Broadband Proposals Could Jeopardize Taxpayer Dollars In A State That Is No Stranger To Such Boondoggles

In all of the U.S., some of the most egregious examples of taxpayer dollars being wasted on government-run broadband ventures have come out of Tennessee. That dubious distinction for the Volunteer State could persist due to the advancement of two new broadband projects that have been proposed in east and west Tennessee, as well as five others in the works.

The Dickson Electric System (DES) has proposed such a plan to create a government-owned broadband network of their own. Opponents of the DES’s broadband proposal have expressed concern that this plan would not be consistent with responsible stewardship of taxpayer dollars.

In a letter to Tennessee Comptroller Jason Mumpower, whose office is tasked with assessing any municipal electric system’s proposal to provide broadband service so as to ensure that taxpayers dollars are not being wasted or put at undue risk, the Tennessee Cable and Broadband Association (TCBA), which represents investor-owned cable providers in Tennessee, flagged the dangers inherent in DES’s plan, warning that “DES has dramatically underestimated the costs associated with constructing and operating the broadband network; and substantially overestimated the revenue opportunity associated with the project.”

Lending weight to this warning is the fact that numerous municipal utility-run broadband projects in Tennessee’s past have proven to greatly exceed estimated costs. Americans for Tax Reform has even produced an infographic that illustrates the many examples of government-owned networks for broadband in Tennessee that either failed or had to ultimately be bailed out by taxpayers:

Chattanooga, Tennessee:

In 2008, Chattanooga’s Electric Power Board began its fiber-to-the-home service. Including a $50 million loan from the EBP’s electric power division that was used to finance initial planning, $162 million in local revenue bonds that were used to finance the construction, and a one-time $111.5 million subsidy from the federal government, it would take more than 680 years – well beyond its useful life – for this GON to break even.

Fayetteville, Tennessee:

Fayetteville Public Utilities rolled out its broadband network in 2000, spending more than $11 million. While it is technically cash flow “positive,” Fayetteville’s GON would take more than 60 years – as much as double the useful life of the network – to make money.

Pulaski, Tennessee:

In 2005, Pulaski Electric System poured around $8.5 million into building out its GON, PES Energize. Despite being a cash flow positive project, its rate of return is so poor that it would take somewhere between 450 and 500 years to break even.

Tullahoma, Tennessee:

The Tullahoma Utilities Authority started its municipal broadband network, lightTUBe, in 2007 for around $17 million. Since there were already numerous private providers serving this small town, it is unsurprising to learn that lightTUBe has not attracted many subscribers. LightTUBe’s rate of return is so low that it would take more than 100 years to pay off its debts.

Those are just a few examples of government-owned broadband networks that turned out to be misguided taxpayer investments. Similar cautionary tales involving GONs can be found in Memphis and other parts of Tennessee.

Two Municipal Proposals, Along With Five More In The Works, Portend More Broadband Boondoggles for Tennessee

Based on how the DES’s projections compare to the cost of similar projects, it’s reasonable to believe the DES’s expectations are too optimistic. The TCBA has warned that the DES’s proposal “represents a roughly 25% discount over the average per mile cost TCBA member companies typically incur over the thousands of miles of fiber optic lines built in Tennessee and across the country. Further, TCBA members are seeing significant inflation in the labor and materials associated with construction costs.”

In its critique of the DES broadband plan, the TCBA points out that marketing, advertising, support staffing, and other projected costs fall short of what is typically demanded of such ventures. Overestimation of revenue and underestimation of costs is one of many problems highlighted with DES’s broadband plan, in which key numbers don’t add up. “At one point, the plan states that 50-70% of their customers are unserved,” notes the TCBA, “however, their own survey states that 73% of their customers have broadband service.”

The DES proposal isn’t the only new municipal broadband plan in Tennessee whose projections are seen as suspect. The Lenoir City Utility Board (LCUB) has also proposed a broadband plan that it claims will be funded with a $22 million loan. However, it has since been reported that the project could put Tennessee taxpayers on the hook for as much as $132 million.

“The major discrepancy between what was presented before the state and what has come to light since is very concerning,” wrote Grover Norquist, president of Americans for Tax Reform, in a February letter to Comptroller Mumpower. “As such, I urge you to demand the Board resubmit its broadband plan and include all of the associated costs. The Board has a responsibility to be transparent, as you cannot be expected to accurately access the feasibility of this project if you do not have all of the information before you.”

The government-owned networks proposed by DES and LCUB both feature the twin flaws that have doomed previous efforts to provide municipal-run broadband: underestimation of costs and overestimation of revenue. Given these red flags, don’t be surprised if both plans fail to deliver for their customers. Though the broadband proposals from DES and LCUB are expected to move forward, plans are now in the works to propose new government-owned networks in other parts of Tennessee. Those new proposals — which are being crafted by Cleveland Utilities, Lexington Utilities, Greenville Light & Power, Elizabethton Electric Department, and Bolivar Energy Authority — have yet to be submitted to the Comptroller but are making progress in that direction. These coming proposals will provide Comptroller Mumpower will ample opportunity to review the plans, understand their flaws, and render a decision accordingly. While the approval of more municipal-run broadband networks will make some local government officials happy, it will likely result in more bad deals for Tennessee taxpayers.