In August, Holland voters will decide whether to approve a new tax increase that would support the city’s building of a government-owned internet network. The city council also is planning to divert millions of federal dollars from the American Rescue Plan Act to the network, which are supposed to be used for COVID-19 recovery. The new tax increase and increased government involvement would be a mistake that has led to financial boondoggles in many other cities.
There are plenty of examples of cities that have faced financial burdens after government-owned internet systems fell short of their rosy initial projections. Cheerleaders for city-run internet systems almost always point to the cities that provided the largest subsidies for their internet systems. For example, the most prominent city-run system, in Chattanooga, Tennessee, received well over $100 million in subsidies and still is only barely financially viable.
And Chattanooga is the rare system that is viable. A study from the University of Pennsylvania analyzed all municipal broadband systems with public financial data from 2010-2019 and found that none were financially viable without government subsidies. And even with the government stepping in, few were likely to be solvent over the long-term. It’s unlikely this project in Holland will be any different, meaning taxpayers are creating another municipal financial burden with little hope for long-term gain.
That the proposed Holland millage would be authorized for up to 25 years also is troubling. Internet technology today is far different from 1997 technology. It is nearly certain that today’s technology will be outdated long before 2047. When that happens, Holland residents will be locked into paying for a network offering far worse performance than the private-sector alternatives of the near future. Sports teams often end up regretting the long-term contracts they offer to superstar players, but at least their contracts are not for 25 years.
This government-owned wired network is being proposed at a time when many people already are cutting the cord on their wireline internet plan because they can get everything they want from their cell phone service. This trend will continue as wireless service continues to advance and overtake the kind of wired network Holland now proposes to build at taxpayer expense.
In rural areas with no internet providers, it’s easier to predict how many people will sign up for service. But Holland already is served by at least a dozen private-sector internet providers. Many of them serve only part of the area, but some cover nearly the entire market. Internet providers grow by expanding into new areas, so they have the incentive to keep expanding into areas that are less well served.
So, if Holland wants better high-speed internet without a high risk to taxpayers, what should it be considering instead? A recent report from the Mackinac Center for Public Policy offers some ideas.
- Clear away needless local regulations and lower barriers for additional private investment. The first thing for municipalities to do is look at what regulations they have in place right now. Simply making it easier for internet providers to build out their networks goes a long way.
- Foster competition among private providers. Even if there’s only one provider covering most of the city, the provider still will be responsive to competition from other companies — as long as the municipality makes it easy for competitors to enter the market.
- Resist one-size-fits-all technological solutions. A key problem with the city of Holland’s plan is that the city is relying on one solution (laying wire) to solve what it sees as the key problem (giving everyone high-speed internet). But there are other ways to access high-speed internet than just running wires to homes, and many are cheaper and more efficient. An increasing number of people already are turning down wireline broadband, but Holland wants to go all in on one type of technology.
- Use targeted subsidies rather than building a whole new network. The internet is important. Food is more important. But to provide food to people who need it and can’t get it, the government doesn’t build its own grocery stores — it uses food stamps. There already are federal voucher programs for low-income residents to get high-speed internet. It would be more efficient for Holland to set up an individual voucher program to encourage private service.
Holland voters will be asked in August to subsidize an internet network that, at best, will improve service for a relatively short time for a relatively small number of residents. It is not even clear that the Holland Board of Public Works, starting with $30 million or more from taxpayers and stimulus funds, can do better than private companies looking to expand their service areas without being subsidized by taxpayers. It is crucial that cities use their funds appropriately, and not put taxpayers on the hook for 25-year commitments that are unlikely to offer meaningful benefits after the first few years.
Ted Bolema is the executive director of the Institute for the Study of Economic Growth at Wichita State University and a resident of the Holland area. Jarrett Skorup is the senior director of marketing and communications at the Mackinac Center for Public Policy, a research and educational institute in Midland, where Bolema also is an adjunct scholar.