MYTH: Municipal communications utilities are a financial drain on their communities.

FACT: Municipal communications utilities not only pay their own way, they create big savings for citizens.

Groups opposed to municipal communications utilities claim that community-owned systems are bad investments for the citizens who own them. Let’s bust this myth with the facts.

Myth 4a: Municipal communications utilities lose money.

Opponents of municipal telecom claim that existing municipals are money-losers. To the extent that they attempt to support the claim at all, they typically choose numbers or use a technique that distorts the picture. For example, they often count capitol investments as annual operating expenses. That’s wrong. In an often cited critique of the Cedar Falls municipal utility, opponents used a cost estimate from a preliminary proposal and compared it with the actual capital cost. In fact, the actual cost was much higher than the even the final estimate, but the reason was that the number of customers taking service was greater than expected. Serving more customers requires more equipment and more investment.

No business-public or private-treats startup capital costs as an annual expense. If they did, they would all be in financial trouble. Think of it this way: if you counted the capital used to buy a house or a car as an annual expense, you’d have to declare bankruptcy. Instead, you borrow money and count the principal and interest payments as an expense. That’s exactly what municipal communications utilities and most other businesses do.

The truth of the matter is that municipal communications utilities pay their bills, pay their debt, and set aside money for needed improvements…and still have money left over. In the world of private communications companies, that’s called a profit. In the world of municipal, that’s called a return on the community’s investment. And that return stays in the community.

Myth 4b: Electric and water rates go up to subsidize communications utilities.

If this myth were true, we would see electric rates in towns with municipal communications utilities going up faster than towns without them. But that’s not what we see. Electric rates are going up everywhere, regardless of whether or not there is an existing municipal communications system. The reasons for these increases have nothing to do with communications. They have everything to do with the increasing costs to generate and deliver electric energy to homes and businesses.

The private phone companies know that Iowa law does not allow cross-subsidization between utilities. They worked hard to pass legislation in 1999 and again in 2004 that prohibits a city utility from using any other utility funds for the ongoing support of the system – electric, gas, water, or communications – must stand alone.