Charles City Iowa broadband project “paused”
At the end of October, we posted a video where Chip Baltimore of the TPA shared a short case study on the Charles City Iowa broadband project in Charles City, Iowa (link here). During that interview, Chip shared how during the planning phase, expected costs of the project soared from $11.5m to $22m and “take rate” increased from 42% to 60% to 65%.
Fast forward a few weeks to now. The residents of Lucas voted “no” on their own $19m Prop B bond in the November 2020 election and now Charles City, Iowa is now rethinking their own prior decision to move ahead.
The following is an update on Charles City.
“CharlesCityPress.com” reported on Monday, November 23rd, 2020 that the Charles City Telecommunications Utility Board of Trustees decided to press “pause” on the agenda item to vote on approving the bond purchase agreement for the $22m worth of revenue bonds to finance the project, offering a contract to a general manager and awarding the bid to lay 66 miles of underground fiber.
The reason for the pause?
Board of Trustees Chairperson Cheryl Erb explained “This board — I believe I can speak for them — we serve as stewards for the community and the financial terms at this time just do not support us making a good stewardship decision and taking action at this time.” They did not give further details other than to mention the collective desire to take a step back and examine all options available.
While Charles City originally planned on having the financing available in July 2020 with construction starting shortly after, those dates came and went. Now, the Charles City Broadband project is officially on “pause”.
City Administrator Steven Diers noted that it’s been challenging to find financing. This is the first time a community has tried to create a municipal broadband system without an electrical utility or other city-based utility to backup the “revenue bond” financing model.
(Note: The financial concerns shared by Charles City Telecommunications Utility Board of Trustees sound similar to those shared by Lucas City Mayor Pro Tem Peele and Councilpersons Fisher, Duke and Lawrence at the August 6th, 2020 Lucas City Council meeting. At that meeting multiple Lucas City Council members expressed serious concerns about the financial terms associated with Lucas financing and building a city-run broadband service.)
Charles City does not want to use taxpayer dollars
Cities repay “Revenue bonds” with revenues from the project they finance. In this case, these revenues would come from customers of the proposed Charles City Broadband service. Financial institutions know that cities have to cover revenue shortfalls with taxpayer money or funds from a city utility.
Charles City’s goal from the beginning has been to only fun construction and operational costs with revenue from customers. They do not want to use taxpayer money. One guess on the reason for the project being paused is that the dramatic increase in both cost and customer take rate created the need for taxpayers to fund a significant portion of the costs associated with this project.
The $1.2m line of credit for “planning” line is running low
Going forward, Charles City will face the challenge to not “throw good money after bad”. Because they’ve spent much of their $1.2m line of credit for planning, proponents will push to spend $22m more. Economics has a name for this illogical line of thinking. It’s called the “Sunk Cost Fallacy” and hopefully for the residents of Charles city, their Telecommunications Utility Board of Trustees won’t succumb to that type of thinking.
Additional details on the Charles City Broadband project and this turn of events can be found in the article “Board ‘hits pause’ on Charles City broadband project” available on at “CharlesCityPress.com”.
More about Chip Baltimore and the TPA (https://www.protectingtaxpayers.org/about/):
Chip Baltimore is a Senior Fellow at the Taxpayers Protection Alliance, a former 4 term state legislator for Iowa. He is also an attorney having spent the 13 years as General Counsel and Trust Officer of Boone Bank & Trust Co., and 10 years in private legal practice in Boone, Iowa.
The Taxpayers Protection Alliance (TPA) TPA is a rapid response non-profit, non-partisan taxpayer group. They focus on educating the public through the research, analysis and dissemination of information on the government’s effects on the economy. TPA will hold government officials accountable at all levels of government.
Other videos in the Chip Baltimore series: