Taxpayers on the Hook for $25M Broadband Network

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The Lake County Board of Commissioners (Minnesota) approved a $3.5 million purchase agreement for Lake Connections, the county’s municipal broadband internet project, and bidder Pinpoint Holdings, reported the Lake County News Chronicle. The issue is that the Lake Connections project has a $48.5 million debt and may leave taxpayers on the hook for more than $25 million.

In 2010, the board received a $56 million loan and $10 million grant from the Department of Agriculture’s Rural Utilities Service (RUS) to construct the network. Over the next three years, more than 1,200 miles of a fiber network was built and by 2015, the network was complete.

According to the county’s 2016 financial statement, the broadband enterprise fund owed more than $14.3 million to the general fund and $3.3 million to the Health and Human Services fund due to challenges and cost overruns during and after the construction of the network. 

In addition, the county bonded for $7.24 million to settle its debts with Rohl Networks and MP Nexlevel, the two main contractors on the Lake Connections project. The 15-year bond’s 3.17 percent interest rate means the county will owe an additional $2 million in interest and will owe an average annual payment of $610,000. It’s estimated that the county will still be more than $17 million in the red when the bond is paid off, reported the Chronicle.

According to David Williams, president of the Washington-based Taxpayer Protection Alliance (TPA), other municipal broadband projects around the country have had similar results as Lake Connections, with taxpayers often footing the bill. TPA opposes public funding of infrastructure projects like Lake Connections, advocating private funding instead.

Lake County commissioner Rich Sve noted that without the county taking action, the network that’s now serving residents and businesses may never have been built. “I think one of the things you have to remember is we started this project off and we encountered all kinds of obstacles that we never thought we were going to have,” Sve said. “But as the end result, if the county had not stepped up to move in the direction of putting broadband throughout the county, it wouldn’t have happened. No other provider was going to build a broadband network with the speeds and capabilities that we have for our rural constituency.”

In June 2017, the county entered into a deferral agreement with RUS for principal and interest on the condition the county sell the network to a private company or entity. Two months later, the county executed a memorandum of understanding with RUS in which RUS agreed to accept to the sale price of Lake Connections in full satisfaction of the county’s debt for construction of the network.

August 15, 2018     

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