California’s government broadband gamble will cost taxpayers

Golden State Fiber is the latest example of California governments gambling with taxpayer money: forty counties, $111 million in bond financing, and a government-run broadband network. History suggests this bet will end the same way most do—over budget, underperforming, and on the public’s dime.

The Golden State Connect Authority (GSCA) intends to deploy open-access fiber throughout rural areas of the state, north of Sacramento and through the Eastern Sierra Nevada down to the southeastern border near Mexico. The just-announced bond financing will enable GSCA to build broadband infrastructure in Alpine, Amador, Glenn, Imperial, Mono, and Tehama counties, as well as the Town of Mammoth Lakes. 

GSCA is a supervising agency made up of 40 members elected from each of the counties of the Rural County Representatives of California. The authority will finance, build, own, operate, and maintain the networks, with hopes that multiple internet service providers will compete for these rural customers. As the non-partisan Taxpayers Protection Alliance (TPA) has reported, such government-owned networks (GONs) often struggle to recruit sufficient providers, as many already own and maintain their own broadband infrastructure.

If completed, Golden State Fiber is expected to reach more than 31,000 locations. Due to its wide span, the fiber deployed by the network will undoubtedly run alongside existing fiber in some areas and create duplicative broadband infrastructure. 

The bond money will complement $185 million in Federal Funding Account grants already awarded by the California Public Utilities Commission to support GSCA’s broadband deployment projects in seven rural jurisdictions. That $185 million is part of a $6 billion initiative by state lawmakers, signed by Gov. Gavin Newsom in July 2021, to build taxpayer-funded broadband infrastructure throughout the state. This includes explicit authority for county governments to operate their own networks, and the creation of a state-owned, open-access middle-mile network. 

TPA has dubbed such middle-mile networks as “broadband to nowhere” since the success of the money invested depends on providers making the last-mile connections. Another massive state-sponsored middle-mile network, Kentucky Wired, has been an abject failure. Former Kentucky state auditor Mark Harmon called the project a “bait-and-switch on the taxpayers.” The construction costs got shifted primarily from private partners to the citizens of Kentucky for the project that included 3,200 miles of fiber spanning all 120 counties. The project’s total cost exceeded $1.5 billion, with Australia-based Macquarie Capital only having to fund about 2 percent of it.

GSCA will partner with UTOPIA Fiber (one of the poster children for struggling GONs) for operational support for Golden State Fiber.  TPA highlighted UTOPIA in both its Dirty Dozen Report for wasteful broadband projects in 2016 and its 2020 report “GON with the Wind: The Failed Promise of Government Owned Networks Across America.” 

UTOPIA was no utopia for taxpayers. In 2002, UTOPIA was formed when 16 cities in Utah agreed to jointly build an open-access fiber-optic network with a goal of completion in 2005. Eleven of the cities pledged to finance the project with bond issues backed by $202 million of sales tax revenues. By 2007, UTOPIA was behind the projections (including offering services to only 12 percent of the number of projected subscribers and providing full service to only three cities and partial service to three others), encountered management difficulties, and had to replace its management team amid significant financial struggles. 

UTOPIA had to revise its original business plan as well as seek additional funding, including a $21 million loan from the U.S. Department of Agriculture’s Rural Utilities Service. The network had negative cash flow of $22.4 million from 2010 to 2014 and accrued $333.5 million in total liabilities.

With $1.8 billion in federal BEAD funding already on the way, Golden State Fiber isn’t a solution—it’s duplication for duplication’s sake. California is choosing to overspend on a government-run network while ignoring cheaper, faster alternatives, leaving taxpayers to bankroll yet another politically driven boondoggle.

Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance