The head of Kentucky’s statewide broadband initiative says the initial contract for the project put an “excessive amount of risk” on the state, which has had to compensate private partners for years of delays.
Portions of the Kentucky Wired public-private partnership were supposed to go live in the summer of 2016, but now officials say that it’s been delayed until early 2020.
Phillip Brown, executive director of the Kentucky Communications Network Authority, said that an “aggressive schedule” is to blame for cost overruns in the project.
“Its design sought such an aggressive schedule for completion that it came with an excessive amount of risk. It is risk that Kentucky bears the burden for covering,” Brown told members of the legislature’s Capital Planning Advisory Board.
“The project has faced many challenges from the very first day it existed. And all of the problems we deal with now are found in the project contract that was executed in the fall of 2015.”
Announced at the end of Gov. Steve Beshear’s administration, the Kentucky Wired network is supposed to stretch more than 3,000 miles to every county in the state.
The network would be used to provide internet to state government buildings across Kentucky and local companies would be able to lease part of the network to provide broadband service to communities.
But the project has suffered several costly delays due to weather and difficulties securing agreements with property owners — leading legislators to float the idea of trashing the initiative.
But Brown said because of Kentucky Wired’s funding structure, the cost of not finishing it would be greater than pressing forward.
“It is in Kentucky’s best interest to have a network at the end of this process,” Brown said.
Most of the $365 million project was financed with a bond taken out by private investors led by Australian firm Macquarie Capital and backed using the state’s credit rating.
In exchange, Kentucky agreed to pay the companies “availability payments” that start at about $30 million per year and will escalate to nearly $57 million in 2045.
The state planned to offset those payments by using the network to provide internet to government buildings across Kentucky, but that hasn’t been able to happen yet since the network isn’t up and running.
The state also planned to use the network to provide internet for school districts across Kentucky, but after an attempt to rebid schools’ internet contract in 2015, AT&T successfully protested, saying that Kentucky Wired had an unfair advantage in the bidding process.
Sen. Whitney Westerfield, a Republican from Hopkinsville, said he was frustrated with the structure of the project.
“It seems like, respectfully, a crap-ton of middle-men corporations with a whole lot of hands in the pot,” Westerfield said.
Kentucky Wired officials are in the middle of negotiating a settlement that would include an $88 million payment to the private partners for the delays and a renegotiation of the initial contract.
Republican leaders in the legislature blame the costs associated with the delays on the contract and former Gov. Steve Beshear’s administration. They’ve asked Beshear officials to publicly explain the contract in a hearing next month.