By DAVID BORAKS
MOORESVILLE – Directors of the MI-Connection communications system agreed unanimously Friday to ask Davidson and Mooresville for a cash infusion of up $6.4 million in the fiscal year beginning July 1 to cover a projected shortfall in revenues.
That figure was the more conservative of two budget scenarios the board agreed to send the towns at a meeting Friday in Mooresville. A second proposal – with more aggressive and optimistic customer growth targets – would reduce cash needed by more than a half-million dollars, but could be harder to reach.
Davidson and Mooresville had been nervously awaiting Friday’s numbers – and the size of the cash call – so they can plan their own spending for next year.
The news means Davidson will have to come up with as much as $2 million in 2010-11, which could be a painful sum in a budget that totals only about $7 million. Mooresville’s contribution would be up to $4.4 million, out of a roughly $42 million budget.
It’s not yet clear how Davidson will come up with the money, and town officials weren’t discussing the matter Friday. On Monday, May 4, announced plans to lay off 19 employees, eliminate a total of 7 jobs and restructure its staffing, which Town Manager Leamon Brice said would save $243,400 next year. But budget cuts, a tax increase or other measures likely would be needed.
In Mooresville, the cable cash request may not be quite as painful. Finance chief Maia Setzer told DavidsonNews.net the town likely would save money by continuing to freeze about 15 job vacancies and also can draw on more than $15 million in its fund balance, or savings.
The cash infusions next year will come on top of $576,000 the towns provided this spring to cover a budget shortfall in this fiscal year. The two towns split ownership of the system according to the number of customers each town has – 31.25 percent for Davidson and 68.75 for Mooresville.
The towns have spent $92.5 million to buy and upgrade the system in the past 2 1/2 years. The once-obsolete system run by Adelphia Communications now offers state-of-the-art cable TV, telephone and internet services to about 15,235 customers in the Lake Norman area. But it has struggled to hold on to customers amid competition from satellite TV and local phone companies.
MI-Connection’s revenues have been rising recently, thanks to sales of second and third services – telephone and high-speed internet – to existing customers. (See April 28, 2010, “MI-Connection says quarterly revenues grew 9.4%”) The system has also begun selling to businesses, a new area of revenue made possible by the upgrades.
The challenge for system officials over the coming year is to generate “high and rapid growth,” in the words of John Venzon, one of Davidson’s two citizen representatives on the board.
Whether that happens will depend on the towns’ ability to persuade citizens that the system is theirs, and they should subscribe.
TWO SCENARIOS: AGGRESSIVE AND ‘ULTRA AGRESSIVE’
MI-Connection general manager Alan Hall presented an outline of the two scenarios Friday morning during a telephone conference call meeting of the board, which includes citizen representatives from both Davidson and Mooresville.
Detailed budget numbers were not made public. But officials plan to publish both budget scenarios next week as part of a notice for a public hearing on the budget to be held May 27.
Rapid growth in the coming year will be needed to cover a big jump in debt payments at MI-Connection. The system begins paying principal on its loans in 2010-11, which will boost debt expenses by $2.8 million, according to board chair John Kasberger of Mooresville.
The system’s debt service this year is just over $4.5 million.
Mr. Kasberger made the motion, which the board unanimously adopted, to send the towns both Mr. Hall’s proposed “base budget,” which requires the maximum $6.4 million cash infusion, and what officials are calling a “community budget,” which would require $5.8 million in cash from the towns.
It would be up to the two town boards to decide which projections they want the MI-Connection to use. The towns would have to adopt the same version of the budget.
Mr. Venzon and other board members described the base budget as “aggressive.” It projects 19.9 percent revenue growth in the coming budget year. It also envisions that the company’s cash flow (that’s earnings before interest, depreciation and amortization, or EBIDA) would gradually grow through the year, averaging 19.3 percent at year end. That would be an improvement from the current rate of around 7 percent, according to Mr. Hall.
The latter plan is being called a “community” budget because it would require intensive community marketing to persuade citizens to adopt MI-Connection as their cable, internet and phone service. It envisions that MI-Connection would sell its “triple play” of services to 3,000 new households next year, or 20 percent of the 15,000 or so households in its territory that aren’t currently customers.
That’s 9,000 new “revenue generating units,” or RGUs. It also envisions adding 1,000 RGUs from new corporate customers.
“We do have a lot of headroom to grow the business,” Mr. Hall said.
WILL RESIDENTS ‘BUY IN’?
Mr. Venzon said during Friday’s meeting that the “community plan” would be “ultra aggressive” and would require citizens in the two towns to accept the idea of cable system ownership. Mr. Venzon himself has said he did not favor the towns’ buying the system in 2007.
“We know there are people in our communities opposed to government being involved in this,” Mr. Venzon said. But the towns now do own it, and “We believe as a board there’s only one viable option: high and rapid growth. … As the two towns buy into that, we succeed.”
Mr. Venzon said he supports the “base” budget proposal and would work with the towns if their boards opt for the “community budget.” He said he has some reservations about whether MI-Connection can add as many commercial customers.
Board member Dawn Huston, of Mooresville, said she has similar concerns. But she added, “I truly believe that if we get the community to support and to embrace MI-Connection with just another 20 percent of the homes passed, we can drive a really great future for MI-Connection.”
Mr. Kasberger said he thinks both plans are “attainable.”
“I think the recommended case is very achievable,” he said. “The community version absolutely puts into play what we’ve all been talking about – that every stakeholder in the community gets involved to help MI-Connection grow. “It is aggressive, but because of our already low share it is not unattainable, it’s very attainable, if we have total involvement.”
The message was clear Friday: Board members believe MI-Connection can succeed if the community views the system as its own. “At the risk of being corny, we have to put the “my” in MI-Connection,” Mr. Venzon said.
Mr. Kasberger said the towns also must do a better job of explaining a key rationale for the purchase: that it has provided the area with a state-of-the-art high-speed data network – something could not get under previous owners. “MI-Connection is not just a cable company. It’s an investment in broadband,” he said.
TOWN BOARD MEETINGS, PUBLIC HEARING AHEAD
The two towns will incorporate Friday’s numbers into the budgets that they present to their respective town boards in two weeks. Mooresville’s town staff will present its proposed budget at a town board meeting Monday, May 17. Davidson manager Leamon Brice will present his budget to Davidson’s town board on Tuesday, May 18. s
Davidson Finance Director Eric Hardy and Mooresville finance director Maia Setzer were observers at Friday’s meeting, which was at MI-Connection headquarters in Mooresville.
“For me, it’s a relief to get these numbers out,” Mr. Hardy told DavidsonNews.net. He said town officials have been able to guess at what the number might be, but this allows him to go forward with completing a budget proposal.
Ms. Setzer said the cash request was not that surprising. She had been anticipating that Mooresville would have to contribute between $4 million and $6 million next year.
She said with finances now out on the table, it will be up to the two town boards and the MI-Connection board to decide what their goals are for the cable system. “We need to be sure the three boards keep the goals of the community in mind. There may be competing interests,” she said.
Do the towns want a cable system with state-of-the-art technology and “premiere” customer service? Do they want to grow the system? Do they want limit its impact on the town’s budgets? “It’s the boards’ choice about what they want to do,” Ms. Setzer said.
DAVIDSON TOWN BOARD CHAT TUESDAY
Davidson will hold the last in a series of informal “Commissioner Chats” on Tuesday, May 11, at 6 p.m. at Town Hall. The meeting is open to all and will give residents and commissioners a chance to talk about neighborhood and town issues, including the town budget and the MI-Connection communications system. See a notice on the town website.
DavidsonNews.net has been covering the town’s purchase of the cable system since it was first discussed in 2006. See an archive of our coverage under the “Cable TV” category.