John Locke Update / Research Brief

Public comment on the financing of fiber infrastructure construction

posted on in City & County Government, Fiscal Insight, Local Government, Spending & Taxes
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Before the Wake Forest Board of Commissioners

Wake Forest, North Carolina 27587

May 19, 2020

 

Concerning:

Public Hearing to receive public comment on the financing of Fiber Infrastructure Construction

 

Dear Commissioners,

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:

An uncertain economy for the foreseeable future will constrain Town revenues

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.

An uncertain economy for the foreseeable future will adversely affect residents and taxpayers

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 is no apparent lack of fiber and broadband choices and competition affecting Wake Forest residents and businesses

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).

Similar projects at other municipalities have yielded poor outcomes

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.

This project does not seem necessary or expedient

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

Jon Sanders

Director of Regulatory Studies

John Locke Foundation

4800 Six Forks Road, Suite 220

Raleigh, North Carolina 27609

(919) 828-3876

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As Director of Regulatory Studies at the John Locke Foundation, Jon gets into the weeds in all kinds of policy areas, including electricity, occupational licensing, hydraulic… ...

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We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

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