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Judge is asked to hold Vermont city in contempt of court

By John Curran
Associated Press / May 24, 2011

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BURLINGTON, Vt. — A judge was urged yesterday to hold the city of Burlington in contempt of court for using more taxpayer money to support troubled Burlington Telecom, which is $50 million in debt.

At issue are hundreds of thousands of dollars in Burlington Telecom-related work that have been billed to city accounts instead of to the municipally owned telecommunications provider.

Lawyers for two Burlington taxpayers who are suing over the use of $17 million in city funds by Burlington Telecom told Judge Helen Toor in Chittenden Superior Court that the city paid $275,066 to financial adviser Dorman & Fawcett for its work in investigating potential deals to restructure debt and keep Burlington Telecom solvent and operating, in defiance of a previously issued court order that set specific terms on city expenditures for the telecom.

The city’s lawyer said the consultant’s work stood to benefit Burlington taxpayers as a whole, not just Burlington Telecom, and that the city made good-faith decisions in deciding which expenses to assign to the city and which to assign to the company.

Toor, who heard more than two hours of oral argument by lawyers and live testimony from two city officials, did not immediately rule on the contempt motion.

Last year, an audit commissioned by Vermont utility regulators said Burlington Telecom had been violating its state license since it started operating. The company has failed to repay the $17 million in the two-month window provided for in its state license, and it owes about $33 million on a lease for its equipment and other expenses, officials said.

A special prosecutor, Chittenden County State’s Attorney T.J. Donovan, has been appointed to examine whether to file criminal charges.

Yesterday’s hearing was part of a civil suit filed by residents Fred Osier and Eugene Shaver, who sued in 2009 to get a court to force Burlington Telecom to repay the money.

Last year, Toor imposed restrictions on the expenditure of any more city money for Burlington Telecom, saying it had to have enough money to repay the city and that it had to do so within 60 days.

But the city paid for fees incurred by Dorman & Fawcett, which among other things has been seeking to get Burlington Telecom lender Citi Capital to agree to new terms for the debt.

“In defiance and in contempt of this court’s order, the city has continued to expend money, but they’ve been clever about it,’’ Robert Hemley, the plaintiffs’ lawyer, told her. “They have said, ‘Well, we’re not really providing money in support of operations; we’re providing money in order to see if somebody will come in and bail out the city or find a new buyer.’’

Since that work centers on Burlington Telecom’s equipment, the money should count as going toward its operations and should come from Burlington Telecom, not from city general funds, he said.

“They’ve spent hundreds of thousands of dollars and now they justify it with some hocus pocus explanation that gee, this isn’t really in support of the operation,’’ Hemley said.

The city’s chief administrative officer, Jonathan Leopold, testified that the money for the consultants was paid by the city because the work they were doing stemmed from recommendations made by a blue-ribbon panel of city leaders charged with saving Burlington Telecom.