Lake County Taxpayers Take All the Risk While St. Louis County Residents Share the Rewards

County board commits local taxpayer dollars despite prior pledge

Two Harbors, MN—Maybe there’s no such thing as a free lunch, but a deal in the works to bring a controversial $70 million broadband network to Lake and St. Louis counties comes pretty close, depending on which side of the county line you pay taxes. 

About 60 percent of residents in the fiber optic network’s proposed service area live in Lake County, while the rest reside in St. Louis County.  But Lake County taxpayers will bear 100 percent of the local costs and risk, while their eastern St. Louis County counterparts will enjoy the same broadband benefits—free and clear.
“I was very adamant about making sure St. Louis County was fiscally protected against them coming back against us for financial failure,” said Chris Dahlberg, St. Louis County Commissioner. 
While St. Louis County contributed $25,000 to a preliminary project study, Lake County potentially has $60 million on the line:  $3.5 million in matching funds to secure the project and $56.4 million in long-term liability for a federal loan. The price tag for their potential liability adds up to about $5,500 per Lake County resident. The remaining funding for the $70 million network comes in the form of a nearly $10 million federal RUS grant.
In the process, Lake County commissioners have backtracked on their commitment to protect Lake County taxpayers from any financial exposure.  “We had hoped to get this important project financed without any risk to the taxpayers,” Lake County Commissioner Tom Clifford acknowledged in a February press release. “But sometimes the cost of squeezing out the last bit of risk just gets to be too high.”
It’s another wrinkle in the proposed Lake County fiber optic network, one of the biggest and most controversial stimulus-funded broadband projects in the country. The project illustrates how strings attached to federal funding can drive decision making by local officials seeking to capitalize on federal dollars, even at the cost of subsidizing residents of another county.
Lake County’s application for federal broadband stimulus funding was initially rejected by the Rural Utilities Service (RUS), until expanding the service area to include residents in four eastern St. Louis County cities and a handful of townships.  St. Louis County’s cooperation, however, came at a price.
“Some of these federal programs often create perverse incentives and throw economic common sense out the window,” Commissioner Dahlberg said. “My concern is for St. Louis County. Are they going to come back and say, although this is Lake County’s project, you were benefiting from it and you have to help with the loss? We wanted absolution from any future entanglements.”
From the project’s onset, Lake County commissioners insisted no local taxpayer money would be at risk, intending to issue revenue bonds that would be repaid through revenues generated by the fiber optic network.  The Lake County website still posts a disclaimer saying the system will be financed by operational revenue from the network. An online fiber FAQ fact sheet states that “Lake County is acting as a conduit to receive federal financing to build out the network. The taxpayers will not be responsible for any debt. This was one of the major reasons for the county moving forward on this.”
Commissioners broke their pledge and committed taxpayer funding to the project, however, when high interest rates and low demand in the bond markets led to concerns among federal officials about the project’s viability. “RUS discomfort with this financing structure made the County reevaluate its approach. The County decided to directly invest its own funds in the project and not risk losing the award,” according to the county press release.
One commissioner said he voted to commit millions of taxpayer funds in order to save millions more. According to Commissioner Paul Bergman: “By making a direct investment, we were able to reduce the amount of additional funds by over $2 million and we can avoid $5.7 million of interest expenses over 10 years. These savings come directly back to the County.”
At a February 8 county board meeting, Lake County commissioners also fired the company overseeing the project, National Public Broadband, after concerns surfaced over financial problems at a Vermont telecom once managed by NPB’s chief executive officer.  A complaint has been filed by Mediacom, a private provider in the service area, calling for an investigation by the USDA federal inspector general into allegations Lake County improperly obtained funding for the network.
                                   Tips/Feedback? Contact Tom Steward at 612-354-2165.



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