Kentucky Uses P3 to Support Broadband Expansion

Thursday, November 12, 2015

In an effort to expand broadband connectivity statewide, the Commonwealth of Kentucky is in working out a partnership with a consortium of private firms to design and build a 3,200-mile fiber-optic system. The Kentucky Economic Development Finance Authority, acting as a conduit issuer, sold $230.05 million of 30-year tax exempt bonds for the project in August 2015. Fitch assigned the issuance a rating of BBB+ and Moody’s Investors Service gave it a Baa2. One of the third-party firms is responsible for most of the cost for building the system, which is estimated between $275 million to $350 million. In exchange, the state is obligated to make payments to the firm as the Internet service provider for a large number of state government facilities. The firm will operate and maintain the network for 30 years.

The commonwealth hopes to address a lack of Internet availability across the state, especially in the rural areas that are still recovering from the loss of coal-mining jobs. Once complete, more than 1,000 public agencies will have access to the network, with the remaining capacity dedicated to Internet service providers, which can use it to extend service to individual businesses and homes. Kentucky is currently ranked 47th in the county for Internet service speed.

The commonwealth is taking aggressive action to address an issue that is becoming more prevalent across the country. The West Virginia Legislature is also considering issuing infrastructure revenue bonds to finance the expansion of Internet access within the state to develop a 2,600-mile network. Although West Virginia has no plans to partner with any third-party firms, the state does hope to make gains in network availability similar to those expected in Kentucky. The Senate Transportation and Finance Committee unanimously supported the bill earlier this year before moving it to the Senate Finance Committee.

The GFOA Executive Board approved an advisory drafted by GFOA’s Economic Development and Capital Planning Committee on P3s in January 2015. The advisory recommends factors for governmental entities to consider when evaluating P3 prospects in order to mitigate risk and improve the likelihood of long-term success for these projects. Additional resources related to P3s are available on the GFOA website.

More information is available on the State of Kentucky’s Finance and Administration Cabinet website.

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