Broadband Development Authority

In May 2001, the state unveiled a program called LinkMichigan, which sought to accelerate high-speed Internet access. The plan was to address two perceived problems: a purported lack of access to high-speed Internet connections, and congestion on standard phone lines, which were being used for dial-up Internet services.

The LinkMichigan proposal was initiated by the Engler administration, and the MEDC played a key role. The MEDC had commissioned an economic consultancy group to investigate the subject, and the numbers the corporation generated helped sell the project to the Legislature and the public. Expanding access to broadband was projected to produce up to 500,000 new Michigan jobs and $440 billion in gross state product by 2010.[133]

At first, Gov. Engler wanted to institute a new 7 cent tax on each linear foot of high-speed lines. The $100 million[134] in projected new revenues was to be used to pay local governments to give up their "right-of-way" permitting authority and to administer a new state department to subsidize broadband deployment, especially to areas that lacked high-speed access.

In March 2002, the Michigan Legislature created the Broadband Development Authority to facilitate the low-cost financing of broadband deployment. The Legislature rejected, however, Gov. Engler's proposal for a new tax.

Engler administration officials countered with a proposal to have the Michigan State Housing Development Authority — an organization designed to help provide housing to people with low incomes — purchase a $50 million bond from the new Broadband Development Authority. The authority would then use $30 million from the sale to cover its administrative costs and the remaining $20 million to help finance more debt to generate revenue for deployment of broadband infrastructure.[135]

By September 2001, the MEDC had contracted with the "Merit Network," a nonprofit planning organization that helped communities plan the "last mile" - that is, the frequently expensive part of a broadband network that brings broadband lines into people's homes. MEDC CEO Doug Rothwell commented, "The formation of this partnership shows that the LinkMichigan plan continues to develop from a vision to reality."[136]

But the program almost immediately began losing the money it had loaned to facilitate broadband deployment. Within three years of the program's start, then-Senate Majority Leader Ken Sikkema, who had originally voted for the legislation, had deemed the Broadband Development Authority "one of the biggest flops in state government." Another supporter, then-House Speaker Craig DeRoche, commented, "Out of the gate, this was a wrong-headed scheme." Ironically, by 2006, private enterprise had made broadband Internet services available in 99 percent of Michigan ZIP codes.[137]

The Broadband Development Authority was ultimately absorbed by MSHDA and dissolved in July 2007. MSHDA forgave the $14.5 million in loans it made to the authority.[138]

Like other economic development programs, the Broadband Development Authority attempted to target subsidies to a certain business sector — in this case, telecommunications — in an effort to stimulate broader employment and economic growth. Yet like MEGA and its deals with businesses that would later go bankrupt, the Broadband Development Authority failed to anticipate competing market forces that might render the government's investment unattractive to consumers. And also like MEGA, the Broadband Development Authority was accompanied by early projections of large numbers of new jobs well before they could have materialized.

[133] "E3 Ventures for Michigan Economic Development Corporation: LinkMichigan," (Gartner Consulting, 2001), 11-12, (accessed August 20, 2009).

[134] "A Deeper Look — Broadband Build Out Part I," Michigan Information & Research Service, January 11, 2002.

[135] Diane Katz, "Broadband Agency Taps Housing Money," (Mackinac Center for Public Policy, 2002), (accessed August 21, 2009).

[136] Jennifer Kopp, "LinkMichigan Plan Moves Forward," (Michigan Economic Development Corp., 2001), (accessed August 21, 2009).

[137] Lawrence W. Reed, "The Price of Abandoning Principle," (Mackinac Center for Public Policy, 2006), (accessed August 21, 2009).

[138] "Financial Audit of the Michigan Broadband Development Authority,"  (Michigan Office of the Auditor General, 2007), 13.