Archive for Tuesday, October 22, 2013

Baldwin City Council approves resolution stating its intent to issue industrial revenue bonds

Baldwin City Hall

Baldwin City Hall

October 22, 2013

The Baldwin City Council approved a resolution on Monday stating its intent to issue up to $5 million in industrial revenue bonds to help bring gigabit fiber optic Internet to the city.

The action came at the request of Dawn Fiber LLC, a company that the owners of Reflective Group Inc. formed in June for the purposed of bringing gigabit Internet to Baldwin City, Lawrence and other communities.

Reflective Group CEO Mike Bosch told the council a gigabit fiber optic system could be serving city customers 90 days after the industrial revenue bonds were issued.

The resolution the council approved Monday was the first step in that process, City Administrator Chris Lowe said. The resolution didn’t obligate the council to issue the bonds. A final decision would be made after a required public hearing on the bond transaction, he said.

With Monday’s action, Dawn Fiber can start putting in place the details of the bonds, which would be shared at that future public hearing. With passage of the resolution, the company can reimburse itself for expenses it incurs in that process from future bond proceeds.

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

In response to questions from the council, Lowe said the amount and duration of the property tax abatement were dependent on where Dawn Fiber would build its office and other details to be put in place. That information would be made available to the council and the community at the public hearing, he said.

The bonding could be used for such things as bringing fiber optic cable to the city, establishing connectivity in the community and an office, Lowe said.

Dawn Fiber would be required to present a cost/benefit analysis justifying the abatement at the public hearing, Lowe said. State law also allows the council to require payment in lieu taxes should it approve the tax abatements.

Lowe said the abatements would only be on the city’s share of taxes owed and would not apply to the Baldwin school district or Douglas County.

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 only look to the assets created with the bonds or any third-party guarantors and not the city. As such, a default would not but the city at risk or affect its credit rating, Lowe said.

Comments

Nathaniel Johnson 1 year, 1 month ago

http://en.wikipedia.org/wiki/Industri... The public needs to see the companies balance sheet, revenue statements, and a business plan. We are talking about a $5 million dollar loan that can not even approach covering the cost of this venture. Gigabyte Internet generally runs around $1,000/month per household unless subsidized by an entity like Google.

Nathaniel Johnson gruyere.emmentaler@gmail.com

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Stacy Napier 1 year, 1 month ago

What happens when the company files Chapter 11 Bankruptcy?

We are left holding an expensive fiber optic cable that goes to nowhere.

5 million is about $3300 per household in the city. That's expensive internet.

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Nathaniel Johnson 1 year, 1 month ago

I have never been involved in local politics before except to occasionally comment on the Signal's page but this is worth my and your time. This is an wildly inappropriate venture for the city to be involved in. I am willing to take a little time to explain why I feel this way.

1) It's not for residential users: Extremely active users who stream netflix on multiple devices, play MMO and FPS games, and stream music utilize about 1-10 Mb or about 0.1-1.0% of what a Gigabyte line offers. Providers of these services, like netflix and amazon throttle your connection speeds so you can't use even all of the bandwidth you are paying for now.

2) Its not for business users. A business that runs its software on the web, say an online store or an accounting firm, deploys its software onto hardware platforms provided by companies that offer dedicated servers. This is called "cloud computing" and a company can rent a server like this for $20/month from companies like Rackspace, Amazon, Google, and Digital Ocean to name just a few. These companies offer not just cheap servers but are also: Responsive to bandwidth fluctuations: They are backed by hundreds of lines not one single line. Scalable - The server and bandwidth can grow with your needs. Redundant - Your software runs seamlessly from three or more different regions of the country or continents if you have an international business, meaning that if one goes down, the others step in without you having to do anything.

The final mile problem. Gigabit internet requires a fiber line go straight into your house. This is not the cable line or telephone line but a completely different technology that has not been built in Baldwin. Just like phone lines or electricity, every street would need this cable placed. Special optical routers would need to be placed to manage traffic. In short, an entirely new infrastructure.

This project would benefit one company and perhaps Baker, though I doubt that even Baker would benefit very much from this as they are already pretty well provisioned. I tried to research the company Dawn Fiber and only found a stub page. http://dawnfiber.net/ Clearly an LLC designed to protect Reflective Group.

I would ask that if you are as concerned about this as I am, that you contact me at my email listed below. Perhaps if we work together we can understand if there are some hidden details that make this plan reasonable and if not we can stop it before yet another bill is handed the people of Baldwin.

Nathaniel Johnson gruyere.emmentaler@gmail.com

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Stacy Napier 1 year, 1 month ago

You are spot on and a little research about Mike Bosch and his company you realize why he wants this. I quote from his blog.

'Within 12 months, we outgrew the office and the local internet infrastructure. We found ourselves asking the same question, “Wouldn’t it be better for us to move the business?” At the time, we were thinking of Kansas City because of Google fiber. That way, we could still live in a small town. But I thought “Isn’t that why we started this business in the first place? to work as geeks in the town we love?” So we’re building Dawn Fiber, an internet service company building the most advanced internet infrastructure right here in Baldwin City, Kansas'

You can find the whole thing at http://reflectivegroup.com/team/mike-bosch-small-town-story/

This is all about his company and what they need to get bigger. He also mentions several failed ventures.

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Nathaniel Johnson 1 year, 1 month ago

I attended the city council meeting last night and also spent some time reviewing Industrial Revenue Bonds. There was insufficient information available both to the council and to the public to make any kind of assessment about whether Dawn Fiber is a viable business. What I did learn is that IRBs do not obligate the city and taxpayers to anything. The costs of issuance, repayment, and default risk are all take on by the investor that buys the bonds. This means that the venture can fail with no real impact on the city.

I am still unsure of whether this is a good idea for the city. Something seems fishy but I think that the city council is capable of deciding whether it is a good idea or not. I remain thankful for representative government as this material is deadly dull.

Nathaniel Johnson gruyere.emmentaler@gmail.com

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