Heartland Statement on Iowa Municipal Communications Utilities Debate

Published November 7, 2005

Voters in communities across Iowa will vote tomorrow, November 8, on whether to allow their local governments to build and operate municipal communications utilities. The Heartland Institute has been drawn into the debate due to research it published on the finances of existing municipal communications utilities.

Recently, a group called Project Taxpayer Protection has been citing Heartland’s research in ads opposing the Iowa referenda. Municipal officials in Iowa have responded to these ads by telling reporters Heartland’s research is generally unreliable and, more specifically, that a recent report published by Heartland and written by Dr. Ronald Rizzuto, a professor of finance at the University of Denver, is inaccurate.

We stand by all of our past research on the wisdom of municipal communications utilities, including Dr. Rizzuto’s work. That research, including replies to municipally funded critics, appears on Heartland’s Web site at http://www.heartland.org. For the record, we wish it to be known that:

  • Our studies are completely independent of Project Taxpayer Protection, a group we have not communicated with, and any of the companies that have a stake in the debate. Heartland has been conducting research on telecom and Internet access since 1999, and Dr. Rizzuto since well before then. Our research is peer reviewed and widely recognized as credible and reliable.
  • Heartland does receive funding from telecom and cable companies, but it is very little–about 5 percent of our budget–and less than we spend addressing this topic. Most industry support is earmarked for IT&T News, a monthly newsletter we send to every state and national elected official and public utility commissioner in the U.S. Some companies fund us because they want a strong independent voice in the debate that takes a skeptical view of government investments in their industry. We welcome their support, since without it our voice would not be heard in the debate. However, support from our nearly 1,500 other individual and foundation donors covers more than half of the expense.
  • Dr. Rizzuto is the nation’s leading authority on the finances of municipal communications utilities. His findings differ from what municipal officials report because he counts capital expenses and debt against the earned income of the utilities, which is the proper way to conduct a financial analysis. Dr. Rizzuto’s research shows negative internal rates of return and return to equity. Municipal officials simply pretend these investments and debt don’t exist and persist in reporting only operating budget figures. Yet the original investment capital had to come from somewhere … and could have been used for other things. Municipal officials are hiding the truth, and voters deserve to know that.
  • Recent changes in federal and (in Iowa) state regulations make the case for municipal investments in communications weaker than it was a few years ago. The big cable and telephone companies are “coming off the bench” with massive investments in fiber and wireless systems, now that they know for sure they won’t have to sell access to their systems at below their costs. New entrants such as Earthlink and Google are investing in wireless technologies, and they are just the tip of the iceberg. Prices are falling, access is rising, penetration rates (the percent of people who have access to broadband and are signing up for it) are rising, and bandwidth is rising … all signs of a competitive and thriving marketplace.

Heartland’s latest study, which finds that municipal communications utilities in Iowa have been poor investments for taxpayers, is available at http://www.heartland.org/Article.cfm?artId=17723. A response to Cedar Rapids’ superficial criticism of this work can be found at http://www.heartland.org/Article.cfm?artId=17886.

Joseph L. Bast ([email protected]) is president of The Heartland Institute.

Heartland has identified experts willing to talk to reporters, business and civic leaders, and concerned citizens about this issue. They include the following:

Hon. Jeff Angelo
State Senator, District 48
Creston, Iowa
[email protected]

Sonia Arrison
Director, Technology Studies
Pacific Research Institute
phone 415/955-6107
[email protected]

Michael J. Hicks, Ph.D.
Lieutenant Colonel, Infantry, USAR
Associate Professor of Economics
Air Force Institute of Technology
Wright-Patterson AFB, Ohio 45433
phone 937/255-3636 ext. 4605

Dr. Adrian Moore
Vice President, Reason Foundation
3415 South Sepulveda Boulevard #400
Los Angeles, CA 90034
mobile 661/477-3107
[email protected]

Steven Titch
Senior Fellow
The Heartland Institute
phone 281/571-4322
[email protected]

Hon. Ralph Watts
State Representative District 47
Adel, Iowa
phone 515/993-4850
[email protected]

For further information about The Heartland Institute or its work in this area, please call Ralph Conner, public affairs director, at 312/377-4000 or contact him by email at [email protected].