The cost of doing business
So a lot of people have asked, and I’ve been wondering myself: How much did Alameda’s adventure in telecom cost the city?
How’s $60 million grab you?
I’ve been back and forth with Alameda Power & Telecom’s diligent and ever-patient spokesman, Matt McCabe, on this, and did a little research on my own, which I’ll reference and link below (and jeez, I thought those City Council meetings made for some late nights).
Here’s my math:
Interfund transfers: $43.6 million
McCabe says this amount includes the city’s initial $10 million investment in the system. The transfers are slated to just disappear off AP&T’s books (since there’s no longer a telecom division to pay it back).
Bond interest: $11 million
This includes the first and second bond series to build and complete the project and, I’m guessing, money paid to Vectren Communication Systems, the contractor originally hired to build and operate the system, which owned a separate bond issue on which it was apparently paid not a heck of a lot.
Here’s the calculation on this amount: I added bond payments listed in the utility’s Comprehensive Annual Financial Report for the 2007 fiscal year (page 77), which has all the data up to June 30, 2007, plus a little over $1.1 million for the fiscal year than ended June 30, 2008, plus about $238,000 for this one up to September 30 (which is the amount in the utility’s most recent operating statement; for these last two figures, I’m looking at page 18 in each document under “debt-related charges”).
Just to remind you, the city doesn’t pay back the balance of those bonds. It pays the bondholders with the $15.2 million in proceeds of the sale of the telecom system to Comcast – unless the courts hearing at least two court cases (and potentially more to come) over the bond payments decide we owe more.
Loan from city: $2.2 million
This is what the city lent AP&T to help the utility finish building the system, at the end of 2003. It’s not yet clear whether this loan is going to be paid back.
Post-sale costs: $2.6 million
These costs include $818,000 or so for the 5 percent of bondholders who didn’t consent to the sale to Comcast and who have to be paid in full.
Additional post-sale costs: Up to $2 million
This is set aside in an indemnity escrow account, which is a fancy way of saying it’s there in case Comcast encounters problems after they take over the system and decide they want some money back. Could use all of it, could use none of it. We’ll probably end up somewhere in between. And this is where the wiggle room is in my figure.
Of course, this number is based just on the costs that are known. What we don’t have yet are the costs of severance for a dozen employees, the litigation over the bonds and any settlement or judgment against the city, which could add thousands or millions onto that total, depending on how the litigation works out.
Nuveen Funds, which held or managed $20.5 million of the bonds, say they expect their loss to exceed $11 million; Vectren says it is due $9.1 million as of June 30.
Incidentally, the sale of our telecom system to Comcast closes today, at just under $1,000 per subscriber. According to documentation included in one of the two bondholder lawsuits against the city, the system was at one point valued at around twice that ($2,100 per subscriber, or $21 million, per a credit report issued by underwriter Stone & Youngberg in March 2004), and one then-councilperson said they thought a completed system could fetch $40 million.