salisbury City Council election.
SALISBURY — To understand why the city built a fiber-optic network, people have to remember the challenging time when those decisions were made, Mayor Susan Kluttz said.
Kluttz has pledged to make Fibrant her top priority if re-elected. Other incumbents up for re-election — Mayor Pro Tem Maggie Blackwell and councilmen William “Pete” Kennedy, Brian Miller and Paul Woodson — also say they support Fibrant and will work to make it successful.
Challengers are less enthusiastic.
Blake Jarman wants to sell the network. Rip Kersey and Ben Lynch say the city needs an independent board to oversee the utility. Dale Stephens opposed Fibrant until recently, when he toured the brains of the operation, called the headend.
Five years ago, when city staff and elected officials started discussing broadband, the manufacturing industry had left Salisbury, Kluttz said. With the unemployment rate climbing and a biotechnology campus breaking ground in Kannapolis, Salisbury leaders felt pressure, she said.
“People were looking at council and saying, ‘What are you going to do?’ ” Kluttz said.
The city begged private companies to install a fiber-to-the-home network in Salisbury, which leaders felt was critical for public safety, education and economic development, she said. They refused.
The city created Fibrant, which boasts the fastest Internet speeds in the state, as a way to lure companies to Salisbury and create jobs.
Just as the city borrowed $33.56 million to build the network, the Great Recession hit. Development in Salisbury slowed to a trickle, and the N.C. Research Campus stalled.
“The timing has been very unfortunate,” Kluttz said.
Issuing bonds to pay for Fibrant that didn’t require voter approval has caused a backlash. But Kluttz said leaders studied the issue for three years before acting and held many public meetings and hearings.
“We were very clear at the time,” she said. “We let the public know every step of the way that we never intended to fund this with taxpayer dollars.”
Kluttz said she will spend her next term correcting misinformation about Fibrant.
“As a council, we’re going to have to be clearer about exactly what we’ve been doing and why,” she said.
Fibrant is “part of who we are as a city now,” Kluttz said. “Anyone who wants to see Salisbury be successful must support Fibrant. It’s us.”
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Kersey said he considers Fibrant too high-risk for government. If the utility doesn’t generate enough revenue to pay off its debt, the city would raise property taxes.
But now that Fibrant is here, the City Council must make it successful, Kersey said. He said he would develop a plan to minimize Fibrant’s escalating risk and restore public confidence in the utility.
Fibrant has lacked transparency from the beginning, Kersey said. The city’s use of bonds that don’t require voter approval prevented most residents from fully understanding the project, he said.
“I’m sure they had good intentions and weren’t trying to pull the wool over people’s eyes, but they chose a nontransparent form of funding,” Kersey said. “For something of this magnitude, it should have been a referendum. Almost no one in Salisbury realized what was going on.”
To ensure transparency, the City Council should appoint a board made up of city residents to oversee Fibrant, Kersey said. The board should ask city benefactor Julian Robertson to provide analysts to assess Fibrant’s financial plan and technology, he said.
“In business, this is done all the time when you have a really large, make-or-break project,” Kersey said. “You bring in people with no skin in the game to give you a cold eye’s assessment of the current situation and the probability of success.”
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Kennedy said once the economy improves, Fibrant will create jobs by attracting companies that need its cutting-edge capabilities. Businesses will relocate to Salisbury to take advantage of the technology, he said.
“Technology is the key, and I just think we are in the forefront of other cities in the state of North Carolina to move this forward,” Kennedy said. “Google and others are always looking for places to relocate, and we are primed to attract those types of industry leaders in this area.”
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Since she wasn’t on the council when members voted for Fibrant, Blackwell said she can’t speak to the decision to build the fiber-optic network. But now that Fibrant is here, Blackwell said she supports it.
“I have scratched my head when people say they’ll never support it,” she said. “I don’t understand why failure might be an option.”
The city can’t unborrow the money, Blackwell said.
“At this point, it’s my obligation to do everything I can to help it succeed,” she said. “To allow it to fail would be a lost opportunity and a waste of money invested.”
Fibrant is one of the city’s best hopes for creating more and better jobs, she said. The process lacked transparency because Fibrant is something new and different, she said.
“Just like anything else new, you learn as you go,” she said. “Our staff are picking up on what we want.”
Blackwell and other council members requested more information on Fibrant from city staff, which was presented Tuesday as part of a quarterly financial report. Fibrant has 1,380 subscribers in 10 months and needs about 4,500 by 2014.
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Lynch said he wants to establish an independent board for Fibrant to guide marketing and business development.
“City staff does a magnificent job, but I feel they are outside of their expertise,” he said.
As part of his top priority to “right the Fibrant ship,” Lynch said the city needs to call on local experts in marketing, finance and technology to serve on his proposed advisory board, which may recommend turning Fibrant into a co-op or maintaining city ownership of fiber-optic lines but leasing the headend to a company.
The board should “serve as a check and balance, making the operation more open to the citizens of Salisbury, who are ultimately responsible for debt servicing of this entity,” he said.
Although Fibrant was pitched as an economic development engine, Lynch said he can’t find one business that moved to Salisbury because of Fibrant. He said he wanted Fibrant for his small business but gave up trying to get a quote after six phone calls.
The City Council waited months before asking for an updated business plan and Fibrant revenue and subscriber numbers, Lynch said.
“That’s very scary to me,” he said.
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Woodson said most cities in North Carolina with low tax rates have water, gas or electric utilities that bring in extra revenue. Now, Salisbury has Fibrant.
Once it becomes profitable, the utility will help lower the tax rate for all residents, he said.
“We entered into Fibrant to bring in extra business, to put us a cut above other communities,” Woodson said. “In five or 10 years, people will look back and say, ‘Oh my God, that was the best thing that ever happened in Salisbury.’ ”
Woodson said he doesn’t like Fibrant borrowing from other city funds but doesn’t want people to panic.
“The city still has a lot of revenue coming in,” he said.
Woodson and other council members were pleasantly surprised Tuesday by their first quarterly financial report, which showed the city has borrowed just 20 percent of its debt limit. Overall, the city generated net income of $6.1 million from July to September.
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Stephens said he was “dead set against” Fibrant until he toured the headend and met the employees.
“We are in a situation where we need to carry it through, now that it’s there,” he said. “If they sell it, they’re going to lose money on it.”
Eventually, Fibrant will pay for itself and benefit all city residents, Stephens said.
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Miller, who was not on the City Council when Fibrant passed, said successfully implementing the utility’s business plan is his top priority. The project initially lacked transparency because the city didn’t want to show its hand to private providers, he said.
Now that the network is up and running, the city must be more forthright about decisions regarding Fibrant, he said.
“With the ramp-up process and trying not to share information with incumbent providers, people have the impression that information wasn’t shared as it could have been,” Miller said. “But it’s time we can start doing that.”
Comparisons with the original business plan are misleading, he said. A banker, Miller said he’s never seen a project match its pro forma perfectly.
Additional costs and Fibrant’s delayed launch to upgrade software and technology were not unexpected, he said.
“You can’t come out of the gate and not be ready,” he said.
People concerned about Fibrant should subscribe to help ensure its success, Miller said. The city’s commitment to state-of-the-art technology and superior customer service will make Fibrant competitive, he said.
“If we serve them better than the incumbents, the market will take care of it,” Miller said.
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Jarman said Fibrant is bad for the local economy because the utility owes close to $70 million, including interest on the bonds and an additional $7.5 million to be borrowed from other city funds.
“This is not good for our economy, and this is such a disappointment in these long-term serving individuals,” Jarman said. “We need to solve it now before it becomes a bigger problem.”
The city should dissolve or sell Fibrant, he said, suggesting a two-year campaign to convince Verizon, Google or another company with interest in fiber-optic lines to buy Fibrant.
That would bring business, jobs and competition to Salisbury, he said.
Contact reporter Emily Ford at 704-797-4264.