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ED Now Feature: Small Midwest Cities Find Success with Municipal Broadband
Caroline Corona   on Monday, July 9, 2018 at 9:04:00 am

By Caroline Corona, IEDC intern, Ohio State University

High-speed internet is no longer a luxury, but a necessity for cities to be competitive today. Sometimes dubbed “the fourth utility,” broadband has become a powerful economic development tool to keep and lure businesses and young residents.

The problem for many smaller cities, however, is that private utilities don’t profit from building expensive fiber lines to sparsely populated areas. That’s why city-owned broadband networks are filling the gap to create greater economic opportunity, business growth, and resident retention.

Small towns with big ideas

Many of America’s largest cities have tried to implement public broadband, but none have succeeded. Studies in New York City found it would be too difficult to maintain across the whole city. Tech-savvy Seattle is facing opposition over the proposed price tag. Rather, some of the fastest and most-connected networks are found in small towns and mid-size cities. Chattanooga, Tennessee, was the first to fully build a municipal fiber-optic network, and is widely praised as a model that helped turn the city into a thriving tech economy. But places with even smaller populations and tax bases are finding success too.

Fairlawn, Ohio, an Akron suburb of roughly 7,000, launched FairlawnGig in 2016, after city leaders realized too many residents lacked internet access. Fairlawn sits on the border of two different telecom service areas, so internet service was spotty and unreliable, drawing frequent complaints from residents. Around the same time, the mayor came back from a trade mission where he heard from businesses that wanted to move to Fairlawn but needed better internet to do so.  

“It’s 100 percent a necessity. It’s a utility no different than a road or sewer or water line,” said Ernie Staten, Fairlawn’s deputy director of public service.

The Fairlawn city council unanimously approved the plan to bring one-gigabit internet to every household and business, basing its decision off a survey in which 90 percent of respondents supported the idea. The first neighborhood the city connected saw an 89 percent adoption rate since 2016.

Another Ohio city just 20 miles away is investing in high-speed internet with positive results. Hudson, Ohio, created Velocity Broadband to ignite development at the Hudson Crossing Business Park, which previously sat empty for nearly four years. Today, four new projects are set to create roughly 430 jobs and $27 million in payroll.

“Hudson has a higher tax rate than some communities, but Velocity helps us attract innovative and high-tech businesses that want fiber-optic capabilities,” said Jim Stifler, chief economic officer for the City of Hudson, in an interview with Crain’s Cleveland Business.

This map from the Institute for Local Self Reliance lists the more than 750 cities and counties with full or partial municipal broadband, dark fiber, and other forms of public internet. 

Who pays for it?

Fiber-optic networks don’t come cheap, so how they’re financed is a critical consideration. In Fairlawn, the city paid for FairlawnGig’s $10 million infrastructure through non-taxable bonds, and charges for service. The city did not enact any new taxes in the process, and the general fund pays for broadband infrastructure as it does for roads, bridges, or sewage, treating it truly as a public utility. Some cities choose to charge users a fee to recoup the cost of construction, but Fairlawn only bills for monthly service, as it would any other utility.

Hudson is leaving it up to residents to decide. The city is considering asking voters in November to approve a $2.7 million, 10-year levy to cover the $21 million project costs for expanding Velocity Broadband beyond the business park to private homes. The city has spent $3.4 million so far, funded through debt proceeds and outlined in its capital projects budget. Currently, roughly 98 percent of Hudson residents have internet access, but the public option would provide lower prices and boost its digital reputation. Constructed in 2015, Velocity Broadband became profitable about a year ago, signaling the city’s readiness to expand it to Hudson homes.

Worth the investment?

The costs can be high, but so can the payoffs. Chattanooga’s broadband company, EPB, is perhaps the best benchmark because it has been around the longest. The program has delivered strong economic results in its first eight years; the city spent roughly $220 million building the network and estimates it has experienced $865 million in economic benefits thus far.

Fairlawn saw home values rise 8.7 percent after launching FairlawnGig, up from 2 percent the prior year.  The business results have also been encouraging.  “In the first six months, we didn’t have a lot of business subscribers,” Staten explained. “But when they started coming on, it was like a waterfall.”

Multiple business leaders cited FairlawnGig’s service when discussing why they moved to the city – 18 new businesses include IT companies, medical facilities, and wealth management firms.  Attracting a bigger tech firm would put the ultimate stamp of approval on the program, but winning several smaller firms is reward enough.

“Those jobs are the ones we want here anyway,” Staten said. “Those people are going to live here and be part of the community.”

Staten is quick to point out there’s no one model that will fit every city. There’s no substitute for due diligence to determine the market need and engage residents to identify the best mode of implementation. He also notes that broadband shouldn’t be viewed as a silver bullet. Businesses consider a multitude of factors when making investment decisions, so while high-speed internet alone will not seal the deal, its absence can be a deal-breaker. The same considerations hold for highly mobile young professionals. For America’s dwindling small towns, municipal broadband gives young people a compelling reason to stay and the chance to launch their careers at home.

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