By DAVID BORAKS
DavidsonNews.net
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.
RELATED COVERAGE
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.
As Office Mgr./Treasurer/Clerk for the Town of Davidson from 1974 until my retirement in 1990, I was around when our town in 1981 searched and hired Lakeside TV as our franchisee for CABLE TV. This resulted in a better picture, more channels and the removal of the large “bedspring” antennas from the rooftops and chimneys in Huntersville, Cornelius, Davidson and Mooresville.
As for the current MI-Connection financial problem affecting Davidson and Mooresville, it would seem that it would be in the self-interest of residents in both towns to seriously consider moving their TV, Computer and Telephone to MI-Connection.
I have experienced all the cable services plus a satellite available in Davidson and consider MI-Connection as my favorite. I joined their three-pronged plan a year ago and have found that all three services to be excellent in every way, one simple bill for all, and quite competitive in price.
The fact remains that the ownership of this cable TV enterprise belongs to you and me.
It is no surprise that we have a shortfall. The cable industry has been in decline since the early 2000s. It is a profitable venture in a dense urban environment but not so much for communities like Davidson. That said we are still faced with a large bill to pay and questions of how to pay.
I would contend the answer is not in layoffs of service providing employees and may not be the reciprocal release of administration folks who command the larger salaries and benefits.
One of the hardest things for a department to do is to look internally and say “We don’t really need this, so we are going to cut it out,” Instead we look externally and see what services or programs need to be cut other than our own. The Town is a business and needs to be fiscally responsible to all the citizens. Many businesses are struggling now and in order to keep the doors open, are looking for imaginative ways to survive. By way of example only, what would a 10 percent cut in salaries and department budgets across the board provide? I do not know, but I know it is better than losing a job. It would be tough, but times are tough. If I am correct, the 10 percent cut would save the Town, $600,000 to $700,000. The Town officials could better provide that figure.
I am suggesting that we think outside the box on this situation we are facing. In all decisions made of this magnitude there are exit strategies. What is the Town’s exit strategy? I do not know because no one from the Town has commented on any of the recent posts. Why are we even having to ask for public and visible responses? Instead we are notified throuh various media that an open meeting will be held at a time certain at Town Hall. Can’t we have an open dialogue through this forum, DavidsonNews?
In my sole opinion, many times not accepted, I believe Town officials should be knocking on our doors to get input, not the other way around. I know, like and respect all the Town officials and I believe they feel they are being “attacked.” To the contrary, the only way to appropriately make rational decisions is to discuss civilly the issues between them and the citizens. There is no room for personal attacks because these are not personal issues. There is no room for lack of civility and respect.
One last note: what basis is there to believe in a 20 percent growth in subscribers for the coming year? Not history.
I wish our elected officials would offer an apology for a bad decision instead of admonishing citizens for electing not to use a luxury service. Cable/Internet/Phone are utilities without which one could live. Pressuring customers to switch services or increase services is not what I would consider a public responsibility. If our mayor goes door to door requesting citizens to “bundle” services, he is wasting time and effectively working as a salesman for the company. I’m not convinced that the explanation “we own the thing, now deal with it” is fair. I believe more sympathy from the community would be derived from a humble approach: “we really screwed this one up, everyone knows now we’re going to have to raise taxes , reduce services, or declare bankruptcy.” I’m truly tired of the rhetoric from the council and mayor being preachy and not remorseful. This is an opportunity to enlist community support by telling the truth and facing the facts.
So now we learn that next year’s loss by MI-Connection will be 6.4 MILLION dollars, of which Davidson will be responsible for 2 MILLION. I thought it might be interesting to put this number into to something the average citizen can get their hands around, as opposed to the econ jargon the town and MI like to use (such as EBIDA, RPUs). Next year’s loss works out to $229 dollars per resident of Davidson, using a population of 8,700. It accounts for approximately 28 percent percent of Davidson’s already bare bones annual budget. But hey, we are going to “grow” our way out of it. Never mind that cable subscription rates are projected to drop nationwide as more folks use online means to deliver media (Hulu, Netflix, ect). I would love to see a projected loss that uses a flat subscription rate, as opposed to the one above which projects 3,000 new house holds will sign up for all three services MI-Connection offers. A flat rate is more realistic than the fantasy growth rate they are hoping for. I also find it interesting that a town that has health and wellness as new “priority” encourages its citizens to purchase cable television. There is a rich literature on how TV viewing and healthy lifestyles are odds with one another. Its time for the leaders of Davidson to man and woman up, admit that they made a major mistake, and look for an exit, even at a substantial loss. Time to make make some personnel cuts at the higher levels in town hall, as opposed to the low-level employees they’ve recently layed off. Time to do what the citizens of Davidson expect, lead……..
[EDITOR'S NOTE: Davidson's population is just over 10,000 right now, which puts the per-person equivalent of that $2 million at about $200 - still a large number.]
Although this would be more symbolic than anything, I think all of our elected officials should refuse to take any compensation from the Town. I know their stipends are small, and I would typically say they are well deserved, but the reality is that the decision to purchase a cable/internet company has put this town in a precarious financial state, to say the least. Decisions have consequences.
Again, this action would probably only save the town a couple thousand dollars. But, especially since several employees are having their ability to provide for their families put in jeopardy, it might show that our leaders are also personally affected by the MI-Connection losses, and engender some support amongst the citizens of the town who are being asked to support this venture.
Regarding Sandy Carnegie’s suggestion that town officials use our forums: We’ve gotten permission from the town to reprint the Town Manager’s most recent Town Message article about the town’s decision to enter the cable business. See May 10, “Commentary: Why Davidson got involved in MI-Connection.”