PROVO Mayor Lewis Billings would rather extend a new $1 million loan from one city department to iProvo than deal with a possible legal challenge from Qwest, he told the City Council Wednesday.
City Council Chairman George Stewart continued his crusade to block the loan embedded in the mayor's budget proposal for the next fiscal year. Stewart is trying to persuade the council to approve an alternate budget that would use the city's general fund to cover iProvo's projected deficit for the next year.
"I hate to make good financial decisions on whether we might be sued," Stewart said. "Good financial discipline says if you have the money, pay down the debt."
Meanwhile, iProvo director Kevin Garlick released a projection this week that the fiber-optic telecommunications network will break even in late 2010 or early 2011.
The new break-even timeline is the first provided by the city since the project was approved. The network has more than 9,700 subscribers and Garlick has said the break-even point is probably between 13,000 to 14,000 subscribers.
Provo owns the network but cannot provide phone, cable TV and Internet services on it because the state Legislature banned cities from doing so while the City Council was considering iProvo. Instead, the city leases the network to two service providers, MStar and Veracity.
Stewart praised the city's iProvo team.
"I have confidence in the team and what they're doing," he said. "Given the wholesale model forced on us by the Legislature, they've been incredible."
Several other factors slowed iProvo's early growth and while it now makes enough money to cover its operating costs, it doesn't generate enough to make the payments on the $40 million in bonds issued to pay for construction of the network.
The City Council approved first one loan of $980,000 from the energy department to iProvo and then a second, $2.1 million loan.
Stewart argued that the fiscally conservative community would rather see the City Council pay for the shortfalls as they arise than continue to add more debt. He said iProvo's bond payments will total $64 million with interest, with another $3 million owed for the loans approved so far.
Stewart can win the fight over the loan if he can persuade three other council members to join him and block Billings' proposed budget.
City attorney Robert West has said using the general fund is legally defensible, but Billings said he doesn't want to take the chance that Qwest would tie up his legal department with a lawsuit.
Qwest officials rattled their legal sabres when the City Council approved the first loan a year ago. Qwest said that the use of public money to compete against private companies is unfair.
Instead, Billings asked the council to approve the loan and trust Garlick and the rest of the city's iProvo team to make the project break even.
Garlick defended his proposed budget for the coming year, which projects an average of 60 new subscribers per week, a number Stewart said is too high.
Garlick said the project has averaged 73 new installs per week during its history, with highs above 100. Stewart is concerned that iProvo has generated 20 subscribers a week over the past three months, apparently because MStar and Veracity sales teams were in a seasonal lull.
At Stewart's request, Garlick provided a revised budget proposal with a projected 40 subscribers per week, but the difference in the projected deficit was only $105,000.
The reason is that several new revenue streams are expected to boost the project's bottom line this year.
One is budgeted. The project will begin to receive hundreds of thousands of dollars in chargebacks from other city departments for their use of the iProvo network.
Second, Garlick has fielded four proposals and expects several more from potential new service providers who would compete with MStar and Veracity, pushing them to improve their customer service and to more actively recruit new subscribers.
A new service provider also might bring over an existing customer database, possibly 500 to 1,000 new subscribers, Garlick said.
Billings said the iProvo team is close to the projections they laid out a year ago when they asked for the first loan, and Garlick asked the council to make the loan and then reconsider during the year if iProvo isn't making its projections.
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