Local view: Taxpayers are on a $56 million hook for the Lake County fiber project

Talk about it

If it’s too good to be true, it probably is. Unfortunately, that appears to be reality for Lake County taxpayers as it relates to the $70 million county broadband project.

There has been much discussion, some critical, of my Minnesota Cable Communications Association’s effort to educate residents about the true exposure to Lake County taxpayers. However, we can all agree it is critical to establish who ultimately is on the hook for the $56 million federal loan that makes the project possible. After all, $56 million amounts to almost $5,200 for every man, woman and child in Lake County.

In an op-ed in the Lake County News Chronicle on July 15, 2010, Lake County Commissioner Paul Bergman wrote, “None of these funding sources require any taxpayer guarantees, so the taxpayers of Lake and St. Louis counties will have no obligation if the utility fails. This is clearly stated in our application materials.”

Bergman’s claim is in direct conflict with the head of the federal agency responsible for distributing $66.4 million to Lake County for the fiber project. At a congressional oversight hearing in May on broadband stimulus loans and grants, Rural Utilities Service Administrator Jonathan Adelstein was asked point blank about the financing for the Lake County project — not just once, but twice.

Subcommittee Chairman Cliff Stearns of Florida noted that the Lake County fiber network was awarded a $10 million grant and a $56.4 million loan despite indications that a substantial majority of housing units in the proposed service area already were being served by existing broadband providers. Administrator Adelstein was pressed about the Lake County project’s financial terms.

Congressman Stearns asked: “You promised to seek the repayment of all outstanding loans, is that correct?”

Adelstein responded: “Oh we do, yes.”

Congressman Stearns also asked about allegations that a high-ranking Rural Utilities Service official told unidentified Lake County representatives that the federal government would not seek repayment of the loan in the event of a default of the system.

“In the event this project fails, will (Rural Utilities Service) require Lake County to completely pay off the $56.4 million loan? Yes or no?” Stearns asked.

Administrator Adelstein affirmed that Lake County taxpayers are responsible for the outstanding loan amount in the event of a default.

This disconnect between the federal agency responsible for overseeing the project and the project’s leading champion should be of as much concern to Lake County taxpayers as it clearly is to congressional investigators. Perhaps this is why the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations is taking a closer look at this project. Specifically, subcommittee investigators are following up on allegations that the county is “not only using $66 million in (Broadband Initiatives Program) funding to overbuild Mediacom but committed fraud by misleading the (Rural Utilities Service) in its application,” according to the hearing memo from May 15, 2012.

We have heard a lot of promises from local politicians about the benefits of a fiber network. Yet all we need to do is look 200 miles to the south to the growing city of Monticello, Minn., to realize risks are real. Monticello’s population is comparable to Lake County’s. So were promises made by elected officials. Just two years into the $26 million FiberNet project, however, Monticello informed bondholders they must renegotiate or face consequences. One big difference: In Monticello, the bondholders were on the hook. In Lake County, it’s the taxpayers.

When the Lake Connections network was first discussed, promises were made that no taxpayer dollars would be expended on the project. Since that time, Lake County officials have backtracked and pledged $3.5 million in taxpayer money as required by the Rural Utilities Service.

Our view at the Minnesota Cable Communications Association remains the same. Lake County residents deserve an up or down vote on whether they should take on the risk (over $56 million!) involved with this project.

Michael Martin is executive director of the St. Paul-based Minnesota Cable Communications Association.

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