Frustrations Spill Over as Lawmakers Get Update on KentuckyWired Project

Posted on July 27, 2017

 KCNA Executive Director Phillip Brown testifying to IJC on Appropriations & Revenue    The frustration was evident as lawmakers took leaders of the Kentucky Communications Network Authority (KCNA) to task Thursday for the struggling KentuckyWired project. KCNA Executive Director Phillip Brown, who has only been on the job for three-and-a-half months, told the Interim Joint Committee on Appropriations and Revenue the project was way behind schedule and over budget. Lawmakers on the Committee questioned where the money went, how long the project will continue to take, what has created the delays and if it’s worth continuing to pursue. Brown told lawmakers he believes the project will pay off in the end, but he acknowledged getting to the finish line has become an arduous and expensive process.

     The KentuckyWired project was unveiled in 2015, designed to transition internet services in the state from a third-party provider to a statewide public-private partnership model. The eastern Kentucky area and higher education institutions in the state are the priority of the project, but the goal is to create a fiber optic highway across the state. The plan calls for 3400 miles of fiber and covers 1100 locations. It was supposed to be up and running by 2018. Thursday Brown told lawmakers the construction of KentuckyWired will go beyond 2018 and he couldn’t provide a new end date. “We’re working to try to catch up,” he promised. “We’re working to try to eliminate delays everywhere we can. The goal is to try and complete as soon as possible.”

     A large percentage of the project focuses on attaching lines to existing poles. Brown blamed the delay on problems with getting those pole attachment agreements along with permit issues, problems getting private property easements and not getting access to locally controlled rights-of-way as easily as expected. He told lawmakers, “Cities have not agreed to give access we need.” Brown testified the state is still struggling to get agreements in western Kentucky. If those agreements can’t be reached Brown says the state will begin making alternate arrangements. “We’ll take the unfortunate step of rerouting the network,” he said. That would result in the system not being statewide. “That’s a negative, negative thing to have happen to the project,” warned Brown.

     Representative Michael Meredith (R-Oakland) told Brown municipalities that already have fiber service question the big overlay and the goal of the project. He said city leaders he’s heard from feel the project would “steal customers off them with a government mandate to do so.” Brown confirmed that those are major concerns the project is trying to overcome. He says the state would not steal customers because: “We’re not going to compete against them for last-mile service and we don’t want to.” Last-mile service refers to the running of the internet into individual homes and businesses. Meredith pointed out, however, that the state just running fiber to an area didn’t mean underserved areas would still get last-mile providers to ensure connectivity. There’s also been a dispute over ownership of poles involved in the project, if they belong to the city or private company, and about a city’s ability to lease internet services.

     The delays are adding to the cost of the project, which started with a $324 million budget. Brown estimated the extra expenses are in the tens of millions. It was supposed to come online and bring in earnings so payments on $30 million in bonds issued by the state could be made from the income the project earned. Brown testified delays in the project have resulted in the state seeking gap loans to make payments scheduled for 2019 and 2020. The total due from both years is more than $60.1 million.

     Lawmakers questioning Brown voiced anger over the added expenses and delays. Representative Phil Moffett (R-Louisville) told the Committee, “We actually issued $30 million worth of bonds under fraudulent revenue projections and the people who bought those bonds ought to sue.” He pointed out the bonds were based on $11 million that was supposed to have been put into the project by school systems. That money never materialized.

     Senator Chris McDaniel (R-Taylor Mill) called the entire project a mess and questioned if the bond issue “could border on not just civil, but possible criminal prosecution.” He also questioned how much government entities that eventually connect to the KentuckyWired system will be charged. While Brown told McDaniel the original goal was to maintain costs for those groups, McDaniel questioned how that could be possible with the additional costs now incurred. Brown agreed fees may have to be increased to make up the unexpected expenses.

     McDaniel told lawmakers and representatives from the Kentucky Communications Network Authority it was time to start developing a shutdown plan. “I’m betting it’s going to be substantially cheaper to just stop,” remarked McDaniel. He told Brown and KCNA CFO Steven Murphy to have a plan available for lawmakers by September. Committee Co-Chair Representative Brian Linder (R-Dry Ridge) told members it was more expensive to shut it down. “That was put in the contract to make sure this thing went through, no matter what,” he said.

     Committee Co-Chair Representative Suzanne Mills (R-Owensboro) questioned why lawmakers had not been provided a budget for the project. Representative Jim Wayne (D-Louisville) suggested the Office of the Auditor of Public Accounts should review the entire KentuckyWired plan. Representative Tim Couch (R-Hyden) reminded lawmakers the project was started to bring broadband to eastern Kentucky. “If we can get back to the original concept, I don’t think you’ll have all these issues,” predicted Couch. He reminded lawmakers there are still areas of the state that have no high-speed internet.