An audit of Lafayette, Louisiana’s municipal broadband network has revealed it operated at a loss of about $45,000 a day during the 2010-2011 fiscal year. The revelation supports muni wi-fi opponents’ claimsthat such projects are costly and ill-advised.
The audit of LUS Fiber was conducted by Kolder, Champagne, Slaven and Company LLC and presented to the Lafayette City-Parish Council on May 22. A briefing held on June 5 featured a presentation by Lafayette Utilities System Director Terry Huval.
John Stephenson, director of the Communications and Technology Task Force at the American Legislative Exchange Council, says LUS Fiber is just the latest example of failed municipal broadband systems that are costing taxpayers millions of dollars. “Sadly, LUS Fiber is just the latest example of the waste we have seen coming from local governments building municipal broadband systems without proper safeguards, like transparent accounting, fair competition rules, and voter referendum provisions, in place,” he said.
Council Member William Theriot said the June 5 briefing focused on LUS Fiber’s finances. He said LUS Fiber currently owes $125 million in bonds and $29 million in loans to LUS Utilities. At the meeting, a representative of LUS Fiber admitted the operation lost money in April but said it made money in May and projected the system would have an estimated $1 million in positive cash flow by December 2012.
Theriot, however, noted payments on the loan will not begin until 2014, which accounts for the positive cash flow LUS Fiber is showing currently. Theriot says some council members also discussed their concerns that 8 percent to 10 percent of LUS Fiber’s current revenue derives from Lafayette Consolidated Government and LUS Utilities, a government entity.
Budgets for those departments will be addressed in August, and Theriot says more financial discussion will happen then. Theriot says LUS will brief the council members on where the initiative is heading based on the audit.
Job-Creation Claims Debunked
Interestingly, LUS Fiber was one of several municipal wi-fi endeavors celebrated in a report released this year by the Institute for Local Self-Reliance and the Benton Foundation. In “Broadband at the Speed of Light: How Three Communities Built Next-Generation Networks,” the report identifies Chattanooga, Tennessee; Bristol, Virginia; and Lafayette, Louisiana as models of efficient municipal wi-fi systems.
The three cities built some of the “most impressive” and “fastest” networks in the nation, the report states. In a press statement announcing the release of the report, Christopher Mitchell, director of ILSR’s Telecommunications as Commons Initiative, stated, “These publicly owned networks have each created hundreds of jobs and saved millions of dollars.”
Stephenson, however, points to two reports refuting ILSR’s claims that municipal broadband networks are successful: economist John Fuhr’s study titled “The Hidden Problems of Government-Owned Networks” and the National Taxpayers Union report called “Wired to Waste.” Both reports “highlight the costly problems associated with municipal broadband networks like LUS Fiber that overbuild what the private sector is already providing,” said Stephenson.
‘A Government-Run Business’
Lafayette officials proposed the system in 2005, claiming the area was underserved by the private sector. However, Stephenson points out the Federal Communications Commission’s National Broadband Map indicates both AT&T and Cox Communications provide broadband service to the Lafayette area today. LUS Fiber launched in 2009.
The audit showed LUS Fiber is about $28.8 million in the hole, after LUS ended fiscal year 2010 with a net deficit of $12.3 million and suffered a loss of $16.5 million in fiscal year 2011. Additionally, the audit revealed $111.9 million in total assets against $140.8 million in total liabilities for fiscal year 2011.
The Lafayette City-Parish Council has also maxed out the $125 million in bonds it is authorized to sell for LUS Fiber. In addition, LUS Fiber owes $27 million to its parent, Lafayette Utilities System, the city’s municipally owned water and power utility.
“Some of the council members, I wouldn’t say all of them, are concerned about the losses,” Theriot said. “This is a government-run business, here. This is not considered a government service.”
‘Critical Budget Items’ Neglected
The audit also showed the city may deplete its reserve fund below the $7 million officials prefer to keep on hand if they spend the approved $5.2 million in reserve funds this fiscal year. The Lafayette Consolidated Government ended 2010 with $18.8 million in the account, but by the end of 2011 it had fallen to only $9.1 million.
Stephenson said these budget shortfalls take “precious money away from critical budget items like public safety and education.”
Still, the city has expressed high hopes the initiative could break even overall by 2014 or 2015, an appraisal Theriot challenges.
“This is considered a luxury item,” Theriot said. “It’s not something that the government is required to provide. This is something that’s a luxury item, but it’s tied to the liability of the people of the Lafayette Consolidate Government.”
Alyssa Carducci ([email protected]) writes from Tampa, Florida.
“Broadband at the Speed of Light: How Three Communities Built Next Generation Networks,” Christopher Mitchell, Institute for Local Self-Reliance and Benton Foundation, April 9, 2012: http://www.muninetworks.org/reports/how-chattanooga-bristol-and-lafayette-built-best-broadband-america.
“The Hidden Problems of Government-Owned Networks,” John Fuhr, Coalition for the New Economy, January 9, 2012: http://www.coalitionfortheneweconomy.org/blog/2012/01/the-perils-of-government-owned-networks/
“Wired to Waste,” Brent Mead and Andrew Moylan, National Taxpayers Union, April 9, 2012: http://www.ntu.org/news-and-issues/telecom/49municipal-broadband-wired-to.html