News Story

Government Broadband’s Record Is Bad; Traverse City Going For It

City-owned utility wants a federal ‘energy savings’ loan to bankroll it

Traverse City’s public utility wants to build out a fiber-optic network to every home and business in the municipality. But it has raised the eyebrows of some observers with its intention to apply for federal “energy savings” financing to help pay for the public internet project.

After discussions with the Michigan office of the United States Department of Agriculture, utility staffers began drafting a request for approval to apply for a long-term, low-interest loan from the federal government. They have not yet submitted the request, but they expect to do it soon.

Based upon construction cost estimates from a contractor, the utility plans to apply for a $16.3 million loan, of which $2.4 million might be awarded as a grant. Tim Arends, executive director of Traverse City Light & Power, said it would be more economical to secure a low-interest loan from the federal government than to issue a bond to cover construction costs.

The loan the utility hopes to apply for would come from the United States Department of Agriculture’s Rural Energy Savings Program, which is meant to help program recipients in rural areas lower their energy bills and fund energy efficiency measures.

Financing through USDA may be critical to the project, as municipal-owned fiber-optic networks are usually expensive and almost never pay for themselves. And according to a 2017 study from the University of Pennsylvania Law School, only 2 of the 20 municipal broadband projects studied were projected to earn enough money to cover their costs over their useful life.

In the case of Traverse City, as happens elsewhere, utility ratepayers — and perhaps taxpayers — could be obligated to repay the loan.

According to Arends, employees will recommend, at the Jan. 22 board meeting, the contractor to do the engineering work and create the planning and design for the network.

“In the very near future we will be providing the appointed and elected officials with the information they need to make an informed decision about deployment of a municipal [fiber-to-the premises] project for the benefit of the Traverse City community and the utility’s ratepayers,” Arends said.

Matt Groen, executive director of the Michigan Cable Telecommunications Association, believes that only entities offering a network in underserved communities should receive federal funds for broadband.

“In general, we encourage these limited funds for broadband to be directed to those areas which are truly unserved, as opposed to communities that already have multiple providers,” Groen said. “Specifically, in Traverse City, one of [our association’s] members is already providing 1 gigabit per second service into that area currently. We feel money that is obtained through grants should go to those who truly do not have access to broadband, and will not in the foreseeable future due to the cost prohibitive nature of providing service.”

According to the U.S. Census Bureau, Traverse City has a population of 15,515, and most residents have a choice in internet service between Charter Spectrum and AT&T.

Residents and businesses now have access to internet speeds of up to 1 gigabit per second through private providers like Charter. Still, the public utility is moving forward with the network. 

Patrick McGuire, chairperson of the Traverse City Light & Power Board, did not reply to an email requesting comment.

Other local governments in Michigan that have either built a fiber network or are in the process of doing so include the cities of Marshall and Holland, Lyndon Township (in Washtenaw County) and the village of Sebewaing.

In May 2018, residents of Sharon Township in Washtenaw County voted down a proposal to build a municipal-owned fiber-optic network.