Kentucky Auditor Examining Troubled Broadband Project

Kentucky is attempting to install 3,000 miles of fiber optic cable to bring high-speed internet to all 120 counties in one of the nation’s poorest states. The project was announced in 2014 and supposed to be finished by now. Instead, $230 million has been spent, mostly for design and engineering work, with only 708 miles installed.

It’s unclear when the report will be finished, but spokesman Michael Goins said it won’t be ready before lawmakers must approve a two-year operating budget.

“Ultimately, we will follow the data, and the full scope and extent of the examination procedures will depend on where the data leads,” Harmon wrote in a Jan. 18 letter to Phillip Brown, the executive director of the Kentucky Communications Network Authority, which oversees the project.

The inquiry is not an audit, but a special examination. That means auditors can do more than give an opinion on the project’s finances, including examining “high risk areas or allegations,” Goins said. The report should not cost more than $125,000, which must be paid by the authority.

Most of the project’s initial $300 million budget is covered by a loan taken out by the state’s private sector partners, led by Macquarie Capital, an Australian-based venture capital firm. But the loan was backed by Kentucky’s credit, and the state is contractually obligated to pay the firms about $30 million a year to help pay off that debt. Those annual payments were supposed to be offset by switching all government buildings from other internet providers. But officials soon discovered they could not force school districts to join the network without jeopardizing millions of dollars in federal funding.

Also, there has been no network to connect to.

About 80 percent of the fiber optic cables have to be hung on thousands of existing utility poles, and the state has had difficulty securing written permission to install wires on each pole.

Meanwhile, the state has already had to reimburse contractors at least $8 million to cover their expenses during delays, and more are coming. Officials have negotiated a deal to settle additional delays for $88 million, and have asked lawmakers for permission to borrow up to $110 million to pay for the deal, but the legislature has not acted on that request.

Lawmakers are angry. House Republican Whip Kevin Bratcher said it resembles “something Tony Soprano would have his fingers in.” But Republican Gov. Matt Bevin has vowed to finish it, and top administration officials say the state has no legal way to terminate the contract.

Brown said killing the project would cost the state $500 million in losses and likely lead to a downgrade in Kentucky’s credit rating, raising future borrowing costs.