April 30, 2018
Getting out of ‘partnership’ would cost $500 million, GOP Rep says
FRANKFORT, Ky. (April 30, 2018) – As the result of extreme delays resulting in tens of millions of dollars over its initial $324 million budget, and counting, House Speaker Pro-Tem David Osborne has filed a resolution urging an investigation into the ailing public private partnership of Kentucky Wired.
Kentucky Wired, created by former Governor Steve Beshear in 2015, was supposed to have delivered high-speed internet access to the most remote and sparsely populated areas of the state, and all 120 counties, by this year.
As the result of a conflict of interest for Kentucky Attorney General Andy Beshear, whose office would typically head-up such an investigation, Osborne has filed a resolution urging the Kentucky Legislature’s Program Review and Investigation Committee to investigate thoroughly. The committee is made up of bipartisan members from the House and Senate.
“The state, specifically taxpayers, need to know the details behind the contract for Kentucky Wired and the specifics concerning delays and additional costs to date, in an impartial and unbiased manner,” said Speaker Pro Tem Osborne. “Allegations and innuendo have swirled concerning the contract and the intentions behind it. I expect this investigation to confirm the grounds for drafting the contract in the manner it was, and to discover any mistakes that were made to ensure the state does not commit the same errors, if any, ever again.”
The idea upon conception of Kentucky Wired was for private partners to build most of the infrastructure and then lease access to private internet providers or cities to connect Kentuckians. That relationship would generate revenue for the state while paying off the private partners’ initial bonds. However, as of today, the project is estimated to have a mere 708 miles of cable completed due to pole delays (of 3,400 total), and no revenue stream to make payments to the private companies involved.
So far, the delays have resulted in nearly $90 million in costs to the private companies involved, and the state has only provided $8 million in penalties to them. Over the next two years, Kentucky is facing payments to the private partners to the tune of nearly $68 million.
The Kentucky Communications Network Authority (KCNA), the public partner, this year requested the $68 million coming due and the authority to borrow $110 million to pay the penalties for the delays, which the General Assembly approved just recently. Currently, if the state opts out of the project, there’s an estimated cost of nearly $500 million.
“Kentucky is facing an already-austere financial outlook,” added Osborne. “We must continue to correct the priorities of spending hard-earned taxpayer dollars, and the Kentucky Wired project is near the top of the list in terms of pressing financial considerations. After many meetings and much feedback, including a hit to credit ratings if ceased, it has become apparent that there is little choice for Kentucky but to move forward with the Kentucky Wired project. However, I urge the committee to act swiftly to produce a report on the contract to ensure taxpayers are entered into positive contact agreements in the future.”
Prior to the General Assembly approving the $110 million in borrowing for the KCNA, members explored granting Governor Bevin the authority to fund Kentucky Wired as a Necessary Government Expense (NGE). However, during the 10 day veto period in April, credit bureaus opined that if Kentucky were to default on its contractual obligations, and withdraw from the deal, the state would take a severe hit to its credit ratings. Additionally, such a move would seriously harm the state’s credibility for future public-private partnerships, where advantageous.
“Kentucky taxpayers deserve to get what they pay for,” added Lynn Bechler, who chairs the Program Review and Investigations Committee, which will head-up the investigation. “If what’s happened with Kentucky Wired happened in the private sector, there would be consequences. Unfortunately, the state is still on the hook for what might have been a bad agreement. Nonetheless, we are responsible for discovering what took place and why, and proactively moving to prevent this from happening again. These are very big numbers that taxpayers are footing, for no return on investment so far.”
Upon completion of an investigation, Osborne has requested the committee issue findings and recommendations to the Governor and the General Assembly.