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Revenue Neutral Municipal Involvement

The original Freenet project required very little involvement on the part of the City of Lawrence. The City provided access to the right-of-way and certain city facilities and Freenet committed to providing free service for low income families.

 

With its core network established, Freenet is seeking very little additional involvement from the City of Lawrence. Our goal, as always, is to provide the most benefits to the community with the least investment. That is why Lawrence Freenet is not seeking a contract for paid service, or a subsidy from the municipal government; rather, the organization is seeking a loan guarantee that will allow a local lender to provide $4.9M in financing over the next 18 month.

Financial Proposal

To expand its coverage, increase capacity and improve reliability, the Freenet Project will invest $5.45M in network improvements. These improvements include:

 

  1. Installation of a fiber-optic backbone
  2. Expansion of WiFi radio coverage
  3. Installation of emergency power systems

 

To fund these improvements, Lawrence Freenet will borrow $4.9M from a local lending institution. The remaining $550,000 will come from Freenet's paying members.

 

This loan yields an exciting opportunity to fund the Freenet-Kids initiative in a manner that is revenue neutral to the City of Lawrence. This guarantee will enable the organization to borrow the funds at a significantly lower interest rate and over a longer period of time than would be possible otherwise. This frees up funds to provide universal access to the children of Lawrence.

 

The City's guarantee frees up funds sufficient to provide service to every child in Lawrence

 

The proposed loan would be guaranteed by both Lawrence Freenet and Community Wireless Communications Co. the project's primary service provider. As an additional indicator of good faith Joshua Montgomery, the project's founder, has volunteered to guarantee the note ahead of the City of Lawrence.

 

Order of Guarantors

Lawrence Freenet, Inc.

Community Wireless Communications Co.

Joshua Montgomery (Personally)

The City of Lawrence

 

In addition to providing paper guarantees, Lawrence Freenet and CWC have agreed to pledge the following collateral to the City of Lawrence.


 

Collateral Asset

Value

Existing Municipal WiFi Network

Underground Fiber-Optic Cable

Additional Network Infrastructure (Radio Equip.)

Total Collateral

$2,400,000

$1,900,000

$820,000

$5,120,000

Precedents

There are several precedents for municipal involvement in economic and social development projects of this type.

Existing Economic Development Projects

In May of 2004, the City of Lawrence approved a conservation easement for Orchard's Corners Golf Course, in which the City of Lawrence in conjunction with the Orchards benefit district steering committee was able to provide $280,000 in order to obtain a conservation easement on the property.

 

This action benefitted 50 families in a small neighborhood by keeping property values at a premium, improving drainage and guaranteeing that the land would remain green space for the foreseeable future.

 

Though Lawrence Freenet is seeking larger guarantees, the organization will benefit a much larger portion of the community, providing broadband services for up to 10,000 school age children.

 

This is one of many examples of how city government can get creative in order to finance a project that benefits the entire community.

Municipal Wireless

There are many municipalities throughout the country that are providing significant funds for municipal wireless projects. These communities see that their local governments, utilities, law enforcement agencies and citizens can benefit from universal Internet access.

 

Large scale projects are underway in Kansas communities like Olathe, Lenexa, Overland Park and even tiny Osage City. Around the country communities like Oklahoma City, Minneapolis and Corpus Christi are making large investments in these technologies.

 

In many of these communities the municipal government has taken the roll of financial partner by either purchasing the network outright or becoming an anchor tenant and guaranteeing a certain level of payment to the network operators.

 

By providing loan guarantees to Lawrence Freenet the City of Lawrence benefits the community by making free service available to school age children. At the same time the city benefits itself by ensuring connectivity for traffic control, providing universal access to the local library and providing service for city workers and law enforcement.

 

Existing municipal wireless networks have largely been supported by the municipalities out of general revenue. The approach that Freenet is proposing, where the non-profit organization pays off the loan, is new and novel. This approach makes the proposal revenue neutral to the municipality, while still providing the city with all of the benefits a municipal wireless network can bring to bear.

 

Examples of other municipal WiFi networks and their costs to the taxpayers appear below:

 

St. Cloud, FL

Nodes: 345

Building Cost: $1.9 million

Maintenance Cost: $276,000 per year

Unique Devices Registered: 11,719

Municipal Cost per node: about $7,100

 

Chaska, MN

Nodes: 250

Building Cost: $1.3 million

Labor was donated

Subscribers: 2,020

Municipal Cost per node: about $5,200

Moorhead, MN

Nodes: 352

Building Cost: $2.2 million

Municipal Cost per node: about $6,250

 

 

 

Lawrence, KS

Nodes: 550

Building Cost: $2.4 million

Subscribers: 1,200

Municipal Cost per node: $0

 

Alternative Financing Methods

The preferred method for financing the Freenet-Kids project is through a loan secured by Lawrence Freenet and guaranteed by Community Wireless and Joshua Montgomery. The City of Lawrence would then take the fourth guarantee position. There is a potential issue, however, in that securing financing using this method may not fit within existing statutory guidelines. If it is determined that Freenet's preferred method of financing the project does not fit within existing economic development financing models, Freenet would propose the following.

Municipal Bond Offering

One alternative method of financing the project would be to issue a municipal bond offering with Freenet as the beneficiary. Freenet would then pledge the existing network and the first $53,000 in monthly revenue to the City of Lawrence. The City would then use these funds to pay off the bonds over a 10 year period.

 

Alternative method of financing Freenet-Kids

 

This approach has the benefit that funds for the project could be obtained at an even lower interest rate and the resulting bonds would likely be tax exempt.

Other Traditional Financing Mechanism

Funding for economic development projects can take many forms. Since City staff has significant expertise in building economic development packages for desirable local businesses, Freenet would be very interested in working with the City of Lawrence to identify a financing mechanism that makes the project possible, while still acting in the best interest of the public.

Service Provider

As a non-profit organization dedicated to community service, Lawrence Freenet, Inc. is not well suited to developing and deploying technology using internal assets. Rather than become a tech company, the organization has decided to focus on low-income fulfillment, fund raising, strategic planning and interfacing with both the City of Lawrence and Westar Energy.

 

With this in mind, Freenet will implement the planned network improvements with its existing service provider, Community Wireless Communications Co. (CWC) CWC was selected as Freenet's choice of vendor due to lack of interest from other parties. Though Freenet approached local service providers early in the project no local service provider had any interest in partnering to provide the financing necessary to get the initial network installed. CWC approached other local service providers in July of 2007 to inquire about partnering to better serve Lawrence. No local service provider had any interest in a partnership. In addition to seeking a local partner, Freenet took out a national advertisement in the Washington Post on July, 10 2006 to solicit other interested parties, however the organization received no letters of interest. This solicitation appears as Appendix B. To date CWC has invested $2.4M in the project, taking a lion's share of the financial risk.

 

Lawrence Freenet sees no need to pursue another vendor for this phase of the project. CWC has demonstrated extensive expertise with deploying infrastructure and currently provides support, maintenance and fulfillment services on the behalf of the non-profit.

 

Attached as Appendix A is CWC's price fixed bid for installing and maintaining the required equipment for the next ten years. With investors like the Kansas Technology Enterprise Corporation and Douglas County Bank, CWC has the financial wherewithal to ensure that the implementation goes smoothly and the technical knowhow to ensure that the final product is of the highest quality.

 

A diagram showing the relationship between Lawrence Freenet, Inc. and Community Wireless Communications Co. appears below.

 

The Lawrence Freenet Project

It should be noted that a majority of the staff who work on the Lawrence Freenet Project full time work for CWC rather than Lawrence Freenet, Inc.; however, the board of directors of Lawrence Freenet is ultimately responsible for the project.

 

Lawrence Freenet Board

Current Profession

Adam Mansfield - President

Attorney - The State of Kansas

 

Kris Adair - Treasurer

Mother

 

Matthew Kuzinski - Vice President

Director of Technology - CLO

 

Todd Hiatt

Attorney - Ralston, Pope & Diehl, L.L.C.

 

Kevin Kennedy

Environmental Health Specialist - Children's Mercy Hospital

 

It should be noted that as part of any involvement by the City of Lawrence in the project, Lawrence Freenet, Inc. would request a member of the city staff join the board of directors. Though this is not mandatory, it would improve transparency and give the City of Lawrence a voice in how the project progresses. The non-profit would also welcome a member representing USD497, the Lawrence Education Association and any other community group whose mission is in line with Freenet's goals.

 

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