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City of Ashland, Oregon / City Recorder / City Council Information / Packet Archives / Year 2005 / 06/07 / AFN Options

AFN Options

Council Communication

Options regarding the Ashland Fiber Network

Meeting Date: June 7, 2005 Primary Staff Contact: Gino Grimaldi E-mail: grimaldg@ashland.or.us
Department: Administration Secondary Staff Contact:
Contributing Departments:
Approval: Gino Grimaldi

Statement:
At the City Council meeting of May 10, 2005 the City Council indicated an interest in discussing options regarding the future operation of the Ashland Fiber Network (AFN) and the possibility of the creation of a committee to evaluate those options.
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Background:
AFN has been in operation approximately nine years. Initial construction costs were estimated to be $6 million and actual construction costs were $9 million. Funding for the construction of AFN was accomplished through a combination of internal borrowing and two bank loans. Operating losses since the start of the operation of AFN are $7.5 million and were funded through internal borrowing. Due to the lack of available cash for internal borrowing, the City Council authorized the issuance of bonds in the amount of $15.5 million and eliminated the internal borrowing. At this time, AFN is unable to generate sufficient revenue to pay both operating costs and annual debt service.

In the spring of 2004, Navigant Consulting was hired to develop new revenue opportunities, review operating procedures and staffing, and develop new marketing ideas and initiatives. At that time, it was anticipated that AFN would have a positive net income beginning in 2007-08 based on the successful implementation of a number of initiatives and recommendations that were presented to the City Council in March, 2004. AFN staff has implemented most of the initiatives and recommendations. The results of the initiatives have been disappointing and achieving a positive net income in 2007-08 is not realistic. Updated financial projections do not anticipate achieving a positive net income in the near future. The 2005-2006 Budget Committee approved budget includes a $500,000 subsidy from the Electric Fund in order to meet debt service requirements. This subsidy is anticipated to grow in the following years.

City Council direction is needed regarding the evaluation of options for AFN. Potential options include:
1. Sell all or a portion of AFN
2. Creation of a not for profit entity for all or a portion of AFN
3. Maintain AFN as utility with no significant change in services
4. Maintain AFN as a city operated enterprise with investment in new services/products

Several Councilors have suggested the creation of an AFN Options Committee. The purpose of the committee would be to evaluate four options regarding the future of AFN. It has been suggested that the committee use a two step process where the committee would develop a preliminary list of options for City Council consideration. The City Council would then narrow the list and have the committee develop the options in additional detail including but not limited to costs, benefits, strengths and weaknesses. The committee would not be tasked with making a recommendation for a particular course of action. A five person committee with business, technical, cable industry, and financial expertise has been proposed.

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Related City Policies:
None
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Council Options:

Committee Creation
1. Create a committee as proposed:
a. Authorize the Mayor to appoint an ad hoc committee;
b. Use the appointment process used for boards and commissions.
2. Do not create a committee.
3. Other.

Selection of Options for Evaluation
1. Use the two step process proposed (assumes the creation of a committee).
2. City Council selects options to be evaluated prior to the creation of a committee (if a committee is not created, the options would be evaluated by staff and presented to the City Council).

Staff Recommendation:

Committee Creation
It is recommended that the City Council authorize the Mayor to appoint a five member ad hoc committee. This will allow the committee to be created quickly and will allow for the recruitment of members with business, technical, cable industry, and financial expertise.

Selection of Options for Evaluation
It is recommended that the City Council select options to be evaluated prior to the creation of a committee. This will provide a clear focus for the committee that will use committee and staff time most efficiently. It is recommended that the committee evaluate the four options noted above.

Potential Motions:
A motion to implement the options noted above is appropriate.
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Attachments:

Please click on the PDF file link below to view the following attachments:
   • Strategies for Strengthening AFN by Councilor Hartzell.






Download File
AFN Strategies Memo.pdf
(61.4KB)		  

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