Gaylord Officials Keep Report Secret on Risk to Taxpayers with $70 Million Telecom Network

  --Officials in the city of Gaylord have informed the Freedom Foundation of Minnesota (FFM) they will not make public a key analysis of the potential financial risks posed by a plan to invest $70 million in bonding for the RS Fiber telecom network.  Proponents of the municipal broadband project expect RS Fiber to start paying for itself after three or four years. If not, a $4.5 million reserve fund replenished by local taxpayers in eleven cities and two counties participating in a joint powers agreement would be required to pay the system’s financial obligations.

An analysis of the potential liability in the event RS Fiber fails to attract enough customers was requested by the Gaylord City Council on September 5th.  City Administrator Kevin McCann noted in a memo that Stephen Rosholt, a Minneapolis bond expert, would review the bonding and debt service shortfall funding documents. The analysis cost local taxpayers about $1,500.

“His (Rosholt’s) initial thoughts are that it is a huge risk for the city since he is familiar with Monticello and other cases where the city got into a new venture that ended up costing cities a lot of money in the long run,” McCann stated in the memo.

It’s becoming clear the recent decision by Monticello, Minnesota to suspend bond payments for its FiberNet telecom system has clouded the municipal bond market for local government-owned telecom networks.  To guard against that possibility, cities and counties participating in RS Fiber are planning to contribute on a proportionate basis to a $4.5 million Debt Service Reserve Fund to make bond payments if necessary.

Rosholt deferred comment on his findings, referring FFM to Gaylord officials.  The report was sent to each member of the Gaylord City Council, but staff was instructed not to release the document. “We did consult again with the city attorney to see if we could send you a copy of the letter and his reply was the document is an attorney/client privileged document,” city staff said in an email.

Don Lannoye, attorney for the City of Gaylord, confirmed that the city is withholding the document on the basis of attorney-client privilege.  Lannoye cited a League of Minnesota Cities analysis of the Minnesota Data Practices Act that states “some communications between an attorney and client are subject to attorney-client privilege”. The document also states “it is not always readily apparent what communication qualifies and what does not…The attorney-client privilege must be balanced against the public’s right to access government data.”

“The Gaylord City counsel may choose to make the document public at some point by formally waiving the privilege or choosing to discuss the opinion in depth at a public meeting.  However, that is a choice for the counsel to make,” Lannoye said in an email to FFM.

Lannoye is an attorney with Schauer Law Office, which is operated by the part-time Sibley County Attorney, David Schauer.  In his capacity with Schauer Law Office, Lannoye serves as City Attorney for three cities participating in RS Fiber (Winthrop, Gaylord and Layfayette).  He’s also an Assistant County Attorney for Sibley County, another key participant in RS Fiber.

“This office has reviewed the documents that are being suggested by the joint powers entity and has issued an opinion to the County Board and the three City Councils that address the concerns that we as a law office have in regards to how the proposed documents could negatively effect (sic) all the municipal entities we represent.  Additionally, each individual municipality has hired independent bond council (sic) to also give a second opinion as to the merits of signing the documents provided,” Lannoye said in his email.

“The fact that this office has issued a blanket opinion on the documents and each municipality has retained independent bond council (sic), any potential conflict of interest should be negated.  There is no conflict in advising the City to, for the moment, deny your request to review the bond counsel's opinion as that is an issue specific to the City of Gaylord.”

While RS Fiber participants have the option of not paying into a debt service replenishment fund, there would be sharp consequences.  The penalties could include higher customer fees, service cuts to city hall and a reduced credit rating for the city, according to city council minutes from September 5th. The Rosholt report is expected to come up in discussion at the Gaylord City Council meeting on Wednesday, September 19th.  It’s not clear, however, whether the Gaylord taxpayers that paid for the report will be allowed to see it.                                                                 ###

       Tips or comments? Contact Tom Steward at 612-354-2165.


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