Kudos to Hudson City Councilmembers for Rejecting Wasteful Project

Earlier this summer, the Hudson City Council wisely rejected a concept that in all likelihood would have been a massive waste of taxpayer dollars – a city-owned (taxpayer-funded) broadband system.

As the internet gained practical use in the late 1990’s, Iowa enacted changes to its public utility laws to permit cities to form a publicly-owned telecommunications utility, in addition to the typical local government water, sewer, electric and natural gas utilities that have been around for decades.  Following that law change, cities across the state pushed public referenda seeking the public’s permission to create and operate a government-owned network (GON) utility.  Hudson, Iowa passed such a referendum in 2005.

Following the wave of these “successful” public referenda, however, creation and implementation of GONs in Iowa languished as cities came to the realization that these expensive GONs would require some sort of massive subsidization to construct and operate an entirely new internet system.  Over time, the two most prominent sources of potential subsidies for a city’s GON became apparent – the city’s publicly-owned electric utility, or property taxpayers.  Because of these subsidies, the city’s electricity ratepayers or taxpayers were forced to help fund a government business whether they wanted to or not.  And even with the subsidies, the GONs must often capture at least 50 percent of the market or more to sustain itself going forward.  Hardly a fiscally responsible business model.

The grifters (consultants) are back.  Using surveys created by a small number of self-selecting participants and a dubious 0-10 “Net Promoter Score” that considers any score under a 7 as an unhappy customer, the consultants often convince Iowa’s community leaders that incumbent internet providers are bad and that a GON is a good way to provide citizens with cheaper, faster and better internet service.  Using these skewed “survey” results, consultants often push for the GON option, at the expense of electricity ratepayers or property taxpayers.  However, without an electric utility to loan excess funds to a GON, and with property taxes reaching levels of concern for political figures, financing options for the construction of a GON are much more limited. 

The Hudson City Council was recently confronted with these realities.  With projected upfront construction and operating costs well in excess of $4 million, rising interest rates, no city-owned electric utility, and a relatively small population market, a Hudson GON would need more than 70 percent of the market share to even break even.  Hudson city leaders prudently decided the GON option was simply too risky and rejected the GON concept.  Electric ratepayers and property taxpayers applaud them for their fiscal responsibility and urge them to continue to work with the private sector companies to enhance Hudson residents’ internet service.

Chip Baltimore is a Senior Fellow of the Taxpayers Protection Alliance, a former eight-year state representative, and an attorney licensed in both Iowa and Missouri.