Not Your Role: Salisbury’s Broadband Boondoggle

SALISBURY – One of the trendiest initiatives for local and state politicians to through their government weight behind has been broadband services. Whether it’s state level ‘last mile’ connectivity financing, or municipal pushes to own and operate internet services, one thing is clear – providing broadband services is not the proper role of any governments.

Demonstrating one of many reasons that government entities should stick to their core functions, one municipality is scrambling to offload it’s broadband project after the debt-financed service has (surprise!) proven to be an expensive boondoggle for the city and taxpayers.

“Bleeding money, unable to sign up enough subscribers, and incapable of investing in new technology to attract users, Salisbury’s beleaguered municipal broadband service is about to be leased to a private firm.

The N.C. Local Government Commission approved a deal Tuesday, July 10, allowing Salisbury to refinance the Fibrant system’s $26.5 million in bonds. They would be converted from municipal debt to a taxable structure so that third party, for-profit company Hotwire Communications could lease and operate the city’s assets.

The city’s broadband network has been a money pit. Salisbury borrowed about $40 million to launch the subscriber-based service, and still owes $33,093,603 on the debt, most of which was financed using certificates of participation — debt instruments that don’t require public approval.”

Not only did the city of Salisbury push into an area government has no business in, they took on tens of millions of dollars in debt in order to do it. To the surprise of no one outside the government itself, it turns out they weren’t that good at operating a cash flow positive broadband business.

They reportedly needed about 4,500 subscribers to make the service financially viable, but have only been able to sign up about 3,200 subscribers. The shortfall is acting like a hole in the bottom of a bucket, draining out city funds faster than revenues can be raised. The burden has even caused them to use water and sewer funds to plug the hole.

“As a result, national bond rating agency Moody’s Investor Services lowered the city’s bond rating, and rating agency Fitch issued a stern warning. Last year, the broadband fund started paying back money borrowed from the water and sewer fund.

[Salisbury finance director Shannon] Moore said the broadband service got $3.2 million in subsidies last fiscal year from the city’s general fund, and another $3 million is budgeted from the general fund to keep the broadband network afloat in 2019. The service has been losing about $3 million every year. Even after the handoff to Hotwire, the city will continue annual subsidies of about $1.1 million.”

Bailing out, the city is leasing the broadband infrastructure to a private firm, but STILL shelling out a million taxpayer bucks a year in subsidies?! Salisbury taxpayers are getting a raw deal, and most of them don’t even benefit from the service.

City leaders sold the idea initially as an economic development tool, saying it would attract business and pay for itself. Whenever government leaders tell you a Big Government service will pay for itself, run the other way because you, Joe Taxpayer, are about to be saddled with cost overruns and special assessments.

Interestingly, the economic development angle is the same one taken by state lawmakers that have been pushing for taxpayer-funded broadband connectivity concerns in recent years. Republican lawmakers, that is.

Not content to let the free market address connectivity demands, these lawmakers fall victim to their own hubris and mistakenly think that the government should have a role in filling the gaps.

A common complaint (and justification) is that private company simply won’t cater to these markets, so the government has to do something. But guess what? Private companies doing what they do best in this very market is a big reason the government sponsored service is languishing.

“Richard Marvin, a municipal public finance adviser with Stephens Inc., an investment banking financial advisor, said Salisbury opted to start its own broadband service in 2010 because it couldn’t lure internet service providers to the city.

Time Warner Spectrum, AT&T, and other internet companies entered the market after the city launched Fibrant, Marvin said. They offered lower prices, more expansive services, and more reliable delivery.”

The Salisbury experience should be a lesson to state lawmakers to stay out of the internet market. This ‘economic development at all costs’ mentality is not exclusive to Salisbury. Government needs to know its role.

Read more here.

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