Broadband deployment could put Genesee County taxpayers at risk

Genesee County plans to deploy an ambitious new broadband internet system officials say will provide high-speed access to the county. But the plan’s assumptions could be thwarted by reality on the ground, potentially creating a new multimillion-dollar burden for taxpayers if subscription fees are not sufficient to pay off the network’s debt.

The mid-Michigan county is working with a company called Pivot-Tech, which will use a novel public private partnership called a 63-20 project to finance the underground fiber optic network. Genesee County will have to put up $3.5 million to get the project started, with Pivot-Tech estimating that it would pay back the money using bond proceeds, or convert the $3.5 million into a loan they would repay, resulting in a net zero cost for the county. As part of the 63-20 model, a nonprofit entity would borrow $175 million to $200 million in bonds to complete the network and use revenue generated from network subscriptions to repay those bonds in 30 years.

PivotTech has used the 63-20 model to build fiber optic networks in Idaho and Illinois. This approach gives project developers a lower interest rate, but governments’ past attempts to oversee new broadband networks have often failed to meet expectations. One reason is that network’s subscription costs can be higher than what would-be customers are willing to pay.

Pivot-Tech’s plans assume that 40% of county residents will purchase a subscription to the network by the fifth year, when the service is built out and fully established. The lowest monthly subscription available will be around $25 per month for families at or below 200% of the Federal Poverty Level, with some being eligible for federal subsidies that bring the cost down further. But everyone else would pay $40-$150 per month. By contrast, the currently available options for internet access in Flint, the county seat, range from $35-$60 per month.

“Among all currently unserved respondents,” a county survey found, “38% are willing to pay $25 or less for Internet service. As the price point increases, the percentage of respondents willing to subscribe steadily declines.” The survey also found that, “Among respondents without home Internet, 41% identified the monthly cost as the most important barrier.”

Insufficient subscriptions to the new fiber network could imperil the company’s ability to repay the $175-$200 million in bonds, leaving taxpayers on the hook. That possibility echoes similar attempts to build broadband networks in the recent past.

For example, a 2022 study by University of Pennsylvania Law School Professor Christopher Yoo found that “all [municipal fiber optic] projects required infusions of additional cash to maintain short-run solvency, 87% of projects were not on a long-run pace to repay their initial debt financing, and 53% of projects generated too little operating cash flow to be able to break even.” This study was the first systematic analysis of municipal fiber projects in the United States.

More recently, a 2024 blog post from Harvard Law Review found that a past FCC effort to increase broadband access, called the Connect America Fund (CAF), which lasted from 2012 through 2021, had a disappointing outcome: “Over 40 percent of CAF-funded addresses appear to remain unserved, contradicting the [internet service provider’s] own certifications. Moreover, even among those consumers who receive service, that service often falls short of the FCC’s minimum standards.”

Dr. Ted Bolema, a senior fellow with the Mackinac Center for Public Policy, has also reported at length on past issues with government-funded internet. He is concerned about the repayment schedule for the Genesee County project.

“This proposal is based on financing with bonds that Genesee County taxpayers will pay back over 30 years. Just look at how the internet has changed in the last 30 years. In 1996, most people were still using dial-up modems and DSL technology, which is now considered unacceptably slow, was just being introduced. Whatever fiber technology Pivot-Tech is proposing to install will be outdated long before 30 years from now, or 2056, when local taxpayers will still be paying for this internet project.”

Bolema is also concerned that the county project duplicates state government efforts: “The Michigan Hi-Speed Internet Office claims it is on track to connect everyone in the state soon. Genesee County doesn’t have to pay for its own program to connect people to the internet when the state government is already doing that.”

A recent report from Bolema highlights potential solutions to connect Genesee County residents to more affordable internet. These include “eliminating or reducing fees and taxes associated with the permitting and licensing process, expediting approval processes and making them more transparent, and improving private companies’ access to existing government-controlled infrastructure, like rights-of-way already in place for other city operations.”