Commentary: Fiscal Caution Is the Right Approach

When the Vanguard was formed in 2006, one of the problems we cited in city governance was that the fiscal ramifications of decisions made by council were not properly assessed.  The result was that, while the city appeared to be healthy as late as 2008, accounting practices failed to take into account the down-the-line impacts of fiscal decisions.

While I believe that economic development is not only vitally important, and that the lack of reliable broadband in Davis is a hindrance toward those goals, I think it is equally important to take into account the fiscal impact of such a move.

As Dan Carson put it in his op-ed, “Nobody disputes the benefits of improved high-speed broadband for economic development, education, technological innovation, and addressing the digital divide. The question is, how do we get these benefits without saddling our taxpayers with huge financial risks? We already face an $8 million a year funding gap for basic city services over the next 20 years.”

However, he definitely goes further than I agree with when he argues, “I worry about a bullet train-style boondoggle in which construction starts, only to find out that the rest of the money needed to finish a network isn’t coming.”

But I think his fiscal caution focused the council on issues that were potential pitfalls to a plan and program they might otherwise enthusiastically endorse.

The council on Tuesday was cautious – and they should be.

It is unfortunate that people in the community chose to negatively react to Mr. Carson’s comments.

As a member of the public put it, “I was astonished to see Dan Carson’s editorial in the Davis Enterprise. It would seem like he’s already decided… in advance of today’s staff presentation and without hearing comment from the community or his own fellow councilmembers. That he’s decided that Davis should not control its own broadband network.”

His colleagues came to his defense.

Councilmember Lucas Frerichs responded, “I think it’s unfortunate that he was ridiculed for putting his perspective out there,” noting that a critical perspective was not only needed but helpful even as he stated, “I don’t one hundred percent agree with it.”

Will Arnold stated, “I appreciated my colleague Dan Carson’s op-ed… He is a cautious (person), very knowledgeable about finances… There wasn’t really any point that he wrote that I disagreed with. There are a lot of risks out there. Whether they’re insurmountable, we’ll find out.”

He said, “Any suggestion that he should have… kept his mouth shut… I don’t want that – I don’t want that to be the takeaway for any of my colleagues.”

In terms of approach here, I would come down with both Will Arnold and Lucas Frerichs.  I would argue more than simply liking the idea of having a municipal network – I think we need it.  I also think that Lucas Frerichs made a really good point that California is lagging behind other states in such networks and we need to find ways to overcome that.

As the BATF (Broadband Advisory Task Force) letter points out, the project “would also pave the way for massive economic development.”

Importantly, “The network would create the ability for businesses around the world to employ work from home professionals in the City of Davis.”

Matt Williams made an essential point last week when he noted, “Prospective companies thinking about locating in Davis will see a proactive, in-place telecommunications deployment, ready for their immediate use, rather than an ad-hoc, reactive telecommunications deployment that requires expensive and time-consuming case-by-case buildout.”

This is not the only barrier to economic development but it hard to envision a robust economic development program without the access to the infrastructure that drives the engine.

I also continue to see the social equity piece here.  Some on the council played down the digital divide on Tuesday.

Brett Lee for instance stated, “I think we need to be very careful when we talk about this digital divide, that there are people who choose not to spend their money on access.”

Gloria Partida noted, “The one thing that’s thrown out a lot is the digital divide as an argument for doing this – we’re doing this for the betterment of people, the people who don’t have access.  I’m a little uncomfortable with that because if we really wanted to do something about the digital divide, we would set up hotspots where people could access the internet for free.”

She noted that there are a lot of families for whom, if you gave them broadband, would not have the computer hardware to be able to access it.

While both make a good point, neither are seeing the big and important picture here.  Part of the digital divide is allowing young people to have access to the technology that will enable them to proceed – young people who otherwise either might not have access to high speed internet or be limited to accessing such technology on campus.

As we think about high tech economic development, remember the people that are going to drive that new wave are young and lack a lot of resources to tap into high speed internet.  Those are the people who are vital to the future of our economy and for whom we can do more into the future.

However, despite my difference of opinion here, I do think the council approach is the right one – study the issue, work creatively to figure out the fiscal pitfalls.

I see little value in asking members of council to hold their thoughts when they see a potential downside to a project or endeavor we may otherwise enthusiastically support.

We should be cautious in expending community resources. We should weigh the risks and costs. And, in the end, the council and members of the public should be able to state their minds without fear of retribution.

We should encourage critical analysis of all projects – whether they are projects we support or projects we oppose.

—David M. Greenwald reporting


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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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12 Comments

  1. Matt Williams

    David, where in the BATF’s recommendation letter was there any absence of fiscal caution?

    The Budget cost of the additional fiscal work recommended by the BATF was zero dollars because of the pro-bono fee offer from the “world-class” (Council member Frerich’s words of description) fiscal consultant who had met with a BATF subcommittee in late 2018.  There would be some minimal staff time delivering a report to Council of the consultant’s work.  I believe those staff are salaried employees, so no incremental Budget cost, but their time is valuable.

    The additional technical work recommended by the BATF was very modest in scope, and because of that, the Budget cost of that additional technical work was also modest.

    Where I personally feel Dan Carson missed the mark in his OpEd was that he presented only one side of the argument.  In similar situations in the past the Enterprise has run side-by-side OpEds presenting a balanced view of the issue.  In his OpEd Dan Carson devoted the first 119 words to a general introduction, thanking the BATF.  The next 886 words of the OpEd argue forcefully for killing the project, ending with the forceful words “I worry about a bullet train-style boondoggle.” 

    The next 19 words of the OpEd do say Nobody disputes the benefits of improved high-speed broadband for economic development, education, technological innovation, and addressing the digital divide.”  And those 19 words are then followed with the 36 words that amount to a huge “but …” qualification that rhetorically devalues the worth of the 19.  As I said to Craig Ross on Sunday in a comment about the OpEd, That comment of Dan’s falls under the category of ‘damning with faint praise’”

    In the past Robb Davis, when he wanted to publish an opinion piece that strongly argues for one side (886 words compared to 19 words is clearly a strong argument, even without the qualifying “but ..” that followed the 19 words) worked with the Enterprise to make sure both sides of the argument were heard.  To be fair, perhaps the fault doesn’t reside with Dan, but really lies with the Enterprise Editor.

     

    1. David Greenwald

      “David, where in the BATF’s recommendation letter was there any absence of fiscal caution?”

      I have not criticized the BATF once.

      1. Matt Williams

        That is not the point David.  The real point centers around the question of why, if the recommendation from the advisory body is one of substantial fiscal caution, was it necessary to come down with a message, that on “the scoreboard” shows a final tally of 886 – 19 “against”?

        There is an interesting contrast between Dan’s message and the message of the BATF, especially when the process the BATF followed to agree on that message is considered (which Dan as the Council liaison to the BATF observed). In that BATF meeting, the broad spectrum of concerns was discussed and a balanced middle ground was agreed to. Polarization was avoided … one might say scrupulously avoided. Dan’s OpEd actually stoked the fires of polarization … as was clearly evident in the words of many of the public commenters.

        In a time when polarization is the rule rather than the exception at the National level, shouldn’t we be redoubling our efforts to avoid polarization and strive for balance in our local discourse, as the BATF did in preparing and agreeing to its final report.

  2. Ron Glick

    The City of Davis is  broke. Between limited growth and wanting our public employees to be well compensated we are running an $8 million a year structural budget deficit so how are we going to come up with $20 million for this project? The CC punted on this question and will get more information down the road but Carson is ahead of the curve on this one.

    This is a city that couldn’t afford to exercise its first right of refusal and buy its waste management services when they recently came up for sale so how are we going to afford a new  broadband web?

    When this first came onto the Vanguard radar a while back the concern was also about the contract terms the City was giving to the private company that was going to get the rights to develop the project. Those are legitimate concerns. The City of Davis has a long history of selling assets way under value. The Fourth and G project and 391 come to mind. I think the bigger question is what should the City demand for selling the rights to build the system?

    1. Mark West

      “The City of Davis is broke.”

      Yep, and will remain so as long as we continue with our current approach. High-speed access is critical for bringing new businesses to Davis in order to ‘grow jobs’ and expand our local economy such that the City can start paying the obligations we have accumulated.

      “we are running an $8 million a year structural budget deficit so how are we going to come up with $20 million for this project?”

      The $20M is an investment that, done right, will help address the annual operations deficit. The City has assets that can be sold or leveraged to come up with the funds to build the system, and frankly, I would be more interested in paying greater taxes so we may invest in the City’s future rather than our current approach of using those funds to protect people’s visions of the past.

      1. Don Shor

        The City has assets that can be sold or leveraged to come up with the funds to build the system

        I haven’t been following the financing of this subject. Is this what’s being proposed?

        1. Matt Williams

          No, Don.  The first-pass project concept is expected to be self-funding and actually save individual telecommunications consumers money each month.  For example, my personal calculation of the debt service on the $106 million estimated cost of the system works out to $20 per month per household/business for Internet connectivity.  My household’s current bill from Comcast for that same Internet connectivity service is $39.95.  So, my household would be saving $20 per month.

          Service providers like Omsoft, Comcast, AT&T and Astound/Wave would still offer add-on, incremental services (e.g Voice-Over-IP telephone service, Home Security, specialized Cable services, etc.) over the Municipal network.  Those service providers would sign a license with the Municipal Network giving them non-exclusive rights to sell their add-on, incremental services directly to customers.  The competition between service providers would almost surely reduce consumer fees for those add-on, incremental services.  Our new City Attorney, Inder Khalsa (see her profile HERE) has considerable experience dealing with that kind of competitive landscape in her capacity as Attorney for Marin Telecommunications Agency

          Her experience as Attorney for Marin Clean Energy and Silicon Valley Clean Energy Authority should be very important as Davis moves toward implementation of smart grid applications that save consumers money on their electric bills.

        2. Matt Williams

          With that said, the devil is in the details, so this next phase of analysis … both fiscal and technical will tell us more about how the concept will play out … if we go forward with it.

        3. Mark West

          “Is this what’s being proposed?”

          I think that would require more ‘vision’ than what has been on display so far. Historically, our political ‘leaders’ and professional staff are more adept at giving away City assets to benefit politically connected non-profits than they are at utilizing those assets productively to meet the needs in the community.

      2. Matt Williams

        Well said Mark.

        BATF heard from David Waggoner (CIO and VP of Superior Farms the nation’s #1 purveyor of farm-to-table American lamb) at the April BATF meeting, whose personal experience dealing with telecommunications issues in Davis ended up with SuperiorFarms accepting the fact that Davis could not support their evolving business model, which needed a competitively-priced, cloud-computing, telecommunications infrastructure. As a result their business moved from their Drew Avenue location to Sacramento.

        That is not Economic Development, it is the antithesis. Not the kind of knowledge-economy jobs gain that is consistently said that Davis needs, but rather a jobs loss.

  3. Bill Marshall

    What seems to be missing from the discussion is not whether high speed broadband is needed or desired… am thinking all agree on that…

    The only issue is who should take the risks and up-front costs of it.  Oh, wait, Dan Carson said that!

    Mr Carson has legitimate concerns about broadband being a municipal utility.  I share many of those, and probably a few more, besides.

    Doesn’t mean either of us oppose better broadband, available to all… doesn’t mean we wouldn’t support subsidies for those unable to afford their share of the costs… but a number of the most vocal proponents of municipal broadband tout the “it’s for the disadvantaged, to bridge the divide…”, then there is the “but”… when they acknowledge those folk would be last to get it… the “H-word” comes to mind… and I don’t mean ‘history’…

    1. Matt Williams

      “The only issue is who should take the risks and up-front costs of it.  Oh, wait, Dan Carson said that!”

      Bill, the BATF recommendation directly addressed that issue.  The BATF did not say move ahead full steam with the implementation of the project, but rather take on a very modest cost next step, especially modest because Lori Raineri has offered her financial expertise to the City pro-bono, to better know, both the downside fiscal risks associated with not going forward, and the fiscal costs associated with proactively going forward.

      Here is the text of that very clear BATF recommendation.

      In order to move the project forward, it will require technical expertise beyond the volunteer BATF composition. The areas that were identified are the technical details and scoping of the network as well as the funding options.
       
      Financial Exploration

      Throughout the majority of the analysis that was performed by the BATF, one message was recurring more than any other. That was the need to spend some time and effort to understand thefinancial options that could be used to make this program a success. For this work to be completed with a level of confidence that is needed to move the project into a deployment phase, it will be critical that an expert in alternative financing options be consulted. BATF members informally met with a local government finance expert who indicated there are realistic options on how the City could finance such a project. It is the recommendation of the BATF that the City engage with someone with background and expertise in order to understand the financial possibilities that will make the deployment possible.
       
      Technical Details/Phasing
       
      In an effort to not only reduce the overall effort required but also to reduce the upfront costs associated with the build out of the network, it is a recommendation of the BATF that the City deploy the project through a phased approach. Taking this approach would allow the core of the network to be built and put into service while work is done to construct and deploy the other parts of the network. As the different phases are put into service, the communities served by the earlier phases will be a natural mechanism for showcasing the benefits and success of the network. It has been shown in other cities, this publicity often builds excitement that is not obtainable if the entire network is built in one phase. 

      From a starting point, the most natural option would be to investigate the network requirements and connectivity needs that are essential to satisfy the data needs once served by the i-Net network. This will afford the city a first-hand account of the power a fiber network will provide the rest of the community. In addition, it sends the message that the City is willing to support the project to the extent it is using the network on a daily basis to run the City.

      From there, building the network around anchor tenants such as the downtown core and Davis Joint Unified School District would be critical next steps in the phasing. The footprint of the school district also provides a very natural demarcation of how neighborhood rings could be constructed and deployed. 

      As with any major undertaking,the devil is in the details. Building a new fiber network is no different. Because of this fact, it is imperative that a technical group inclusive of the City engineers be put together to review the options that will detail the network buildout. Once the network design and electronics are defined, the group can then develop a rough order magnitude quote that can be used by the team identified above to investigate the financial options. This will not only allow for the accurate accounting of the costs related to the various components like trenching, equipment procurement and maintenance costs, but also the cost associated with being in the network provider business like installation services and emergency operations.

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