Ten years ago, President Barack Obama announced the American Recovery and Reinvestment Act, an $831 billion federal spending program designed to provide economic stimulus in areas hardest hit by the Great Recession. One focus of ARRA was $7.2 billion aimed at developing broadband fiber networks in underserved or unserved areas of the country.
Officials in Minnesota’s sparsely populated Lake County received one of the largest ARRA broadband awards that included $66 million in grants and (mostly) loans to build an ambitious government-owned network. Lake County’s application was one of only 43 broadband projects approved for funding throughout the entire U.S.
It was, in the words of a Lake County commissioner, a “game-changer.” He went on to predict that “not only will we be able to attract new businesses and jobs to the area, but we will be able to provide additional health care, educational, and residential services to Lake and St. Louis County residents and businesses.”
Big promises were made by local elected officials who actively sought the ARRA funding. But none was as important as this: “[N]o county taxpayer funds would be at risk in order to cover the costs associated with building and operating the county’s ambitious broadband effort.”
That promise has been repeatedly broken.
Since 2012, inherent flaws in the plans to construct what would be known as Lake Connections were apparent. Yet, Lake County elected officials cobbled together enough operating capital to construct and begin operating a fiber network in this largely rural area of northern Minnesota. Sadly, taxpayers across the country are now paying the price for the yawning gap between officials’ rhetoric and the reality of today’s competitive broadband marketplace.
The Freedom Foundation of Minnesota has followed the Lake County broadband effort from inception. We released a report recently that chronicles the Lake County project from start to finish to serve as a cautionary tale for other elected officials considering undertaking similar efforts.
The Lake County broadband network (Lake Connections) was sold on Dec. 18 to a private Nebraska firm for $8.4 million — literally pennies on the dollar. These funds, when collected, will be used to satisfy the remaining debt owed by the county to the U.S. Department of Agriculture’s Rural Utilities Service agency, the originators of the $66 million ARRA loans and grants.
This means that the federal government will lose at least $40 million in taxpayer funds because of the Lake County broadband boondoggle.
There are a multitude of lessons to be learned from Lake County, just as there were when Monticello, Moorhead and numerous other communities attempted to construct and operate broadband networks. While many rural communities struggle to provide competitive economic development options for local businesses, it is a common misperception that a government broadband network will provide faster service at a lower cost to the community.
Instead, almost the exact opposite occurs: Current and future taxpayers face enormous risks while attempting to compete against internet service providers. But, most important, rarely is there a discussion with incumbent telecommunications companies before local elected officials decide to become their competitor.
Several Minnesota communities have opted to communicate their broadband needs to incumbent local providers to develop plans that would increase subscribers for the private internet company as well as achieving greater and faster service for local residents. These public/private partnerships deserve further study and support as a way to achieve greater economic growth in rural areas without the enormous risk that occurs to taxpayers when local government enters the market as a competitor.
The most important lesson learned in Lake County is one taxpayers will unfortunately pay for in years to come: Providing ultra-high-speed broadband service in large, rural areas is complicated, costly and ultimately highly competitive. It is extremely difficult to find a local unit of government out of the more than 450 communities that have attempted to develop or provide some form of taxpayer-funded, government-owned internet service that is able to become profitable within five years. They are wired to fail.
Annette Meeks is CEO of the Freedom Foundation of Minnesota.