Archive for Thursday, December 5, 2013

Dawn Fiber presents cost-benefit analysis for bond proposal

December 5, 2013

The Baldwin City Council agreed Monday to end a public hearing on Dawn Fiber’s request for industrial revenue bonds without yet learning all the details of the company’s proposal to bring gigabit Internet to the community.

In October, the council unanimously approved a resolution stating its intent to issue up to $5 million in industrial revenue bonds to the Baldwin City company so that it could bring fiber optic cable capable of transmitting gigabit Internet to the city and installing a distribution network in the community. Its October vote didn’t commit the council to approving the bonds, but it did necessitate that the council have a public hearing on the proposal. The public hearing required Dawn Fiber to provide a cost-benefit analysis justifying a property tax abatement on assets the company finances with the bonds and sales tax abatements on construction materials used in the project’s construction.

A public hearing on the bonds was opened at the council’s Nov. 4 meeting and continued to its Nov. 18 meeting, when it again was recessed until Monday.

As had been the case at the earlier two meetings, details of what the city would be abating were not available, City Administrator Chris Lowe said. The city, Dawn Fiber, the company’s bond counsel and its bank were all still working out details of the complicated proposal, he said.

Nonetheless, Lowe recommended the council end the public hearing with the presentation of a cost-benefit analysis by Dawn Fiber. That analysis the Center for Economic Development and Business Research at Wichita State University completed for Dawn Fiber fulfilled the company’s statutory requirement regarding the public hearing, he said.

The details of the proposal of just what Dawn Fiber would construct with the industrial revenue bond proceeds would be presented at a future meeting at which the public would be allowed to make comment, Lowe said. The council would make its final decision on the bonds after that information was revealed, he said.

Mike Bosch, one of Dawn Fiber’s three founders, said with the final details of the proposal still unknown, the cost-benefit analysis presented a “worst-case” scenario with job creation forecast low and city benefits modest.

According to the study, the city’s benefit from the project during the 10-year, 100 percent abatements would be $65,144, while its costs would be $63,259. The county and state would do better with the county realizing a net benefit of $19,269 and the state earning a net benefit of $825,901. Baldwin USD 348 would break even with the cost and benefit estimated at $31,809.

In October, Lowe told the council the district would not participate in the property tax abatement. He said Monday he had been wrong.

“It was totally my mistake,” he said. “We’re abating their taxes, too, but they don’t have any right to do anything about it.”

The study finds the company itself would add 10 new jobs in the city, all in the first four years of the 10-year abatements. That was a conservative estimate, and he and others with the company thought it would create more, Bosch said.

The study further finds the 10-year payroll for those 10 jobs would be $4.39 million. The proposal would create another 43 jobs in its construction phase with a payroll of $1.95 million, the study states.

Dawn Fiber’s economic activity would create another 28 indirect jobs in the community, the study finds, with an additional payroll of $5.9 million, and construction activity would add another 43 indirect jobs in the community with a payroll of $1.5 million.

The cost-benefit analysis assumes the company would spend $150,000 of bond proceeds for land on which to build headquarters, $750,000 for the headquarters and $4.1 million on the fiber network. Bosch said company officials were close to closing on three acres of land for the headquarters. The building itself wouldn’t be worth $750,000 when it first opened but expand to that value as the company grew, Bosch said.

Industrial revenue bonds are an economic development tool that allows private developers to enjoy the lower interest rates of government entities. The city would own the assets financed through the bonding while the debt was retired. That ownership provides the basis for property tax abatements and sales tax abatements on construction materials used for the project.

State law forbids the city from levying any tax to pay for the bond’s principal or debt service. Additionally, in the case of default, bondholders can look only to the assets created with the bonds or any third-party guarantors and not the city. As such, a default would not put the city at risk or affect its credit rating.

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