Managing the Managers (VNews Submission)

"Practice makes perfect," someone's said, but they can't have meant democracy. 

The democratic debate over competing interests -- from New England Town Meeting to state capitols to Washington -- remains as fractious and messy as ever.  Messier, maybe, as that democratic debate is increasingly filtered through a vast and growing bureaucratic layer of government administrative roles and regulation. 

Indeed, throughout the Upper Valley, New England's experiment with direct democracy is giving way to a more modern, suburban, bureaucracy.  Town meeting gives way to the Australian ballot. Volunteer selectboards cede ever more authority to professional administrators, signaling that American government, even in small communities, may no longer be a matter for amateurs. 

Here in Norwich, our experiment with professional administration began in 2002 when we hired our first town manager.  Barely ten years later, convulsed by a series of public controversies, we're on to our fourth town manager with new controversies brewing.  While the details of these spats are fascinating to the participants -- and make good Valley News headlines -- the underlying struggle they signify is relevant to all your readers: 

Where do we, the amateur citizen-taxpayers, fit within this increasingly bureaucratized democracy?

Last September ("Due Diligence" 9/23/12), the Valley News took the position that voters unhappy with our Selectboard's decision to pursue a contract with VTel must content ourselves with the opportunity to elect different selectboard members when these face re-election in 2014.  We've taken a more robust approach; twice gathering sufficient signatures to place the VTel contract before town voters.  Twice we've been rebuffed by a narrow three-member majority of our selectboard.

Knowing we would secure the necessary signatures to force a bond vote over their opposition, we offered the Selectboard an opportunity to warn the bond vote themselves -- on their terms and for an amount they felt adequate to build a municipally-owned tower in place of the VTel contract.  They could not muster a majority to offer an alternative so we gathered nearly twice the signatures necessary essentially over a weekend. 

A little dose of direct democracy?  Not so fast. 

The bond vote now just a week away, our town manager, seeking to short-circuit the vote, is now pressing our selectboard to enter into a binding contract with VTel at their meeting this Wednesday. Resorting to a now familiar pattern, we are told doomsday scenarios, that VTel is the only option, suggesting this decision is simply too important to be left to the voters. 

While I don't question the sincerity of our town manager's ultimate goal, the methods he's employed exemplify the risks we face in this brave new world of bureaucratized democracy.  It also suggests your paper's confidence in the curative qualities of a ballot box may no longer apply.

Where do amateur citizen-taxpayers fit in if a town manager dictates the selectboard agenda and controls the flow of information to define the grounds for debate?  How can amateur citizen-taxpayers match the time and resources our own tax dollars provide our town manager to manage that debate?  We can't simply "vote the bums out," because we don't get to vote for town manager.

Instead, in today's bureaucratized democracy, we must hope our selectboards learn how to manage the managers.  We have to find ways to hold bureaucrats accountable without making them political appointees (or scapegoats).  And we need to recognize the same complexity that makes direct volunteer management of town affairs unrealistic also makes volunteer oversight of professional management very, very difficult.  Wish us luck.

(This piece was subsequently edited by the Valley News prior to publishing on 2-26-13)

Playing with the Big Boys

Open Letter to the Norwich Selectboard
Monday, February 25, 2013

Today, just two days before a vote will be taken, the Town Manager released the proposed definitive agreement with VTel and, as some had feared, it is is not a pretty sight.  In my opinion, it appears we've simply accepted VTel's opening offer, resulting in such a lopsided deal that the Selectboard and taxpayers should reject it out of hand.  I explain my reasons for this at length below.  My apologies for any rough edges, this is a lot to get done on such short notice.  I have posted an annotated version on my blog where you can click through to source documents, so you can confirm for yourselves if you have questions about sources for my information:

Now bear with me here, it's not rocket science, but it does require some explanation.

First, let's all remember this VTel contract is a business deal.  VTel isn't offering to build this tower our of altruism or community spirit.  This tower will generate several million of dollars in revenue for VTel over proposed 60-year term of this lease, so the initial cost of tower construction and permitting are a no-brainer for them.  VTel is in this for the profit -- I have no quibble with that -- but please be realistic about whom we are dealing with here.

Seeking profit, VTel wants to minimize their costs and maximize their revenue, plain and simple.  Any rent or revenue share VTel is required to pay Norwich to lease our land under this contract is a cost.  Naturally, they are going to offer as little as possible up front in terms of rent and revenue sharing to see what we'll accept.  That offer is nothing more than an opening gambit to get the best possible deal for VTel.  Unless we are willing to approach this as a business deal -- looking to maximize our rent income and revenue share -- we are giving up something of value (municipal property) for much less than it's worth to VTel.

So let's say VTel came to me, a private landowner, asking if I would be interested in leasing the top of my hill for a cell/LTE tower.  Ok, let's talk, and I start to do my research:

Typically, a tower site lease has three types of revenue provisions:


Ground Lease -- A monthly or annual rent of the ground on which the tower and supporting equipment are sited.

You can google cell tower leases and will find a wide variety of lease amounts -- ranging from less than $1,000/mo for unsophisticated, generally rural, landowners to more than $4,000/mo for urban locations more highly desirable to tower developers.  From the DRB hearings on the Verizon tower we permitted back in 2006, it's my recollection that landowner was to receive an initial ground lease rate of $17,000 annually.

Now, my hilltop -- and the town's DPW site VTel wants -- is a far more attractive site than Verizon's tower on Upper Loveland Road, especially with a 199' tower on it.  Ours can reach downtown in a very affluent community and ours is more than twice as tall as the Verizon tower.  But for comparison's sake, let's keep our expected ground lease figure conservative, at just a bit over what Verizon was paying six or seven years ago.

So, if I'm negotiating with VTel on a tower lease, I'm asking for at least $1,500 in monthly ground lease rent = $18,000/year. 


Co-locator/Sublease Revenue Share -- Tower operators sublease space on their towers to other broadcasters, allowing them to "co-locate" their transmitters on the same tower.  Operators charge these co-locators rent and view this rent as a major -- sometimes primary -- source of revenue.  Landlords who lease their land to tower operators generally require those operators to share that sublease/co-locator revenue since without their land there's no tower space to lease.  These co-location or sub-lease rental rates cover a similar range to ground lease rates.

At present, AT&T and T-Mobile transmitters are co-located on the Verizon tower on Upper Loveland Road, paying monthly rent for that privilege.   A tower such as this with three different companies co-located and paying rent can produce a very sizable income.  I don't have access to the specifics of how much they pay in rent on this tower; how much they share with the landowner; or how to find out, so more general data will have to serve.

One tower lease consultant's website includes a 2010 survey summary showing the highest and lowest annual lease income from towers in a number of states.  For Vermont, they report a low-end annual lease revenue of $92,000/year and a high-end of $412,000/year, presumably up in Chittenden County.   Just to be clear, those figures include both ground lease and co-locator rents.  We aren't Chittenden County, but we ain't chopped liver either.

So, I want a share of the co-location revenue VTel receive on the tower they want to build on my property, but how much of a share should I ask for?

If you google "cell tower co-location revenue share" you'll find, among other things, a Bay Area consultant's 2011 report for Juneau, Alaska - the "Kreines Report".   This is an excellent resource as it views the entire lease from the eyes of the municipality.  I'd strongly recommend it to anyone who wants to understand what the Selectboard is actually voting on this Wednesday.

On Page 4 of the Kreines Report, they advise that "50% revenue share is the market standard."  They then proceed to give examples of 50/50 co-location revenue shares from Wyoming, Florida and Tennessee.  They conclude by stating: "A rationale for use of the word "sharing" is that most people think it means 50/50. Any tweaking of the present meaning of share is a distortion of the term "sharing."

In addition to the Kreines Report examples, I've found numerous examples of other municipalities and school districts with towers providing a wide variety of co-location revenue shares ranging from 10% to 70%, but the majority I've found are around 50%.

So, if if I'm negotiating with VTel on a tower lease, I'm asking for a 50% share of the co-location revenue they receive on the tower they want to build on my property.


Rent Escalator Clauses -- There is a cost to tying up a property with a lease over a period of time since you can't do anything else with that property in the meantime, often referred to as the "opportunity cost" of a transaction.  There is also a time value of money, meaning a certain amount of money today -- like a $1,500 monthly lease payment -- has different buying power over time due to inflation and other market variables.  Where a long-term lease is involved, it's customary for the lease to include a "rent escalator" that increases the rent amount over time to compensate the lessor for the opportunity cost and time value of money involved in a multi-year contract of this kind.

Tower operators routinely require rent escalators when they allow co-locators on their towers.  Tower operators often grant landowners similar rent escalators if the landowner knows to ask for it. (Google away)

The Kreines Report states, "it is true, there are some leases that never mention escalation because the lessee never brought it up and the lessor wasn't aware of the issue." The report then summarizes an April 2011 survey of several dozen tower leases rent escalator clauses to conclude: "statistically speaking, there can be little doubt that 3% is the mode (or most common) escalation rate."

So, if if I'm negotiating with VTel on a tower lease, I'm asking for a 3% annual escalation rate on the ground lease and, with my 50% co-location revenue share, I already participate in the escalation rate they receive for co-locators on the tower they want to build on my property.


Lease Term -- Finally, I need to decide on how long I'm willing to lease my hilltop to VTel.

Asked by the Juneau city government to offer guidance on their tower operator's request for a 35-year lease term, the Kreines Report states the situation succinctly:  "Technology being what it is - fast moving - a 35-year term is a commitment to the unknown.  Twenty-year and 25-year terms compete for the most commonly used term in cell site leasing."  And if you google the dozens of cell tower lease summaries out there, you'll see the vast, vast majority are really five year leases with the right to renew four or five times up to a total of 20 to 25 years.  In fact, google "60-year cell tower lease" and see what you get.  60 months -- plenty, but 60 years? 

So, if I'm negotiating with VTel on a tower lease, I'm not willing to entertain anything longer than a total 25-year lease on the tower they want to build on my property.

And remember, my goals for this hypothetical VTel lease are not extreme or even aggressive, they are industry standard.

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Now, if you examine the proposed VTel Agreement our Town Manager negotiated and wants approved on Wednesday, you realize just how out of our depth we are in dealing with VTel on this.

- We aren't charging any ground rent.
- The co-locator revenue share formula our TM has negotiated is three cents on the sublease rent dollar.
- We have no escalator clause of any kind for either the ground rent or the revenue share formula for the entire duration of the lease.

AND the lease term is 60 years, renewable solely at VTel's discretion.

This is simply a very, very lopsided deal that, if approved, we will regret for decades to come.

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"But, hold on there," you say.  "This is not a matter of a private landowner leasing a hilltop to VTel for a tower.  This is a town trying to get our emergency communications transmitters up high enough to provide good coverage throughout town.  Don't look a gift horse in the mouth! If VTel's willing to build the tower and let us put our transmitters on top, we shouldn't quibble over rent, co-locator share, or escalators."

Fair enough.  Let's revise our bargaining position with this municipal purpose in mind.

Let's assume our TM decided that it's a fair deal to give VTel the site rent-free in exchange for hanging our antennae on the tower rent free.  But how did he -- and how do we -- figure out whether that's really a fair deal?

Industry standards and the Norwich Verizon tower lease suggest $1,500/mo as a ground lease is within reason.
That's $18,000 a year, assuming no rent escalator at all.
Over a typical five-year lease term, that's $90,000 in rent, again assuming no rent escalator at all. 
Over a typical five 5-year lease extensions -- totaling 25 years -- that's $450,000 in rent we're giving up, again assuming no rent escalator at all.
Over VTel's proposed 60-year lease that's foregone rent in excess of $1 million.  Assuming no rent escalator at all. 

Are we willing to pay over $1 million over the next sixty years for these antennas?  That's exactly what we're doing by giving VTel this lease rent-free.

Add to this the astonishing 3/97 split with VTel on any co-locators.

Let's say a cell company wants to co-locate on VTel's tower and will pay $1,000/mo, this time with rent escalators because VTel is a business and they don't overlook things like rent escalators.  And once you see the compounding effect of rent escalators, you'll understand why:

A co-locator paying $12,000 annual rent in year one would have paid a total of $65,261 over five years; $450,277 over 25 years; and a whopping $2,014,980 over 60 years.

With VTel's proposed revenue share of 3%; our share of this annual rent is $1,957 dollars and 83 cents over five years; $13,508 over 25 years; and an underwhelming $60,449 over the full 60 years.

And that's assuming only one co-locator.  Verizon already has two co-located competitors on their tower only a few years after building it.  And we all know Verizon's tower doesn't reach downtown Norwich very well.   So who knows how many co-locators VTel might have, particularly over 60 years, but even two over half that period would generate hundreds of thousands of dollars each for Norwich and VTel with a more equitable revenue share.

Are we willing to pay several million dollars in foregone rent and potential foregone co-locator revenue share over the next sixty years for these antennas?  That's exactly what we're doing by giving VTel this lease rent-free, no rent escalator, and asking only 3% in co-locator revenue share.

"But, wait," you say, "our Town Manager looked into this and says there aren't any other companies interested in this tower at this time."

Well, VTel is in this business.  VTel makes their money 1) by charging customers for the 4G LTE subscriptions they broadcast from VTel transmitters, and 2) by charging other cell/data broadcasters "co-location" rent to add their transmitters on the same tower.  Their contract with us clearly stipulates their rights to sub-lease to co-locators (VTel Agreement Section 4(b)) and clearly forbids us from doing the same (Section 4(e)).  They clearly felt it was important to limit our revenue share to 3% on those future co-locators.  And the industry standard shows tower developers all over the country are willing to build towers, pay base rent and 50/50 revenue shares to landowners, and they still see an attractive profit margin in the end.  I'm not begrudging them their profit, I'm just questioning why we are willing to be such patsies.

So are these antennas worth potentially several million dollars in foregone rent/rev share income over these next 60 years?

The point is, nothing like this level of analysis was ever done to justify granting VTel this ground lease rent-free.

Nor have any of us been provided any substantiation for the 3% co-location rev share rates VTel is being given.  When I challenged that figure last August at a selectboard meeting, our Town Manager simply stated he had the impression this figure was not negotiable in VTel's eyes.

Of course our Town Manager is also recommending a 60-year lease.  Unilaterally renewable by VTel.  So whatever failure to perform basic due diligence on these lease terms today, this town lives with for another sixty years.

Unless there were documents circulated which were not shared in public, no effort was ever made to compare this proposed contract with industry standards.  No effort was made to quantify the potential revenue we are giving up in return for having the top of a tower they own and operate.  No effort was made to review what VTel's initial offer had been or what our TM's goals were in whatever counter offer -- if any -- he proposed.

Whatever you want to say about Michel Guite and VTel, give the guy credit as a shrewd business man.

He's mastered the broadband spigot in Montpelier and he's run circles around us.

As his coup de grace, the original Letter of Intent stated as an objective, "The parties are entering into this agreement in hopes of establishing a model whereby wireless companies and public safety entities can work together towards a common goal of improved communications."

In other words, this agreement is meant to serve as a model lease VTel can take to other towns throughout the state as VTel rolls out their LTE broadband service.  Vermont towns lacking the resources we have at our disposal will expect we got our money's worth when we negotiated our agreement with VTel.  And they will be sadly, sadly mistaken.

The proposed VTel Agreement is simply a bad deal for Norwich, compounded by a ludicrous 60-year term.  It is simply irresponsible to move forward on this Agreement given the complete lack of public due diligence on what is the largest infrastructure project this town has undertaken in decades.

This is not the way to negotiate a business deal.
This is not the way to run a town.
This is not the way to build a tower.

We're now in our fourth month of an emergency communications gray-out; with a rotten 60-year tower deal on the table and the only realistic alternative -- a bond vote to fund the tower ourselves -- publicly opposed by our Town Manager.  It's time to discuss alternatives with an open mind because, however you look at it, we've been painted into a corner and the door is on the other side of the room.

Judgment Calls and Public Safety

I would simply point out a telling factual misrepresentation in Steve Flanders' post from yesterday:

"Despite the best efforts of the town manager and selectboard, we are now in a communications “gray-out”, compared to last year. This means that first responders are unable to receive pager notifications and voice communications in areas where they previously could when a medical emergency or fire occurred. This is true not just in outlying areas, but also downtown."

I guess this comes down to how you define "best efforts." 

This "gray-out" was the foreseeable and avoidable outcome of our Town Manager's decision to forego an FCC extension and narrowband our emergency communications equipment without a tower in place.

Back on September 5th, Donald Kreis presented the Selectboard with a roadmap to securing an FCC extension that would have allowed the town to continue using our existing "wideband" emergency communications equipment until the new broadband system was up and running. 

A day later, the Selectboard received a letter, signed by 124 residents, also asking the Selectboard to file for an FCC extension to December 31, 2013 or later "if warranted by your judgment." 

At their September 12th Selectboard meeting, the Town Manager rejected the idea of an FCC extension, stating that we don't own the towers where our transmitters are placed.   He stated that getting an FCC extension for our transmitters would put those towers (in Hanover and Hartford) in violation of the federal narrowbanding mandate.  (See September 12th SB Meeting video).  He further stated his intention to have all our emergency services switched over to narrowband equipment by November 15th.  (See September 12th SB Meeting Minutes) 

This prompted my listserv post/letter to the Selectboard questioning their unwavering reliance upon our Town Manager's factual representations.

As I explained in that letter:

At the September 12th Selectboard meeting to consider seeking an FCC extension to allow time for a more thorough review of our options, this Town Manager stated categorically that an FCC extension is pointless because our transmitters are located on towers in Hanover and Hartford.  An FCC extension for us, he claimed, would therefore place both Hanover and Hartford in violation of their FCC narrow-banding requirement. 

And yet First Student, the national school bus company, received an FCC extension last Spring that includes frequencies transmitting from more than 100 different call signs owned by municipalities or private telecommunications companies who aren't deemed to be in violation.  See FCC extension, esp. footnote 3: http://transition.fcc.gov/Daily_Releases/Daily_Business/2012/db0731/DA-12-1227A1.pdf

A call to FCC counsel confirms that the FCC licenses -- and extends licenses for -- transmission frequencies by call signs, regardless of the location or ownership of those call signs.  The 2010 draft feasibility study itself outlines options for implementing Norwich-only frequencies to improve existing wide-band and future narrow-band reception on existing towers.  And yet public debate of the extension option is reduced to a single categorical statement it can't be done.

Looking back, it seems clear our Town Manager expected a VTel tower to be in place fairly soon so the risk of having a few months of an emergency communications "gray-out" as we have today was an acceptable risk.  As he stated in the Selectboard Minutes from that same September 12th meeting, "the permit package is being prepared by VTel and should be submitted to the Public Service Board in September."

Perhaps he was also concerned an FCC extension would remove the December 31, 2012 deadline that he and some Selectboard members had used to justify the lack of time to consider tower alternatives?

Unfortunately, though perhaps foreseeably, it's February 24th and VTel has yet to submit a pre-application notice to even begin the Public Service Board permit review. 

The decision to narrowband by November 15th was a judgment call.  A judgment call with clear implications for both our emergency services personnel and those they serve.  It was a judgment call which grows more questionable by the day.

Based on my attendance at Selectboard meetings and regular review of  their minutes and information packet, never once was there any public discussion of the risks involved in proceeding with narrowbanding in the event the VTel tower was delayed or VTel drops out.  Never once was the possibility of securing an FCC extension to maintain public safety in the interim seriously considered. 

"Best efforts?"

I'm willing to concede you meant well.  But good judgment -- and certainly best efforts -- are not simply a matter of making decisions.  They are a matter of making decisions based on weighing a variety of information sources, including those you may wish to ignore. 

CC

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From: Stephen Flanders
Subject: [Norwich] Why I will vote on March 5th to approve the Norwich Radio Communications System Bond
Date: Sat, 23 Feb 2013 07:36:30 -0500
Title: Why I will vote on March 5th to approve the Norwich Radio Communications System Bond