Future uncertain for Kentucky broadband network

Frustrated with repeated delays costing taxpayers millions of dollars, the Kentucky Senate has voted to effectively end a project that would bring high-speed internet capability to one of the poorest states in the country.

But officials in Republican Gov. Matt Bevin’s administration warn it would likely cost more to kill the project than it would to finish it. That’s because the state could be responsible for paying $286 million to pay off a loan to Macquarie Capital, the Australian-based venture capital firm that along with its partners has a contract to install a network of more than 3,000 miles of fiber optic cables touching all of Kentucky’s 120 counties.

It’s just one of multiple differences lawmakers will have to sort out as they head into a weekend of tense negotiations over how to spend more than $73 billion of state and federal tax dollars over the next two years. The broadband project requires the state to make annual payments of about $30 million to its private sector partners. House lawmakers included that money in its budget proposal, but the Senate did not.

“It would be incredibly difficult for us to continue the project without the funding,” said Phillip Brown, executive director of the Kentucky Communications Network Authority, which oversees the project.

Brown said the state would have to pay bondholders $286 million if the project is killed. Plus, the state could be sued by its private sector partners and forced to pay an indeterminable settlement. But if the state can finish the network and turn it on, Brown said it can make money by leasing it to private companies.

“We need to complete the network. There is money once the network is complete,” Brown said. “That allows me to say with 100 percent certainty this project will break even and can cover its costs.”

Some Republican lawmakers are skeptical. AT&T, one of the largest internet service providers in the state, says it already has 980,000 strand miles of fiber in Kentucky and has no plans to partner with Kentucky Wired. But Brown said the network, despite its delays, has “early interest from a diverse group of potential customers.”

Republican Sen. Chris McDaniel, chairman of the Senate budget committee, said it’s not likely the state would have to pay anything if it ends the project, calling the people that bought and sold the bonds “sophisticated shysters.”

“The fact is, from the day the ink was dry on the first contract, this project has been nothing but a series of delays and cost overruns,” McDaniel said. “Throwing good money after bad on this boondoggle is not something I’m going to participate in.”

Republican David Osborne, the acting House Speaker, said the project put Kentucky in “a horrible position” with a contract “that we cannot get out of and one that was impossible to comply with.” Still, he said he would prefer for the state to complete the project so “at least we will get some residual benefit out of it.”

“The consequences of Kentucky Wired and the situation in which we find ourselves in has got to be a priority of this institution, because one way or the other, it is going to cost the state a fortune,” Osborne said.

Announced in 2015 as a partnership between then-Democratic Gov. Steve Beshear and Republican U.S. Rep. Hal Rogers, Kentucky Wired was heralded as a first-of-its kind public-private partnership that would be the catalyst for the revitalization of an Appalachian economy devastated by the decline of the coal industry. The state would partner with the private sector to build the infrastructure required for high-speed internet service and then lease the network to companies that would sell broadband access to homes and businesses.

Rogers and others considered the investment similar to the federal government building a system of interstate highways, saying it would attract new businesses and turn the Appalachian portions of Kentucky into “silicon holler.”

The project was supposed to have been finished by fall 2016. But today, the network has 708 miles of cable in place out of the 3,000 miles needed to reach all 120 counties. The delays have already forced taxpayers to reimburse contractors for $8 million in unexpected costs. Facing up to another $30 million worth of delays, the Kentucky Communications Network Authority has asked the state legislature for authority to borrow up to $110 million.

So far, lawmakers have refused to consider that request.