- Financing municipal broadband networks poses significant challenges, particularly due to pushback from existing providers and lobbying organizations.
- However, community leaders in Ohio and Vermont report successful management of financially stable networks.
- Engaging the right expertise is crucial for municipalities aiming to enhance their financing opportunities.
Like many internet service providers, municipalities encounter various obstacles when developing broadband networks, especially the task of persuading investors that these projects are worthwhile.
Persistent opposition from established companies and lobbying groups complicates matters further. A recent report from ITIF indicated that public broadband initiatives often suffer from “poor financing models,” revealing that many municipalities analyzed were not generating sufficient revenue to cover their operating expenses.
Securing financing isn’t a straightforward task for municipalities, according to Laura Lewis, principal and co-owner of LRB Public Finance Advisors, speaking at a webinar organized by the American Association for Public Broadband and the Institute for Local Self-Reliance. Nonetheless, she emphasized that communities “just need to persist.”
“You don’t need to secure all the financing at once. While it can be costly, it’s possible to phase the process,” Lewis stated, highlighting her experience as a financial advisor for various municipal networks, including UTOPIA Fiber.
Obtaining funds becomes even more challenging when established providers are unwilling to cooperate. Ernie Staten, Public Service Department Director for the City of Fairlawn, Ohio, shared that when Fairlawn approached local ISPs about a partnership to develop a citywide network, they dismissed the idea.
Consequently, Fairlawn opted to finance the network independently, incurring costs of $10.1 million for the infrastructure and a few small data centers. “Our funding approach was innovative. We viewed broadband as essential infrastructure,” Staten explained.
By classifying broadband infrastructure alongside roads, sewers, and water lines, the city was able to allocate funds from its infrastructure budget for the network. This strategy allowed Fairlawn’s public service department to enhance maintenance on existing utilities, mitigating the need to allocate additional funds for constructing new roads, effectively breaking even and currently serving 71% of local addresses.
“It turned out to be fortuitous that they laughed at us considering what we accomplished,” Staten remarked.
In Vermont, community-owned broadband has gained momentum due to the state’s communications union districts (CUDs). These districts consist of two or more towns working together to develop communication infrastructure.
F.X. Flinn, chair of the governing board at CUD ECFiber, noted that securing municipal revenue bonds for its broadband network was initially challenging in the early 2010s, as investment bankers struggled to understand the concept of a Vermont interlocal contract.
Bankers suggested that if ECFiber were a sewer district, they could issue bonds almost immediately, prompting Flinn to propose at a board meeting, “Why can’t we operate as a sewer district?”
Ultimately, ECFiber advocated for state legislation that designated it as a telecommunications district. This led to the passage of a law in 2015, facilitating the establishment of eight additional CUDs.
Once the legislation was approved, ECFiber managed to secure $7.5 million to expand its network and address connectivity deficits. Flinn highlighted that ECFiber made “financial history” last year by becoming the first municipality to receive an S&P rating for its bonds.
As CUDs lack taxing authority, ECFiber relies solely on connection revenues.
“These revenues are primarily allocated to bond payments. We are currently obligated to pay around $5 million annually in debt service,” Flinn clarified. To meet the bond requirements, ECFiber must demonstrate a net profit of $6.25 million each year. So far, “the situation appears to be quite stable.”
Blueprint for Municipal Broadband Success
When asked what steps communities can take to position themselves favorably for financing, Lewis emphasized the importance of hiring “experienced professionals” to fill knowledge gaps within the municipality.
“While there may be a fiber guru out there, such individuals are rare,” she noted.
Municipalities should also feel encouraged to bring in specialists, even if immediate compensation is limited. Many experts, including bond counsel, financial advisors, and underwriters, are willing to collaborate with local governments “with the understanding that they will be compensated after financing is complete.”
At the very least, a community must secure “accurate initial construction cost estimates” for the number of residential and commercial locations it plans to connect. This assessment will help determine whether to undertake the project independently or form partnerships with other municipalities.
“A community with around 1,000 homes might need to consider collaborating with neighboring cities or the county,” Lewis concluded.
