The cost of the behemoth project, now $52 million, is bigger than the City’s entire budget
Nov. 3, 2023
We have talked often here at MacIver about how unnecessary new government spending ideas and massive government building boondoggles never really die. Doesn’t seem to matter how many times taxpayers voice their concern about such a project or even if a project is voted down. Government building boondoggles have a zombie-like characteristic, the project always keeps moving forward no matter how many times you might think it has been permanently disabled or even killed.
Proponents who want to continually expand the reach and scope of services that the government offers, and that taxpayers must then pay for, never stop pushing for more government. They are relentless.
This is happening right now in Superior.
The city council of Superior in the far northwestern part of the state is, once again, debating whether to build an unnecessary government-owned broadband network. This proposal comes despite serious questions about the dubious findings used to justify the project in the first place and separate, massive pushes by President Biden’s administration and Governor Evers to reach unserved areas in Wisconsin.
The city of Superior has been talking about and studying the idea of building a government-owned network (GON) since 2019. Or more specifically, the mayor, a couple members of the city council and outside consultants hoping to cash in on this boondoggle have been pushing this bad idea since 2019.
In the vast majority of communities across the state and the country, broadband infrastructure and networks are paid for by a private business(es) looking to provide a service to paying customers who want that service and are willing to pay for that service with their own money.
When the first outside consultant started pushing this massive building project back in 2019, the initial price tag came in at a whopping $31 million dollars.
It should be noted that the first consultant on this project was not hired for the second part of the project, the implementation phase, after putting together a suspect broadband master plan that unsurprisingly recommended that the city of Superior purchase their proprietary software at great cost to manage the project.
“If Entry Point is going to benefit from a successful public relations campaign, why are the taxpayers of Superior paying Entry Point to conduct the public relations campaign in the first place?
Do you think Entry Point will develop a fair survey to accurately gauge the true wishes of Superior taxpayers? Or do you think they will end up advocating for this incredibly expensive project because they will pick up a new customer if the campaign succeeds?
I’ll bet the survey will ask Superior residents if they would like access to fast, reliable and inexpensive broadband. Who doesn’t want that? While we are at it, let’s ask the good people of Superior if they like puppies and want eternal life? No one is going to answer no.”
At the time, we noted that the cost of this one infrastructure project was roughly the same size as the city of Superior’s entire budget. The entire budget. Taking on a new gigantic debt bomb for just one unnecessary project that is the same amount as what local government spends on every service and critical need facing the community – police, fire, roads, snow plowing, homelessness, parks – does not seem prudent or responsible.
Now the cost of this project has exploded to at least $52.6 million, a 70% increase in little more than two years. That works out to cost each resident of Superior approximately $1,900. The hope is that the government network would serve “12,000 homes and 650 businesses” in Superior. And with the cost of building materials, the cost of the labor to build the actual infrastructure and the cost to borrow money seemingly stuck at high levels for the foreseeable future, there is a good chance this massive price tag could explode even further once actual construction is set to begin.
For comparison purposes, Superior’s entire 2023 adopted budget will spend approximately $33.6 million by the end of the year. The cost of this single project is one and half times more than the city’s entire annual budget. The cost and scale of this project for a small city of 27,000 residents makes no sense. None.
In the city’s original broadband master plan, the consultant based the viability of the GON project on the belief that 60% of residents would purchase their broadband from the government. This measure of how many subscribers might avail themselves to a new telecommunication service is referred to as the “take rate.” There was never any legitimate data or market research in the original broadband master plan to justify the 60% take rate.
Instead, the original consultant pointed to an informal survey that had less than 800 responses. Remember, Superior has 27,000 residents and they pointed to a survey that less than 3% of the population returned as scientific proof that just about everyone would immediately sign up for the government’s broadband service.
We pointed out at the time the actual take rate of two GON projects in other Wisconsin cities as reason to doubt Superior’s suggested 60% take rate. The city of Madison attempted to set up a pilot government-run broadband network within a condense, geographically-defined neighborhood but the take rate was less than 2%. The idea for a GON for the entire city was immediately scrapped. The city of Sun Prairie spent years and a lot of taxpayer money setting up a larger GON project yet the take rate was only 5%. Sixty percent? Really?
When the second consultant was hired recently to move this project forward, one thing that it did was lower the take rate down to 40%, hoping that this lower number would make the $52.6 million network viable. While there still seems to be little concrete proof of where the 40% take rate comes from or why 40% is possible and/or feasible, this figure is still unrealistic and way too high.
First, let’s look at the number of residents in Superior who currently have broadband. According to recent figures from the Federal Communications Commission, 83% of Superior households have a broadband connection and even a greater number of households, 93% to be exact, currently have access to broadband service, as commonly defined by the federal government (25/3 mbps). Many in the city have access to more than one private broadband provider. So, it seems a stretch to say that a significant portion of the people in Superior who have broadband access are going to jump at the chance to sign up for the government’s offering. The city believes that not 2%, not 10%, but 40% of people will switch to the government’s broadband service?
In 2017, Traverse City Michigan began looking at building a broadband government-owned network. Despite the cost of the project ballooning from $4.2 million at the start to over $30 million a few short years later, the city council voted to approve it in 2019 based on a 40% take rate.
In 2021, the Traverse City broadband network had a 25% take rate. In the spring of this year, the city had signed up 753 customers out of 2,974 potential customers in the area of the city where the network has been built. That is about a 25% take rate. If you look, however, at the total number of customers throughout the entire city (7,041 total households and businesses in the entire city), the take rate is only 10.7%. Government officials and proponents of government-owned networks have been singing the praises of their boondoggle in Traverse City for years and yet, only 10.7% of city residents have signed up for the service.
That is important because, when Superior’s government-owned network predictably misses the unrealistic take rate their financials and budget is based on, taxpayers will inevitably be asked to pony up more of their hard-earned money to keep the network solvent and to paper over the fatal flaws of the proposal.
Sure, individual subscribers may see a higher bill in the short term to try to make up the lost revenue but that will likely lead residents to leave the government-owned network and head back to the competitively-priced private broadband providers. Much more likely, the government officials, in a desperate attempt to save face and keep prices supposedly competitive, will force all Superior taxpayers to kick in more to keep the boondoggle afloat.
Even using Superior’s own rosy numbers and predictions contained in the most recent feasibility study, just a two percent reduction in the predicted 40% residential take rate and a three percent reduction in the predicted 50% take rate will cause the government-owned network to buckle and move into the red.
Superior has set aside $5 million from federal American Rescue Plan Act (ARPA) funds to pay for some of the preliminary planning and other work needed to get the project off the ground. While we question whether using Covid funds now, years after the Covid crisis has passed, on a non-Covid project is legitimate or wise, that still leaves at least $47.6 million of the cost that the city needs to figure out how to pay for.
Proponents will be adamant, of course, that the residents or the property taxpayers of Superior will not “pay” the remaining $50 million cost of the project. They will say that the federal government or maybe a different government grant will be used to pay off the tab. The new consultant talks about a 50% grant/50% debt ratio for the project. Problem is that current law and recent history suggests that it will be difficult for Superior to secure “broadband funding” from other units of government to pay for this new government-owned network.
Both the federal Broadband Equity, Access, and Deployment (BEAD) program and the state program administered by the Public Service Commission (PSC) will prioritize unserved areas, not necessarily underserved areas. Despite what proponents will say, the city of Superior is not an unserved broadband area by any reasonable definition. To drive home this point, as we noted in our 2022 article on this project, the PSC rejected five similar municipal broadband projects in late 2021 because they did not meet the federal definition of underserved areas. Nothing has changed in either the broadband definitions themselves or the stated intent of the politicians to suggest that Superior has even a remote chance at a $20 million to $25 million grant to make the building of this project probable or even possible.
If that turns out to be true, that the city will be unable to secure traditional broadband expansion grants because the vast majority of the city has access to broadband and most have broadband already, the city would most likely borrow the remaining $50 million to pay for the GON project.
For comparison’s sake, the city of Superior’s general obligation debt at the start of 2023 was $31,470,480 (according to the proposed 2024 budget document) and, as of August of 2023, the total outstanding debt has risen to just over $40 million. The city will pay off approximately $2.1 million debt principal in 2023 and pay off $748,651 in debt service interest in 2023. Just think about the debt you carry on your household – the mortgage, your cars, your credit card.
Even in the best of economic times, you would be reluctant to buy something that would nearly double your household debt. And given the uncertain economic times that we find ourselves in – historically high interest rates, debilitating inflation that will apparently stick around for at least the short term, uncertainty in the Middle East, turmoil out in DC – you would never take on such a crazy amount of debt. If such a move is too risky for your family and your household budget, why does the city of Superior think it is ok to do this with taxpayer’s money?
Proponents and so-called financial experts will tell you not to worry, taking on another $50 million in debt is no big deal but remember, it is you, the property taxpayer, that will be left holding the bag if something goes wrong or if the project fails. Not the consultants. They make their money whether the project is successful or if it fails. Not the politicians. They are not gambling with their own money, what do they care? You, the city of Superior property taxpayer will be on the hook. Given how much more expensive it is today to put food on the table, buy gas for the car, or heat your home, do you really want this boondoggle and the possibility you may have to pay for it hanging over your head?
“Entry Point’s bias has unfairly impacted the debate as well. Entry Point’s “market analysis” is built on the idea that 40-60% of Superior residents will sign up for this government-owned network. The project needs to reach the 60% “take rate” in order to be feasible according to the analysis.
Remember the take rate for Madison’s pilot project? Less than 2%. Sun Prairie, 5%.
Traverse City, Michigan estimated that their $22 million government-owned broadband network would break even if it reached just a 40% take rate. More than five years into Traverse City’s push to build and pay for this project, it has failed to reach the number of residential customers or commercial businesses needed to break even.
It is not realistic to think that 60% of Superior residents will sign up for government broadband.”
Luckily, there is still time for the people of Superior to speak up before the Mayor and the City Council goes any further on this wasteful odyssey. Next Tuesday, there is a public hearing on the updated study and a proposed ordinance that would “increase the 2023 Superior Broadband Utility budget by $4,500,000 so that the Superior Broadband Utility may design, construct, and operate a municipal broadband system.
Hopefully, the residents of Superior are paying attention to the potential catastrophe on the horizon. This boondoggle can still be stopped before it is too late.