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City Council Minutes 11-28-2011 SpecialMINUTES SPECIAL WORKSHOP /MEETING — MONTICELLO CITY COUNCIL Monday, November 28, 2011— 5:15 p.m. Boom Island Room, Monticello Community Center Present: Clint Herbst, Lloyd Hilgart, Tom Perrault, Glen Posusta, Brian Stumpf Absent: None Others: Jeff O'Neill, Tom Kelly 1. Call to Order Mayor Herbst called the Special Meeting to order at 5:15 p.m. 2. Purpose of Workshop: Administrative Goal - setting with City Adminstrator & Finance Director Jeff O'Neill explained purpose of meeting is to develop goals for FiberNet and developing some strategies and methods for working with FiberNet in the next few months. 3. Consideration of Goals and Objectives for City and Administrator Jeff O'Neill noted that the purpose of the session is to provide a detailed outline of general activities and specific work objectives for the City Administrator and Finance Director relative to FiberNet. His purpose was to provide the Council with a description of the effort underway and associated demands in order to set expectations going forward. Council was invited to provide feedback during and at the end of the presentation. The City will be working with consultants, Hiawatha Broadband Company (HBC) and Springsted in this process. The first part of the work plan will include an effort to quantify the benefits to the community that comes from FiberNet and then to look at the impact of challenges in the current economy and potential obstacles to overcome. Brian Stumpf asked about Charter's marketing in Monticello. He received a phone call the other day trying to get him to switch to Charter for a very low price. Glen Posusta thought that Charter's strategy is to try to force FiberNet out of the market. Lloyd Hilgart asked if there was any way to find out how many customers Charter has, which is generally not public information. There was some discussion on whether FiberNet should look at contracts to nnake it less easy for customers to drop. Lloyd Hilgart mentioned that FiberNet would need to be careful not to buy out customers from other providers who sign up with FiberNet and then quickly move to Charter to get their promotional pricing. The study will look at identifying threats that could undermine future financial viability. Special Council Meeting Minutes— November 28, 2011 Page 1 Brian Stumpf asked about using some TIF funds to help with some of the financing for FiberNet. Tom Kelly noted that there are impediments to using TIF funds on a project like this. The study group will conduct a reorganization analysis. They will look at the backhaul costs. They will also look at HBC contract costs for services and possibly renegotiate those terms. There needs to be a strategy developed in terms of staffing. Glen Posusta asked if the fiords that will be borrowed to help FiberNet would be tracked and paid back. Tom Kelly explained that FiberNet would be run in negative cash balance for the year and then have Rinds transferred to balance the fund at the end of the year. This amount would need to be paid back eventually. He also explained how interest earnings would be allocated taking into consideration any negative funds. Another item that the group will look at is a reduction or deferral of interest through refinancing of the debt. Springsted will be working with Tom Kelly in determining the capacity of the City in refinancing scenarios. Council members asked about what would happen to the assets of the system if the city were to default on the debt. Clint Herbst noted that, although the City needs to show proof that FiberNet can get out of debt, the difficult part is determining the risk in developing the system because we don't know what will happen three years from now. Herbst noted that, if investors are willing to negotiate better interest terns (i.e. 5 percent) or the City were able to switch to a G.O. Bond (i.e. 3 percent), this would immediately cut $1 million in interest annually. Lloyd Hilgart stated that the City needs numbers to make a decision, because defaulting is not a good alternative. Jeff O'Neill noted that the City has Springsted as a consultant, who can provide a plan with options to be presented to the City Council to agree upon before negotiations begin with investors. He noted that Springsted is in process of developing its work plan for assisting the City in refinancing the debt. The cost of this assistance is in the $20,000+ range. Jeff O'Neill said there are a number of challenges placed in front of the project that we are striving to overcome such as the transition to a new general manager, the TDS lawsuit, and consumer switch from land lines to cell phones. A discussion regarding improving apartment customer access ensued. Jeff O'Neill reviewed a number of existing possibilities for strategies that could drive revenues including: improve access to apartments; contracts with individual tenants; contracts with apartment owners; unused assets in ground such as fiber drops that need to connect with customers; Monticello Air service; contract installers; other cities; Kaltee services /TLS circuits; charges for service such as simple maintenance, extra wiring, house calls; co- location revenue; and public access. Future possibilities might include: security services or other service to be detennined; partnerships with other Special Council Meeting Minutes — November 28, 2011 Page 2 telecommunication companies; service to other communities; Wright County broadband initiative; cell tower service; potential funds from ETC or Connect America; and system test bed to create jobs. Clint Herbst feels these are important strategies to explore as quickly as possible. Clint Herbst brought up the upcoming Metaswitch class that a FiberNet employee is attending in the near future. He would like some kind of an agreement that the employee will reimburse the City for the costs if they leave within six months of attending the class. Jeff O'Neill announced that he plans to become more involved in marketing. Glen Posusta commented that the marketing is not as important as getting customers serviced. Jeff O'Neill talked about some ideas for marketing such as bundling some city services as incentives for customers on FiberNet. In summary, Jeff O'Neill noted that the study group will review and define the financial implications of default on the debt as well as the other items mentioned during this discussion. LLOYD HILGART MOVED TO AUTHORIZE CONTRACT SERVICES WITH SPRINGSTED TO STUDY THE FIBERNET SITUATION AND COME UP WITH OPTIONS TO PRESENT TO CITY COUNCIL. BRIAN STUMPF SECONDED THE MOTION. MOTION CARRIED 5 -0. Jeff O'Neill and Tom Kelly will be involved. Lloyd Hilgart and Clint Herbst volunteered to serve on the study group. 4. Adiournment Mayor Herbst adjourned the meeting at 6:07 p.m. Recorder: Catherine M. Shuman Approved: December 12, 20011 Attest: yinistrator Special Council Meeting Minutes — November 28, 2011 Page 3