It’s been nine years since the City of Powell bought the broadband fiber network that brings high-speed internet to homes and businesses in town. The $6.5 million investment was meant as a way …
It’s been nine years since the City of Powell bought the broadband fiber network that brings high-speed internet to homes and businesses in town. The $6.5 million investment was meant as a way to get a better return on taxpayers’ money than the city had been previously getting. And so far, the investment has performed well, with the city on track to pay off the loan sooner than originally anticipated.
Powellink is born
Plans for Powellink go back to 2006. The network was constructed as a joint venture between the city, Northwest Joint Powers Board, and private-sector partners. It was funded with a $6.5 million revenue bond to be repaid by the revenues generated by the users of the system. The construction was completed in January 2009.
Originally, TCT West operated the system under a 2006 agreement that granted the provider exclusive access to the system. TCT paid a rental fee, called a wholesale transport charge, to use the system, which the company operated and maintained, and the revenues paid to the city went toward paying off the bond.
In June 2010, the Powell City Council voted unanimously to purchase the bond, which was held by a private investor in New York.
The city had $6.5 million invested in WyoStar, a local government investment pool for Wyoming cities and towns. Interest rate returns on the WyoStar investments were about 0.8 percent at the time, whereas the Powellink bond was expected to generate about 2 percent or more. It took the money out of WyoStar and used it to buy the bond, which made it owner of the Powellink system.
In pulling the investments out of WyoStar and buying the Powellink system, the city basically loaned itself the money. It then uses the revenues from the system to pay back the loan.
When the city purchased the bond, as part of a separate agreement, TCT agreed to give up exclusive access to the network. In return, it was no longer responsible for a minimum rental payment. The hope was that multiple providers would draw in more customers, but TCT is still the only ISP paying rent to access the system.
While Powell has only one provider using the system, subscribership has grown. Subscribers on the city’s fiber network was 450 in 2010. Today, there are close to 1,200.
The $6.5 million invested in WyoStar came from the city’s enterprise funds, which are fed by revenues from the services the city provides. When the city pulled out of WyoStar, this money went back into the enterprise funds.
To pay for the loan to buy the Powellink revenue bond, different amounts were drawn from four city enterprise funds: electric, wastewater, solid waste and water.
As the revenues from the Powellink system come in, the city pays back the loan at portions roughly equal to the amount drawn from the enterprise fund. So, if 50 percent came from one fund, that fund got 50 percent of the revenues.
From fiscal year 2010 to fiscal year 2017, the city has paid back nearly $600,000 of the principal on the loan. It also made over $285,000 in interest payments, all of which went back into the enterprise funds. The sanitation fund was repaid in fiscal years 2016 and 2017.
In paying back the loan, the city matched the WyoStar interest rate until fiscal year 2016. Since then, the city’s interest rates exceeded those of WyoStar.
“We used a rate greater than WyoStar since WyoStar is a short-term investment pool. Typically, with loans/investments, the longer the term, the higher the rate,” explained Powell Finance Director Kaela Nelson.
City Administrator Zack Thorington said Powellink has been lucrative enough to allow for the higher interest rates.
In an effort to assess the value of municipal investment in broadband networks, a University of Pennsylvania law school professor and graduate examined a dozen such projects around the country, including Powellink.
The 2017 analysis used net present value (NPV), which the researchers argue provides a more accurate picture of cash flowing into and out of an organization than a project’s operating profits and losses.
NPV takes into account the fact a dollar today is worth less than a dollar tomorrow. So, a dollar earned in the future might not be as valuable as one spent today. By discounting for this loss of value over time, a clearer picture of an investment’s return can be determined, authors Christopher Yoo and Timothy Pfenninger reason.
Comparing the project’s five-year NPV to the cost of the project, the study evaluated if it will remain solvent. If the five-year NPV is positive, the cash flow has to be large enough to cover the project cost. To get some sense of that likelihood, the researchers calculated the number of years a project would take to recover project costs.
The study concluded it would take 1,253 years for Powellink to turn positive. Of course, that greatly exceeds the life of the infrastructure. The study also estimated the adjusted project cost per household was $2,215.
Based on those calculations, it might be easy to conclude Powellink was a bad investment, but the study had a very specific focus in calculating the value of the estimate. The study noted that smaller resident populations tend to produce better results, and Powell would fall into that category.
The bigger picture
A 2010 study by a project of the Institute for Local Self-Reliance, a non-profit community-focused think tank, had a different view of these projects, and reviewed Powellink positively.
The study pointed out that smaller communities wouldn’t likely have broadband networks constructed by any other means, and these can be beneficial for local economic development. Thorington agrees.
“If we are a community that can deliver very high-speed internet, that is enticing to businesses and people looking to relocate,” he said. “I do feel that today’s generations and future generations consider internet as a utility just like water, sewer, gas and electric.”
Thorington said that prior to Powellink, the incumbent internet service providers were not investing in the local network and insisted Powell did not need to increase internet speeds. Since Powellink went online, many ISPs in the region have increased speeds and invested more in the network.
“I believe Powellink was the driving force for the other ISPs to up their game with faster speeds and lower prices,” Thorington said.
He added that the state has recognized the value of high-speed broadband internet and invested a lot in helping bring it to more homes in the state.
In May, FCC Commissioner and rural broadband advocate Brendan Carr gave a talk at Northwest College concerning the needs of broadband access in rural America. The discussion drew businesses from outside of Powell, who find the lack of broadband access an impediment to their operations. More and more, business and broadband go hand-in-hand.
Nine years ago, when the city bought the revenue bond, the state wasn’t nearly as supportive of local broadband needs.
In 2018, then-Gov. Matt Mead signed legislation that provided $10 million to establish a grant fund to support broadband infrastructure. The bill included another $350,000 to support a position at the Wyoming Business Council and a Broadband Advisory Council to coordinate further broadband development in the state.