Gallatin County Risks Credit Rating to Support Struggling Fiber Project

Gallatin County may issue an additional $50 million bond on behalf of Yellowstone Fiber, despite the company’s broken promises that include connecting less than half of the area’s residents with broadband after receiving an initial $65 million bond in 2021.

The nonprofit Yellowstone Fiber (formerly Bozeman Fiber) convinced the county to serve as a conduit for the $65 million bond with plans to connect 22,000 locations by 2025. But, according to the organization’s own website, less than half of those connections have been made as of December 2024.

Company officials promised the loan would not impact taxpayers and that any additional funds needed would come from federal grants. Yet, Yellowstone Fiber has come back to the county well, seeking another $50 million. The county will hold a public hearing on the issue on December 10.

Montana state law permits local government agencies to issue bonds on behalf of local businesses, allowing those businesses access to national bond markets. When the Gallatin County Commission moved forward with the initial bond issue in 2021, county commissioner Joe Skinner told the Bozeman Daily Chronicle that “we sponsor it, and there’s really no liability — or any kind of liability — to the county. They sell their bonds and if they can’t pay it back, that’s on them.”

Despite that sentiment, taxpayers can take a hit in the form of a credit downgrade from such bonds if the business is unable to pay the money back to bondholders. During testimony before the Gallatin County Commission in 2021, the Taxpayers Protection Alliance (TPA) provided the cautionary tale of Burlington, Vermont, where taxpayers were told their money would not be at risk. Yet, after the government-owned network there failed, taxpayers took a $10 million hit and the city’s credit rating dropped dramatically.

A credit downgrade would make it more expensive for the city to borrow money in the future, potentially triggering more serious financial issues.

In an October article, NBC News pointed out that a company for which the Gallatin County Commission issued a $160 million bond in 2021 has experienced financial troubles. The commission issued that bond for Bridger Aerospace Group, a Montana-based aerial firefighting company helmed by Tim Sheehy, a former Navy SEAL who just won election to the U.S. Senate as a Republican in November. NBC News reported that Bridger was losing money when it asked for the bond in 2022, but received approval in a meeting lasting less than an hour.  

Although company officials promised to build two airplane hangars at the Bozeman airport with a local construction company and increase the local workforce, only one hangar has been built so far and employment has declined. Securities filings also show that Bridger used $134 million of the $160 million to pay off previous investors, NBC News reported. Sheehy stepped down as CEO in July.

Montana Free Press reported in August that a financial expert known for sniffing out bad investments asked the U.S. Small Business Administration to investigate the bond arrangement with Bridger.  

Justin Marlowe (director of the University of Chicago’s Center for Municipal Finance) told NBC News that Gallatin County’s credit rating could drop if the bonds for which it serves as a conduit are not paid back. That has happened in other locations, Marlowe noted.

“In a couple of recent cases, the market has looked at these kinds of issuances when there has been a default and said, ‘In fact, even though you don’t have a financial obligation, there is a moral obligation or indirect obligation,’” he said.

There are some uncomfortable parallels between Yellowstone Fiber and Bridger Aerospace Group for taxpayers. Both companies struggled when commissioners chose to issue bonds for them, and both have continued to struggle after receiving those loans.

The Bozeman Daily Chronicle reported in 2021 that at the time Bozeman Fiber was approved for the bond issue it owed $4.2 million to eight different banks and had operated at a loss every year. 

Bozeman Fiber partnered with UTOPIA Fiber, an open access network based in Utah, in 2022. UTOPIA, the Utah Telecommunications Open Infrastructure network, has become a poster child for wasteful spending and was featured in TPA’s report “GON with the Wind: The Failed Promise of Government Owned Networks Across America.”

The for-profit UTOPIA was formed in 2002 when 16 Utah cities agreed to jointly build a fiber network, but experienced severe cost overruns and flagging subscriber numbers. An initial $202 million project eventually ballooned to $495 million, and UTOPIA had to issue a second bond to repay the U.S. Department of Agriculture’s Rural Utilities Service, from which it had to borrow money to complete the project.

In its 2021 reporting, Bozeman Daily Chronicle noted that at the time UTOPIA had yet to complete repayment on any bonds it used for its project.

TPA previously warned the Gallatin County Commission during a 2021 public hearing about possible pitfalls with the local fiber project, and those have begun to become true. Hopefully for the sake of local taxpayers, commissioners will decline to serve as a conduit for a second bond issue for Yellowstone Fiber.

Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance