Skeptical lawmakers have thrown up another potential roadblock in the path of KentuckyWired, the state’s troubled and over-budget plan to boost internet connectivity across the commonwealth.
The state legislature’s Capital Projects and Bond Oversight Committee has blocked KentuckyWired administrators from pushing through a revised agreement that would commit the commonwealth to paying a nonprofit Appalachian center at least $2 million annually through 2045 in exchange for its help in getting the massive internet network up and running.
The nonprofit Center for Rural Development, based in Somerset and affiliated with longtime U.S. Rep. Hal Rogers, would also receive a smaller portion of the network’s future revenue as part of the revised agreement.
Essentially, the revision would guarantee the center annual revenue it badly needs to help it continue operating, in exchange for a smaller portion of any KentuckyWired profits down the road.
But oversight committee members, led by state Sen. Chris McDaniel, R-Taylor Mill, voted 4-1 Thursday to table the revised agreement until Gov.-elect Andy Beshear, a Democrat, takes office next month.
Fellow committee member Rep. Steven Rudy, R-Paducah, echoed McDaniel’s concerns, telling The Courier Journal he needs more time to “digest” changes to the scope of KentuckyWired.
Those changes also include potentially allowing the project to hook up users through government agencies to the internet service rather than simply providing the trunk line that private internet providers would pay KentuckyWired to tap into and then extend to customers, charging them for access.
“There are a lot of questions about it,” Rudy said.
But the lawmakers’ vote might not halt the revision.
State Finance Secretary William Landrum has the power to override the committee’s inaction while the General Assembly is not in session, said committee co-chairman Rick Girdler, R-Somerset, who cast the lone vote in favor of the new agreement.
Landrum’s spokeswoman said he was unavailable for comment.
The controversial KentuckyWired project is stringing more than 3,000 miles of fiber-optic cable across the state to improve high-speed internet access in Kentucky.
But the project, pushed through at the end of Gov. Steve Beshear’s administration, has been plagued by two years of delays, adding more than $100 million in unexpected construction costs.
It is expected to cost taxpayers as much as $1.5 billion — 50 times what they were originally told.
The Courier Journal and ProPublica detailed the reasons for those overruns earlier this year in the first of a series of reports on KentuckyWired.
While project managers say construction of KentuckyWired’s first two rings is completed, it is two years behind schedule. Final completion isn’t expected until late 2020.
To date, not a single Kentucky household, business or government agency is receiving internet by way of the much-heralded network, though administrators say some government offices will switch internet providers to KentuckyWired by the end of the year.
Regardless, it likely will be years before the network starts generating money.
Little-known deal causes angst
The nonprofit Center for Rural Development helped originate KentuckyWired’s plan to string thousands of miles of new fiber-optic cable throughout the commonwealth.
The sale of access to that fiber is supposed to generate hundreds of millions of dollars. The center hoped to cash in on that potential by partnering with Kentucky on the network.
It forged a deal with Kentucky under former Gov. Steve Beshear that allowed the commonwealth to access fiber the center owns in Eastern Kentucky.
The agreement gave the center half of the net revenues generated from what was supposed to be one of KentuckyWired’s busiest and most lucrative segments — the “I-75 spine” from Cincinnati to Georgetown, Lexington and Richmond — as well as all net revenues generated from portions in Eastern Kentucky.
McDaniel, alarmed by the revenue-sharing agreement and other problems with KentuckyWired, introduced a bill last February that would have shut down the project. His bill never made it out of committee.
Scott Brinkman, Gov. Matt Bevin’s cabinet secretary and chairman of the state authority overseeing KentuckyWired, told The Courier Journal the revised version of that deal, signed in August but not brought before state lawmakers until now, may have to be amended again, causing the state to forgo some federal grant money.
The idea that started KentuckyWired
In an interview inside the center’s 90,000-square-foot complex in Somerset, Kentucky last month, Center for Rural Development Chief Executive Lonnie Lawson said he first pitched the idea of KentuckyWired to Congressman Rogers at a meeting of the center’s board of directors seven years ago.
At that time, the plan was for Rogers to secure federal grant money that the center would then use to build a “middle-mile” network in Eastern Kentucky that large businesses and third-party providers could use to gain access to the internet.
The center would own the network, generating revenue by selling access to third-party providers, and hopefully spur economic growth in the process.
“That’s what nonprofits do is you take grant money and you develop it into something that will generate revenue long term, so that we can keep the doors open, so that we can create jobs in east Kentucky,” Lawson said.
The center has faced financial challenges in recent years, operating in the red for a decade, according to The Courier Journal’s analysis of the nonprofit’s tax returns.
Lawson declined to comment on the nonprofit’s finances, saying only that the center wasn’t the only organization to suffer after the Great Recession began over a decade ago.
“Our focus has been, ‘How do we help this region recover? How do we get jobs here? How do we create jobs here?’” said Lawson. “And this is the best idea that I can find to help make that happen.”
But the $43.6 million in federal grants Rogers ultimately would secure for the project between August 2015 and September 2018 came with strings attached.
The grants require the nonprofit to put up matching funds — money it doesn’t have.
So, in 2013 the Center for Rural Development turned to then-Gov. Steve Beshear.
The state agreed to provide matching funds — about $12.3 million, according to federal grant announcements — and the center promised to pass along federal grant money for the project, which Beshear insisted cover the entire commonwealth.
The center would still be the recipient of the federal grants, intended for the construction of the eastern part of what was now a much larger network.
But it would sign over control of that fiber to Kentucky, while still being entitled to a large share of future revenue the larger network generated, according to the deal the state auditor’s report revealed last year.
Is the new deal ‘very fair’ or bad news?
In August, the Bevin administration signed a new deal with the center guaranteeing it $2 million annually and replacing the old revenue-sharing agreement that the state auditor called into question last year.
It was part of the deal the lawmakers tabled last week.
Brinkman said in an earlier interview that the new deal is “very fair” because it gives both the center and the commonwealth certainty, and limits how much Kentucky owes the center.
In addition, the new deal also designates that $16 million of the $43.6 million in federal funds the center received will be used to wire Eastern Kentucky parks, as well as cities and counties.
Thursday’s committee vote would have allowed the state to accept the additional federal money involved as part of the revised deal with the center.
But these “last-mile” projects that would connect users directly to KentuckyWired without using third-party providers are giving lawmakers pause. They’re concerned that Kentucky will be competing unfairly with private broadband companies to provide direct customer service.
McDaniel said that was a “serious policy conversation” lawmakers needed to have with the new Andy Beshear administration.
“This is like saying before we always thought we were building an interstate,” McDaniel told The Courier Journal. “Well, now we’re putting driveways into people’s houses.
“It changes the nature of what we’re actually providing.”
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Written by Alfred Miller. Cross-posted from the
Courier-Journal via the Kentucky Press News Service.