Updated Wed., May 23, 2012, 7:24 a.m.
Davidson commissioners voted 4-0 Tuesday to revise an agreement with the Town of Mooresville governing ownership of the MI-Connection Communications System. The deal will save Davidson about $1 million this year, and help ease the financial burden the town has felt as it helped cover losses at the jointly-owned high-speed communications network.
The vote came a day after Mooresville Commissioners also approved the changes in a 4-2 vote. And it followed at least a year of negotiations among the towns’ managers, elected officials and lawyers. Town officials said it would remove “penalties” and create new incentives for growing the system.
The changes come 10 months after local citizens who serve on the MI-Connection board approved a resolution urging the towns to revise their agreement. Board chair John Venzon of Davidson said last week the current agreement “has unintended consequences that discourage growth.” He and others have worried that the two towns were headed for conflict over the situation.
“This would allow us to really put some effort into that (growing the system), and Mooresville to put some effort into that, without being penalized,” Davidson Town Manager Leamon Brice said at the meeting.
Commissioner Connie Wessner was absent from Tuesday’s meeting.
The two boards’ votes mean the towns will:
- End the current requirement to recalculate the towns’ relative ownership every year based on the number of subscribers in each town. Instead, ownership would be fixed permanently at 70 percent for Mooresville and 30 percent for Davidson. The new ratio would be used to divide annual “risks or rewards” – costs or profits – from the system. In the last recalculation in July 2011, Mooresville owned 65 percent to Davidson’s 35 percent.
- Cap at $1 million the annual payments to MI-Connection from Davidson, which currently spends about one-quarter of its annual budget to help the system cover its annual deficits. The new payment plan would cut in half what Davidson currently expects to pay in the fiscal year beginning July 1 ($2.087 million). Davidson would still be liable for 30 percent of any subsidies. But anything above $1 million would come as a sort of loan from Mooresville: Even if Davidson’s liabilities fell below $1 million, it would keep paying that amount annually until it has fully reimbursed Mooresville.
The “interlocal agreement” is a contract spelling out how Davidson and Mooresville jointly fund and operate the cable and internet system. The two towns originally signed the agreement in 2007 when they bought the former Adelphia cable system.
MI-Connection has been losing money since the towns bought it, and the towns have been covering its losses through annual subsidies. The towns are paying about $7 million in the 2012 fiscal year that ends June 30, about $2.3 million for Davidson and $4.7 million for Mooresville.
ENDING ‘PENALTY FOR GROWTH’
The changes are aimed at easing the burden on Davidson’s much smaller budget. [Mooresville's $86 million annual budget is about 10 times the size of Davidson's.] The new agreement also would limit Davidson’s gains later, if the system turns profitable, and give Mooresville a chance at bigger payoffs.
The new agreement also attempts to remove a disincentive to growth.
MI-Connection board members and town officials say the current ownership scheme penalizes Davidson, where higher customer growth has gradually increased the town’s ownership share – and its financial liability which is calculated based on its ownership. Meanwhile, they say, there’s no incentive for either town to add customers if that means altering the ownership balance and potentially increasing what that town owes every year. Worse, there could be an incentive for citizens in one town or another to quit the service to reduce the town’s ownership share – and liability.
Right now, Davidson has been the financial loser. The town has been more successful than Mooresville in adding customers over the past few years, but that means its ownership stake has risen while Mooresville’s has fallen. As its ownership grew, so did its share of the annual expenses.
As in Davidson, Mooresville officials now are urging citizens to consider purchasing MI-Connection’s services. In a message introducing the town’s 2013 budget recently, Mooresville Town Manager Erskine Smith said his town needs the system to grow to help reduce annual subsidies. “The Town can no longer absorb our assistance with the debt
payment in our current revenue stream. Without significant growth in Mooresville customers, the annual contribution by the Town will continue. It is time for the citizens of Mooresville to embrace this locally-owned service.”
EFFECT ON DAVIDSON BUDGET
Davidson is in the midst of planning its 2012-13 budget. This week’s revision of the interlocal agreement means an instant $1 million in savings for Davidson. But town officials said Tuesday they won’t move quickly to re-allocate the money.
Finance Director Cindy Jones told the board after the MI-Connection vote that the changes would help reduce next fiscal year’s proposed budget from about $9.3 million to $8.1 million. She said that allows the town to avoid spending about $325,000 from its fund balance, or savings. The town also will put $750,000 or so back into fund balance, to help rebuild the account.
Under the $9.3 million budget that had been discussed earlier, the $325,000 would have put the town’s savings, or fund balance, at about 30 percent of its general fund budget.
Davidson’s fund balance is currently equal to about 36 percent of its general fund budget, Ms. Jones told the board last month. If the town had spent the $325,000 next year, the fund balance would have fallen to 30 percent. Instead, Davidson now will stand at about 45 percent, according to Mr. Brice.
That’s below the 49.7 percent average for towns Davidson’s size. But it’s well above the minimum of 8 percent recommended by the state’s Local Government Commission, a sort of watchdog for municipal finances.
Mr. Brice advised the board not to spend any of the savings immediately. “I would not recommend any review of the needs list at this time,” he said. He said he and town staff and commissioners would take until around Dec. 31 to look town needs, and maybe at a new Capital Improvement Plan, or CIP. “(We’ll) be very deliberate in how we would utilitze the savings we just realized,” Mr. Brice said.
In a statement Wednesday morning, he said the town would look at “infrastructure needs,” which could include construction and maintenance for streets, sidewalks, parks and other public facilities. “With this new adjustment to $1 million, we are going to be able to start catching up on some of the infrastructure needs we have postponed,” he said in the statement. “We are really grateful to the Mooresville board.”
May 22, 2012, DavidsonNews.net, “Mooresville board OKs revised cable ownership scheme.”
May 22, 2012, Proposed 4th revision of the interlocal agreement between Mooresville and Davidson (PDF)
May 19, 2012, “Towns eye changing cable system ownership agreement.” – background on the proposed revisions in the interlocal agreement.
AUDIO REPLAY – MI-CONNECTION AND BUDGET DISCUSSION
Listen to an audio replay of the town board discussion and vote on the MI-Connection agreement, and its effect on the 2012-13 budget. Click the play button to start. Can’t see the player or hear the audio? CLICK HERE>
(MP3, 16 mins., 10 sec.)
Speakers: Mayor John Woods introduces the discussion. Town Manager Leamon Brice explains the proposal before the board vote. At 2:40, Commissioner Laurie Venzon moves for the motion to be approved. Then Commissioner Jim Fuller speaks and the board votes. At around 4:00, Commissioner Rodney Graham asks Mr. Brice a question. At 5:20, finance director Cindy Jones discusses the vote’s effect on the 2012-13 Town Budget.
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