New Page 1
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
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
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
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
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.