The County Dilemma

eyeballSomebody made a comment to me last week that we need more municipal broadband. I certainly agree with the sentiment, but I’ve recently been working with a lot of rural counties and what I’ve found is that bringing broadband to rural places is a lot harder than it sounds.

In the last year I have analyzed in detail a number of different rural counties. Engineers took a hard look at the cost of bringing broadband to each of these counties and I also created extensive financial models trying to find a way to pay for the broadband solution.

One unsurprising result of these studies is that it’s exceedingly hard to find and fund permanent broadband solution in rural places. A few of the counties I studied were in the Midwest where the soil is deep and soft and where buried fiber is as cheap as, or sometimes even cheaper than getting onto poles. But even with the lowest possible construction costs it can be hard to justify building rural fiber. And most of the country has higher construction costs than in rural Iowa or Minnesota.

I’ve also looked at places where the soil is rocky and hard and expensive to bury fiber. But some of these places also have a big mess on poles, making it a challenge to hang fiber. There are many rural pole networks that consist of short poles that need a lot of work or even replacement to add fiber. And as I have covered in several blogs, there are often major practical issues with getting access to poles even where it makes sense to do so.

But the number one issue with building rural fiber is getting financing. As it turns out, many rural counties have an exceedingly hard time contributing much financing towards a broadband network.

Citizens who want fiber often say that local governments ought to just suck it up and borrow the bonds needed to build fiber. But that sentiment is naïve. Rural counties generally don’t have the borrowing capacity to fully fund a fiber network. I’ve looked at counties recently where the cost of building just the fiber and electronics (which ignores operating losses and the cost of financing) ranged from $20 million to over $100 million. Numbers that large are beyond the ability of most rural counties to finance, even if they have the political will.

Rural counties as a whole don’t have a lot of discretionary money. By that, I mean that the revenues they are able to collect are generally almost entirely needed for the services they are required to provide by law. Counties have a long list of responsibilities. They generally have to maintain extensive road systems and bridges. They generally have to fund a police and jail system. They have to provide a healthcare systems of some sort. Many of them have to provide water and sewer systems to at least some of their constituents. And they have to take care of the daily issues of removing snow, repairing potholes, and all of those things that local governments do for citizens.

Counties everywhere have similar sources of funding. For instance, they collect property taxes, but some significant portion of those taxes is usually earmarked for specific purposes like the school systems. Counties also generally share in the sales taxes collected anywhere in the county, but in rural counties this is a much smaller revenue source than for more urban places. Counties also typically get a significant amount of their funding from the state or federal government, but these funds are usually earmarked for specific purposes as well. And most rural counties don’t collect a lot of taxes from businesses, which are a significant funding source for cities and towns.

I’ve talked to the bond advisors in many rural counties about the possibility of financing fiber. What I’ve generally found is that even if most counties borrow up their credit limit they can’t raise nearly enough to pay for a broadband network. And so many county governments, as much as they might want to find a broadband solution, are not themselves able to contribute much towards paying for the solution. So in many counties, municipal funding is not ever going to be possible, meaning that broadband networks need to funded in some other way.