Chicago--Financing for a statewide fiber optics telecommunications network in Iowa has been called into question after the Sioux City Council denied permission to install cable in the city.

Last month, the council in a 3-to-2 vote refused permission for a cable company to lay buried fiber optic cable through Sioux City. Council members who voted for the denial believe the system, financed by $96.8 million of certificates of participation, is wasting taxpayers' money, according to council member Harry Keairns.

Though the vote is considered a minor setback by supporters, it has reignited some legislators' opposition to the plan.

Rep. David Millage, R-Bettendorf, who has been a staunch opponent since the network was first proposed, said that the Sioux City action casts a shadow on the state's ability to pay off the COPs.

"What it says is that the assumptions upon which the financing [for the system] is based are erroneous," Rep. Millage said. He said that the action may mean that payments from potential users in the Sioux City area would not be available to help pay off the COPs.

If other communities refuse to allow the network into their areas, legislators could be forced to contemplate the state's appropriation for the system in the next legislative session, which begins in January, Rep. Millage said.

"If we find that it's a hodgepodge of hookups, then it behooves us to decide whether we want to continue to build the system," Rep. Millage said.

Though the denial is the only challenge so far by a local government to the fiber optic system, state officials who support the network do not consider it a setback.

Kathy Williams, administrator for the Iowa Department of General Services communications division, called the Sioux City Council vote "political," adding that city's failure to grant the permit will not have any impact on paying off the COPs because there are "other means" to connect the system to Western Iowa Tech.

Ms. Williams said that the state's appropriation after 1996 will depend on the amount of revenues it receives from network users.

"Obviously we're concerned because of the denial, but we're continuing to work out the problem," Ms. Williams said.

"Until we're sure we can't work something out with Sioux City and get past the stalemate, we won't engineer alternatives around the site," Ms. Williams said.

Mr. Keairns, the Sioux City councilman, said he was especially concerned about the governor's proposal to limit property tax growth, which would result in decreased property tax revenues to local governments.

"We simply do not regard it [the fiber optic network] as a good project. If our governor wants to put a property tax freeze on us," the city can block the project, Mr. Keairns said.

He added he would not be surprised if the matter went to court.

Sen. Richard Varn, D-Solon, a supporter of the network, said the council vote will not stop the state from installing the system.

"It's silly. They're denying residents the benefits of a system they as taxpayers are paying for. The state will put the network in somehow, whether they use a DOT [Department of Transportation] right of way or something else," Sen. Varn said.

The 2,600-mile network is being financed with proceeds from the COPs that were sold in April. The notes are expected to be paid off with a combination of state appropriations and payments from users of the network. About 800 miles of the network have been installed so far.

Senate Minority Leader Jack Rife, R-Moscow, opposes the network, but said that any effort to end the state's appropriation would be difficult because Gov. Terry Branstad has the power to veto any such measure.

State Treasurer Michael Fitzgerald, who has criticized the cost of the system, has said that a risk to Iowa's creditworthiness also could temper any serious effort to not make an appropriation for a lease payment.

The cable that was denied by the council would have connected the network to the Western Iowa Tech Community College, which is slated to be a hub for fiber optic links to five neighboring counties.

Gov. Branstad, a primary backer of the statewide network, believes that the Sioux City action will not have an impact on installation of the network or financing of the COPs, according to Dick Vohs, the governor's press secretary.

"It won't have any impact," said Mr. Vohs. "This is no different from a water line or gas line. The [Iowa] attorney general's office says there are no grounds for this action. It will not stand."

Tony Crandell, the director of network services, said that the state Department of General Services has referred the matter to the Iowa attorney general's office to determine if the state has any legal options.

Officials of AMBAC Indemnity Corp., which insured the COPs, did not believe that the action will affect the state's ability to pay off the COPs.

"We expect that the political disagreement between Sioux City and the governor will be worked out," said Robert Genader, senior executive vice president of AMBAC. "We literally have no concern about that. It's part of the ongoing political process."

Lease payments on the 15-year COPs are subject to annual appropriations by the Iowa General Assembly starting in 1996.

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