Monticello stops broadband bond payments

The city of Monticello announced today that it would stop making payments toward $26 million worth of revenue bonds used to build its publicly owned fiber broadband network, called FiberNet. The project has a “debt service reserve fund,” a sort of rainy day fund that will pay bondholders into the near future, but clearly the project is in financial straits and could wind up in default.

The news comes just days after the project’s manager, Hiawatha Broadband Communications, announced it was pulling out. On Monday, the city council will consider its options, including seeking a new management arrangement and possibly trying to expand the project geographically to generate more revenue.

Monticello launched FiberNet in 2010 and has been fighting ever since with private Internet and cable providers, who vie for the same customers. In fact, the public fiber network is one of the most interesting and controversial local examples of a municipality getting into the broadband business. For some FiberNet is an inspiration, for others a cautionary tale.

FiberNet has survived a lengthy legal battle and a heated price war. But the network has suffered and is trying to figure out the way forward amid lower than expected subscription rates (Monticello residents, dissatisfied with private options, overwhelmingly supported building the network). MPR News’ Conrad Wilson is reporting on the situation today on All Things Considered.

When Hiawatha Broadband Communications announced last week it would step aside, it cited Monticello’s difficulty meeting its bond payment obligations as a factor.

Revenue bonds are supposed to be paid back with revenue from the funded project, making them higher risk than some other types of municipal bonds. Local taxpayers are not on the hook for paying them off. But Monticello up until now has been contributing money from liquor store sales.

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Monticello City Administrator Jeff O’Neill

In today’s note to bondholders, Monticello City Administrator Jeff O’Neill made it clear that the city is open to renegotiating the terms of the bonds. “The City has not precluded any option related to restructuring or refunding the Bonds and expects to work with you to develop options related to the debt that will allow the System to be successful, in combination with operational changes to accomplish the same goal.”

One financial expert I spoke with today said defaults on municipal revenue bonds are uncommon, making them good risks usually. It remains to be seen whether the troubles in Monticello will affect other efforts to build publicly-owned broadband systems in the state.

For more on this whole topic, check out our Ground Level broadband topic page.

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