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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 11/28/2017 - BROADBAND UPDATEDATE: STAFF: November 28, 2017 SeonAh Kendall, Economic Health Manager Mike Beckstead, Chief Financial Officer WORK SESSION ITEM City Council SUBJECT FOR DISCUSSION Broadband Update. EXECUTIVE SUMMARY The purpose of this item is to provide City Council broadband updates including an estimated timeline, major milestones, appropriation and governance recommendations. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Staff is seeking feedback on broadband next steps. 2. Staff is seeking feedback on the governance proposal. BACKGROUND / DISCUSSION In 2016 the City identified access to broadband as a strategic objective. Broadband is defined by the FCC as internet download speed of 25 megabits per second (“Mbps”) and upload of 3 Mbps or faster. The 2016 Strategic Plan Objective 3.9 states - “Encourage the development of reliable high-speed internet services throughout the community.” Additional benefits sought through the broadband plan include: • Competitive pricing (residential market pricing at $70/month or less for 1 Gbps and an affordable internet tier); • Universal coverage across the Growth Management Area; • Underground service for improved reliability; and • Timely implementation to providing services within a reasonable timeframe (less than five years). The City has been engaged in a multi-year process of research, due diligence, and community engagement that resulted in two successful ballot measures. The first in November 2015 gave the City the authority to provide high-speed broadband services to the community, the second, in November 2017 added telecom activity to the City Charter and demonstrated support for borrowing up to $150 million to provide fiber to the premise infrastructure. For the past two years, the City has focused on both a municipal retail model and a public-private partnership model of broadband service. Public-Private Partnership (P3) Status Based on Council feedback staff conducted extensive due diligence on the P3 model through both the recent RFP and a prior Request for Information (RFI) in 2016 and 2017. Efforts to find viable partner(s) that would bring experience and capability with the willingness to share in the financial risk and benefits with the City have not been successful to date. This information along with more detail has been provided to Council in an October memo. (Attachment 1) Funding/Resource Needs November 28, 2017 Page 2 Implementing a municipal broadband operation will require a multiphase/multi-year approach and will include needed personnel, equipment, workspace and assets (fiber, equipment, etc.) Figure 1 ($ 000's) Q1 Q2 Q3 Q4 Full Time Equivalent 4 5 7 13 Quarter End Headcount 4 7 7 17 Personnel $ 128 $ 148 $ 187 $ 295 $ 758 Consulting 120 120 88 88 415 Branding/Web Site 63 63 30 30 185 Legal 60 20 - - 80 Office & Equipment 53 49 63 92 256 Contingency 25 25 25 25 100 Total Operations & Maintenance $ 449 $ 424 $ 392 $ 529 $ 1,794 Total Capital $ 40 $ 1,755 $ 1,550 $ 1,490 $ 4,835 Year 1 Full Year Initial start-up costs, estimated at $1.8 million, will be appropriated from the General Fund and ultimately reimbursed from the bond proceeds. Debt issuance is backed by revenue bonds issued by Utilities Light and Power (L&P). Revenue bonds are municipal bonds that are secured by L&P revenue and rate-making capacity. Currently, staff anticipates the issuance of two series of bonds: Series A, which have a three-year expenditure requirement and are tax-exempt; Series B can be carried forward for a longer period of time and are taxable. Timeline Following the appropriation of the $1.8M startup operational costs initial work would include: Months 1 - 4 • Issue Request for Proposals (RFPs), interview and negotiate contracts. RFPs to be released include, but are not limited to: o Engineer/design o Combined Computer Information System o Construction o Hardware/equipment • Recruitment and staffing (prioritization of key personnel) o Broadband Director o Sr. Network Engineer o Marketing Manager o Outside Plant Manager o Additional staffing • Code updates/modifications with City Attorney’s Office • Bond Issuance (target close - Month 5) • Branding, Marketing and Sales Plan (continuous) Month 6+ • Begin engineering/design work • Implementation of CIS system (billing/customer relationship management tool) • Commence construction (Month 10+) • Customer connections (estimated at Month 18) November 28, 2017 Page 3 Governance In fall 2016, the City Manager, Deputy City Manager and Chief Financial Officer visited with several municipal-run broadband communities, both successful and struggling. The site visits allowed the attendees to openly discuss the challenges and opportunities that come with a municipal-owned retail service. A primary lesson learned from the site visits is that governance is important to the success of the broadband operations. Governance is the process of decision-making. Figure 2 describes the differences between broadband and a single-source utility, and why governance structure is different and important to the success of the broadband enterprise. Figure 2 Broadband/Best Practice Single-Source Utility/ Current Practice Objectives/ Environment Market-driven Competition - customer acquisition and retention focus; additional choice/options Social/Political - serving all within the community as a sole provider Timeliness of Cost and Service Changes Streamlined/Fast market- based decision making Slower due to public process (i.e., ordinances require two readings during Council regular sessions, plus a 10-day waiting period for public protests) Confidentiality of Decision-Making Factors Strategic - Not all information is public because of competitive practices Public/Open Records - Significant public discussion Staff Experience Business expertise in a competitive market Industry expertise as a sole provider The governance models have taken timeliness, staff and Council capacity, agility, and expertise into consideration, as well as best practices from other communities. The three-options address governance for start- up phase (first 3-4 years). Each option defines roles and responsibilities of the City Manager (or their delegate), City Council and/or Broadband Advisor(s), which is critical to be clear and without overlap. Option A - Similar to Longmont NextLight. November 28, 2017 Page 4 Option B - rates/fees, strategic plan, financial planning, marketing & promotional plan are moved to an appointed board. Option C - City Council retains rate-/fee-setting, strategic plan, financial planning, marketing & promotional plan. (Current City Utility model.) November 28, 2017 Page 5 Next Steps • Finalization of the governance model. • Appropriation of the $1.8M startup costs from the General Fund to support efforts prior to the bond closing. • Internal prioritization and resourcing for first four to five months while key staff are recruited and hired. • Issuance of RFPs, CAO code modifications and bond issuances • Develop detailed 2018 - 2020 Financial Plan ATTACHMENTS 1. Memo 10-12-2017 (PDF) 2. Powerpoint presentation (PDF) ATTACHMENT 1 ATTACHMENT 1 BROADBAND November 28 2017 ATTACHMENT 2 Overview / Questions 2 • Feedback on Governance Proposal • Feedback on Broadband Next Steps ATTACHMENT 2 Broadband Update • 3rd Party Partnership Status • Implementation Readiness • Work completed to date • First year cash flow • Macro timeline • Debt Issue • Governance Structure • Alternatives • Resource Needs / Next Steps 3 ATTACHMENT 2 Overall Policy Objectives Strategic Objective 3.9 • Encourage the development of reliable, high-speed internet services throughout the community Secondary Factors • Network reaching all residents of Fort Collins GMA • Timely implementation requires base network build <5 years • Competitive market pricing • Outstanding customer service 4 ATTACHMENT 2 Decision Timeline 5 August September October November December January Aug 8 1st reading Aug 15 2nd reading Aug 29 Intergovernmental agreement with County calling for special election Sept 8 Last day for City Clerk certification Nov 7 Election Council Decision to Launch Broadband & Appropriate Funding ATTACHMENT 2 6 3rd Party Status • 11 Respondents – 2 interviewed • 2 incumbents responded, nothing new proposed • Did not meet objectives – shared risk • 8 proposals – largely described as “Aggregators” or “Project Leaders” • Responded would act as lead project manager and bring in other companies for construction or network operations. • All had City bearing majority if not all financial risk • Efforts from RFI & RFP have not produced a viable P3 candidate with industry expertise & willingness to share financial risks Recommendation: The P3 Efforts Have Not Produced a Viable Alternative ATTACHMENT 2 7 Implementation Readiness ATTACHMENT 2 8 Internal Planning Status • Position Descriptions • 4 Key Positions Nov ‘17 • Ready start Recruitment on critical positions • RFP’s ready for issue: • Design Work Dec ‘17 • Construction Dec ‘17 • Billing system/GIS Jan ‘18 • Phone & Video Jan ‘18 • Construction QC TBD • Ready to issue RFPs early January • Start up Details •1st year cash flow summary Nov ‘17 • Facility location and requirements Nov ‘17 • Clarity on lead times various equip Nov ‘17 • Equipment details Dec ‘17 • Decision on Video & Phone Dec ‘17 • Marketing / Brand strategy TBD ATTACHMENT 2 9 Macro Timeline From “Go” Objective: Align key hires, vendors and contracts while working on bond issuance to support aggressive timeline after bonds close Month from "Go" 123456789101112Q1 Q2 Q3 Q4 Go Decision & Appropriation Preparatory Work Issue RFPs & Negotiate Contracts Recruitment for Key Position CAO Code Updates Bond Issuance Close on Bonds & Sign Contracts Business Launch Begin Staffing, Office, Policies, Operations Begin Design work Begin Billing/CRM system implementation Begin mobilizing construction Marketing & Sales plan development First Customer Live Year 1Year 2 ATTACHMENT 2 10 Year 1 Cashflow O&M Funded From Initial Funding Appropriation….. Capital Funded from Bond Issue ($ 000's) Q1 Q2 Q3 Q4 Full Time Equivalent 4 5 7 13 Quarter End Headcount 4 7 7 17 Personnel $ 128 $ 148 $ 187 $ 295 $ 758 Consulting 120 120 88 88 415 Branding/Web Site 63 63 30 30 185 Legal 60 20 - - 80 Office & Equipment 53 49 63 92 256 Contingency 25 25 25 25 100 Total O&M $ 449 $ 424 $ 392 $ 529 $ 1,794 Total Capital $ 40 $ 1,755 $ 1,550 $ 1,490 $ 4,835 Year 1 Full Year ATTACHMENT 2 11 Debt Issuance • Revenue Bonds issued by L&P • Backed by revenue & rate making of L&P & current debt coverage capability • Anticipate single issue with two series • Series A – Tax Exempt – 3 year spend requirement • Series B – Taxable • Anticipate term of 15 years for risk mitigation • Will also evaluate a longer term option that could be paid back early • Anticipate reimbursement of GF $1.8M appropriate from bond proceeds ATTACHMENT 2 12 Governance ATTACHMENT 2 13 Why Governance is Important Commercial / Competitive Single Source Utility Commercial Objectives Social / Political Objectives Market-Based Decision Timeliness Slower Decision Timeliness Strategic Confidentiality Material Public Discussion all Material Business/Competitive Expertise Business Expertise ATTACHMENT 2 14 Governance – First 3-4 Years Option A govern Broadband Director Utility ED City Manager City Council • Budget / Financial Approval • P&L / Balance Sheet budget • Debt authorization • Other authority per below Broadband Advisory • Advice and guidance to CM regarding Broadband operations City Manager • Setting rates, fees and charges • Promotions & Marketing • Planning • Strategic, Marketing, Financial, Capital, etc. • Operational & Administrative Customer Connection L&P Most Like Longmont – Successful in Multiple Municipalities ATTACHMENT 2 15 Governance – Option A Authority govern Council City Manager Broadband Advisory 1. Budgets & Appropriation 2. Debt Authorization 3. Approval Procurement Contracts 4. IGA agreements 5. Authorization sale, lease or exchange of real property 6. Power of eminent domain 7. Rules & regulations that are enforceable as a Code violation 8. Semi-Annual BB Executive Session • Strategic Plan Review • Financial Plan Review 1. Establishing pricing & fees 2. Strategic plan review 3. Financial planning & reporting 4. Marketing & Promotional programs 5. CIP & Long Term Financial Plan 6. Operational decisions within Council Approved budget a) Staffing b) Equipment 1. Advisory role to CM on operating decisions 2. Advisory resources TBD Bold Text = Legal Requirements ATTACHMENT 2 16 Governance – First 3-4 Years Option B govern Broadband Director Utility ED City Manager City Council • Budget / Financial Approval • P&L / Balance Sheet budget • Debt authorization • Other authority per below Broadband Board • Setting rates, fees and charges • Promotions & Marketing • Review of Plans • Strategic, Marketing, Financial, Capital, etc. Customer Connection L&P Critical That Authority and Responsibility Be Very Clear and Without Overlap ATTACHMENT 2 17 Governance – Option B Authority govern Council City Manager Broadband Board 1. Budgets & Appropriation 2. Debt Authorization 3. Approval Procurement Contracts 4. IGA agreements 5. Authorization sale, lease or exchange of real property 6. Power of eminent domain 7. Rules & regulations that are enforceable as a Code violation 8. Semi-Annual BB Executive Session • Strategic Plan Review • Financial Plan Review 1. Establishing pricing & fees 2. Strategic plan review 3. Financial plan & reporting 4. CIP & Long Term Financial Plan 5. Marketing & Promotional programs 1. Operational decisions within Council Approved budget a) Staffing b) Equipment 2. Financial reporting • Council appointed Bold Text = Legal Requirements ATTACHMENT 2 18 Governance – First 3-4 Years Option C govern Broadband Director Customer Connection Utility ED L&P City Manager City Council • Budget / Financial Approval • P&L / Balance Sheet budget • Debt authorization • Other authority per below • Establishing pricing & fees • Marketing & Promotional programs • Strategic plan review • Financial plan & reporting • CIP & Long Term Financial Plan Governance Same as Existing Utilities ATTACHMENT 2 19 Governance – Option C Authority govern Council City Manager 1. Budgets & Appropriation 2. Debt Authorization 3. Approval Procurement Contracts 4. IGA agreements 5. Authorization sale, lease or exchange 6. Power of eminent domain 7. Rules & regulations that are enforceable as a Code violation 8. Establishing pricing & fees 9. Strategic plan review 10.Financial plan & reporting 11.CIP & Long Term Financial Plan 12.Marketing & Promotional programs 13.Semi-Annual BB Executive Session • Strategic Plan Review • Financial Plan Review 1. Operational decisions within Council Approved budget a) Staffing b) Equipment 2. Financial reporting Bold Text = Legal Requirements ATTACHMENT 2 20 Resource & Position Needs / Next Steps • Finalize Governance Model • Initial appropriation of $1.8M from GF to support efforts prior to Bonds closing • Internal resources first 4-5 months while key hires & staff are recruited (30%-40% time) • Critical position recruiting, Issue RFPs, CAO code modifications, Bond issuance • Develop detailed 2018-2020 Financial Plan ATTACHMENT 2 Overview / Questions 21 • Feedback on Governance Proposal • Feedback on Broadband Next Steps ATTACHMENT 2