5. Discussion on funding option sfor Fiber to the Premise1
Neil Soltis
From:Jessica Green <jgreen@northlandsecurities.com>
Sent:Friday, January 11, 2019 10:46 AM
To:Neil Soltis; Chris Eng
Subject:Scandia - Financing options and issues
Neil and Chris –
In preparation for your meeting next week, here’s some information I hope is helpful to you as you work to
find potential options for improving internet availability in Scandia.
As I understand it, the City is considering financing infrastructure improvements and partnering with an
experienced provider to operate the system. Given the area to be served, the preliminary costs estimates are
quite large – this itself is one of the main issues. We have seen the use of tax abatement bonds used at the
County (Nobles and Swift) and Township (Fish Lake) level to finance broadband projects, but the overall size
of the project is problematic in Scandia as the City would likely be capped at spending between $5.5 - $6.0MM
to comply with the abatement authority limitations imposed by state law (abatement authority is tied to
market value and tax capacity).
We’ve also recently seen Sunrise Township utilize Subordinate Service District Bonds to borrow money to
finance their project, with the revenues for the debt payment coming from the fees assessed to property
owners as a result of the Subordinate Service District being established. While Subordinate Service Districts are
useful tools, they are only available to Townships and Counties, and must be petitioned by 50% or more of
property owners to be put in place. Since Scandia is a City, Subordinate Service Districts are not an option.
Cities do have the authority to establish Special Service Districts, via petition, but these are for commercial
property areas only. The City may be able to establish a Special Housing District for these types of
improvements, but I would recommend speaking at length with the City’s bond counsel to understand how/if
that would accomplish the City’s ultimate goal of building out a fiber system.
Another area of State law that works against the City is the language contained in MS 429.21:
https://www.revisor.mn.gov/statutes/cite/429.021 for G.O. Improvement Bonds, which allows for the build
out of a telecommunication system and the assessment of costs to property owners, but the statute specifies the
following carve-outs, which precludes the City from utilizing Improvement Bonds:
To improve, construct, extend, and maintain facilities for Internet access and other communications
purposes, if the council finds that:
(i) the facilities are necessary to make available Internet access or other communications services that are
not and will not be available through other providers or the private market in the reasonably foreseeable
future; and
(ii) the service to be provided by the facilities will not compete with service provided by private entities.
Given current State Law, the City is able to borrow (bond) for these types of improvements via an election,
whereby a majority of voters approve the expenditure and build out, or by issuing EDA Lease Revenue Bonds.
In the case of the latter option, and you may recall that we talked about this at the EDA meeting, Lease
Revenue Bonds – especially for this type of improvement – are often considered more risky by investors.
Because of that, investors will likely demand a higher return, which drives up the cost of the project financing.
For such a large project, this could amount to a rather significant amount of additional interest expense, which
could cause the project to be unaffordable.
2
Again, I hope this is helpful. Please let me know if there’s anything more I can do to assist, or if there’s
anything you’d like to discuss. If I don’t hear from you, I wish you the best of luck with your Wednesday
meetings!
Jessica
Jessica Green
Vice President, Public Finance
Direct (612) 851-5930 | TF (800) 851-2920 | Fax (612) 851-5918
Mail 150 South Fifth Street, Suite 3300 | Minneapolis, MN 55402
Email jgreen@northlandsecurities.com
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