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Some municipalities around the country have tried, and failed to set up or operate their own broadband communications networks, to compete in the business of broadband service. The reasons for the failures are numerous, but in all cases taxpayer money was put at risk often without approval of taxpayers and often wasted. The largest failure just might be the damage caused to a free market when government enters it to openly compete with private industry, and exposing the taxpayers to risks they never desired without any chance of reward. Ignoring the dismal track record there are municipalities again this year looking to throw good money after bad.
The map at Munibroadbandfailures.com details the many complete failures and lack of transparency in these schemes across the country.
For example, in Bristol, Virginia, the citizens were left holding the bag filled with $124 million in federal, state and local debt. Money risked and lost. The lack of transparency led to criminal investigations and nine convictions including self-dealing, falsifying invoices, taking kickbacks, violating conflict of interests, slushing money from one government project to the next to keep the broadband system afloat, and reducing the fees that the government system had to pay to attach their wires to poles, in effect using off the books taxpayer assets to benefit the system. In addition to the debt, because monies were siphoned away from municipal electrical system to support the broadband system, electricity users will now have rates raised to cover the additional $80 million debt.
In Kansas City, Missouri politicians decided to invest $10.5 million, when only a few hundred people signed up expenses quickly overtook them to the tune of $1 million annually. At over $16 million in the hole they sold what they had for $3.2 million, leaving taxpayers on the hook for the rest.
On the other side of the Mississippi in Highland, Illinois taxpayers had to shoulder a $12.2 million investment to own a broadband service that loses $1.6 million annually. Not a complete failure just yet but with debt at $1.4 million and growing annually it will not be long until taxes will be raised to pay back the debt of this political adventurism.
While these stories highlight the disaster that municipal systems typically represent for taxpayers, Opelika, Alabama and Provo, Utah offer even worse examples of malfeasance.
In Opelika the town leaders have spent $61.9 million to construct and maintain their broadband system. With less than 3,000 subscribers paying for service the revenue stream is a mere $1.5 million, which is not enough to cover operating costs. With failing financials and the debt growing, one Republican senator in Alabama actually wants to expand the system into the rural areas – with a less dense population and hence more expense per each potential customer. More taxpayers at greater risk – great plan.
Finally, one last example, the granddaddy of them all in Provo, Utah, another completely failed government run system. Provo spent nearly $40 million to build their own fiber optic network in 2006, but with ballooning bond interest and other expenses the total climbed to nearly $67 million. After losing $10 million more to pay for operations, Provo instituted a utilities tax, $5.35 a month per household regardless of whether they used the service, to help channel money to their failing fiber optic adventure. Ultimately selling off their failed system for $1 to the private sector they walked away from the boondoggle with taxpayers taking all the loss all for that huge expenditure. The service is no more. The tax however continues.
Quality broadband is necessary as part of modern living and business, so much so that efforts cannot be wasted government building systems to compete with the private market and with no oversight. Transparency into any government operations should be demanded and particularly in these government operations. But in the end, the free market should be allowed to flourish without hindrance or competition from government, municipal or otherwise.
But there is good news, as at least two more states this year are moving in the right direction.
In Missouri, legislators are moving to enhance laws already on the books discouraging municipal broadband. Currently the law says that no municipality may offer competitive broadband service unless certain conditions are met, such as, “A majority of voters in the jurisdiction approve a measure granting the local government permission to move forward with a plan” or “Other service added together, including wired or mobile, reach fewer than 50% of the addresses in the jurisdiction” or “A business or government is making a request for gigabit access that all existing providers are ‘unwilling or unable’ to provide.”
In Virginia, legislation is on its way to the governor’s desk to add transparency requirements for municipal broadband, to give taxpayers the visibility into transactions, agreements and government expenditures related to government broadband services that they deserve. Government-funded broadband authorities should not be shielded from the public’s view. If for any reason government enters a marketplace to directly compete with the private sector then there must be strict safeguards to protect taxpayers and the health of the private marketplace.
Why are such protections necessary? Because of the long line of big political promises that only led to taxpayer’s money being drained away for nothing.