Lafayette, La., like a number of U.S. municipalities, is facing a recession-driven budget crunch, largely due to health care and retirement costs. Unlike most municipalities, however, Lafayette faces a $140-million reckoning in the form a municipal fiber to the home system.
After an auditor’s report raised some flags about the extent city’s been dipping into its reserve savings, Lorrie Toups, Lafayette Consolidated Government’s chief financial officer said $5 million in reductions might be needed to maintain a status quo budget.
This might not be so bad save for the loans that start to come due in 2013 on Lafayette municipal FTTH system, which, according to the auditor’s report, is costing the city of Lafayette $45,000 a day. Thus far, the city has issued the full $125 million in bonds authorized for construction and operation of LUS Fiber. In addition, LUS Fiber has borrowed $15 million from its parent, Lafayette Utilities System, the city’s municipally-owned water and power utility. (One reason LUS is so flush is that in 2009 it received $11.5 million as part of the Obama stimulus, ostensibly to fund a smart grid electricity system.)
Andrew Moylan at the National Taxpayers Union picked up the item from the Lafayette Advertiser:
In sum, LUS Fiber is losing boatloads of money and exacerbating an already-difficult budget situation in the area. There is a silver lining though! According to LUS’s own numbers, the project might break even by the time 2014 or 2015 roll around. Or maybe not…you know, whatever.
The Advertiser reports that Toups defended LUS Fiber as a start-up enterprise that “budgeted for losses and expected to incur them in its early years.”
That’s true–to an extent. LUS launched in 2009, and is only half-way through its fourth year of operation. The original feasibility report on the Lafayette FTTH system, produced by CCG Consulting in 2004, projected net losses of $7.1 million and $4.9 million in years two and three of operation. The recent audit, however, showed LUS Fiber ended the 2010 fiscal year, its second year of operation, with a net loss of $12.3 million. In 2011, its third year, LUS Fiber reported a loss of $16.5 million–more than three times the deficit projected in the business plan.
Of course, this is exactly what I warned about when I analyzed the CCG plan back in 2005.
Lafayette is now in the running to be the country’s biggest municipal broadband failure–a fact made worse its diving in headfirst despite the documented financial messes of those cities that went before it.