Fort Collins Connexion needs $20 million funding boost for last phase of buildout

Fort Collins Connexion, the city’s municipal broadband service, plans to seek out another $19 million to $20 million in construction funding to pull off the last stretch of the network buildout.

The addition would increase Connexion's budget by about 16%, but Connexion's director assured city leaders Tuesday that it's likely to be the last budget increase for the project.

The funding news came in a Fort Collins City Council discussion of the Connexion buildout that included several other updates: Connexion is well ahead of the residential take rate needed for financial solvency. The broadband network is behind on uptake for commercial properties and multi-dwelling units, such as apartment complexes. And staff plan to release in the next few months an update to the Connexion business plan, which contains many inaccurate financial projections created before construction began.

Previous coverage: Why Fort Collins Connexion has been so quiet on the municipal broadband buildout

“We are moving forward a much more transparent Connexion,” Executive Director Chad Crager said. “And with that, we're going to talk about things that we're doing well, and also some of our challenges and how we're going to address those as we move forward.”

Connexion leaders expect construction to be finished by summer 2022 and for service to be available to all premises by the end of 2022. "All premises" doesn't necessarily include apartment complexes and other properties that need owner permission for construction.

Previous coverage: How Connexion is progressing as 2022 buildout deadline nears

Connexion’s take rate for residential areas is 31%, meaning 31% of households with access to service for at least 90 days have signed up. The take rate needed to pay back the bonds is 28%, and Crager said staff expects a 35% residential take rate by the end of 2022. Residential properties make up about 90% of Fort Collins properties.

Connexion service is now available in about 66% of the city, with most of the remainder under construction. Crager said staff plan to update the “find my address” feature on the Connexion website by next spring to include estimates for when service will be available in areas that are still under construction.

Connexion service isn’t yet available in many apartment complexes, which are classified as multi-dwelling units and require property owner permission for construction. Multi-dwelling units will need more attention in 2022 because the city has to negotiate agreements for each one. There are over 500 multi-dwelling units in Fort Collins, and Connexion’s goal is to reach 150 of them in 2022. Connexion plans to sign on with Colorado Boring next year to work on fiber for multi-dwelling units.

Connexion leaders have a few options for sourcing the $19-$20 million of additional funding, Fort Collins Chief Financial Officer Travis Storin said. Connexion could borrow the money from another city fund and eventually repay it, or the city could issue more bonds, among other options.

In a 2017 ballot measure, Fort Collins voters allowed the city to issue up to $150 million in bonds for the project, and the city issued $129.6 million in bonds in 2018 — meaning the city is legally allowed to issue another $20.4 million in bonds.

If Connexion issues more bonds, the city would plan to repay the money with Connexion revenue. The city is on the hook for its first installment of 2018 bond repayments in December 2022, with additional installments due each December until 2042.

Storin said an interfund loan could be a preferable option to bonds because the expenses will incur over a three-year period, and bonds often draw funds all at once. Council members will have the final call on whether to appropriate the money and where it should come from.

Regardless of the funding source, the additional funding would bring the total construction budget to $143 million. Crager told Fort Collins City Council on Tuesday that he’s confident this will be the final extension of the project budget, following additions of an $8.2 million extension in September and $5.4 million before that.

Council member Julie Pignataro asked Crager what gave him that confidence, noting that council members have been “burned” before — the revamp of the Fort Collins Utilities billing system had its budget extended several times despite assurances from staff that no more extensions would be necessary.

Crager said he feels more certain about the updated projections because project design is now 100% complete, and boring, the most laborious and costly aspect of construction, is almost finished. That means staff now knows “how much is exactly needed to finish the job.”

“One of the biggest risks this project had in the beginning was that everything was underground,” he said. “What gives me the confidence is knowing that we've moved past that, and not only does that (mean less impact on) our residents, but it gives me a lot more confidence that I won't be back here asking for more money in the future.”

Where Connexion's business plan was off

Connexion’s business plan projections underestimated the cost of installations by about 20% (or $113 per installation) and underestimated the cost of premise boring by $8.5 million, Crager said. The latter, in simpler terms, means the business plan didn’t consider how expensive it would be to bore through parking lots and driveways.

The plan also was overly optimistic about the commercial take rate, projecting that 45% of commercial properties with access to Connexion service would sign on by the end of 2022. Connexion has updated that projection to 28% by the end of 2024 to account for the increase in remote work, which has reduced some businesses’ need for broadband service, and the tendency for commercial properties to have more specific broadband needs.

There are also about 8,000 more premises, or properties, in Fort Collins than the business plan projected.

One of the main drivers for the increased construction cost was the lack of available conduit, Crager said. The business plan projected that about 72% of the conduit needed for the fiber network was already installed underground because the Utilities network included large amounts of “empty,” or unused, conduit that the city thought could be repurposed for Connexion. When crews got underground, however, they discovered that much of the conduit was up to 50 years old and wasn’t usable. Ultimately, existing conduit covered 48% of the project’s conduit needs.

"We thought we had all this vacant conduit, which would really bring down the overall cost of the project, and what we found is we had to do much more boring than we anticipated,” Crager said.

"If we could all go back and redo the business plan, we would,” he added, noting the new business plan will be shared with the public.

Connexion has a new billing system

Connexion rolled out a new billing system for customers this week with contractor GLDS. The new system allows people to sign up for service online and make other account changes without calling in, an awaited option for Connexion customers. Crager said a new customer service support hub is launching in mid-January.

The next steps for the Connexion funding additions will be a deeper discussion at Council Finance Committee on Feb. 6 and potential appropriation in February or March.

Connexion remains in the black because lower-than-projected operating expenses are compensating for lower-than-projected revenue. As of October 2021, Connexion's revenue was about $4.45 million compared with a projection of $9.29 million. Operating expenses were $4.9 million compared with a projection of $10.93 million.

Editor's note: This story includes a clarification about the city's consideration of bonds as a source of additional funding for Connexion. Bonds are one of the options, but so is a loan from another city fund, among other things. Fort Collins CFO Travis Storin said bonds are not the most likely source at this point.

Jacy Marmaduke covers government accountability for the Coloradoan. Follow her on Twitter @jacymarmaduke. Support her work and that of other Coloradoan journalists by purchasing a digital subscription today

This article originally appeared on Fort Collins Coloradoan: Fort Collins Connexion needs more money for last phase of buildout