January 10, 2013
In December we noted that Thames Valley Communications (TVC), a Groton, Conn. government-owned network, was faced with shutting off service if the city could not find a buyer for the system. The city had worked for more than a year to find a buyer, contacting more than 35 potential buyers.
The good news? Even though there were only two offers, the network was sold. The network’s customers will not lose service and TVC employees should keep their jobs.
The bad news? The price: a measly $150,000, which means the city took $34.35 million loss on the deal. (According to Ledyard Patch, “From 2006 to 2008, the city borrowed $34.5 million to build and expand” the network.)
The city had also subsidized the GON. When “sales were flat” the city stepped in with an annual $2.5 million operating subsidy to the system.
The city just couldn’t afford that subsidy and, in December, Groton officials decided to sell the system before the losses piled even higher. According to Patch, debt ratings agencies had already downgraded the city’s bond rating based on TVC’s poor performance and outlook, and were considering doing so again. Patch reports, “The bond rating houses that evaluate the financial health of cities and towns had honed in on the problems with Thames Valley Communications. Moody’s gave Groton City a AA2 rating in 2011 with a negative outlook, asking how the city planned to improve. Then in 2012, the agency lowered the city’s bond rating to AA3 with a negative outlook, largely due to the failure to the communications company.”
While the city no longer owns TVC, the city’s utility system does own its debt, so even though the operating subsidies have ended, the debt payments will not for years. Groton plans to refinance to bring its payments down to $2.5 million a year.
The most unfortunate aspect of the story is that the debt burden Groton taxpayers will continue to shoulder even after this sale was unnecessary. Patch notes that at TVC’s inception at least two private sector companies were serving, or trying to serve, the city.
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