Full speed ahead

Another Minnesota city takes the government’s fiber-optic bait.

“This time, it’ll be different!”  

This should be the tagline for Connect Willmar, the latest local government-funded fiber-optic internet project in the works.  

“High-speed internet access can attract businesses, improve property values and stimulate local growth over time,” said Kyle Box, the city of Willmar’s operations director, at a pivotal city council meeting in August. “These benefits can generate substantial returns on the initial investment, potentially offsetting the upfront expenditure.”  

Yet like several of its failed predecessors elsewhere in the state, Connect Willmar carries significant financial risk to city taxpayers should consultants’ high expectations and glowing projections fail to pan out. After all, 11 private providers already offer internet service in the West Central Minnesota community, a population of 20,000. The competition includes major companies like Charter and Spectrum with the resources to aggressively defend their market share.  

“Be very careful,” says Minnesota Telecom Alliance CEO Brent Christensen. “There is not a successful open-source network in the country. It would be a mistake.”  

Yet local elected officials maintain Willmar will be left behind without a citywide fiber-optic system financed by $25 million in general obligation bonds backed by Willmar taxpayers.  

“Currently, most Willmar residents and businesses have internet service being delivered through a telephone line (DSL) or coax cable (cable TV),” according to the Connect Willmar website. “These have been the traditional delivery methods for many years and are starting to struggle to keep up with current demand and soon will not be able to deliver at all.”  

The city takes the familiar “if we build it, they will come” approach in pitching the project to the public. The plan calls for the bonds to be paid off over time with revenue from subscribers. But if “they” don’t come, city officials acknowledge, taxpayers will be on the hook.  

“In the event revenue falls short, absolutely the city council would be obligated to make those general obligation payments, by other means, raising the levy,” Box tells city councilors.  

If so, it wouldn’t be the first time Minnesota taxpayers wound up footing the bill for a purported slam-dunk local government fiber-optic network that ended up failing to live up to expectations. No more than two years after FiberNet Monticello went online in 2010, city taxpayers were forced to ante up some $4 million to keep the fiber-optic network’s lights on due to a severe shortage of subscribers. Before long, Monticello defaulted on the bonds, leaving bondholders to recoup just 22 cents on the dollar. 

A Lake County project touted by DFL Sen. Amy Klobuchar, among others, still stands as perhaps the biggest taxpayer-funded local government fiber-optic network boondoggle in the country. The Lake Connections network received $66 million in government loans and grants. Taxpayers in the sparsely populated northern Minnesota county also poured $17 million into Lake Connections. Following a congressional inquiry and a Politico investigation into government waste, the network was auctioned off for $8.4 million to a small Pennsylvania company in 2019, leaving the Rural Utilities Service to write off $46 million in taxpayer-backed debt.  

Currently, another local government fiber-optic network teeters on the edge of solvency. The RS Fiber Cooperative, comprised of 10 small southern Minnesota cities, has faced financial issues almost from the start. Member cities first came to the rescue by raising taxes to cover more than $1 million in loan payments RS Fiber would miss in 2019-2020. After refinancing and outsourcing management, this fall RS Fiber engaged a bankruptcy attorney to consider its options.  

“While the debt commitment continues to be met, the continued high interest rates will continue to deplete cash and bring us to a potential default on our loan by the end of the year,” according to a September column from RS Fiber in the Winthrop News. 

As of this writing, it appeared likely RS Fiber would be sold for $14 million, enough to retire its debt. But member cities would be left holding the bag for some $6 million in bonds that won’t be paid off until 2037. That means cities like Winthrop, with a population of 1,350, will owe approximately $95,000 a year — 10 percent of the annual budget.  

“I hate to say ‘I told you so,’ but it was a bad idea from the get-go,” says Steve Johnson, a retired Winthrop banker who opposed RS Fiber from the start. “Municipal government does not belong in that lane. It should not be a function of government.”  

Johnson shakes his head as yet another Minnesota community heads down the high-speed path, ignoring past cautionary tales. The Willmar City Council gives every indication of approving the first $9 million phase of Connect Willmar, which would break ground in early 2025.