A Model for Rural-Erickson

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COOPERATIVE
Fiber to Homes, Farms and Businesses
Border To Border Broadband Conference
February 5th, 2014
RS Fiber History
In 2010, cities and two counties commissioned a Fiber To The Home/Farm
feasibility study for a fiber network in all of Sibley County, the city of Fairfax and
four townships around Fairfax. A statistically valid phone poll showed initial support
for the project above 60%.
In 2011/2012 - RS Fiber identified support from the service area and received
pledge cards from 56% of the households in the project area. (4,300 pledge cards)
In late 2012 the legal community determined the proposed method of financing for
the project was not viable and the project was put on hold.
In July of 2013 the RS Fiber began to explore an alternative structure that made use
of a private fiber cooperative created in late 2012 to represent the interests of the
rural area. The new structure was discussed with the RS Fiber Joint Powers Board,
attorneys associated with the project, and the RS Fiber Cooperative Board. All
found the structure to have merit and have started to discuss its implementation.
RS Fiber History
Under the restructured project the private cooperative board will own and operate
the fiber network.
The RS Fiber Joint Powers Board will remain in existence, expand its membership to
include townships and provide an economic development loan to the cooperative.
The loan will be used by the cooperative to secure needed additional financing.
The new structure has certain advantages for the project.
The new financing method substantially reduces the amount of money that needs to
be borrowed, lowering the penetration rate for break even and reducing risk.
And because it is now a private business opportunity it is not subject to poorly
written telecommunications legislation regarding participation by local units of
government.
It’s the same, only better
The new RS Fiber Cooperative will have the same footprint, benefits
and advantages as the RS Fiber project.
The only things that change dramatically are ownership and financing.
The private cooperative will own and operate the network
Faster Internet speeds offered (50 megs, 100 megs and gigabit )
Internet speeds will be symmetrical (same upload as download)
Live high school sports/event programing will be provided
Telemedicine services will possible on the fiber network
Home and Farm security services will be offered
Improved Business Plan
Under the previous financing plan, break even occurred
when 69% of households and small businesses in the
project area signed up for service.
Under the new plan the breakeven points drops to 45%.
That means the project already has more pledge cards
than needed for break even.
Why does the break even drop so much?
The project borrows less money and interest doesn’t
accrue as fast.
Under the previous financing plan
Total project construction costs were $55 million. However, a $70
million Revenue Bond was required because of the type of
financing and the public nature of the financing.
The additional $15 million was required by bond holders to be used
for:
Debt service reserve fund
Cash flow needs
Capitalized interest payment on debt
Additional interest expense because the $70 million was
borrowed all at once with interest accruing on the
entire amount beginning on day one.
Under the new financing plan
Total construction costs are still $55 million. Cities and townships will
provide a $15 million economic development loan to the cooperative in the
form of a G.O. tax abatement bond.
The cooperative will leverage that into a $40 million primary loan (with
bank, USDA, SBA and HUD support and guarantees)
No debt reserve fund is required
The $15 million economic development loan to the cooperative will be
used for start up construction and cash flow needs.
Interest accrues only when funds are accessed.
G.O Tax Abatement Bond
Under Minnesota Law, Cities, Counties, Townships, and School Districts can use
authority granted under M.S. 469.1812 – 469.1815 to issue bonds for economic
development purposes.
The co-op will make bond payments on behalf of cities and townships. Public
hearings will be required along with votes of the participating councils and township
boards. There is no real cost to cities/townships to participate unless the project
fails.
The twenty year G.O. tax abatement bond will be subordinate to primary financing.
Unlike traditional G.O. bonds sold by cities and counties, this G.O. bond will be
supported by a revenue stream. It is, however, ultimately guaranteed by the
ability of the participating government entities to raise taxes to make the
payments if the co-op fails and cannot make those payments.
Breakeven explained
7,200 homes/small businesses in the project area.
4,300 pledge cards have been received.
69% of 7,200 is 4,968
Under the previous financing plan another 686
pledge cards were needed for breakeven
45% of 7,200 is 3,240
Under new business plan the project currently has
1,060 more pledge cards than needed for breakeven
Pledge Cards become Contracts
In the coming months the RS Fiber Cooperative board will
reintroduce and remarket the project to everyone in the
project area through mailings and public meetings.
Potential customers will be asked to sign a one-year
contract/pledge card.
It will include prices for all three services
It will allow fiber to be buried on customer’s land
It is only enforceable if project is constructed
If you sign a contract/pledge card by a certain date the
fiber will be installed to your home/business at no charge.
Project Timeline
February - December 2014
Meet with cities and townships
Begin marketing campaign
Work toward primary financing
Hold series of public meetings throughout project area
Get city/township approval for G.O. Bond
Secure project financing
January 2015
Finish backbone engineering
Begin project construction (3 year build)
Questions?
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