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Archive for Wednesday, October 30, 2013

County OKs bonds for Baldwin City broadband despite concerns from competitor

October 30, 2013

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Douglas County commissioners gave their blessing today to Baldwin City's plans to issue $5 million in industrial revenue bonds to finance construction of a fiber-optic broadband network in the community.

Kennis Mann, president and CEO of Dawn Fiber Design LLC, which does business as Free State Broadband, told commissioners his company planned to build a fiber-optic network that will connect Baldwin City to existing fiber networks in Lawrence.

By issuing the bonds, Baldwin City would actually be the owner of the network and would lease it back to the company, with the lease payments going to pay off the bonds, Baldwin City Administrator Chris Lowe said. During that time, the facility could be exempt from property and sales taxes.

The project, however, is generating concerns from at least one competitor about the use of public incentives to build infrastructure that would benefit only one company.

Josh Montgomery of Wicked Broadband, which provides Internet service in Lawrence, argued that if the city and county are going to be involved in financing the project, they should require the fiber-optic network to act as a "common carrier," allowing all providers access to the lines.

"The way the current system works, every broadband provider has to drag cable to every address," Montgomery said. He said that virtually ensures that the first company to enter a market will gain a monopoly unless competitors want to build duplicate systems across the same rights-of-way.

"The whole town would look like a Third World country," Montgomery said.

Mann, however, said that since Dawn Fiber is the one taking the financial risk to build the system, it should not be required to share it with competitors. He also denied that the tax abatements constitute a form of public subsidy.

Lowe said the Baldwin City was seeking the county's blessing only as a "ministerial" matter because part of the fiber will lie outside the three-mile zone around the city limits, in unincorporated Douglas County. He said state law requires that the county have an opportunity to object to the bonds, but the law does not require the county to give its affirmative consent.

Commissioners voted 3-0 to endorse the bond proposal anyway.

"I don't feel like we're in a position to stop or start anything," Commissioner Mike Gaughan said. "The mechanism up for discussion here doesn't involve any public funds."

Comments

Rob Chestnut 11 months ago

Mr. Montgomery does have a point. It is somewhat ironic given his history of asking for municipal support of projects in the past from the City of Lawrence.

The biggest risk now is that taxpayers will be required to fund the debt service for the bond issue regardless of the success or failure of Dawn Fiber Design, LLC. I am not sure about Mr. Mann's comments about taking financial risk to build the system. My guess is that the LLC has few assets, and it is unclear how much investment is going into this project from stockholders of the LLC given the County is funding the capital outlay.

In the end, the bulk of the financial risk is being taken by a municipal entity, and the possibility of financial return has been given to a for-profit entity that is shielded from competition on the fiber-optic network that is being built out.

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