Some $50 million in state funds intended for low-income housing would instead be used to finance high-speed Internet services for businesses under the Engler administration's latest corporate welfare scheme.
Such financial finagling underscores the dangers of government interference in the marketplace.
Gov. John Engler identified broadband deployment among the priorities of his final term, claiming that a shortage of high-speed Internet lines was hampering economic development. After intensive lobbying over the course of three months, he won legislative approval in March for creation of a state authority to provide low-cost financing for high-speed Internet access. But lawmakers rejected the governor's appeal for a new tax with which to fund the operation.
Administration officials, however, have quietly devised a strategy to obtain public funds for the broadband agency and thus subvert the Legislature's intentions.
Under the plan, the Michigan Housing Development Authority, which is charged with increasing the supply of housing for low-income families and seniors, would purchase a $50 million bond from the new broadband agency. Some $20 million would be earmarked for a "reserve fund" to back the sale of more tax-free bonds the broadband authority plans to sell to finance its projects. Another $30 million would cover the agency's administrative costs, estimated at $2.3 million annually, as well as to directly fund new broadband infrastructure.
That MSHDA has $50 million lying around suggests either it is negligent in fulfilling its obligations or is suffering a serious case of mission creep. While the housing authority is supposedly self-sufficient in terms of generating operating revenue through housing investments, it was the citizens of Michigan who originally financed the program. And there are more than a few taxpayers who undoubtedly would appreciate some form of repayment now that the authority is so flush.
Asked by the Mackinac Center for Public Policy how the broadband investment serves MSHDA's goals, authority Director James Logue replied: "We're not primarily looking at it from that perspective." As to whether this would represent a typical investment for MSHDA, Mr. Logue said, "It is certainly somewhat of a different one." He did point out, however, that the broadband agency has committed to providing subsidized Internet access for MSHDA clients-a good many of which, we note, will not own a PC.
Meanwhile, this funding proposition plainly contradicts the Engler administration's oft-repeated pledge that Lansing would not own or operate any portion of the broadband network. Indeed, the broadband plan proposed last year by the Michigan Economic Development Corp. stated that "(w)hile government, at all levels, must act as a facilitator to make LinkMichigan a reality, the . concepts and activities outlined below are all premised by the assumption that the private sector will step forward to own, operate and manage needed infrastructure."
The fact that the Engler administration must rely on government funds to kick-start its broadband ambitions indicates that private investors evidently are unconvinced of its merits.
And with good reason. Contrary to MEDC claims that Michigan lags in broadband infrastructure, the state actually ranks 10th nationwide in the number of high-speed lines, and 11th in the number of broadband service providers. The Telecommunications Association of Michigan reports that T-1 lines are available across 91 percent of Michigan's rural telephone exchanges and nearly 100 percent of Ameritech exchanges. Some 73 percent of the state has access to cable-modem broadband.
As it is, thousands of miles of unused cable lay buried across Michigan. A January survey of 600 Michigan residents indicates that the broadband "problem" is not lack of infrastructure, but lackluster demand. Only 5 percent of respondents reported to Lansing-based pollster EPIC/MRA ever having tried to purchase broadband service. Internet service was reported "acceptable," "fast," or "very fast" by 72 percent, while only 22 percent called their service "slow."
When asked what would increase their Internet use, 26 percent said nothing would; next in line, with 17 percent, was pornography.
Gov. Engler is correct in stating that broadband technology can increase efficiency and spur innovation. But his projections of a $440-billion boost to the state economy, and creation of 550,000 new jobs, are hype. These forecasts are the product of a costly study by Gartner Consulting of Stamford, Conn. When questioned by the Mackinac Center for Public Policy about the methodology used to estimate the effects of the Engler plan, analyst Behram Dalal of Gartner Consulting acknowledged that his economic assumptions were, in fact, "arbitrary," and their approach "unique."
Gov. Engler may have the best of intentions in wanting to expand Michigan's broadband network. But determining the appropriate supply of high-speed Internet lines is a task best left to individuals who, by virtue of risking their own capital, are far more expert in investment decisions. The fact that the administration considers it necessary to pursue back door financing hardly inspires confidence in the governor's broadband plan.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
Please consider contributing to our work to advance a freer and more prosperous state.