Taxpayers Take Another Hit in Lebanon
The trouble-plagued city-run telecommunications system of Lebanon is causing even more problems for that town’s taxpayers. Just when the voters of the town thought they solved the issues caused by this white elephant by voting to sell it to Cincinnati Bell, the city lost a civil court case and is now liable for paying back taxes it had improperly collected to finance the system. This is only the latest episode in the telecommunications system long history that shows why governments should not be involved in this type of business.
The town of Lebanon established a city-run telecommunications system offering telephone, Internet, and cable television services beginning in 1999. City officials promoted the system as a way of providing residents of the town with services that were not being offered by other companies and as a way to save money on these services.
Unfortunately for taxpayers of the town, this system quickly began costing them money in numerous ways. Court battles, stiff competition from private telecommunications companies, and lower-than-expected subscription rates spelled trouble almost from the start. Contrary to projections, the system never really managed to cover its costs, much less make money for the city.
To help close their financial gap, the city decided to force every new building in Lebanon to hook up to the telecommunications system, regardless of whether the building’s owners or tenants wanted these services. Along with this mandatory hookup was a hefty fee that was designed to help prop up the system’s coffers.
Unsurprisingly, this mandatory hookup was deemed unconstitutional and the city was ordered to refund the money it had wrongfully taken from the home builders. The city tried to fight this but a Warren County civil court issued a sharp rebuke to the city and ordered it to abide by the court’s “unambiguous order” to refund the fees.
While this is a victory for those who had their money taken in a foolish attempt by Lebanon to prop up its failing telecom system, the real losers are the taxpayers of the town. After all, it’s not as if the cost of all the telecommunication’s systems mistakes will only be borne by Lebanon’s elected officials. If the city must refund the money, it really means the taxpayers will be paying for city officials’ mistakes.
As mentioned above, the town’s voters decided in November that they had enough of the city running this business and voted to sell it to Cincinnati Bell. Even though this sale will cover $8 million in debt the city accumulated, it will not cover millions of dollars that other city departments “loaned” the telecommunications department. And it will not cover the money the city will have to repay the home builders as ordered in civil court.
When Lebanon was considering starting a telecommunications business, some in the town warned that such a project was foolhardy and that city taxpayers would end up bearing the brunt of the system’s costs. Unfortunately, it has taken city leaders almost a decade to see the truth of this.
Lebanon is a good example of why local governments should leave the business of offering high-tech services to private companies. Cities do not have the ability to compete against private enterprise and will usually resort to doing just what Lebanon did – seeking taxpayer money to subsidize their system. We can only hope that the taxpayers in other cities learn from the mistakes of Lebanon.
Marc Kilmer is a policy analyst with the Buckeye Institute for Public Policy Solutions, a research and educational institute located in Columbus, Ohio.