Government Broadband’s Record Is Bad; Traverse City Going For It

City-owned utility wants a federal ‘energy savings’ loan to bankroll it

By Evan Carter | January 15, 2019

Traverse City’s public utility wants to build out a fiber-optic network to every home and business in the municipality. But it has raised the eyebrows of some observers with its intention to apply for federal “energy savings” financing to help pay for the public internet project.

After discussions with the Michigan office of the United States Department of Agriculture, utility staffers began drafting a request for approval to apply for a long-term, low-interest loan from the federal government. They have not yet submitted the request, but they expect to do it soon.

Based upon construction cost estimates from a contractor, the utility plans to apply for a $16.3 million loan, of which $2.4 million might be awarded as a grant. Tim Arends, executive director of Traverse City Light & Power, said it would be more economical to secure a low-interest loan from the federal government than to issue a bond to cover construction costs.

The loan the utility hopes to apply for would come from the United States Department of Agriculture’s Rural Energy Savings Program, which is meant to help program recipients in rural areas lower their energy bills and fund energy efficiency measures.

Financing through USDA may be critical to the project, as municipal-owned fiber-optic networks are usually expensive and almost never pay for themselves. And according to a 2017 study from the University of Pennsylvania Law School, only 2 of the 20 municipal broadband projects studied were projected to earn enough money to cover their costs over their useful life.

In the case of Traverse City, as happens elsewhere, utility ratepayers — and perhaps taxpayers — could be obligated to repay the loan.

According to Arends, employees will recommend, at the Jan. 22 board meeting, the contractor to do the engineering work and create the planning and design for the network.

“In the very near future we will be providing the appointed and elected officials with the information they need to make an informed decision about deployment of a municipal [fiber-to-the premises] project for the benefit of the Traverse City community and the utility’s ratepayers,” Arends said.

Matt Groen, executive director of the Michigan Cable Telecommunications Association, believes that only entities offering a network in underserved communities should receive federal funds for broadband.

“In general, we encourage these limited funds for broadband to be directed to those areas which are truly unserved, as opposed to communities that already have multiple providers,” Groen said. “Specifically, in Traverse City, one of [our association’s] members is already providing 1 gigabit per second service into that area currently. We feel money that is obtained through grants should go to those who truly do not have access to broadband, and will not in the foreseeable future due to the cost prohibitive nature of providing service.”

According to the U.S. Census Bureau, Traverse City has a population of 15,515, and most residents have a choice in internet service between Charter Spectrum and AT&T.

Residents and businesses now have access to internet speeds of up to 1 gigabit per second through private providers like Charter. Still, the public utility is moving forward with the network.

Patrick McGuire, chairperson of the Traverse City Light & Power Board, did not reply to an email requesting comment.

Other local governments in Michigan that have either built a fiber network or are in the process of doing so include the cities of Marshall and Holland, Lyndon Township (in Washtenaw County) and the village of Sebewaing.

In May 2018, residents of Sharon Township in Washtenaw County voted down a proposal to build a municipal-owned fiber-optic network.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

More Budget Reform Ideas for 2019

Plenty of useless spending can be cut this year

By Michael D. LaFaive | January 14, 2019

In a previous article I listed more than $261 million worth of spending cuts and reforms to the state’s corporate welfare complex. Savings could be redirected to better uses — I suggested road funding due to past and coming debates over how to spend more on Michigan’s transportation infrastructure. To that end, I now offer additional budget reform ideas worth up to $291 million in General Fund savings, which are based on fiscal 2019 appropriations.

Eliminate most if not all general fund dollars to the University of Michigan’s main campus. Savings: $212 million. The Mackinac Center first recommended this cut in 2004. The University of Michigan is wealthy enough to pay its own way. It is worth mentioning that this appropriation from the General Fund is not the only source of state funding for the university. It also receives dollars from the School Aid Fund, which could also be redirected to some higher priority.

The university could afford this cut, as the subsidy is only a small part of its operating budget, and it’s small in comparison to its wealth. In addition, equity calls for a cut. According to a 2017 New York Times article, the median family income of the university’s students is $154,000, and two-thirds of them come from families in the top 20 percent of income earners. It is actually unfair that state taxpayers must subsidize students and families who could pay full freight.

Eliminate “AgBioResearch” funding to Michigan State University. Savings: $34.6 million.This line item is an extra appropriation to MSU for its agricultural-related research. The university is, of course, free to continue funding it from its existing appropriation if it chooses. And some of its research may indeed qualify as a true public good, but that does not necessarily justify special treatment in the state budget.

At a minimum, the state should strip from this line item any funding that explicitly supports research designed to benefit the private, for-profit agricultural industry. An obvious starting point is the $5.6 million dedicated to Project GREEEN, or “Generating Research and Extension to Meet Environmental and Economic Needs.” GREEEN dollars are appropriated, in the words of the program’s coordinator, to “solve problems and create opportunities for Michigan’s growers.” In other words, it funds research that the industry itself should be funding.

Eliminate Michigan State University Extension. Savings: $29.9 million. Much of what the extension office offers is nice, but it is far from necessary in a civil society that is full of private individual and for-profit and nonprofit services, including those offered by the university in other programs. Some advice and information offered by MSU through its extension programs truly smacks of nanny state interference in our lives.

This appropriation funds information and education programs for private industry and a broader population, including participants of 4-H. Extension program services are fairly extensive, from a veterinary science camp for kids to “Bull Breeding Soundness Clinics” and a gardening hotline to help gardeners “make wise decisions about their garden. …” One can also attend the “Relax: Alternatives to Anger” class — if you can locate one near you — if you need to find “ways to forgive and let go of the past.”

Eliminate all subsidies for preferences to cultural or ethnic interests, which are unfair. General Fund savings: $14.7 million. The activities these subsidies support include but are not limited to multicultural integration services and various commissions for Hispanic, Asian-Pacific and Middle Eastern populations ($551,000).

Multicultural integration services subsidize social service groups, a Chaldean Council, the Arab Community Center, the Jewish Federation and the Inter-Tribal Council. Why stop there? What about atheist Russian emigres or Greek Orthodox groups?

Eliminate programs that subsidize the encouragement of particular careers over others. The Morris Hood Jr. Educator Development Program ($148,600) and Future Farmers of America ($80,000) appropriations are good places to start. The Morris Hood program is for “academically or economically disadvantaged students” to finish a teacher training program at a four-year college or university. It doesn’t seem logical or fair to subsidize future teachers or farmers at the expense of future auto mechanics or accountants.

This essay presented a small list of ideas for budget reforms worth as much as $291 million. There are potentially hundreds of budget reform ideas that could be adopted or adapted to help finance the road transportation infrastructure needs of our beloved state, or other priorities, such as across-the-board personal income tax cuts.