Minnesota Stimulus Project under Attack
A complaint against a $66.4 million Rural Utilities Service stimulus project in Minnesota urged the Department of Agriculture’s inspector general to investigate and suspend the program before the investigation is completed. The complaint by Mediacom alleged that the project isn’t financially viable and lacks the legal authority to create the network. The troubled operation of Vermont municipal broadband company Burlington Telecom was cited in the complaint, due to the project’s appointment of a former Burlington Telecom executive.
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Actual funding of the project is likely to result in default of the loan portion of the project award, because the project isn’t financially viable, the complaint said. The county lacked the legal authority to enter into loan/grant award, build and operate the broadband system or make the initial capital contribution, it said. RUS can’t comment because the matter is under review by the inspector general’s office, a spokesman said. The county’s retention of a third party, National Public Broadband (NPB), to prepare the application and build and operate the network, had several compliance issues, the complaint said. Issues included an agreement to pay an impermissible success fee that was contingent upon the grant of the award as well as the likelihood of future awards of contracts, it said. But there’s no success fee whatsoever, said County Commissioner Paul Bergman. Construction of the network is expected to begin soon, and the network is expected to be completed within three years, according to NPB’s project description.
The high cost per-unit passed due to large, sparsely populated areas makes the project a risky venture, said Vice President Tom Larsen of Mediacom. The county added sparsely inhabited areas to the project area to meet the requirement that fewer than 50 percent of the households had access to high-speed broadband, he said. The project’s service area is largely served by existing providers, said Mike Martin, head of the Minnesota Cable Communications Association. “We object to subsidizing overbuild.” Mediacom has cable-TV systems in the project’s service area. The project would allow Lake County to offer fiber-to-the-premises advanced voice, video and data services to “every home and business in Lake and eastern Saint Louis Counties,” NPB’s project description said.
Lake County and part of eastern St. Louis County are underserved or even unserved, Bergman said. The project was challenged because it would compete with existing providers, he said. The county was unfairly used as a test case for objection to government-funded projects, he said. The county will assist the inspector general in any way with the investigation, he said.
The hiring of NBP, headed by former Burlington Telecom General Manager Tom Nulty, is troublesome, the complaint said. NBP expected an average monthly charge to subscribers at $133 from the project, 30 percent higher than Mediacom’s “average monthly revenue per subscriber company-wide,” it said. Burlington Telecom, as operated under Nulty’s tenure, was “simply devoid of the management, accounting and control systems necessary to operate a viable enterprise,” it said. A forensic audit, ordered by the Vermont Public Service Board and issued in late 2010, showed that BT was “woefully ill-prepared” to build and operate a broadband system and that it reported a misleading financial condition. The audit showed Burlington Telecom is about $50 million in debt, including $17 million in taxpayer funds that were improperly spent, the complaint said. Investigations are underway by the Vermont Attorney General’s office and by the FBI. Lake County officials had become aware of Nulty’s link to BT and replaced NPB with a two-person management team, Bergman said.