High Stakes Gambling

by Art Woolf

It doesn't just happen on Wall Street.

I argued a few weeks ago that Burlington could either cut its losses or double down on its high stakes gamble on Burlington Telecom.  It looks like Mayor Kiss has decided on the latter, despite two independent consultants and a blue ribbon commission who concluded that

BT has no reasonable prospect of repaying its current debt of $51 million from its revenues and is in no position to borrow additional money

The mayor doesn't believe it and instead believes

 it could be possible to refinance BT with additional debt and “give it two or three years either to expand our (subscriber) base (or create) other elements that let us pay our bills in that time."

And who are the creditors that would lend BT the money? 

In case he hasn't been reading the papers lately, lenders have kind of, well, tightened up their lending standards and aren't very willing to lend money to an organization that, in the words of the Burlington Free Press, is "essentially bankrupt." 

To be fair, Mayor Kiss says that the consultants' report deserves to be scrutinized, saying

It’s healthy for us to be skeptical

Indeed.  But where was that healthy skepticism when the original plans for BT were developed by the city?

The mayor further says

Whatever we do, we have to be sure it’s doable

No comment. 

The mayor said he is happy the committee and the consultants affirmed that the network itself is of high technological quality.

Very true.  I'm sure that the U.S. government is proud of the fact that the International Space Station is of high technological quality.  The fact that it is a waste of resources and contributes little to our base of scientific knowledge and diverts resources away from more promising areas of space research shouldn't concern us.  

And there's always that pesky problem that no one knows 

how BT under any scenario would repay the money it owes: $17 million in city funds that were used to support BT’s operation in 2008 and 2009 in violation of BT’s state license, and $33.5 million owed on a commercial loan from CitiCapital (now Citi Leasing).

How about collecting $1,250 from each of Burlington's 40,000 residents to make good on the bad decision the city government made?

Comments

[David Grossnickle]

The sad thing is about BT is that getting more customers does not help.

Right now they are loosing about $25 to $30 dollars per customer a month. The more customers they get the faster they loose money.

One of the things that nobody is talking about is the lawsuits the city will have when we default on the loan. The Vermont state credit rating is at risk because of BT. The whole state could be facing higher financing rates because of BT.

If I was on a city council in another city in Vermont and saw my city's general obligation bond rates rise because of BT, I would file a suit against BT and Burlington. I'd throw in Kiss and Leopold for good measure.

[Vermont Woodchuck]

I'm surprised Mayor Kiss has not offered "Burlington Bucks" to be traded around the city to cover the debt.

That way, BT stays solvent until Bernie can bring some more OPM from KC, SF or Indy to "adjust" the books.

Isn't that Progressive bookkeeping methodology?

[Chris Campion]

The time to evaluate whether or not something is "do-able" is *before you do it*, not after. I don't jump off a cliff and halfway down open up Excel on my laptop to figure out the probability of my survival (Hint - P is really low here). But that's how Burlington works - something politically-motivated gets greenlighted, and before its all over the taxpayers are paying for the irresponsibility of those people they elected. Again.

Basically, Burlington is going to saddle taxpayers with its mistakes and prop up a politically-created entity that never should have come into existence in the first place. A market already existed for these services the city seemed to trip over itself to provide, and the city took millions out of its coffers to cover shortfalls in the short run because the business was failing. How can any of that be considered responsible governing and oversight?

[DCH1950]

Ah, the Progressive agenda. Hang on to it Mayor Kiss, never say die, be true to the socialist spirt at everyone's expense.

[David Usher]

If BT is viable with a private partner (doubtful!), the value of the technological marvel has tumbled to, oh... probably close to $17 million. Oops, still have to pay off that pesky financing arrangement with Citi!

Will ARRA funds be applied to save BT jobs?

[Paul]

My guess is the bankruptcy court will force a sale of the business and it will bring $8M-$10M.

[Wendy Wilton]

The real lesson here is about accountability in government, including the appropriate checks and balances. Unlike the state treasurer, the treasurer for the City of Burlington is not elected by the people of Burlington, but is an appointee of the mayor. As a result Leopold is beholden to the mayor. A lack of independence (and accountability) led to the lack of disclosure to the Council and the public in a timely manner. That does not excuse the poor decision to create BT, which happened under Clavelle and was continued by Kiss, but the financial debacle could have been addressed sooner.

[Vermonter for Liberty]

The mayor says, 'it could be possible to refinance BT with additional debt and “give it two or three years either to expand our (subscriber) base (or create) other elements that let us pay our bills in that time."

I'm looking forward to the BT debacle continuing for two or three years. In the same way some people like to watch a fly they've torn a wing off spin around on a plate. It'll be a constant reminder of why Progressives should be kept out of power and why it was a great idea to vote Bernie out of state.

I wonder what His Honor had in mind when he said 'create other elements that allow us to pay". Maybe stick the rest of the state with the bail-out?