The Davidson Board of Commissioners asked me to give a quarterly update on MI-Connection so I provided the first of many to come. Since we get a lot of questions about MI-Connection, I thought the links to the presentation and video might be helpful. My presentation outlines the following points:
- The Town of Mooresville holds the debt for MI-Connection: In 2007 initial financing required a certificate of participation (COPs) loan of $80 million. In 2008, an additional $12.5 million in installment financing was required for system enhancements and operational needs.
- In 2015, the COPs loan was refinanced with a lower interest rate, elimination of the reserve fund, and a prepayment option. The $12.5 million installment loan was also refinanced with a lower rate.
- As of September 1, 2017, the current principal owed on the COPs loan is $61.135 million at an interest rate of 3.243%. This loan matures in 2033. The current principal installment loan is $6.185 million at an interest rate of 2.36% This loan matures in 2023.
- MI-Connection uses EBIDA, earnings before interest, depreciation and amortization, as a key metric to measure performance. FY 2017 did not reach MI-Connection’s original budget projections, however, they still grew their contribution toward debt. They had a slight decrease in revenue generating units and customers. In FY 2017, MI-Connection made a $2.9 million contribution toward debt and in FY 2018 are planning to make a $3.45 million contribution toward debt. In FY 2017, the Towns of Davidson and Mooresville made a $3.44 million contribution toward debt and are projected to make a $2.93 million contribution toward debt in FY 2018. This will be the first time that MI-Connection’s contribution toward debt payment will exceed the towns’ contribution toward debt payment.
- Per the interlocal agreement with the Town of Mooresville, Mooresville has a 70% interest in MI-Connection and Davidson has 30%. The Town of Davidson’s annual payment to Mooresville is capped at $1 million (9% of the town’s annual budget).
- MI-Connection has a board of directors that meets quarterly. I serve on the board with Mooresville’s town manager and several other voting and non-voting members. We monitor the system’s financials on a regular basis. We invite you to attend these meetings. The next one is scheduled for October 26 at 6:30 p.m. at Davidson Town Hall.
- MI-Connection recognizes that the broadband services it offers is the company’s key area for growth in the commercial and residential markets. They continue to upgrade technology and increase their service and product options. They look to extend service into new construction areas and penetrate existing service areas.
- Based on our current projections, Davidson’s deferred liability to Mooresville could be paid off in FY 2023. MI-Connection will likely not require contributions from the two towns starting in FY 2024.
- Currently the value of MI-Connection does not exceed the debt owed. Industry data show that 7-10x EBIDA is the metric for valuation of this type of company. Based on current projections, MI-Connection hopes to have a system value higher than the debt owed in 2-4 years and hopes to repay both of the towns for their investment in 7-10 years.
Citizens are charged a solid waste removal fee via their tax bill. The elimination of this fee can be revisited in the future as the system continues to grow.
- Default on our obligations?
Defaulting on our obligations and walking away from MI-Connection would have severe consequences and financial implications; this course of action is not advisable.
- Projected growth potential
With the commercial and residential growth projected in the Lake Norman area, there is room to grow the system with customers and revenue.
- Holding our own with competition
There has been an increase in competition in the broadband/cable/telephone arena and MI-Connection has been successfully competing. MI-Connection will continue to compete with the capital investments and technology upgrades continually in the works.
- Managing $1M in existing Town of Davidson budget
The Town of Davidson’s $1 million annual payment to help fund the system (it is not bankrupt but still in debt) represents 9% in the budget. Of course we would prefer to use this $1 million for other town needs, however, our commitment is to paying our portion of the debt service for the system. We are managing the $1 million payment in our budget with a healthy fund balance and a reserve fund.
- Other key priorities to serve our citizens
We can’t ignore other priorities needed to serve our citizens, so based on our financial model, the Davidson Board of Commissioners have asked us to continue to pursue other projects (Fire Station #2, public facilities improvements, etc.)
- Please be a part of the solution
In my view, regardless of your view of local governments owning and operating cable/internet companies, the citizens in the MI-Connection service area need to subscribe and be part of the solution. The more customers that subscribe, the better the revenues, which continues to create an upward financial trendline, thus providing us options for the future.