EVALUACIÓN

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There is no one option that is automatically the best structure for Austin. You are in the enviable position that different forms of entity structure are possible. Generally when these businesses are formed the entity structure is pre-determined by the entity that chooses to get into the business. But Austin has a clean slate. For example, all of these structures could be used to create a local business and to keep the profits in the community. As a result, the best corporate structure is probably going to be determined by how and who finances the business.

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Probably the least likely of these structures in Austin is the municipal venture. We did not sense any strong preference in the community to form a municipally owned enterprise nor did we hear support for financing an enterprise with municipal bonds. It is also the case that the financial analysis for the project shows that municipal bonds are the most expensive form of financing. Therefore we do not recommend the municipal option unless municipal bond financing turns out to be the only way to get this done.

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This still leaves the other three options – for-profit corporation, non-profit corporation and cooperative. It would appear that a non-profit corporation or a cooperative are both very good options to meet the needs as expressed in the RFP. The for-profit corporation option carries with it tax consequences that may be unattractive.

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There are two major considerations in choosing the structure of a fiber business. First would be to consider the preferences and practical possibilities which arise from the source of funding. For example, if some of the funding comes from a bank, then that entity might have a strong preference for one of the possible types of entities.

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The second major consideration is control – who is going to have general responsibility to initiate and launch the enterprise? This question does not refer to day-to-day running of the business because it is likely that a professional staff will be hired for that function. But the new enterprise will need direction by an entity that starts the business, sits over the staff, governs the business and ultimately figures out what to with profits.

From the RFP and from community interviews it seems clear that if a telecom venture is started that it needs to be a business that benefits the community in a major way. The two options that best accomplish this are a non-profit corporation and cooperative. In a cooperative the ownership and operation of the business is handed off to the customers of the business. In a cooperative any profits are either to be used to expand the business somehow or else returned to the owners, the public.

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However, ownership of a non-profit corporation is different. Generally ownership belongs to the founding members of the entity. However, nonprofit ownership can develop different forms of relations with other entities through contract, association and other types of relations. If a non- profit corporate structure is chosen, then some combination of a foundation, economic development agency, local government, local utility or some other entity in the community can be involved in overseeing the business.

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An important advantage of a nonprofit corporation compared to a cooperative is that any future profits can be used in many more ways. As previously noted, a cooperative is mostly limited to using profits to be rolled back to the owners or used to expand the business. And since the owners are the public this certainly creates a public benefit, but it is mostly an economic one. It would seem that a corporation is going to be able to use profits to do more things, like start additional businesses, make significant charitable contributions, and can benefit the community in more ways than a cooperative can do.

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A last important different between a cooperative and a non-profit corporation has to do with leadership and decision making affecting the long term future of the enterprise. Cooperatives are generally led by a Board created from among the patron members and they may or may not have much experience in broader community relations with key community institutions. In a nonprofit corporation there generally is going to be a much smaller Board chosen by the owners according to business or industry experience as well as for community representation of key institutions. For all of these various reasons we recommend a non-profit corporation as the best choice of structure followed second by a cooperative form of enterprise. There is still the possibility for a for-profit corporation if there is some way to handle the taxation issue. The municipal option is our last choice because it is the most costly way to enter the business as well raising some legal concern discussed below. It is also difficult for the city to use profits in the same ways that a non- profit corporation or cooperative could do.

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We would also caution against getting a ‘normal’ equity partner, that being one who will expect a ‘normal’ equity return under a public-private partnership. Such money is incredibly expensive. However, there are kinds of equity that are not so expensive. For example, a grant might be free equity. Coops often raise equity from members that guarantees dividend payments in the same range of cost as debt. And there may be other arrangements to be made within the community that create cheap or free equity.

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