The Taxpayers Protection Alliance (TPA) is excited to release a new report on government owned networks (GONs) titled, ”GON With the Wind II - Frankly, Taxpayers Do Care.”  GONs are the taxpayer-funded broadband systems that are proliferating around the country.  This is a follow up to our 2020 report, “GON with the Wind: The Failed Promise of Government Owned Networks Across the Country.”  A big thank you to the TPA team and a special thank you to Johnny Kampis (TPA Director of Telecom Policy) and Jeffrey Westling (Director of Technology and Innovation Policy) with the American Action Forum. With more than $400 billion in taxpayer money being spent on broadband projects, it is imperative that the proper oversight is in place to ensure the wise expenditure of funds.
 
 
GON With the Wind II
 
With federal coffers wide open and hundreds of billions in taxpayer dollars flowing to governments across the country, the U.S. has experienced an unprecedented interest in the creation of GONs, which already number more than 600. Longtime and pop-up broadband consultants are advising local bureaucrats to build their own complete or middle-mile networks with all the “free” grant money available to them. And, as before, most of these networks are bound to fail.  Governments would be better off letting the private sector continue to take the lead on facilitating broadband deployment. But, the funding programs promulgated by the Biden administration encourage the unprecedented expenditure of taxpayer money to GONs, electric cooperatives, and other non-traditional providers. 
 
This report examines how the significant sum of taxpayer money being allocated toward broadband is changing the digital landscape. TPA partnered with Jeffrey Westling, director of technology and innovation policy at the American Action Forum, to analyze the various funding mechanisms for broadband deployment and the lack of safeguards on how that money is spent. The report also reexamines some of the GONs from the first report to see how they have fared in the past few years before looking ahead to some of the plethora of GONs on the horizon.  Too often, subsidy programs designed to connect unserved communities throw money at GONs with little regard for both existing competitive pressures in the market and incentives for private operators to invest in expanding and upgrading existing networks. Unfortunately, Congress has spent hundreds of billions of taxpayer dollars for municipal networks, competing with private operators for these funds to connect unserved communities. Worse, many of these programs do not specifically target unserved areas, meaning subsidy dollars could go to overbuilding municipal networks and actively harming the private incentive to continue to invest and compete in these areas. Currently, at least 16 federal programs totaling more than $413 billion provide funding for broadband deployment which regulators can use to support municipal networks. 
 
The report gives updates on GONs highlighted in TPA’s first report and includes new GONs. Below are examples of those GONs.
 
GON Bad: Updates on Existing Networks 
 
Controversy arose in Lafayette (Louisiana) after city leaders decided to raid the meager reserves of LUS Fiber to balance the city’s budget, requiring the broadband division of the electric utility to make $3.2 million in in-lieu-of-tax payments over the next fiscal year. LUS Fiber plans an ambitious $31 million expansion across several Louisiana parishes over the next few years, expanding fiber service to more than 20,000 potential customers. Lafayette voters approved construction of the network in 2005, authorizing LUS to issue $125 million in revenue bonds to build it. A few years and several lawsuits later, LUS bonded for $110 million in 2007, began building the network in 2008, and started connecting customers in 2009. Moody’s downgraded Lafayette Communications System Revenue Bonds twice, in 2005 and 2007, due to concerns about the debt service. 
 
LUS Fiber declined to respond to TPA’s open records request for the first “GON with the Wind,” as state law shields the network from releasing customer data. Researchers have cobbled together information about LUS Fiber’s status through various third-party reports. For example, TPA used financial numbers from NewGen Strategies & Solutions Consulting Engineers Report on the network. Local columnist Geoff Daily of The Current pointed out that the recent decision to empty out the reserves makes LUS Fiber vulnerable to revenue shortfalls — which would likely mean money from the electric division would be shifted over to shore up the network. He noted that while LUS Fiber is receiving grants to aid in planned expansions, the matching funds required by those grants may be too much for the GON to bear.  Christopher Yoo, the University of Pennsylvania professor who led the groundbreaking 2017 study exposing GONs’ many fiscal issues, examined 15 more GONs in a study published in January 2022. He found that LUS Fiber would require 62 years to pay back the loans that funded it based on adjusted nominal cash flow (ANCF) from 2017 to 2019. Yoo points out this isn’t even close to the 13 years before Lafayette’s debt is expected to come off the books.
 
New GONs
 
Los Angeles County, the nation’s most populous county, shouldn’t need a government network, but leaders there have discussed the possibility. The proposal has received pushback from local groups, who say Los Angeles County should use existing infrastructure and leverage federal, state and local tax dollars already allocated to broadband to connect all residents.  Los Angeles County published a report last year offering three different approaches to helping bridge the small digital divide that exists there. The first approach would leverage existing infrastructure and incoming broadband tax funds to connect all residents. The other two options would task Los Angeles County with creating its own networks: one approach involves a wireless network at an estimated cost of $1.4 billion and the other would extend county-owned fiber to every home in the county at a cost of untold billions.  Los Angeles County opted to establish a pilot project for the wireless network and study the option for fiber. 
 
Plenty of local groups, as well as private providers, have urged county leaders to focus on the first option. A band of groups that include the Boys & Girls Clubs, Korean American Coalition and Latino Equality Alliance sent a letter to the Los Angeles County Board of Supervisors that asked the board to “choose a solution that prioritizes the allocation of funding towards immediately connecting our most vulnerable communities.” The groups said the county should facilitate subsidized access to existing infrastructure with fast and reliable speeds rather than try to build its own duplicative network. “The track record on public broadband projects is littered with failures and wasted resources,” the groups wrote in their letter to the board of supervisors. “Cities across the country have failed to make their public programs work because building, operating, maintaining and servicing a broadband system is incredibly costly even for private companies. We cannot afford to waste a decade on a failed enterprise.”  The groups also point out that adoption is a bigger issue than access, especially in a large city like Los Angeles with plenty of internet options. “Many residents choose not to adopt internet services for complex reasons, including concerns that the government will attain access to private information,” the letter states. 
 
Conclusion

As federal funds continue flowing across the country, Congress will have an important oversight role in ensuring they go to the right places. Federal agencies have begun the process of collecting information about the current location of broadband deployments and the needs of individual states, and some programs have already begun in earnest. As the process gets fully underway, legislators should ensure that the Federal Communications Commission, the National Telecommunications and Information Administration, and the Department of Treasury comply with the specific directives included in the laws regarding the types of projects that can be supported using these funds, the areas which can receive support, and compliance with oversight requirements included in the law. To that end, efforts such as those led by Senator John Thune (R-S.D.) which seek to review “numerous broadband programs spanning several federal agencies” are a welcome first step. Taking the initiative to coordinate and oversee how these programs are implemented will better ensure that taxpayer dollars go to the areas that need them the most, rather than overbuilding government owned networks in areas with adequate broadband coverage.

If states and localities are using American Rescue Plan funds to support government-owned networks while excluding or ignoring private sector competition (while other areas remain unconnected), Congress could pass legislation amending the program and refocusing where and how the funds can be used. Finally, separate from the spending, Congress could also help limit deployment barriers. Currently, broadband providers need access to poles and public rights-of-way to dig fiber, attach wires, or collocate cellular antennas. In many locations, however, local, state, and federal review processes and fees for accessing the rights-of way present a barrier to deployment. Congress can mitigate these issues by supporting local broadband offices and limiting the fees for access to this infrastructure. By streamlining the deployment process, fewer funds will be needed to support the deployment of infrastructure to unserved locations. In addition, Congress should work to establish requirements for state and local governments to report how the new funding for broadband is distributed through a database posted on an easily accessible website. This will promote more transparency for how this money is spent so that taxpayers can ensure there is as little waste as possible in these programs.

 

BLOGS:

Monday:  FDA About to Make Drug Approvals More Difficult

Tuesday: SEC’s climate distraction

Wednesday: TPA Releases “GON with the Wind II” Broadband Report

Friday: Bill of the Month: Save Local Business Act


MEDIA: 

April 21, 2023: The Center Square ran TPA’s op-ed, “Biden’s Cancer Moonshot will fail without reform of the FDA.”
 
April 24, 2023:  WBFF Fox45 (Baltimore, Md.) interviewed me about Gov. Wes Moore supporting a taxpayer funded stadium for the Washington Commanders.
 
April 24, 2023:  The Washington Times (Washington, D.C.) ran TPA’s op-ed, “SEC's climate distraction.”
 
April 24, 2023:  The Center Square ran TPA’s op-ed, “NPR, postal service should fess up to receiving taxpayer support.”
 
April 25, 2023: The Livingston Parish News (Denham Springs, Louis.) ran TPA’s op-ed, “Biden’s Cancer Moonshot will fail without reform of the FDA.”
 
April 25, 2023:  Issues & Insights ran TPA’s op-ed, “Coming Medicaid Changes Show Why Reform Is Badly Needed.”
 
April 25, 2023: The Daily Caller ran TPA’s op-ed, “Americans Will Pay The Costs of Biden’s New Equity-Based Regulatory Scheme.”
 
April 26, 2023: Inside Sources ran TPA’s op-ed, “Bloomberg’s Funding is Damaging Global Public Health.”
 
April 25, 2023: I appeared on WBOB 600 AM (Jacksonville, Fla.) to talk about the debt ceiling.
 
April 27, 2023:  WBFF Fox45 (Baltimore, Md.) interviewed me about Baltimore City’s Taxpayers’ Night.
 
April 27, 2023: Inside Sources ran TPA’s op-ed, “Postal Service ‘Reform’ Failing Taxpayers and Consumers.”
 
April 28, 2023: Townhall.com ran TPA’s op-ed, “The FDA Ringfences Smoking While the UK Supercharges Quitting. Who is Right, Who is Wrong?”
 

 Have a great weekend!