by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
Before the Wake Forest Board of Commissioners
Wake Forest, North Carolina 27587
May 19, 2020
Public Hearing to receive public comment on the financing of Fiber Infrastructure Construction
These comments are respectfully submitted pursuant to the public hearing on the May 19, 2020, meeting agenda (item 4.C.) I am the Director of Regulatory Studies at the John Locke Foundation in Raleigh, North Carolina, and in this capacity I have studied and written about issues concerning municipalities and fiber infrastructure and services.
The Commission’s agenda tonight includes a resolution to approve financing terms for a fiber infrastructure construction project. I see several reasons to urge caution before undertaking this project at this time, including because the Town’s Information Technology–High Speed Fiber Network web page seems to suggest the project has a commercial intent to it (“will initially interconnect 14 Town facilities before expanding to serve businesses and residential neighborhoods,” emphasis added).
Below are my reasons for urging caution:
The extent of economic woes facing local governments in North Carolina now and in the future, post–COVID-19 economy cannot be known at this point. Nevertheless, they will affect every revenue source. See, e.g., discussion by the UNC School of Government, WUNC, and the John Locke Foundation.
Wise planners would have to assume deep shortfalls and expect tough budgetary choices. Taking on an installation purchase agreement to borrow $2.5 million now, with interest costs ranging from $203K to $314K depending on term lengths (7 to 10 years) would result in an additional expenditure of Town revenues during this time.
The economic woes won’t be easily solved by tax increases, because residents and taxpayers will already be struggling with tough budgetary choices of their own. One of the difficulties municipalities will face after COVID-19 is that while revenues will decline, need for services won’t. Extraneous expenses added during this time could contribute to budgetary pressures so much that tax increases might seem inevitable, but they would only make things worse for residents and taxpayers.
There are several providers of high-speed Internet services in Wake Forest. Notably, many offer speeds reaching 1,000 Megabits per second (Mbps). The high-speed providers serving Wake Forest include: CenturyLink (1,000 Mbps), AT&T (1,000 Mbps), Earthlink (1,000 Mbps), Spectrum (940 Mbps), and Viasat (100 Mbps).
Previous forays by North Carolina municipalities into broadband services yielded sobering outcomes. They were sufficiently alarming that they inspired the Level Playing Field law of 2011. At that point, the City of Wilson was borrowing from its municipal electric and gas funds to make up for an over $11 million shortfall in its Greenlight network; Mooresville and Davidson’s MI-Connection had posted consecutive losses of $5.6 million, $6.8 million, and $6.4 million; and Salisbury was borrowing millions of dollars from its water and sewer fund to support its Fibrant network. Analysis from researchers at the University of Pennsylvania Law School of municipal fiber across the U.S. showed that those North Carolina municipalities’ experiences were the norm, not the exception.
As stated above, it is prudent to expect a sharp decline in revenue owing to the COVID-19 economy. This problem cannot easily be solved on the backs of residents and taxpayers, who will be struggling with their own budget difficulties. Taking on the additional budgetary expense to finance fiber infrastructure construction would provide an additional constraint just as prudent managers must already expect to make difficult budgetary choices. If such a project were necessitated by an obvious market failure, it would pose a difficult choice, but Internet service already seems well provided in Wake Forest by the private sector. Meanwhile, other municipalities in the state and nation have shown such projects to be risky, expensive ventures.
It is unclear whether the Local Government Commission would consider this project to meet the statutory requirement of “necessary or expedient.” But I urge the Board of Commissioners to consider the above reasons in weighing the necessity and expedience of the proposal in this extraordinary time.
Respectfully submitted on this day,
May 19, 2020,
By: /s/ Jon Sanders
Director of Regulatory Studies
John Locke Foundation
4800 Six Forks Road, Suite 220
Raleigh, North Carolina 27609