Thursday, August 04, 2011

Consent of the Governed as a Protection against Government-Owned Broadband Debt

Negotiations over the federal government's debt ceiling bring to mind some recent experiences of local governments facing financial shortfalls on account of overpriced and undersubscribed municipal broadband projects. In an October blog post I described a plan being considered by several Utah cities to issue $60 million in new bonds just to cover the existing debts of their muni broadband project called "UTOPIA" and keep the project afloat. And in a January blog post I wrote about two North Carolina towns that shelled out nearly $580,000 to provide a temporary bailout for their muni broadband project, MI-Connection.

When muni broadband projects fail, the fall guys aren't the paid consultants who pitch the projects or local government officials who buy the pitches. Rather, the real fall guys are local residents who bear the losses through budget cuts to other local government services and through local tax hikes.

As I pointed out in January, "one thing responsible cities and towns should do in the year ahead is keep from making their financial problems worse by engaging in expensive and risky new ventures."

This spring, the North Carolina legislature took steps of its own to better ensure responsible action by cities and towns considering new muni broadband projects. The North Carolina legislature passed House Bill 129 into law in May. HB 129 includes a number of limitations and safeguards on muni broadband projects and how they can operate. In particular, HB 129 requires a public vote of approval by local residents before their local government can assume debts for financing on any muni broadband project:

A city shall not incur debt for the purpose of constructing a communications system without first holding a special election … on the question of whether the city may provide communications service. If a majority of the votes cast in the special election are for the city providing communications service, the city may incur the debt for the service. If a majority of the votes cast in the special election are against the city providing communications service, the city shall not incur the debt.

Broadband networks are expensive and risky undertakings, particularly in our current economic climate. Given the deep financial liabilities saddled on local residents when muni broadband projects go bad, adding an extra layer of taxpayer protection from financial peril by requiring the consent of the people is a commonsense idea.