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LA Supreme Court hears utility broadband appeal

A lower court ruling that borrowing money to pay off bonds is illegal brings utility district's plans for public phone and Internet service to supreme court.
Written by Richard Koman, Contributor

It's a government utility against the telecommunications industry, as the Louisiana Supreme Court hears arguments on the Lafayette Utilities System's plans to deploy a phone, cable and Internet service, the Advocate reports.

Voters approved the plan but Louisiana 3rd Circuit Court of Appeals stopped the plan, saying that a law passed in 2004 at the behest of the telecom industry prohibits the utility's funding plans. LUS wants to borrow money at market rates to cover any shortfalls it may owe on its $125 million communications bonds.

The Local Government Fair Competition Act, passed by the Louisiana Legislature in 2004, was supposed to ensure a “level playing field” between privately owned and publicly owned communications businesses. A portion of the Fair Competition Act says that communications bonds must be “secured and paid for solely” from revenues raised by the new communications business.

But the 3rd Circuit ignored the Legislature’s intent and is “interpreting the law so as to tilt the ‘level playing field’ against local governments,” LUS argues in a brief filed with the Louisiana Supreme Court.

The 3rd Circuit decided that provision prohibited LUS from obtaining loans — at market rates — to help make up any shortfall on its regular notes when paying back.

If the Circuit Court's interpretation holds, ventures like LUS' would never get off the ground as up-front capital investment is needed and it takes years to build up the revenue stream to pay off the infrastructure investment.
Last year, in a lawsuit brought by BellSouth, the 3rd Circuit ruled that it was all right for LUS to obtain market-rate loans — though it ruled against other aspects of the LUS plan.

In the recent 3rd Circuit decision, in a lawsuit brought by Lafayette resident Elizabeth Naquin, the court went further, saying it is permissible to get a market-rate loan to “provide covered services” but not to pay back bonds.

LUS argues that the decision is self-contradictory or "internally inconsistent” as they put it. “To say that market-rate loans can be obtained to cover the cost of ‘providing covered services’ necessarily includes that market rate loans can be obtained to cover the cost of paying the bonds,” LUS argues.

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