Viewpoint: When Government Competes with Private Enterprise, You Pay
You would think that a local government would vigorously oppose a company that forces people to install its equipment on their property—and then charge them a hefty fee. In a recent court case, however, a city actually used tax dollars to defend this anti-consumer practice. Why? The “company” was the city itself. When a company is owned by the government (as it was in this case), the public interest that government is supposed to protect goes out the window.
The case involved a city-run telecommunications department in Lebanon, Ohio. In the late 1990s, Lebanon was worried that its citizens were paying too much for cable television. It was also concerned that high-speed Internet service was not readily available. The city government decided to start offering telecommunications services in 1997. Eventually the city offered cable, phone, and Internet.
Seeking to raise money to expand the services throughout the city, the Lebanon government passed an ordinance mandating that all new construction include a hookup for the city-run telecommunications system. Businesses would be charged $2,000; residents, $1,250—regardless of whether or not they wanted to purchase these services from the city. Meanwhile, the other local cable service, Time Warner, is prevented by law from charging a connection costs, except in rare instances. Of course, the city of Lebanon saw nothing wrong with mandating the same action forbidden to a private company.
What is even more interesting in this case is that the city of Lebanon was only using a small portion of the money collected by the mandate to cover its expenses in providing connections. It used the rest of the money to expand its telecommunication system in other parts of the city. Essentially, the town was collecting a fee to connect people to a system they might never use, and then subsidizing its business operations with that money.
The story of Lebanon is a perfect illustration of why government should not be “competing” with private businesses. The temptation to use the power of coercion is too strong to resist. The city is simply using its power to give itself a competitive advantage over Time Warner, its rival.
In a victory for consumers, in February the Court of Appeals ruled that the city’s connection requirement is an unconstitutional “taking” of private property. The city argued, however, that since a portion of the “connection fee” was being used to fund projects other than the mandatory connection, it should still be able to collect that fee.
The court disagreed with the city’s assertion, but its decision seems to let the city enact another ordinance requiring anyone seeking a new building permit to pay a fee to expand telecommunications service, as long as the city does not force these new buildings to actually connect to the system. It remains to be seen if the city will use that power.
The court’s decision should give pause to the citizens of other cities that are considering getting into the technology business. Governments, by design, accomplish their goals by forcing people to do things. Businesses, on the other hand, must obtain the voluntary cooperation of customers by providing attractive goods and services. It’s questionable whether government should even be providing services, such as cable, phone, and Internet, which private companies can provide. It’s even more dubious to say that a government should be able to use its unique legal power to give itself a competitive advantage. This use of official power leads to results that only benefit the government, not the consumers.
Marc Kilmer is a policy analyst with the Buckeye Institute for Public Policy Solutions, a research and educational institute located in Columbus, Ohio.
