The City of Pikeville recently raised its restaurant tax by a full percentage point just to finance a government-owned broadband network.
If history is any guide – and it usually is – this tax increase won’t be the only one city officials will claim they need to keep a municipal broadband network functioning.
While local politicians keep trying to find ways to add to taxpayers’ tabs, they will never be able to raise taxes fast – or high – enough to pay for such pork-laden boondoggles.
Just ask taxpayers in the 11 cities in Utah which in 2002 got together to build a $500 million regional broadband system called (no joke) UTOPIA.
Here we are, 15 years later and the network still isn’t complete, has barely a quarter of the subscribers it promised to attract and runs a multimillion-dollar deficit annually.
UTOPIA cities trying to make government-owned broadband work have turned more tricks than Houdini attempting an underwater escape, including raising property taxes and increasing utility fees to cover yearly shortfalls.
It hasn’t worked.
Now, local officials are stuck with the failing network after unsuccessful attempts to sell it.
Other cities, including Marietta, Georgia, Provo, Utah, and Groton, Connecticut, managed to shimmy their way out of failing municipal-network deals but lost millions of dollars in the process.
Still, getting out was a wise move – even at a loss.
If you remember the 1986 movie “The Money Pit,” you know what I’m talking about when I claim that government-owned broadband networks would make Tom Hanks and Shelley Long cry, too.
Revenues are rarely enough to cover these projects’ operating costs; fiber networks require constant upkeep and upgrades to stay on the cutting edge and attractive to subscribers.
Like Pikeville, the cities of Marietta, Provo and Groton counted on municipal broadband to bring new jobs and investment to town.
However, studies from New York Law School’s Advanced Communications Law and Policy Institute, George Mason University’s Mercatus Center and Phoenix Center for Advanced Legal and Economic Public Policy Studies all conclude: at best, these networks are a wash economically.
Not only is there no conclusive evidence that such municipal networks reduce unemployment rates or attract new business, but they actually deter investment by telecommunications companies forced to compete on such an unlevel – and thus unfair – playing field.
No firm in its right mind wants to compete with a municipal network with government benefactors standing by to raise taxes to bail it out during tough times, which is what Pikeville residents will be asked to do when its project can’t make ends meet.
The bills will keep increasing; a higher restaurant tax now, increased utility fees – like what was proposed to pay for Utah’s UTOPIA – later.
Advocates who want this municipal system cite Chattanooga, Tennessee’s government network as an example Pikeville should emulate.
Experts from the New York law school mentioned above took an in-depth look at Chattanooga’s network and admitted the system is making some money but only because of a unique set of factors that cities like Pikeville can’t even come close to replicating.
Chief among them is that the federal government supplied more than $100 million from the 2009 stimulus scheme to finance that city’s system, which was more than twice the city’s entire fiscal 2016 budget.
And $100 million was just the federal government’s share of the network’s $390 million price tag.
There’s no question Pikeville and all of eastern Kentucky struggle to attract new businesses and investment.
But success in these endeavors will require innovative leadership and approaches – not shiny new toys.
There are no easy answers with this exception: municipal broadband isn’t a silver bullet.
Jim Waters is president of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at email@example.com and @bipps on Twitter.