LOVELAND — A new city-owned enterprise with a goal of supplying high speed broadband service across Loveland completed its most controversial step with the issuance of $95.5 million in non-voter approved debt financing.
Loveland City Councilman Don Overcash said it wasn’t an easy decision to come to, but one that he ultimately believes was the right thing to do to move Loveland in the right technological direction.
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 no vote on the final reading of the funding mechanism.
Overcash, who initially was against the broadband plan, said it took him more than two years to change his mind.
“I came to realize that the private market was not willing or able to meet the needs of the community in providing high speed internet access,” Overcash said about Loveland’s decision to create a new utility enterprise with the goal of offering residents up to 1 Gigabyte of internet speed — a speed already being offered by broadband providers Comcast and Century Link in most of Northern Colorado and across the state.
The timeline for availability is still unknown, one of many details city officials refuse to disclose, claiming a competitive need to keep it quiet. Overcash said full roll should be over the next three to four years and citing many reasons for the need.
He said the Thompson Valley School District doesn’t have consistent or reliable service in all their buildings or a reasonable price.
“It will be significantly less,” Overcash said. “But more importantly the service will be provided.”
Overcash said he needed several assurances from city staff before he was comfortable in bypassing voters to go deep in debt, as well as putting them at risk if the venture fails.
“We were assured that the risk to citizens was extremely minimal,” Overcash said. “I spent a lot of time, and not just council time, over the past two years coming to this point.”
A loophole in the Taxpayer’s Bill of Rights (TABOR) does not require a vote of the people on debt for so-called “Enterprise Funds.”
“It doesn’t mean we shouldn’t, but legally, we weren’t required,” Overcash said. “It was our obligation. We had put the most time into it. We took the emotion out of the decision.”
Overcash said whether the measure would fail if voters were given the choice, did not play a role in his decision.
Devil’s in the details
Longmont has been offering the service for two years and Fort Collins has also started the process. Many other cities across the state are looking at broadband utilities as well.
Much can be learned looking at how Loveland orchestrated its offering.
For instance, the cost to do business is much higher per rate payer than its predecessors for several reasons. Loveland’s finance director, Alan Krcmarik, said Loveland’s size and timing helped drive up the costs.
“Loveland has a larger service area (requiring more equipment to cover the area) and is the last city to enter the market (leading to higher average costs),” Krcmarik said.
The bonds are backed by Loveland’s electric utility, which serves 37,500 residential and commercial accounts. Should the broadband fail, Loveland’s electric customers will see a rise in their utility bill to pay back the bonds, regardless of if they were a broadband customer.
Krcmarik said the city received an A+ rating from Standard and Poor’s, below the AA and AA- received by Longmont and Fort Collins respectively, because Loveland does not have a long track record of borrowing money. The city decided against bond insurance, which would have increased their rating.
“Loveland did not use an insurance product because the financial analysis showed that the interest rate levels for the A+ rating was not improved by the insurance enough to cover the cost,” Krcmarik said. “The City of Loveland has not used debt financing very often in the last 20 years and did not have a current rating. The bond markets view Loveland as a new or intermittent issuer.”
Some believe many questions still surround the viability of the project. It is unclear if the investment, which on a per-resident basis is more than double the cost over Longmont and nearly one and a half times that of Fort Collins, will pay off in the long run.
A portion of the bonds are for 30 years, and the speed in which the industry upgrades could leave the community needing more investment to stay caught up in the ever-changing technology. Gov. Jared Polis’ desire to take Colorado to 100 percent renewable energy by 2030 could place the electric utility backing the bonds in a vulnerable position, and the broadband service won’t be offering video initially. That could deter customers from signing up because they would have to split their services between two different providers, and companies such as Comcast and Century Link generally offer discounts for bundled services.
Full details of the rollout has been less than transparent. Because Longmont and Fort Collins took their plan to the voters to approve, such things as per rate-payer risk estimates, initial cost estimates, and subscription estimates were made public early on in the process.
Although Krcmarik provided Complete Colorado with limited information, repeated attempts with follow up questions about risk, cost and other information, went unanswered.
When asked what the savings to the school district would be, Loveland officials called the information confidential.
“This has not been completely worked out yet … but the commitment is to provide service levels currently not being achieved and at the lowest cost possible-meaning below market rate.”
Loveland staff said throughout the process that they needed to bypass voters to get the best possible rates, with a savings of about $6 million. When questioned what those savings were, they responded that the bonds were issued and at lower rates than estimated at time of council approval.
They continue to state that it was moving so quickly that saved millions; however, they added: “It was predicted that rates were to rise this spring, but they actually dropped … We don’t know what the rates might be in the future.”
When asked what the average cost to a customer would be, that too was competitive information that could not be released.
Loveland, which is the smallest in population (76,000), issued more than twice the amount in bonds than Longmont (94,000), and about two-thirds the amount of Fort Collins (165,000).
Krcmarik said many reasons went into why Loveland’s cost was more than double that of Longmont, and just one-third short of Fort Collins, including geography, size of service area, customer mix, timing and cost of equipment, customer base population and population density.
The service territory for the Loveland enterprise will be approximately 74 square miles, Fort Collins is roughly 46.5 square miles and Longmont is about 49 square miles, Krcmarik said.
“Longmont Power and Communications has owned and operated their own communications utility since the 1990’s,” he added. “They had existing assets from a previous public-private partnership that they were able to commit to their project.”
Loveland officials will not supply an official risk figure for rate-payers, saying only they have made sure to mitigate most of the risk. Overcash, agreed, adding the 30-year term does not concern him because this step lays the groundwork for the future.
“It was the hardest issue to resolve,” Overcash said about the risk. We have an 11-step plan put in place, a solution that has to be followed before there is even the remote risk that citizens who did not subscribe to the service are not part of any debt occurred.”
Overcash added that no one can’t predict changes in technology other than they are very fast.
“The common denominator however is that fiber by its basic makeup is the backbone of the emerging technology,” Overcash said. “The fiber laid today is the foundation of the future of technology and needs taken care of regardless. You have to build the highway regardless of if the vehicles will change. I saw the investment in fiber is going to ensure that we can capitalize on technology to keep going forward.”
The numbers to make it work, are only estimates, Overcash said. Current needs for initial signups are 27 percent of businesses and 42 percent of residences. The numbers to break even are slightly different with 32 percent of residences needed. However, there is no concession for businesses, which will be charged a much higher rate than residences. The city will need nearly one-third of all businesses to sign on to break even.
Comcast currently offers internet-only service at 1 Gig speeds in Loveland for $70 per month to residences. Overcash believes the city getting into the mix will drive prices down.
However, in Longmont, with a higher population and half the cost in bonds, the cost to a resident for 1 gig service is $ $70 per month for new customers, the cost to a business for the same service is $1,100 per month.
In the end, Overcash said Loveland is building the highway of the future for its residents.
“If they want to drive on our highway they can pay a toll and they can offer their services on our highway. By making that available, people will have more choices in how they obtain their final product. It was the right thing for Loveland. Not just now but for the future. Where the market is shifting, I think it was worth the risk.”