November 2, 2007 State Auditor Tom Salmon: Vermont State Colleges Should Have Bid Broadband Spectrum Leases
Bid process may have returned additional $620,615 over 30 years
MONTPELIER – Vermont State Auditor Tom Salmon, CPA, said in a report today that the Vermont State Colleges (VSC) might have earned an extra $620,615 over 30 years if it had engaged in a public bid of its three unused broadcast licenses in the Castleton State College area in Rutland County.
VSC leased 95% of its licensed broadcast spectrum to the Utopian Wireless Company of Washington, D.C., on February 2, 2007, without a public bid process. The college system is expected to receive $483,000 in revenue over 30 years, including $105,000 in initial payments. This amount does not include the potential future value of 30,000 shares of stock issued at $1 per share in connection with the leases.
The spectrum can be used by commercial service providers for wireless communication, Internet, and data transmission services. VSC applied for the licenses in 1992, but they were not granted by the Federal Communications Commission until 2005.
“The college system was not required under state law or its own procedures to publicly bid this unused asset,” said Salmon, “but VSC should have done so as a matter of fiduciary responsibility and proper due diligence. VSC should have contracted for a professional appraisal of the lease value and should have asked for expert legal advice to help negotiate its leases,” Salmon added.
“In the midst of managing a five-campus, $140 million educational system, this rare and complex transaction didn’t get the attention it deserved,” Salmon noted. “Unusual transactions are a weak point for many organizations.”
Salmon said that many factors affect the value of broadcast spectrum, but an outside analyst reviewed the VSC licenses and their geographical service areas, and said the leases could have returned $1,103,615 over a 30-year term based on industry prices in early 2007, a potential increase of $620,615 over the term.
“This figure is only an estimate,” cautioned Salmon, “because you can’t say for sure how a competitive bidding situation will turn out. But experts said that the market was improving for these types of licenses, with large corporations like Sprint/Nextel and Clearwire entering into many contracts to lease spectrum around the country.”
The report also noted that a review of two VSC facility improvement projects funded by the Legislature showed that the college system was in substantial compliance with its internal guidelines on competitive bidding and seeking the best value for its construction dollars. VSC will receive approximately $29 million in State appropriations this year for general support and a variety of programs.
VSC Chancellor Robert Clarke said he agreed with the report’s findings. “Our Board of Trustees has adopted new policies that would require public bidding of these licenses in the future,” Clarke said. The Chancellor noted that the report says that new telecommunication and broadband services in the Rutland area, especially mobile broadband, could help economic development in the region.
The complete audit report is available at http://auditor.vermont.gov/interior.php/sid/3/aid/16
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