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July 09, 2004

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Palo Alto Online

Publication Date: Friday, July 09, 2004

Fiber tied up by financial woes Fiber tied up by financial woes (July 09, 2004)

November vote on high-speed Internet service unlikely

by Bill D'Agostino

o one's hitting the eject button yet, but city staff is asking the City Council to push pause on Palo Alto's $40 million plan to bring high-speed Internet access and digital television to the city's homes and businesses through a network of fiber-optic cables.

According to a recent city staff report, the city's financial forecasters and legal experts have not found a viable way to pay for the plan. Mayor Bern Beecham said the project will likely die if a new funding scheme is not found within the year. The City Council is scheduled to review the issue on July 19. That would still allow the council to place it on the ballot, a prospect many find unlikely.

Meanwhile, a few avid technology enthusiasts want all city residents to pledge $1,200 up front to pay for the venture.

"For all those in the community who find it difficult to invest $1,200 up front ... money should be lent to them by the City at nominal interest. However, no checks should be sent to the City until the City asks for them," Marvin and Alison Lee wrote on Thursday morning in an open letter to newspapers and residents.

The city's original financing plan called for using revenue bonds to pay for the investment, raising electricity rates if the project failed to recoup its investment. But a recent legal opinion garnered by the city -- which has not been made public -- suggests that Proposition 218 (approved by California voters in 1996) makes that plan illegal.

Joe Saccio, the city's deputy director of administrative services, said the proposition may make revenue bonds illegal because not all electricity ratepayers would benefit from the venture, although all would share the risk. The proposition prevents governments from assessing fees higher than a property owner's share of a service delivered to that property.

Other financing possibilities were shelved due to the risk of unprofitably high interest rates.

The city has spent more than five years and $600,000 studying the fiber-optic project. A trial of 60 homes demonstrated that the city has the technical know-how to install and maintain the technology. Many of those homes are still paying high fees for their fast Internet connections, but if the city finally rejects the proposal the spigot will run dry.

At a Utilities Advisory Commission meeting on Wednesday night, a few supporters of the fiber optic venture expressed frustration that the city appears to be hitting the stop button.

"I must say I was disappointed when the staff said Palo Alto should sit back and wait for somebody else to show us the way," said Bob Moss, a former council candidate. "Palo Alto should be the city that shows everybody else the way. We've done it before; I don't see why we should be sitting back now, doing nothing."

But Commissioner George Bechtel said the supporters themselves need to push harder for the project if they want it to move forward.

At past meetings, dozens of supporters lobbied the commission, wearing bright stickers and hopeful expressions. Wednesday night, there were only a dozen.

The commission agreed with the staff's assessment that the project should be halted, but recommended seeking alternative financing ideas from investment bankers.

If the council votes to suspend the project, the staff will monitor other California cities' efforts to pay for telecommunication projects.

Staff writer Bill D'Agostino can be e-mailed at

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