CHICAGO - A Wright County, Minn., judge last week dismissed a lawsuit filed by Bridgewater Telephone Co. against the city of Monticello that argued its $26.4 million bond issue to fund the installation of a fiber-optic broadband communications network violated state law.
The company, a subsidiary of TDS Telecom, filed the lawsuit in late May, seeking to have the bonds that were issued earlier in the month declared void. The bond proceeds have sat in an escrow since the lawsuit's filing.
Bridgewater, which is building its own fiber optic network in the city, argued that the city had no authority under state law to issue bonds to fund a business that would provide Internet, cable television, and telephone services. The company also argued that the use of an operating reserve fund to pay for current expenses violated Minnesota law.
Monticello - which won voter approval to fund the system with a bond issue in September 2007 - asked the court to dismiss the lawsuit and attorneys for the city and company appeared before Judge Jonathan N. Jasper to argue their sides in July. TDS currently provides cable and phone service to the city.
In his ruling last week dismissing the lawsuit, Jaspar concluded that the city did have authority to issue the bonds because the project falls under the category of a "utility or other public convenience" under state statutes that govern local governmental bond issuance.
The judge also rejected the argument related to the use of the operating reserve to pay current expenses, noting that the fund must be exhausted within three years and would be tapped to cover start-up project costs and not general current expenses unrelated to the project.
The unrated revenue bonds will be repaid solely with revenue generated from users of the network.
Oppenheimer & Co. served as underwriter and the bonds captured yields of between 6.5 % and 6.75%, according to city officials. Construction of the network would allow the city of 11,000 residents located just northwest of Minneapolis to join the ranks of a few dozen local governments that operate such a network.
TDS officials did not return calls to comment on whether they would appeal the ruling. City finance director Tom Kelly on Friday said city officials planned to meet later in the day with their attorneys, but he expected that for the time being the bond proceeds would remain in the escrow.
However, Monticello is moving forward with construction, dipping into reserves it holds in connection with a city-owned liquor store operation. In July, the City Council awarded a contract for the Fiber Loop project that includes installation of 11 miles of fiber optics that is an important subset of the larger overall network.
The Fiber Loop will connect important commercial, industrial and civic facilities to high-speed fiber optics for data only services. Construction began in August and it should be completed later this year. The further building out of the system however would require the use of bond proceeds, Kelly said.
