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Carolina Journal News Reports

Spencer Balks at Subsidizing Salisbury’s City-Owned Broadband

Town officials say water-sewer fund should not be tapped to prop up network

Mar. 21st, 2012
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GREENSBORO — A controversy is brewing in Rowan County between the City of Salisbury and the Town of Spencer over funding for Salisbury’s municipal broadband system.

At issue is Salisbury’s use of funds from the city’s water-sewer capital reserve fund to support Fibrant, the municipal broadband system that went online in late 2010, financed with $33 million in debt.

Fibrant has been reliant on “interfund loans” to shore up its operations until it becomes self-sustaining, which officials hope will occur by 2014.

Over the past two years, Fibrant has borrowed almost $5 million from the city’s water and sewer capital fund at a 1 percent interest rate, according the Salisbury Post.

Such loans have sparked concern among public officials in Spencer. Salisbury took over Spencer’s water system in 2000 when compliance issues became cost-prohibitive.

Spencer officials are concerned that fund transfers to Fibrant violate the water-sewer agreement between the two municipalities.

Town Alderman Jeff Morris points to Paragraph 9 of the contract, which states, “[a]ll revenues of [Spencer Utility Department] shall be used exclusively by the water and sewer fund and shall not be used to subsidize any other operations.”

“If you’re using water and sewer money as your own little slush fund, and you continue depleting it, you’re going to have to increase your reserves, and the way you do that is raise rates,” Morris told Carolina Journal.

Such concerns have prompted Spencer to seek legal counsel. Aldermen voted in February to send out a request for qualifications for attorneys to handle the matter, and the proposals will be reviewed later this month.

Salisbury has sought legal advice from Randy Tinsley, a Greensboro attorney who handles utility issues for the city.

In an email to City Council members, Salisbury City Manager Doug Paris said Tinsley “has reviewed our agreement with Spencer and has shared that the agreement is not breached by the loan to the broadband utility during its start up phase.”

CJ was unable to learn what legal precedent Tinsley relied upon. He did not reply to repeated requests for comment.

Paris’ email to the City Council also took note of an effort to put a nonbinding referendum on the ballot that in effect would allow voters to determine whether or not Fibrant would be allowed to expand into Spencer.

Paris did not return phone calls, but in emails to CJ he repeated the view that without the water-sewer agreement, Spencer residents would be paying much higher water rates.

“The consolidation was a huge win for Spencer residents who saw immediate rate relief of 19 percent, and further rate relief in not having to invest in $3.6M in wastewater plant improvements,” Paris wrote. “If the agreement had not taken place our estimate would have had Spencer at between 30-40 percent higher rates than Salisbury. It is important to understand and communicate the history.”

Morris said he approved of the agreement with Salisbury, which was reached before he was elected as alderman. He’s just concerned that Salisbury is not living up to the terms of the agreement.

“It was not a mistake. It was a win-win,” Morris said. “All we need for them to do is abide by the contract.”

A 2009 John Locke Foundation research report on Fibrant concluded that “[b]y investing millions of dollars in this telecommunications project, Salisbury officials are irresponsibly risking taxpayer money,” adding “the city should be managing its essential services before taking on such risky and expensive ventures with taxpayer money.”

The report also concluded that Salisbury would need subscription fees from 28 percent of city residents to fully cover Fibrant’s costs, stating there is reason to believe that the city “has been overly optimistic” about reaching that market share.

Information provided by the city says that as of March 5, Fibrant was providing service to 1,702 customers, a 15 percent market share after one complete year of operation.

That said, the 28 percent market share by the end of the fourth year of operation “is still our target,” said Elaney Hasselman, Salisbury’s public information officer.

Interfund loans were also an issue in Wilson, which operates its Greenlight municipal broadband system. The system, launched citywide in 2009, was funded with $28 million in debt.

In his 2010-11 budget summary, City Manager Grant Goings reported a “fund balance appropriation of approximately $1,125,000 is expected for the Broadband Fund by year end,” adding “we anticipate support will be needed through FY ’11, or until our market penetration reaches 35 percent.”

Goings noted, “support is primarily in the form of interfund loans used for subscriber capital, the construction and equipment costs to add new customers.”

However, in his 2011-12 budget report, Goings wrote he was “pleased to share” that Greenlight “is projected for revenues to exceed expenditures, on schedule, for FY’12,” adding, "debt service and capital purchases relayed to connectivity is planned to be funded on a pay-as-you-go basis through its operations for future system expansions.”

JLF also issued a report on Greenlight in January 2009.

“By investing millions of dollars in this communications project, Wilson officials are irresponsibly risking taxpayer money. The city should have stuck to managing its essential services, but since it is fully invested in Greenlight, all Wilson residents can do now is hope it will be able to avoid the downfalls of other city fiber-optic system so they don’t end up facing higher tax burdens,” the report concludes.

Sam A. Hieb is a contributor to Carolina Journal.