January 10, 2006
JPR sees benefit in AFN
Foundation officials remain tight-lipped about details of offer
By Vickie Aldous
Ashland Daily Tidings
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Jefferson Public Radio and JPR Foundation Executive Director Ronald Kramer stands outside of his SOU campus office. He said the foundation has experience from its JEFFNET service that would aid it in running the Ashland Fiber Network. Orville Hector | Ashland Daily Tidings |
Jefferson Public Radio Executive Director Ronald Kramer and Associate Director Paul Westhelle left a Nov. 29 meeting with the feeling that the days of local control over the Ashland Fiber Network were numbered.
In a study session that day, the Ashland City Council indicated support for a strategy to simultaneously develop plans for selling AFN and spinning it off as a nonprofit.
“You walked away thinking that there’s a decent shot they’re going to sell this, probably to a distantly located, large media conglomerate,” Kramer recalled.
The seed of an idea was planted.
Less than a month later on Dec. 20, Kramer went back to the city council and said the JPR Foundation, a nonprofit organization that helps support Southern Oregon University’s Jefferson Public Radio, was interested in taking over AFN. Kramer is the executive director for both the JPR Foundation and Jefferson Public Radio.
The JPR Foundation already has ties to AFN.
The foundation retails AFN’s wholesale Internet service through JEFFNET. Profits from JEFFNET help support a vast network of radio stations that covers an area from Salem into California, and from Lakeview to the coast, according to Kramer.
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An Early Warning From JPR
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When it comes to the Ashland Fiber Network’s finances, Jefferson Public Radio Executive Director Ron Kramer has never worn rose-colored glasses. Kramer warned back in 1998, when city officials were considering an AFN launch, that the AFN business plan had serious shortcomings and revenues would not meet projections. Jefferson Public Radio started an “AFN Watch” bulletin on its JEFFNET Internet service. In a May 1998 bulletin, Kramer wrote, “Our analysis concludes that, if AFN were constructed under the city’s financial projections, AFN could require an average operating subsidy of over $150 per year from each household to balance the books.” That warning proved prescient as the Ashland City Council adopted — and then repealed — a fee in 2005 totaling $90 annually on each household to subsidize AFN. That fee would have had to eventually increase since the city is now only making interest payments on AFN’s $15.5 million loan. Interest-plus-principal payments begin in July 2007. In a lengthy 1998 document exploring potential problems with AFN, Kramer said city projections for AFN’s market share of cable television customers were too high. He also said it was naive to think AFN’s cable television competitor would not lower its rates to be competitive with AFN. In fact, Charter Communications slashed its cable television prices, offering the Expanded Basic package in Ashland for just $24.15 while charging $45.99 elsewhere in the Rogue Valley. The company increased the package price to $32.40, one penny less than AFN charged, after being questioned about its price cutting by the Tidings in 2005. JEFFNET now runs on AFN’s infrastructure, but in 1998, it used a different Internet service. Kramer said at that time that city officials might be dismissing some of his concerns because they thought he didn’t want AFN to compete with JEFFNET. City officials later asked Kramer to be on a steering committee to investigate whether the city should start AFN. “I was put on the group as kind of the resident skeptic to ask questions,” Kramer now recalls. The committee refined original financial projections for AFN that Kramer called “wildly inaccurate.” Eventually, committee members voted unanimously to recommend an AFN launch with the revised numbers, according to Kramer and Ashland City Councilor Russ Silbiger, who sat on the committee before being elected to the council. AFN, once launched, still did not meet the revised financial projections of the committee, Kramer said. With the JPR Foundation now offering to take over AFN, he said the foundation can learn from the experience the city has had in trying to run AFN. “We come into this now with a background on it and where it departed from the steering committee’s conclusions,” he said. “We have a broader range of experience.” |
A JPR Foundation takeover of AFN would keep the enterprise in local hands while also generating some revenue for the radio network, he said.
“Our first goal is not to lose money. We don’t think it’s a huge gushing oil well where we’re going to make a lot of money,” Kramer said. “JEFFNET makes a little bit of money to help public radio and we hope AFN also could help the radio.”
Kramer said the foundation will not use any money from its radio network for AFN.
The JPR Foundation already has experience taking over a beleaguered local institution.
Using donations from the State of California, the City of Redding and individuals, the foundation bought and renovated the historic Cascade Theatre in downtown Redding, Calif., completing the project in August 2004, according to Kramer and Westhelle.
The theater has space for radio operations, as well as for theatrical and musical productions, Kramer said.
The initial estimated cost for the project grew from $3.5 million to a final cost of $5.6 million, according to early fundraising brochures for the project and Westhelle. But that increase came because the foundation, with community support and financial backing, later redesigned and expanded the project from the original concept, Westhelle said.
Kramer said the theater renovation brought new life to downtown Redding and the theater now operates in the black.
“If people understand that project, they will probably think, ‘These people are capable of handling AFN,’” he said.
Synergy at work
Kramer and Westhelle said JPR has a proven, reliable administrative team that could operate AFN.
“We also have an ability to be more flexible and quick in our strategic decision making,” Westhelle said.
The AFN Options Committee, formed by the city council to investigate alternatives for AFN’s future, found the city has a cumbersome decision-making process, in part because it must comply with public notice and meeting laws and decisions are made by the council.
Options Committee Co-chair Paul Mace said the JPR Foundation’s proposal to operate AFN seems reasonable, especially since JPR already has experience in operating media enterprises and appears to have successful management.
“They’re a dynamic organization,” Mace said. “They’ve grown under Ron’s leadership and use their money not only to survive, but to prevail in a competitive environment.”
Ron Roth, who owns Geppetto’s restaurant and provides dinners for JPR fund-raisers, said JPR Foundation control of AFN seems like a logical extension of its current operations.
“JPR is so much a part of the community,” he said. “And they are sort of empire-building, for lack of a better word.”
Kramer said the JPR Foundation could be an efficient operator of AFN.
“This is a business we have familiarity with. We’re in a position to do it in a more efficient manner. There are synergistic components,” he said. “Our core businesses are all in media.”
He said the JPR Foundation would not have to hire a director to run AFN because its existing managers could handle the enterprise.
The City of Ashland is searching for an Information Technology Director to head AFN and manage the city’s internal computer systems. The salary for that position will be negotiated, according to City Administrator Gino Grimaldi. What will happen to the Information Technology Director if AFN is sold or spun off remains uncertain.
As for AFN’s technical staff, Kramer said the JPR Foundation would determine staffing needs for AFN and the city’s AFN staff members would be welcome to apply for those positions.
Behind closed doors
The JPR Foundation could gain a significant advantage in operating AFN compared to the city because it would not need to discuss AFN business matters in public.
AFN’s competitors have always been able to see AFN’s business plans and coming rate changes.
However, the public — and the media — also would lose oversight over AFN.
When asked for details on how the JPR Foundation would turn around AFN’s finances and deal with fierce competition, Kramer declined to reveal any plans.
“I would rather not say how we would handle the challenges you’re raising,” he said.
The AFN Options Committee recommended any nonprofit that takes over AFN should only be saddled with about $6.5 million of the $15.5 million debt. The JPR Foundation proposes to pay at least $326,000 annually, which would cover a portion of the debt. Annual AFN debt payments range from $864,454 to $1.43 million, according to the Ashland Finance Department.
The city would have to make up the difference between JPR’s proposed payments and the full debt payments, according to Finance Director Lee Tuneberg.
If the JPR Foundation was not successful and could not pay the amount it has proposed, the city is responsible for the full debt, he said.
“The bond covenants say the city has pledged its full faith and credit to pay the debt. The bonds don’t care who owns AFN. As far as the bondholder is concerned, the payments are coming from the city,” Tuneberg said.
As part of the negotiations with the JPR Foundation, the city could ask for some level of financial oversight. For example, it could require an annual financial report, he said.
Staff writer Vickie Aldous can be reached at 479-8199 or vlaldous@yahoo.com.