“Misled does really not do justice for this bait-and-switch on the taxpayers,” State Auditor Mike Harmon said after the 124-page report was released.
Changes in the plans for Kentucky Wired shifted the burden of costs from private partners to taxpayers. Australian-based Macquarie Infrastructure Developments LLC and a consortium of contractors were originally supposed to bear the brunt of the debt burden, but state officials decided to take advantage of tax-exempt bonds by creating Kentucky Wired Infrastructure Company, a nonprofit corporation.
But that effort to reduce costs to Kentucky taxpayers will likely only make them cough up more. That was just one in a series of follies uncovered by Harmon’s office, including officials ignoring warnings related to pole attachments issues and projected revenues and depending too heavily on the word of their private partners.
“Were the problems with Kentucky Wired foreseeable?” the report asks.
“Many of the problems identified in this report were not only foreseeable, they were actually foreseen,” the report answers.
Auditors uncovered at least three written warnings given to Kentucky officials before the project agreements were signed:
The executive order that on Aug. 17, 2015, created the Kentucky Communications Network Authority to manage Kentucky Wired is also misleading, according to the audit. The order claimed the public-private partnership formed to build the broadband network “leverages private sector funding for most of the construction cost of the project” and that private-sector partners “bear the construction and operational performance risk of the project” while the state would maintain ownership of the network.
Auditors said those claims were “doubtful” and “inaccurate.”
“The indication that private sector funding would be leveraged for most of the construction costs and that the private sector partners bear the construction risk are not accurate based on the agreements signed prior to this date,” the report says. “Furthermore, the statement that the Commonwealth retains ownership of the network does not acknowledge the significant portions of the network owned by the Center for Rural Development pursuant to a [memorandum of agreement] signed prior to this date.”
Some $270 million in bonds were sold with the understanding that $11 million in federal E-rate dollars would flow into the coffers after Kentucky Wired connected schools with broadband. But after former finance cabinet deputy secretary Steve Rucker became head of the KCNA, private providers called foul and the state abandoned the bid process for the money after the conflict-of-interest issue arose. Rucker resigned his post, but the damage was already done.