Expanding Broadband - Frequently Asked Questions (FAQ)

RURAL BROADBAND TECHNICAL ASSISTANCE OUTREACH FAQ

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Part I: Communications Union Districts

  1. What is a Communications Union District (CUD)
  2. What is the cost to the taxpayer and town in order to be part of a CUD?
  3. Can a town use funds derived from taxes to pay for any expenses incurred by or in support of a CUD, including feasibility studies, cost assessments, legal counsel retention, grants, build-out or make-ready costs?
  4. If tax dollars cannot be used to fund the launch of the CUD, please explain how the CUD can be initially funded.
  5. How does a town join the CUD?
  6. What language must a town include on the town meeting warrant or vote on at a select board meeting?
  7. Can a town withdraw from a CUD?
  8. Is the taxpayer or town liable for CUD losses or insolvency?
  9. Can a town apply a special assessment to finance a build for the town?

 

Part II:  Public-Private Partnerships (P3) and Contract for Service

  1. Please explain a public-private partnership (P3) and the associated benefits and risks.
  2. What is Contracting-for-Service?
  3. Is a P3 permissible where a town and provider agree that the town will build fiber connections between municipal buildings and the provider will subsequently build out to any remaining locations?
  4. Are towns required to solicit requests for proposals from providers to serve or assist with serving unserved or underserved locations?
  5. Does a P3 trigger Internal Revenue Code private activity bond issues? If so, will this affect a CUD or town’s tax-exempt status?
  6. Can a capital lease back a revenue bond?  If so, please explain the process and associated risks. 

 

COMMUNICATIONS UNION DISTRICTS (CUDs)

 

  1. What is a Communications Union District (CUD)

     

    CUD is a Communications Union District, allowing two or more towns to bond together as a municipal entity for a means of building communication infrastructure together. For more see 30 V.S.A. § 3081: Communications Union Districts in Vermont state statutes. Other types of municipal districts include Solid Waste Districts, Consolidated Sewer Districts, Emergency Medical Service Districts, Natural Resources Conservation Districts, Consolidated Water Districts.|

  2. What is the cost to the taxpayer and town in order to be part of a CUD?

    Nothing. Neither the taxpayer nor the town is required to pay anything in relation to a CUD. 24 V.S.A § 3056 states that the “district shall not accept funds generated by a member’s taxing or assessment power.”This means that a CUD cannot accept funds derived from a local options tax to finance a CUD. A CUD must fund its operations by bonds backed by the revenue derived from the project, grants, or gifts.
     

  3. Can a town use funds derived from taxes to pay for any expenses incurred by or in support of a CUD, including feasibility studies, cost assessments, legal counsel retention, grants, build-out or make-ready costs?

    No.  A CUD, as a municipal organization, must obtain funding via grants, gifts, or loans backed by revenues derived from the operation of the CUD or the CUD itself.  See 30 V.S.A. § 3056 for more detail.

  4. If tax dollars cannot be used to fund the launch of the CUD, please explain how the CUD can be initially funded.

    The CUD can be initially funded with revenue bonds, loans, grants, gifts or any source of funding not generated by a member’s taxing authority.  Loans must not be backed by anything other than revenues derived from the operation of the CUD or the CUD itself.  See 30 V.S.A. § 3056 for more detail.
     

  5. How does a town join the CUD?

    A town can join a CUD in two ways. The initial CUD must be established through a town meeting day vote, where all initial member towns vote to form the municipal organization. After initial CUD is formed a member town can be added through a selectboard vote or another town meeting day vote.
     

  6. What language must a town include on the town meeting warrant or vote on at a select board meeting?

    “Shall the Town of [insert municipality] enter into a communications union district (CUD) to be known as [insert name of CUD], under the provisions of 30 V.S.A. Ch82?”

    [Insert name of CUD] is a municipal entity, made up of 2 or more towns, with the specific purpose to build out, maintain, and operate broadband infrastructure in order to provide a last-mile, Fiber-To-The-Home (FTTH) network for [Insert name of region(s)], which will provide high-speed internet (up to 100mbps) to all residents in member communities. Membership in the CUD poses no financial risk to the Town of [insert municipality] or individual taxpayers within [insert municipality] any and all costs associated with the investment in communications infrastructure, are not borne by the taxpayers of district members. All towns that approve this ballot measure will become members of the CUD and each member town must appoint a representative to the CUD board of directors.
     

  7. Can a town withdraw from a CUD?

    Yes.In order to withdraw, the CUD member must publicly warn its voters of its intention to withdraw and subsequently hold a vote.A CUD member can only withdraw if a majority of its voters vote to withdraw from the CUD. The vote must be held at an annual or special meeting of the town or city.

    The town member must then give other CUD members notice of the vote to withdraw and hold a meeting to determine if it is in the best interest of the CUD to continue operating. Another vote by the CUD must then be held to either withdraw the town member or dissolve completely.

    See 30 V.S.A. §3081 for more information.
     

  8. Is the taxpayer or town liable for CUD losses or insolvency?

    No.  CUDs are obligated to ensure that any and all costs related to revenue losses or curtailment or abandonment of services are not borne by the taxpayers of CUD members.
     

  9. Can a town apply a special assessment to finance a build for the town?

    Possibly. A special assessment can be used to fund a CUD only if it will serve a limited area of the town. In other words, if the entire town will be served by the CUD, a special assessment cannot be used. Furthermore, any tax or assessment on property requires advanced authorization of the General Assembly. See 30 V.S.A. § 3056(b) for more information.

 

 


PUBLIC-PRIVATE PARTNERSHIPS AND CONTRACTING FOR SERVICE RELATIONSHIPS

 

  1. Please explain a public-private partnership (P3) and the associated benefits and risks.
    • The public entity and the private sector party mutually share risks and rewards related to the project. 
    • The public entity retains some control over the project (for example, right of inspection or audit) and retains ultimate ownership of the project. 
    • Significant capital investment through the issuance of bonds is usually unnecessary - instead, the private-sector party is responsible for financing the project and the public entity pays the private party back over time. 
    • Construction costs are typically determined in advance and fixed.  The private-sector party is typically required to pay for any overages.
    • Cost savings can be significant because one party is responsible for all aspects of the project versus contracting with different parties for different money amounts.
    • Financing costs can be high (although public entities can typically obtain financing at lower rates than private parties).
    • A public entity has less operational control.
    • There is a risk of revenue loss when projected demand for a project is outweighed by the actual demand.
       
  2. . What is Contracting-for-Service?

    When ownership is retained at the onset by the provider and a town is contracting with a specific provider for that provider to expand their service to serve the town, the relationship is defined as Contracting-for-Service, as opposed to a Public-Private Partnership (P3).

    A town entering a contracting-for-service relationship would not be creating its own network and is therefore not subject to the restrictions in 24 V.S.A. § 1913. Tax revenues, bond proceeds, commercial bank loans, and grants from the national government can be used when a public entity contracts with a private party to construct discrete portions of a project. For instance, funds dedicated to economic development be used to support such an arrangement.   
     

  3. Is a P3 permissible where a town and provider agree that the town will build fiber connections between municipal buildings and the provider will subsequently build out to any remaining locations?

    24 V.S.A. § 1913 allows for towns to spend funds derived from a town taxing authority only for the portion of a project used for its own municipal purposes. 

     

  4. Are towns required to solicit requests for proposals from providers to serve or assist with serving unserved or underserved locations?

    No. However, pursuant to 24 V.S.A. § 1913(f), towns may issue a request for a proposal where the town enters a P3 (see below) for the operation and management of a communications plant.
     

  5. Does a P3 trigger Internal Revenue Code private activity bond issues? If so, will this affect a CUD or a town’s tax-exempt status?

    Towns should discuss private activity bond and tax-exempt issues with their legal counsel.

  6. Can a capital lease back a revenue bond?  If so, please explain the process and associated risks.

    Towns should discuss specific leasing arrangements with their legal counsel.