Let Residents Finance Broadband Infrastructure Themselves

CLIC Guest Blog

Benjamin J. Fineman, President, Michigan Broadband Cooperative

Benjamin J. Fineman,
President, Michigan Broadband Cooperative

In a recent article from the Mackinac Center for Public Policy, titled “Bill Would Let Townships Impose Property Tax Hikes for Broadband Projects, author Dawson Bell reiterates incorrect talking points about House Bill 5673 that are designed to undermine the need for municipal broadband, all the while failing to mention that this bill is designed to enable public-private partnerships in rural areas through special assessments. The areas where broadband special assessments would be useful have a low population density such that incumbent providers will not build due to low returns on investment. Special assessments would enable residents to finance broadband infrastructure themselves, and partner with a private service provider to operate the network. This is not anti-competitive with private service providers. On the contrary, it enables them to provide service in areas where doing so was previously infeasible due to their return on investment requirements. 

Let me take a minute to expose the false narrative pursued in this article.

In his article, Mr. Bell states: “A Washtenaw County lawmaker is renewing efforts to authorize local tax hikes to finance government-owned high-speed internet infrastructure projects, despite concerns that they may saddle taxpayers with losses.”

In reality, the special assessment mechanism has very little risk of any “losses,” since funding of the infrastructure is not dependent upon revenue. The author is confusing this financing mechanism with revenue bonds, internal loans, and other vehicles that require a certain take rate for the project to be solvent. The use of the terminology “government-owned infrastructure” is intentional to evoke negative reactions, as opposed to “municipal infrastructure”. 

The article continues: “Theodore Bolema, director of the Institute for the Study of Economic Growth at Wichita State University, said that local governments can either use their regulatory powers to favor their own projects or rework regulations to help private companies. ‘Governments have no sustainable advantage in offering broadband, as compared to private companies that bring far more experience from other communities where they operate,’ said Bolema, who is a member of the Mackinac Center for Public Policy’s Board of Scholars. ‘So the only way governments can compete is by giving themselves regulatory advantages or by arranging for taxpayer subsidies for their operations. Instead of building government-run systems that drive off private alternatives, local governments could help private companies obtain regulatory approvals and access to rights-of-way.’”

In reality, the main barrier to broadband deployment in rural areas is not government regulation but simple economics. Rural areas with low population densities cannot provide fast enough returns on investment to satisfy the requirements of for-profit companies. Local governments, such as townships, have little to no control over any regulations that would have any effect on broadband deployment costs. The assertion that local governments would “favor their own projects” implies a competitive scenario that does not exist in rural areas, and ignores the fact that the local governments in these rural areas want to partner with private companies to provide broadband, not compete with them. 

The author continues: “Publicly funded broadband initiatives have a poor record of success. A 2017 study conducted at the University of Pennsylvania found that only 2 of 20 such projects reviewed nationally earned enough to cover the projected costs over the life of the network.”

In truth, this 2017 study has been widely debunked by industry experts (see here, and here). The study has been criticized for using limited and cherry-picked data, erroneous assumptions, and flawed methodology to support pre-conceived conclusions. As one example, the study claims that the municipal network in Chattanooga, TN would take 412 years to “turn positive”. In reality, since the publication of this study, the Chattanooga fiber utility has already paid off its entire debt and extra revenue from the fiber service helps to keep electric rates lower. 

Such assertions also conveniently ignore the significant community benefit of such projects, which is the entire reason that municipalities undertake them, as opposed to the profit motive of private companies. For example, a 2018 Harvard study found that in Chattanooga residents could subscribe to Comcast’s service and receive 25 Mbps download / 3 Mbps upload for $66.95/month, or they could subscribe to the municipal service and receive 100 Mbps download / 100 Mbps upload for $57.99/month. Residents now have access to a municipal service more than four times faster than the private option, all while saving more than $100/year. This same scenario plays out in the overwhelming majority of municipal fiber projects.

Bell then falsely asserts: “This poor record is probably due to the same local market realities that cause officials to perceive a need for taxpayer funding in the first place. Specifically, less-densely populated communities might not have enough potential subscribers to justify the cost of installing high-speed fiber networks. If there were, private internet service providers would install them.”

Beyond this false assertion that municipal networks have a “poor record”, Mr. Bell stumbles upon the exact reason why municipal financing, such as special assessment districts, is a helpful tool: private service providers motivated by profits will never make the capital investments to build broadband in these areas.

Bell continues: “According to the U.S. Census Bureau, nearly 9 of 10 Washtenaw County residents (88.6%) subscribed to high-speed internet in 2017. But local elected officials there have persistently sought to expand that number in the county’s rural areas. The county commission has an active group called a ‘broadband equity subcommittee’ that seeks government-led solutions to a perceived deficit of broadband options in rural areas.” 

The implication from Mr. Bell’s language is that this “perceived” deficit is not a real problem. Even using the U.S. Census Bureau statistic cited, this would mean that 41,909 residents in Washtenaw County do not have access to broadband. It’s not clear why the author implies that it is not important for these residents to have access to broadband. 

Mr. Bell then attempts to criticize a township which has taken proactive steps to deploy its own modern broadband infrastructure: “In 2017, voters in Lyndon Township, a rural outpost north of Chelsea, approved $7 million in bonded debt to finance universal local broadband access. The average taxpayer in the township has been paying $22 per month for the system since 2018. Both users of the service and those who do not use it are responsible for this amount. According to the Lyndon broadband committee, by 2020, about 850 households have signed up for the service (at an additional cost of $35-$70/month). Construction of the network is scheduled to be completed later this year, a forecast clouded by uncertainties related to work stoppages caused by the COVID-19 coronavirus outbreak.”

What Mr. Bells fails to mention is that Lyndon Township residents will have access to 1 Gbps symmetric broadband service for $70/month (or lower speeds for lower costs) where previously most had access to nothing. Even when including the average millage cost, gigabit broadband service for $92/month compares favorably to Comcast’s gigabit service available in the neighboring City of Chelsea for $113/month. Also, Comcast’s service is not symmetric, and includes only 35 Mbps upload speed as opposed to Lyndon’s 1,000 Mbps upload speed. Comcast’s service has a 1 TB data cap, while Lyndon’s service is uncapped. Again, this comparison is illustrative only since almost no Lyndon Township residents had access to Comcast or any other broadband service.

The article then attempts to persuade with herd mentality: “In 2018, voters in Sharon Township, also in Washtenaw County, resoundingly rejected a similar broadband property tax proposal of $4.9 million from a levy of 3.25 mills over 20 years. Lasinski said she believes the negative vote in Sharon Township was a consequence of many voters, who already had broadband service, rejecting the idea of subsidizing a broadband build out for their neighbors. Creating a special assessment district, in which only those within the prospective service area are required to pay for it, would obviate that concern, she said.”

What the article should have mentioned is that the main reason for the broadband defeat in Sharon Township was due to  the political influence and disinformation campaign of a few large property owners, but it is correct that special assessment districts would be very helpful for townships that have significant areas with existing service, and is a good reason why this bill should be supported.

In conclusion, this article reiterates industry talking points that are not grounded in fact and fail to mention the value of using special assessments to increase broadband access. Special assessments would enable residents to finance broadband infrastructure themselves, and partner with a private service provider to operate the network. This is not anti-competitive behavior. On the contrary, it enables local communities and private service providers to provide service in areas where doing so was previously not feasible due to the private sector’s return on investment requirements. Now more than ever it is critical to enable more tools for broadband financing rather than artificially limit communities’ choices on working locally to close the broadband gap.

Ben Fineman is an advanced networking professional and community broadband advocate. Some years ago, Ben realized that many people in the U.S. do not have access to internet connections that allows them to participate in the most basic of online activities, let alone emerging technologies. This led Ben to co-found the Michigan Broadband Cooperative, where he volunteers as President and leads the organization toward the mission of achieving ubiquitous broadband in Michigan. Ben was also a key member of the team that led Lyndon Township through a community initiative that took this rural township from the limited choices of spotty DSL, cellular, and satellite services to in a township-wide municipal fiber network offering symmetric gigabit service. Since then Ben has served on county and state broadband task forces. He can be reached at: ben@mbcoop.org. More on the Michigan Broadband Cooperative can be found at: http://www.mbcoop.org