Duluth News Tribune: Lake County fiber project leaves taxpayers unprotected, uninformed

FFM's Tom Steward wrote a piece featured in the Duluth News Tribune on the proposed plan to bring a muni-network to Lake County, MN. 

Lake County fiber project leaves taxpayers unprotected, uninformed

By: Tom Steward

When Lake County announced plans to construct and operate a $70 million telecommunications network, county residents were assured their money was safe.

“It is a myth that rural fiber networks cannot be built and operated on a fiscally sound basis,” Tim Nulty, National Public Broadband CEO, said in a county news release.

Welcome words, yet it was hard to see how they could apply to an enterprise that depends upon millions of dollars of venture capital from taxpayers. Certainly it’s not every day someone describes a project that owes its existence to the bloated and poorly implemented federal stimulus program as “fiscally sound."

But the real myth is the pledge on the Lake County website of “no taxpayer funds … to finance the network.” Lake County has been awarded $66.5 million in federal stimulus funding to help pay for a $70 million project aimed at bringing high-speed telecom services to Lake County (and some St. Louis County) residents and businesses. If you read the fine print, you see that $10 million comes from a federal grant while $56.5 million comes in the form of a loan backed by you and me as taxpayers. Lake County issued revenue bonds for the remaining $4 million for the project.

Yet as local governments go head to head with the private sector in the capital-intensive, competitive, and rapidly changing field of broadband and telecommunications, it’s taxpayers who shoulder the greatest risk.

Evidence?

How about that the GoMoorhead network failed to attract enough subscribers in Moorhead, Minn., to become self-supporting or even cover costs? As a result, the city issued double-digit electric rate hikes for consecutive years and sold the remaining hardware to a private company, sealing the fate of the inaptly named city-run network.

Or that since its formation in 2002 by 11 member cities, Utah’s UTOPIA system has totaled tens of millions of dollars in losses, including an anticipated $1.7 million monthly operating loss this year? Project leaders are turning to local taxpayers to pay for another $62 million of debt on top of the $500 million already pledged over 32 years. Recently, taxpayers doubled down with $16 million in stimulus funding.

And consider the high-profile, fiber-optic network in Burlington, Vt., which faces a potential default of $33 million of borrowed funds and the potential repossession of its assets. It is the source of investigations by the FBI and a special state prosecutor. Moody’s has downgraded the city’s credit rating, and taxpayers face steep financial repercussions.

In Lake County, there’s already a troubling lack of transparency, which further undermines taxpayer accountability and exacerbates risks to county residents.

To their credit, some Lake County elected officials have expressed concerns about the lack of due diligence provided by the project’s consultant, National Public Broadband, and its CEO, Tim Nulty. The CEO has an extensive background in working with local communities to establish taxpayer-funded telecom networks, but that includes the notorious project in Burlington, Vt.

Nulty maintains he left Burlington prior to all the serious problems, but there is a troubling pattern that seems to occur with many publicly funded broadband projects that should cause Lake County commissioners to dig even deeper into the feasibility and necessity of their project.

In addition, National Public Broadband officials recommended Lake County’s Fiber Optics Committee meetings be closed to the public, despite concerns about violating Minnesota’s open meetings laws. Indeed, Lake County officials have not yet made available to the public a feasibility study or any analysis about costs, subscriber projects or risks to taxpayers if the revenue from the network is unable to cover costs. Projects using public money have an obligation to disclose this very basic information.

Lake County officials who thought they hit the jackpot with a broadband stimulus grant last year need to reconsider their decision to move forward with what seems now a risky project. At a minimum, the USDA Rural Utilities Service, the agency that awarded the $66.5 million of loans and grant, should thoroughly investigate the Lake County project to protect taxpayers and restore public trust in government.

Tom Steward is the investigative director for the Freedom Foundation of Minnesota, a Minneapolis-based nonprofit educational and research organization that advocates for individual freedoms, personal responsibility, economic freedoms and limited government.

For more on this issue, check out Tom's previous article


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