Government Broadband Plan Was Tried and Failed in Hillsdale

The Michigan House is slated to vote today on a three-bill package that would greatly expand state government involvement in high-speed Internet services. But lawmakers need only consider the deep debt incurred by the city of Hillsdale in a similar scheme to conclude that the business of broadband is not Lansing's business.

Hillsdale's broadband debacle dates to 1999, when local officials presumed to know better than private investors that their community was an untapped market of broadband demand. Promising to "improve the quality of life" for Hillsdale residents who supposedly were deprived of advanced technology, officials crafted a $9.5 million plan to crisscross the city with fiber optic cable. Voters subsequently approved a bond issue to finance the project by a whopping 70 percent. The idea was to channel revenue generated by the broadband service to repay the debt. 

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With a funding plan in place, the city's Board of Public Utilities (BPU) then created BPUConnect as the municipal broadband provider to compete against private companies in offering Internet and other telecommunications services. BPU lost no time lavishing millions of dollars on administration, including a sizable chunk on consultants. But two years passed without an inch of cable being laid.

Meanwhile, the competitive landscape had changed -- as any private entrepreneur would expect and plan for. Cable giant Comcast began offering broadband services, wooing the very customers who city officials presumed would be theirs for the taking - the customers upon whom the city's financing plan wholly depended. Consequently, local banks declined to underwrite revenue bonds for BPUConnect. Desperate to salvage their grand plan, officials again went to voters for permission to issue higher-risk general obligation bonds totaling some $9 million. But taxpayers responded with a resounding "No," fully aware that if BPUConnect revenues failed to cover the debt service, the payments would have to come from property taxes.

Well-intentioned though Hillsdale fathers undoubtedly were, their ill-conceived broadband plan has left taxpayers with nothing but several million dollars of debt - a big burden for a small city. All this is the predictable outcome of government interference in the marketplace. And yet officials still refuse to concede the obvious, and are considering alternative means of financing for BPUConnect.  Proposals being discussed include a city income tax and selling bottled water, neither of which are likely to fly.

It is worth noting that the city of Hillsdale embarked on this hare-brained effort in part to show up the city of Coldwater and its municipal broadband system. Gov. John Engler appears similarly motivated in pressing the Michigan Legislature to match efforts in other states to assume control of broadband deployment - efforts that largely have failed.

The obvious lesson is that municipal, state and federal governments should stick to their core business - public safety and trash collection, for example - and leave the rest to the private sector.  Well-run cities inevitably draw the investment in new goods and services that improve residents' quality of life. But there's no substituting the economic decision-making of entrepreneurs with the messy political calculations of government, which simply cannot outsmart the private sector.

"Well-intentioned though Hillsdale fathers undoubtedly were, their ill-conceived broadband plan has left taxpayers with nothing but several million dollars of debt - a big burden for a small city."