The odds are good that Sen. Chris McDaniel will win the bet he made during a recent legislative hearing regarding the future of Kentucky Wired, former Gov. Steve Beshear’s statewide broadband boondoggle.
Pointing to the project’s significant delays, cost overruns, erroneous presumptions and lack of revenue streams to make bond payments coming due, McDaniel, R-Taylor Mill, said he’s “betting it’s going to be substantially cheaper” to unplug it.
The Beshear administration in 2013 ham-fisted legislators into approving the issuance of $30 million in bonding for Kentucky Wired to match the nearly $24 million in federal dollars wrested by U.S. Rep. Hal Rogers from the Appalachian Region Commission with an additional $280 million worth of bonding provided by private-sector partners for which state taxpayers also will be on the hook.
State lawmakers approved Kentucky Wired only after being convinced the 3,400-mile statewide network would be built for less than $340 million, up and running by January 2017 at the latest and – most important – connecting customers and collecting revenues needed to make its bond payments.
However, only 129 miles of fiber strand has been laid to date and yet the Kentucky Communications Network Authority (KCNA) reported to a budget review subcommittee that $175 million has already been spent with only $237 million remaining in the budget.
It could be 2020 before Kentucky Wired is online and able to even come close to making its bond payments.
Legislators across the commonwealth are displeased; some say KCNA competes with local providers.
Rep. Michael Meredith, R-Oakland, told fellow members of the Budget Review Subcommittee on General Government, Finance, Personnel and Public Retirement that local leaders in his district charge it’s “stealing customers.”
Then, there are the mounting, yet unknown, costs.
KCNA Executive Director Phillip Brown told the committee that 152 “supervening events” have led to delays in launch dates driven up costs by “tens of millions.”
Brown admits the original $324 million price tag already has ballooned to at least $413 million.
Committee member Rep. Phil Moffett, R-Louisville, who works in the broadband industry, refuted Brown’s attempt to blame delays on the time taken to reach pole-attachment agreements private providers like AT&T and Windstream.
Moffett instead called out the agency’s incompetence, saying “anybody that’s been in this business any amount of time would have known that these delays were foreseeable.”
He blasted the whole project as being built on a house of cards, saying legislators were misled by a tainted procurement process at the end of Beshear’s administration that duped lawmakers into believing that $11 million in federal money currently going to AT&T as part of a previously bid contract could be jerked away and redirected toward a government entity.
AT&T rightly threatened legal action, after which you heard nothing from Beshear’s bureaucrats about the program.
With contracts already signed, they simply left the mess for the next administration to clean up.
Moffett calls it “fraudulent” and “shameful” that buyers purchased bonds based on assurances of a non-existent $11 million revenue stream – a whopping 39 percent of the bond payments.
“We’ve been sold a bad bill of goods,” Suzanne Miles, R-Owensboro, concluded.
McDaniel spoke openly at the hearing of “not just civil, but possible criminal prosecution affiliated with the sale of these bonds.”
Without being up and running, few customers, declining revenues and mounting costs, how does the KCNA propose making the $30 million payments due on the project, which would mount to a $90 million past-due bill if three more years are needed to get the project fully off the ground?
Brown and his fellow bureaucrats likely will come begging for more General Fund dollars.
Legislators, start practicing now: “Read my lips: No new money. Shut it down.”
Jim Waters is president and CEO 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 firstname.lastname@example.org and @bipps on Twitter.