Broadband in Jeopardy Without State Funding, Kentucky Companies Warn

LEXINGTON, Ky. (AP) — Private companies building a high-speed internet network in Kentucky warned Thursday that the project will fall apart if state lawmakers don’t pay for it, potentially forcing taxpayers to pay back hundreds of millions of dollars in loans.

State lawmakers sent a two-year operating budget to Republican Gov. Matt Bevin’s desk last week without the roughly $60 million needed to keep the project going for the next two years. The budget bill does give Bevin the authority to make payments from the state’s savings account or a surplus, if there is one. That alarmed the state’s private sector partners, who say the uncertainty worries them the state won’t be able to make its contractually obligated payments.

“We are poised, ready to go, to finish the project. But the money has to flow. That’s our concern,” said Robert Morphonios, CEO of Kentucky Wired Operations Co.

From the perspective of many lawmakers, the money has been flowing for two years with little to show for it. The project was supposed to have been completed by now, connecting more than 3,000 miles (4,800 kilometers) of fiber optic cables to all of Kentucky’s 120 counties in a first-of-its-kind publicly owned broadband network. Launched in 2015 as a partnership between Republican U.S. Rep. Hal Rogers and former Democratic Gov. Steve Beshear, the network was billed as a solution to the collapsing economy of the state’s coalfields.

But three years later, just 708 miles (1,140 kilometers) of the network is complete. Nearly 80 percent of the cables have to be installed on thousands of existing utility poles, and the state launched the project without securing agreements from the poles’ owners. Those negotiations caused extensive delays from the start, resulting in nearly $100 million of costs to private contractors that taxpayers must cover.

The state has paid $8 million of that cost. The Kentucky Communications Network Authority, the public arm of the project, has asked lawmakers for permission to borrow up to $110 million to pay the rest. So far, lawmakers have refused.

“That makes things fall apart,” Morphonios said of not getting the money.

Lawmakers are on a 10-day recess to give the governor time to sign and veto legislation. They are scheduled to reconvene for two days next week. Thursday, Morphonios urged lawmakers to amend the budget to include the money. He said the companies have a new construction schedule to finish the project by October 2020. But lawmakers remain skeptical.

“There is a better chance them getting the construction done on time than there is us putting the money in for the project,” said Chris McDaniel, the Republican chairman of the Senate’s budget-writing committee.

Phillip Brown, executive director of the Kentucky Communications Network Authority, has told lawmakers it could cost the state up to half a billion dollars to kill the project.

“Maybe the state will have to pay,” McDaniel said. “But the problem is I think their track record of failure and their cost overruns prove that it could get even worse. And the fact is nobody has yet demonstrated to me in a way that I feel confident that they were capping the commonwealth’s risk in the deal.”

Morphonios noted the state agreed to accept most of the risk in the project in order to keep the overall initial cost of the project down. He said he is confident the project will lead to “good revenues” for the state once it is completed. The plan is for the state to lease the network to private companies and other entities to offer internet service to homes and businesses. But the uncertainty is already affecting some interested buyers. The city of Richmond had planned to spend $1 million connecting to the network but has temporarily halted work in light of the project’s uncertainty, according to a report in the Richmond Register.

Representatives from Bevin’s office did not respond to an email seeking comment. Morphonios said the private companies are confident in Bevin’s commitment to the project, adding it would have a profound social and economic impact on the state.

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