The public-private partnership created to connect 3,000 miles of high-speed internet cables in Kentucky did not receive the $68 million in state appropriations and $110 million in bonding authority it sought in the two-year budget passed by the General Assembly on Monday, which may put the entire project in jeopardy.
Critics of the project in the legislature — as well as conservative groups opposed to wasteful government spending — have called the KentuckyWired project a boondoggle, citing its flawed inception in 2015 and delays that have pushed the estimated completion date of the project back to 2020, though it was originally supposed to be done this year and generating revenue for the state.
However, the CEO of the private partners in the project said at a news conference Thursday that the lack of funding provided by the state in the budget bill could not only derail the entire project but also end up costing taxpayers far more than funding the project up front.
The KentuckyWired partnership was initiated in 2015 by former Gov. Steve Beshear and Congressman Hal Rogers to spread broadband access to all 120 counties in the state, with the private partners building most of the infrastructure and leasing access to private providers or cities to connect to customers, generating revenue for the state and paying off the private partners’ initial bonds.
However, the project has been plagued by delays relating to pole access and completed only 708 miles of cable, with no revenue stream yet to make payments to the private companies led by Macquarie Capital of Australia.
These delays have resulted in nearly $90 million worth of costs to the private partners, while the state has only provided $8 million in penalties to those companies to cover them. Over the next two years, the state also owes availability payments to the private partners totaling nearly $68 million.
The public arm of KentuckyWired — the Kentucky Communications Network Authority (KCNA) — had requested that $68 million total in the two-year budget, along with the authority to borrow $110 million to pay the penalties for the delays, but received neither in the bill passed Monday.
However, the budget does allow Gov. Matt Bevin to spend this $68 million if he uses the rainy day fund or if there is a budget surplus.
The General Assembly will return next Friday for the last two days of the session, in which they could conceivably pass legislation to restore this funding. State officials have estimated that pulling out of the project would trigger termination costs approaching $500 million.
Randy Lutke, the spokesman for KCNA, told Insider Louisville in an email that KentuckyWired “is currently evaluating the budget passed Monday by the General Assembly and will work with both internal and external stakeholders to determine next steps for the project.”
Louisville Metro Government committed $5.4 million in last year’s budget to connecting the statewide KentuckyWired infrastructure with customers in the city. Asked about the lack of KentuckyWired funding in the state budget, Jean Porter, the spokeswoman for Mayor Greg Fischer, told Insider that “our local appropriation stands, and we will continue with our fiber build-out in west Louisville.”
Despite concerns about the financial viability of KentuckyWired at the time, Bevin said at a joint news conference with Rogers in September of 2016 that his administration was “fully committed” to completing the project, saying that over time it would “more than pay for itself, because of the economic opportunity that it will create.”
Asked to respond to critics who say that such services are best left to the public sector, Bevin said at this news conference that “people who don’t think that the government should be involved in providing economic opportunity for their citizens, that’s a remarkably short-sided view.”
No funding for charter schools, private prisons, angel investment
The budget and revenue bills passed by the General Assembly on Monday also excluded a funding mechanism for charter schools, which were first authorized by the legislature in last year’s session.
The revenue bill originally passed by the Senate had included such funding, but the compromise bill unveiled and passed quickly on Monday did not, as some House Republicans balked at funding charters in a tight budget that cut more important services and programs.
This was a blow to “school choice” advocates, as well as the failure of a provision to allow a 95 percent tax credit on donations to organizations that grant scholarships to private K-12 schools. Though the tax credit bills went nowhere during the session, groups like the Catholic Conference of Kentucky had hoped to see them inserted into the budget bill.
Such advocates are still hopeful that charter school funding and private scholarship tax credits will be included in legislation that passed in the final two days of the legislative session next week.
The compromise budget passed Monday also did not include funding for two additional private prisons, which had been included in the original budget bill passed by the House. Proponents had argued that this was necessary due to the extreme overcrowding in the state prison system, but local jail officials had countered that housing inmates in private prisons was nearly twice as expensive as housing them in a county jail.
The angel investment tax credit program was also eliminated in the revenue bill, which allows investors to offset state taxes with at least 40 percent of their investment into startups in sectors like bioscience, energy technology and health.