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Loveland City Council takes on nearly $100 million debt for broadband without taxpayer vote

LOVELAND — Loveland City Council on Tuesday took the decision to bond $97 million for new infrastructure to support a broadband utility out of the hands of voters, voting 6-1 to move forward, putting  electricity rate-payers at possible risk for the debt repayment

In October, the council voted 5-4 to hold a special election asking voters to approve the bond measure, but subsequently withdrew the resolution on a 7-1 vote, with one member abstaining, after Loveland officials worried the cost of construction prices would rise in the time it took to get the approval.

Mayor Jacki Marsh was the lone no vote to rescind that decision, and she was the lone vote Tuesday on the final reading of the funding mechanism, two council members were absent.

Marsh said she supports the broadband proposal and believes it’s the right thing to do for the city, but she has a problem with not asking voters if they are willing to take on the risk.

Marsh cited several cities who have or are planning for city-managed broadband that took the decision for funding to the voters first or are using some other form of financing plan that does not run afoul of the spirit of the Taxpayer’s Bill of Rights (TABOR), which requires voter approval for new taxes or debt.

“My concern is still here,” she said. “There is a risk. We are banking everything that enough people will sign up to pay for this expense. I would feel far more comfortable if the voters had an opportunity to vote on this debt, which is what Longmont did, which is what Fort Collins did. And it is what Greeley plans to do.”

City-managed broadband has been a growing trend in Colorado since Longmont first brought it to its residents in the fourth quarter of 2014. It’s highly controversial because of the risk — in most cases — to electricity rate payers should the investment not pay off.

Longmont has already had to borrow more money because it went over budget, and it had most all the details worked out, including pricing points, before they took it to the voters.

LOVELAND SPECIFICS

Loveland hasn’t had to be as detailed as Longmont because it is skipping the public vote.

Brieana Reed-Harmel said most of those details are not worked out yet. Reed-Harmel has been with the city for seven years, first as an engineer and then managing the broadband initiative since 2016. She is now manager for the High-Speed Fiber division of the newly expanded water, electric and communications enterprise.

“We had some numbers in our feasibility study that were kind of early price points, but we have not set our actual price points,” she said. “That will require an additional market study.”

New customers to the NextLight service in Longmont pay $69.96 a month for the standard 1 Gigabyte Per Second (GBPS) speed. Customers who are referred by current customers get their 12th month free and drop to $59.95 after the first year. When it first launched, customers who signed on in the first three months were signed up at $49.95 per month. NextLight also offers a 25 Megabytes Per Second plan for $39.95 per month and a wireless router for 8.95 per month.

Reed-Harmel also couldn’t guarantee just how fast the fiber network would run for residential or commercial customers, although she said it would be similar to Longmont and capable of at least 1G service to residences, and definitely higher for businesses.

“It will be similar in a lot of ways, but we are a different community, so we have different requirements and different needs for our businesses and residents,” she said. “So, we’re going to make sure we take that into consideration when we look at different price points.”

Loveland buys most of its power from the Platte River Power Authority, so it’s unclear where residents would get their power if the broadband expansion failed and the electric utility went bankrupt guaranteeing the note. According to the 2017 fact sheet on the electric utility, revenue from the electricity rate payers was more than $35 million less than the note on the broadband at $61 million.

According to the city website there are about 36,500 rate payers in Loveland. All things being equal, that amounts to nearly $2,700 in added costs to each rate payer. Commercial business would likely have a higher responsibility.

“It’s one of those things we were never explicitly asked to calculate,” Reed-Harmel said about the amount electricity rate payers are at risk. “There were some numbers thrown around, but it’s not as straight forward as if nobody were to sign up of how much would that cost because it’s dependent on rates and whether or not you have some people sign up but just not enough to cover costs.”

Finally, although there is no exact time frame for launch, Reed-Harmel gave a lofty goal of having people turned on by later this year, despite admitting much of the ground work has yet to be finalized.

“We’re still working on our construction schedules and project schedules,” she said. “There is still a lot of work to be done before we can put a shovel in the ground.”

UNANSWERED QUESTIONS —

Many questions remain about the financing and who would be responsible for the debt if the service doesn’t pay its way.

In order to forgo a public vote, Loveland City Council expanded its water and power enterprise fund to include communications for the broadband service, Loveland City Attorney Moses Garcia said. By turning it into an enterprise fund, the city does not have to get voter permission to enter into debt, something Joshua Sharf, a fiscal policy analyst for the Denver-based Independence Institute* said he believes is an abuse of the enterprise fund purpose.

Sharf said the two utilities don’t belong together, adding Loveland could set up a separate enterprise for the broadband that would be self-funded, but then the electric utility couldn’t be used to back the bonds.

Complicating matters more are if the broadband were to go bankrupt, would be whether residents of Loveland that are serviced by Poudre Valley REA for electricity would bear a responsibility to bail it out.  Reed-Harmel did not return phone calls for follow up questions about how Loveland residents who are not on the Loveland electrical grid would fit into Internet service, or if they would be exempt from any city-subsidized plans to bail out the broadband effort if it needed to.

“Now you’re putting Poudre Valley customers on the hook, too, because they are taxpayers for whatever subsidy the city might use,” Sharf said.

Sharf said that at least Longmont and Fort Collins put it to a vote and asked voters to approve the revenue bonds and the funding mechanism, but in in this case rate payers are simply on the hook without a voice..

“My concern is that by setting this up as an enterprise, there is no protection for Loveland electrical rate payers,” Sharf said. “Their electric bill could be used to subside a government broadband that they were never given a chance to vote on.”

*Complete Colorado is a project of the Independence Institute.

Editor’s note: This is the first in a series of articles by reporter Sherrie Peif that will take a look at the trend for municipalities across the state to invest in the fast-changing broadband business, the complications that may follow with repayment, and the added costs of keeping up with technology.  Follow Complete Colorado as it follows Loveland, Fort Collins and Longmont though their process, as well as keeping an eye on other communities considering the same move and how they choose to fund it.

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