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Advice sought to run CL Communications efficiently

Council hires telecommunications consulting firm The Crosslake City Council wants to learn if Crosslake Communications is running in the most efficient manner and voted Tuesday, May 27, to hire consulting firm Charlesmead Advisors of Baltimore, M...

Council hires telecommunications consulting firm

The Crosslake City Council wants to learn if Crosslake Communications is running in the most efficient manner and voted Tuesday, May 27, to hire consulting firm Charlesmead Advisors of Baltimore, Maryland, for $40,000 in hopes of finding out.
Mike Lyonais, city finance director/treasurer, reported that in four of the last five years, Crosslake Communications has run at losses ranging from $40,616 in 2011 to $176,024 in 2009, before fund transfers to the city. The only year with positive income was 2013, with just under $5,000 earned.
Lyonais said that in all of the last five years, the company’s net position has actually decreased after accounting for the city fund transfers. Transfers to city funds are used to offset the levy.
The company currently has 13 employees and spends $1.1 million on salaries and benefits each year.
Questions the council hopes to answer include whether the company has an appropriate manager-to-employee ratio, whether the current pricing model makes sense, what comparable companies are doing to implement operational improvements and identifying opportunities for cost reductions, among other considerations.
Council member John Moengen, who searched for a consulting company that could meet the city’s inquiries, said Charlesmead comes highly recommended.
According to a letter from Charlesmead to Moengen, the company has “developed an unparalleled reputation within this (telecommunications) sector for integrity, creativity and longevity that provides our clients with confidence that our advice will be sound, independent and grounded in many years of telecommunications industry experience.”
“We owe it to the citizens that we maintain the revenue stream we currently have,” Moengen said. “It’s about where are we financially with this company, and how do we move it to the next level?”
Council member Mark Wessels said other businesses hire consultants all the time to determine efficiency.
“None of us are communications experts,” he said. “I’d sure like to hear from somebody who’s seen a few of these businesses before.”
In a memo to the council, Crosslake Communications general manager Paul Hoge said “it would be truly helpful for us to get some insight” on evolving challenges in the industry, including the transition away from land line phones to a focus on broadband Internet and whether it’s beneficial for the company to continue offering cable television with stiff competition from DISH and DIRECTV.
“You would think as a municipally owned telecom provider, we would have all the customers (in Crosslake). The reality is that we don’t. There are even members of the city council that buy services from our competitors instead of us,” he wrote. “Should we be increasing our marketing budget? How do we better promote the services we provide?”
Hoge cited the “unique regulatory challenges” the company faces as one of two municipally owned incumbent telecommunications providers in the state.
“I believe it is always good to get an outside perspective to ensure we are providing the best possible services to the customers we serve,” he wrote.
Council member Steve Roe said he believed it was important to note why Crosslake Communications is municipally run.
“This business was started because no private business ever wanted to come here,” he said. “I don’t think (Crosslake Communications) was ever designed to be a tax relief for the city.”
Still, Wessels noted the company is roughly $3.5 million in debt.
“How long until (taxpayers) are funding this?” he said. “It’s our duty to make sure taxpayers aren’t on the hook for that.”
If fund transfers to the city from Crosslake Communications stopped, Wessels said it would represent a 10 percent increase in the city’s portion of property taxes, representing an increase of 3-4 percent overall when accounting for the county and school district portions.
Roe said he believed that if the company were sold to a private enterprise, the current fiber buildout, which he said is one of the benefits to Crosslake residents, would cease.
The council responded to rumors that the city intended to sell the telecommunications company by stating that as of now, this is not a consideration.
“I want to take ‘is it for sale?’ off the table,” said Wessels. “I don’t think it was ever really on the table.”
Wessels said he didn’t like the idea of spending $40,000 on a consultant, but that determining the efficiency of Crosslake Communications is a natural extension of many of the changes the city has made recently.
“We have a city administrator (Dan Vogt) who’s a consultant that’s doing a darn good job,” he said. “Administrative costs are down considerably ... we’re running this ship a lot more efficiently.”
Moengen said that although $40,000 “looks like a big number,” it could save the company more money in the long run.
“I don’t think there’s been money spent in the past to do this,” he said.
Lyonais explained options for funding the consultation, including the company paying for the study and reducing the fund transfer to the city by that amount, using existing reserves as an unbudgeted item, or choosing not to spend money on items already budgeted for in 2014.
He pointed to $50,000 in the budget for a sewer study that had not yet been spent.
Mayor Darrell Schneider said they had anticipated some development that might have required adding sewer pipes, but that had not yet materialized.
“I don’t think it will be necessary this year,” he said.
Moengen moved to hire Charlesmead using the money earmarked for the sewer study, leaving $10,000. The measure passed with all council members except Roe approving.
Moengen said the study would start in 30 days and is targeted for completion within 60 days.

Chelsey Perkins is the community editor of the Brainerd Dispatch. A lakes area native, Perkins joined the Dispatch staff in 2014. She is the Crow Wing County government beat reporter and the producer and primary host of the "Brainerd Dispatch Minute" podcast.
Reach her at chelsey.perkins@brainerddispatch.com or at 218-855-5874 and find @DispatchChelsey on Facebook, Twitter and Instagram.
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