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Tuesday, May 23, 2006

American Fork and Broadband: Political Realities

In a year which will already feature a substantial tax increase and the need to pass a bond issue to pay for a water solution, American Fork officials may have only one choice in resolving the broadband problem.

In a recent series of articles on municipal broadband and American Fork's AFCNet in particular, I acknowledged the City's difficult fiscal situation, but mostly discussed the broadband system itself and its economic implications, not its political context. However, it is the political context which will likely determine the system's future.

The best current estimates are that the City would have to come up with several million dollars more in the next five years or so, after which a revitalized and expanded AFCNet could probably run in the black or at least nearly break even. The problem with this is not just fiscal, though the money would have to come from somewhere. Even if City leaders would like to keep the system on those terms -- some would -- the politics of the situation will most likely move them to sell it, if appropriate terms can be arranged with a prospective buyer.

In a word, the problem is water. In four words, it's water, tax increase, and broadband.

There will be a substantial increase this year in the City's part of property taxes. Count on it. This is the accumulated price of a decade (give or take) of being unwilling to think ahead systematically and make hard decisions. The number the media are batting around is 50 percent, but it could be somewhat lower.

I have had enough glimpses inside the City lately, in both public and private settings, that I am satisfied that some smart, hardworking people are bending every effort to lower that number while still meeting the City's nasty backlog of needs. For years we have had new streets and parks and buildings and so on -- all things a growing city needs -- without wanting to pay the piper's bill in full. We've also delayed doing anything about the growth-induced inadequacies of our water system just about as long as we can.

Even if they whittle the increase down to, say, 30 percent, it won't be very popular, and elected officials know it. Most of them aren't worried about reelection right now (if ever). But if they are smart, they worry about water even when they think about broadband these days.

The tax increase requires a vote of the City Council, not the people, and I'm pretty sure at least three of five are sensible enough to see the need. Perhaps all five are. (It pains me to speak positively of any tax increase, but here we are.)

Meanwhile, a final decision on water is now scheduled for July 25. Whatever our leaders choose, it will cost more than a few million dollars. Some government grants may be available, and part of the system will be funded by impact fees and increased water fees, but the most economical way to pay the rest of the bill is a general obligation (GO) bond. A GO bond requires a public vote; that is planned for the November election. Any other method of financing the system will end up being difficult and more expensive, so it's fair to say that passing the water bond will be a very high priority.

Here's where the political situation gets dicey. The bond will need a majority of votes in November from people who are already mostly unhappy about a recent large tax increase. American Fork City is still in the dark ages in terms of public communications -- not a new thought here at the blog -- but let's assume that situation will change abruptly and decisively. With the public thus well informed, the swing issue in the water bond vote may be broadband.

There are three ways in which broadband could make the water bond's prospects much worse, in the wake of a large tax increase:

1. Broadband business as usual, by which I mean half-hearted, half-staffed half-management, could create the impression that the current administration is no different from the previous one. If the voters believe that, the water bond will fail spectacularly, and so might everything else that depends on public opinion.
2. The City could decide to keep AFCNet and pump several million additional dollars into it over the next five years, but mostly in the next year or two. This decision would make tremendous sense if it didn't have to be sandwiched between a large tax increase and a big water bond. As things stand, there's a real risk that many voters will view the additional tax increase to fund broadband as extravagant and unnecessary. That might make the difference between a narrow victory and a costly defeat for the water bond.
3. The City could sell the system in a way that makes one-fourth of American Fork's population (AFCNet's users) think that its survival in private hands is in jeopardy. This in turn would damage the current administration's credibility and might well be enough to sink the water bond.

The only scenario that looks like a win is selling the system on terms the public will accept as intelligent and favorable. If a private buyer pays a fair price for the system (both the citywide network and some of the city's fiber), three good financial things happen: an ongoing budget hole in the neighborhood of a million dollars is plugged, an additional one-time expediture of several million dollars is avoided, and about two million dollars (I'm guessing) find their way into City coffers. In other words, the City's available funds increase and its financial needs decrease, so the tax increase can be considerably smaller.

More importantly, perhaps, new City leaders will demonstrate in their first budget that they are resourceful, intelligent, and fiscally sensible, and the resulting credibility will significantly enhance the water bond's chances in November.

The financial implications of a favorable deal may even placate the more reasonable fraction of the knee-jerk no-tax-increases-ever-for-any-reason demographic. (Not even group hara-kiri by the Mayor and Council would placate the less reasonable fraction.) But for a broadband sale to be a clear win instead of a clear loss with the large segment of the population which values both high tech and a high-tech image, to say nothing of economic growth, current customers have to feel cared for in more than an immediate, financial way. They must be confident that the system will continue to serve them and all of American Fork in the long run, will be promptly extended to businesses, and will continue to be both excellent and affordable.

We broadband partisans will need to be satisfied that the following terms are included in the sale contract and enforceable for at least 10 or 15 years:

• If the system's owner goes out of business or decides to pull the plug on the system for any reason, ownership reverts to American Fork City.
• If the buyer seeks to sell the system, American Fork City has first right of refusal -- in other words, has the right to buy it back.
• The system's owner will extend the system to businesses and to new or currently unserved residential areas promptly and conscientiously.
• The system's speed, reliability, and affordability will not diminish.

As it happens, this scenario would be more than a political win. This is how we will get the full economic benefit of municipal broadband without the City actually owning the system. To my mind, that's still the bottom line.

Copyright 2006 by David Rodeback.
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