North Carolina municipalities soon may find it more difficult to implement or subsidize communications services for residents if either of two bills winding through the state’s General Assembly becomes law.
Both House Bill 129 and Senate Bill 87 emerged from committee hearings in March. If passed into law, neither bill will forbid cities to establish public wi-fi or broadband cable systems that directly compete with private companies offering the same services.
However, the bills would require a public vote before the cities can borrow money for such projects, and they would prohibit the use of utility funds to pay for community cable and wireless networks, a practice known as cross-subsidization.
In addition, HB 129 would require municipally owned and operated public communications systems to meet the same legal requirements as their private competitors.
Circumventing State’s Constitution
The bipartisan primary sponsorship of HB 129, officially called An Act to Protect Jobs and Investment by Regulating Local Government Competition With Private Business, includes Reps. Marilyn Avila (R-Wake), Becky Carney (D-Mecklenburg), Julia C. Howard (R-Davie, Iredell), and William L. Wainright (D-Craven, Lenoir).
SB 87, called An Act to Protect Jobs and Investment by Regulating Government Competition With Private Business, is sponsored by Tom Apodaca (R-Buncombe, Henderson, Polk).
The North Carolina Constitution already requires voter approval before cities can incur secured debt, but this requirement has been circumvented by city and county officials vowing to repay loans to the Local Government Commission—an entity empowered by the state to approve the debt without voter participation—rather than the banks actually lending the municipalities the money.
‘Municipal Broadband Fallacy’
“There are those that think the Internet and broadband are just another utility just like electricity and natural gas,” says David Howard, a social media and marketing consultant in Alameda, California with a background in network solutions.
“The problem is, with the other utilities municipalities provide, they have a monopoly,” said Howard. “For municipalities to treat broadband like any other vital utility is a fallacy. To take a monopoly model and try to apply it to a competitive market leads to failure.”
Howard witnessed this approach firsthand. Alameda started its efforts to build a public broadband network in the late 1990s with the goal of providing high-speed Internet and cable television. The network was never fully built out, and services promised didn’t meet what private companies provided, Howard said.
Out of more than 31,000 households, combined subscriptions for Internet and TV service peaked at less than 10,000, Howard said. “The city didn’t match what they promised, and people just stopped signing up,” Howard said.
Without new subscribers, the utility had to borrow $3 million from the city’s general fund to sustain services. The network, which cost more than $35 million to build, eventually was sold to Comcast for $15 million in 2008.
Muni Broadband Trouble Statewide
The North Carolina bills have been offered in the wake of several troubled municipal wi-fi and cable fiber-optic programs in the state.
The cities of Mooresville and Davidson, for example, borrowed $92 million to purchase a bankrupt local cable operation, outbidding a private company willing to purchase and run the enterprise. This past year, despite reporting fewer customers than when the cities purchased the system, an additional $6.4 million was required to keep the cable company operational.
‘Fire Department as Collateral’
In 2008 the city of Wilson launched Greenlight, a city-owned cable company that directly competes with the town’s private cable, phone, and broadband businesses. Greenlight lost a combined $2.5 million in 2009 and 2010 and required an additional $11 million in cross-subsidies from electric and gas funds. Those resulted in 50 percent higher electricity rates and 30 percent higher natural gas rates for similar services provided by local utilitiesProgress Energy and PSNC Energy.
“These cities have been sold a bill of goods by contractors who make tons of money selling communities services that are obsolete before the systems are even paid for,” said Michael Sanera, who has researched and written studies and articles on North Carolina municipal fiber-optic efforts for the John Locke Foundation, a research and education institution in North Carolina.
“While city officials constantly claim that the taxpayers are not on the hook for these projects, we found that the bonds sold to fund the Salisbury fiber cable project were secured by the city putting up a fire station and the city hall as collateral,” he said. “Obviously, city officials would raise taxes before they would allow these buildings to be taken by the banks.”
‘Continued Investments Necessary’
For some opponents of municipal wi-fi programs, the North Carolina bills don’t go far enough. Former North Carolina State Representative Ed McMahan (R-Mecklenburg), for example, wrote an editorial for the Carolina Journal Online in which he expressed the view that local governments shouldn’t competed with private businesses.
While McMahon expressed HB 129 and SB 87 are “reasonable measures,” he added: “[I]t would be better if the General Assembly banned cities from competing against private business altogether,” he wrote. “This is especially true in an area like the communications industry, where today’s technology will be out of date tomorrow and continued investments are necessary to keep up.”
Anthony McConnell ([email protected]) writes from Cheyenne, Wyoming.
“North Carolina House Bill 129,” February 21, 2011: http://www.heartland.org/infotech-news.org/article/29622/North_Carolina_House_Bill_129_An_Act_to_Protect_Jobs_and_Investment_by_Reglating_Local_Government_Competition_With_Private_Business.html
“North Carolina Senate Bill 87,” February 21, 2011: http://www.heartland.org/infotech-news.org/article/29623/North_Carolina_Senate_Bill_87_Level_Playing_FieldLocal_Government_Competiton.html
“Wilson’s Fiber-Optic Cable Boondoggle,” The John Locke Foundation, 2009: http://www.heartland.org/infotech-news.org/article/29624/Wilsons_FiberOptic_Cable_Boondoggle.html
“Salisbury’s Fiber-Optic Cable System Another Corporate Welfare Project Paid for by Average Taxpayers,” The John Locke Foundation, 2009: http://www.heartland.org/infotech-news.org/article/29625/Salisburys_FiberOptic_Cable_System_Another_Corporate_Welfare_Project_Paid_for_by_Average_Taxpayers.html
“Our Experiment With Municipal Broadband Has Failed: General Assembly Should Bar Cities From Competing With Private Telecoms,” Carolina Journal Online, March 24, 2011: http://www.carolinajournal.com/opinions/display_story.html?id=7562