Rybak’s Great Giveaway: The Selling Out of Public Wi-Fi


If you think that the $353 million public tax giveaway for the proposed Twins stadium is a sweet deal for billionaire Carl Pohlad—the richest owner in major league baseball—and a raw deal for the public, then you will cringe at what is poised to be an even more blatant act of corporate welfare: Minneapolis’ plan to outsource a citywide wireless (Wi-Fi) broadband network project that will provide internet access everywhere in the city. And, strikingly, our “progressive” Mayor R.T. Rybak is cheerleading us all the way to privatization of what could be a true public utility.

This course, at best, is just lazy public policy. You will wonder why on earth the city is avoiding dealing with this complex project itself, and shake your head at a never-ending subsidy that will not only cost hundreds of millions of dollars in lost potential revenue streams for Minneapolis, but also at the loss of citizen influence on budding technologies. How is this possible?

For starters, Minneapolis is moving full steam ahead with a plan to allow a single private company—either Earthlink or U.S. Internet (who are the finalists selected from the nine proposals submitted to the City Council)—to own and operate our citywide wireless network. This in spite of the fact that numerous municipalities in Minnesota and around the country are actually generating revenue with a public ownership structure that provides equal-to-better service at a lower cost to consumers than that provided by big telecommunication companies.

Just what is Wi-Fi? Wi-Fi stands for wireless fidelity and are wireless networks that tap into the same fiber optic “backbone” that supports our system of wired connections—like our cable system—through antennas that can be mounted on street lamps that allow people with lap tops to log on to the Net. While wireless is a rapidly evolving technology, fiber optics are basically the copper wires of this century. These fiber-optic connections will be available to businesses that need greater speed, and city officials expect the network will spur economic development as businesses seek locations that can provide low-cost, high-speed internet access. As we upgrade this backbone, we are laying the foundation of our city’s information and communication network. The choices we make now will either limit or enhance our choices for decades to come.

Chaska, a city of 22,000 that borders Minneapolis, launched a municipal wireless service last year. Chaska.net charges $16 per month. Compare that with the 30 to 50 bucks per month one might currently pay for broadband service from companies like Qwest and Time-Warner, not to mention contracts and hidden fees, customer service … well, you can do the math. The rationale? Beyond Rybak’s standard posturing of becoming “the great city of our time,” it’s all about the money of course.

Dollars and Sense
Rybak holds to the idea that private vendors are the best option for the city primarily because the city of Minneapolis won’t have to—and can’t—pay for it. So the city’s plan consists of securing a private vendor to build and manage the network. The estimated cost of the project is $25 million, which won’t come out of taxpayers’ pockets. Instead, the vendor the city chooses to administer the program will foot the bill as an investment and will make its money back as it gains customers.

By not relying on taxpayer money, cities avoid direct conflict with telecom and cable companies that have fought such plans with well-financed ad and public relations campaigns claiming they waste taxpayer dollars. For example, in 2003, cable companies and telecoms defeated a referendum in suburban Chicago that would have created the Tri-City Broadband authority to deploy municipal broadband across several communities. Fiber for Our Future, a citizen committee that favors municipal broadband service, claimed the cost of companies’ advertising campaign against the initiative ranged into the seven figures.

According to a Minneapolis Business Information Services (BIS) recent Request for Proposals (RFP) document released last spring, the $25 million price tag for the city’s program exceeds the city’s entire $23 million annual capital improvements budget for all of its capital needs, such as street repair. And this doesn’t take into account the upgrade and maintenance costs associated with the technology. But the report also doesn’t take into account the possibility of an investment in a publicly-owned information infrastructure that—conservatively—will generate on average 12 percent annual returns, surplus revenues beginning in the first year of operations, and, realistically, tops the total public benefits over 15 years at $129 million.

“They are so concerned with eliminating gaps that they don’t consider investing in infrastructure that could both lower the cost of city services and improve the quality of life in Minneapolis,” says Becca Vargo Daggett, research associate for the Institute for Local Self-Reliance, an organization dedicated to sustainable, economic development.

She applauds the city’s efforts in creating a broadband network, but stresses that a publicly-owned citywide wireless network could generate millions in public benefits, including paying for itself in five years, according to a financial analysis recently released by the Institute. “Even in the worst-case scenario, the network makes money in the first year. Investing in its information infrastructure is the wisest investment Minneapolis can make at this time,” insists Ms. Vargo Daggett, who is also director of the Institute’s Municipal Telecommunications Project.
The report, “Is A Publicly Owned Information Network for Minneapolis a Wise Public Investment?” (available at www.newrules.org/info/minneapolis) was done to fill a void in the public discussion. “We had hoped the city itself would do such an analysis,” says Daggett. “It’s not too late. In the report, we urge the city to develop its own financial analysis and make it publicly available.”

The report offers two scenarios: One is very conservative, or “worst-case”; the other more realistic. Under the more realistic scenario, in the first year of operation, the publicly owned system would generate sufficient profits “to put 20 more police officers on the streets or keep all 15 libraries open on Sunday afternoons.”

The report concludes that in its first 10 years the system could generate a surplus of $19 million. “This could go into the city’s general funds or be used to guarantee that all residents in Minneapolis have access to high speed information networks,” says David Morris, vice president of the Institute. Mr. Morris notes that the city has stated publicly that it cannot afford to invest $25 million in building a network—that such an investment is equal to its entire annual capital budget. “But the vast majority of the city’s existing capital budget is for non-revenue generating projects, like road resurfacing. This investment, on the other hand, will yield a 10 to 20 percent annual return. Minneapolis isn’t going to become a great city by passing up this kind of opportunity.”

A “public-private” partnership?
Rybak has commented that outsourcing this service is a good example of a public-private model. He said the city is going to make a deal with a vendor who not only gives city staff access to the internet, but also to residents, schools and businesses, at a reasonable price.

“We are using our buying power as a city to deliver a service for every citizen in Minneapolis,” he was quoted in a recent interview with the MN Daily, the University of Minnesota’s student-run newspaper. Given that the city is planning on outsourcing the development of the network, the maintenance of the network, the service of the network and the actual fiber-optic infrastructure (the backbone, etc.), one might wonder if there really is a partnership at all. Minneapolis’ core city services will be yet another—albeit a huge—client for one of two telecommunications giants, making the project a public-private ongoing subsidy. So why would any forward-thinking city even consider such a proposal?

Again, the main justification for excluding the possibility of public ownership is that the city lacks the financial resources. But it is clear that other municipalities around the country and world—like Portland, Boston and Jerusalem, to name just the tip of the Wi-Fi iceberg—have or are currently considering the public ownership model primarily based on its investment potential. Not only will the investment create a revenue source that, based on the experience in other cities, will easily pay off the $20 to $25 million (relatively small bonds for an information network) in a little over five years, it will also provide a significant surplus that could be used for future city projects. By comparison, consider that the government’s investment in light rail is 35 times that cost. Light rail serves less than 2 percent of the population, while a telecommunications highway will serve as much as half the population currently, and will serve nearly everyone in the not so distant future.

Some city officials have also argued that Minneapolis needs to avoid lawsuits; that building an information network is outside of the city’s core competencies; and that the city has already invested considerable resources in getting to this point and any delay will inhibit the introduction of high speed broadband.

Minneapolis is well within its legal rights to build a municipal network; Minnesota law does not restrict municipal telecommunications utilities in any way, except to require a two-thirds majority approval in a referendum if the city intends to provide telephone service.

Minneapolitans would be wise to remember that legal battles by private companies held up construction of the Minneapolis cable system for four years. And the recent proposal was intended, in part, to build a high-speed network to which the city already believed it was legally entitled under the cable franchise agreement.
That the city had to resort to a lawsuit against Time Warner indicates how little influence a city has over a private network once it has entered into a long-term contract. Adding insult to injury, in November 2005, a U.S. Circuit Court granted Time Warner’s motion to dismiss the case, primarily on the grounds that the city’s authority over its cable franchisee is preempted by federal law.

Over 100 other cities have found that it is their responsibility as caretakers of their futures to own high-speed information networks that serve residents and businesses. In Minnesota, this includes Buffalo, Chaska, Windom (which has a municipal fiber-to-the-home network), and Moorhead. Hundreds more have found it within their responsibilities to own at least the networks that carry sensitive data traffic for city services and other public entities, such as schools and police.

Just say “No” to corporate handouts
Where does the buck stop? Accountability and transparency are keys to a responsive government, and happen to be the two values that are sorely lacking in the Minneapolis Wi-Fi debacle. Mayor Rybak can be such a great advocate for this city; one has to wonder if he is not aware of the gravity and urgency of the situation, or if he just doesn’t care. This is primarily a Minneapolis issue, and we all know at whose desk the buck stops.

The last incarnation of the City Council seemed practically clueless to the possibility of municipal Wi-Fi as an investment and appears to have never taken the time to carefully examine the risks and benefits of publicly-owned models compared to the current privately-owned proposals. Current Council President Barb Johnson supports the private model, saying that “the direction the city is taking to provide wireless service to all our citizens while mitigating the risk to the taxpayers.” She neglects to mention that it is the taxpayer who will be missing out on literally hundreds of millions of dollars to projected revenues.

Lisa Goodman, a no-nonsense veteran councilmember who represents some of Minneapolis’ finer neighborhoods, says she mainly supports the current privatization direction because she “wants to see something done.”

Newcomer Councilmember Diane Hofstede was more cautious, noting that she supports a “network that will deliver service to our broader community,” warning that is must be “cost effective for our city.”

Green Party Councilmember Cam Gordon is one elected leader who has questioned a private Wi-Fi model. “Enough concerns and questions have been raised about the current model—and the process that got us here—that I am convinced that we need to take a breath and evaluate how we got here and make certain that we are moving in the best direction,” says Gordon.

He continues, “The Public Safety Working Group itself raised concerns about transmitting police, fire and inspections information over a privately-owned system. While I am not interested in derailing the progress that has been made, I do think we need to move forward from here in as thoughtful and open a way as possible.”

Gordon is about process and inclusion: “If we affirm that the current private model does make the most sense, we need to lay out a more public, informed and inclusive process for comparing the two pilot programs and crafting the best contract possible that will preserve public involvement, meet the needs of residents, businesses and all city departments, and bring affordable, quality wireless internet service to more people in Minneapolis.”

Gordon is inspired by the Philadelphia model, where a new nonprofit is part of the ownership structure. “I think that a public ownership model may offer far better security, more public control, better oversight and involvement in decisions that will be driven, at least in part, by considerations about what is in the best interest of the city and the public and not necessarily by considerations for holding costs down and increasing profits.”

He supports the City Council initiating a cost-benefit study of a publicly-owned network, including, at least, the costs of physical infrastructure, the costs of service provision and maintenance, the benefits of flexibility to negotiate service contracts with multiple vendors over the life of the network, and the benefits to citizens of choices among competing service providers.

As for those city officials who would rather pinch a penny today, and not deal with meeting the challenge of developing, at least in part, a publicly-owned Wi-Fi infrastructure, rest assured that that decision will eventually cost generations hundreds of millions of dollars in lost future city revenue, lower service rates from existing cable or phone companies, and access to locally owned information service providers. Sadly, this is another example of a government giveaway to corporate interests. But what’s possible if Minneapolis’ elected leaders reconsider the current plan for a privately owned network is, most importantly, a restoration of citizen influence on the direction of future information technology. ||

It is not too late for the City to reconsider the current plan for a privately owned network! Call the City Council and urge them not enter into contract negotiations with a single bidder until cost-cost-benefit study of a publicly owned has been done and the results made available for public comment. Just call the new Minneapolis 311–the three-digit number can be called anywhere within the Minneapolis boundary limits–to connect with your representative.