There was a time when being a city official was fun. You never had to really worry about where revenues were coming from. Property values increased every year and tax revenue, too, even without higher tax rates. Those days are gone, and state-aid cuts are coming with a flurry as the state scrambles to balance its own budget. The recession has hit city hall.

Most city officials are trying to figure out how to cut their budgets permanently without harming essential services. It’s not much fun, but it’s the right thing to do.

In this environment, you’d think the idea of spending millions on a new nonessential service would be off the table, especially when several private companies already provide this service.

Not so in the city of North St. Paul. The city council proposes to build a cable/voice/ Internet system they call “Polarnet” to compete with private providers. On Feb. 24, North St. Paul voters will decide whether to authorize the city to sell $18.5 million in general obligation bonds to pay for it.

As a former mayor, I understand why cities might contemplate the idea of trying to expand wireless or broadband service. There may be concerns about having the “best” technology available to every home and business. There may be the misguided idea that they could make money from a city-owned system.

But where it’s been tried, it’s usually failed, and taxpayers end up on the hook for millions of dollars.

Cities are allowed to create certain enterprises, such as a self-sufficient water/sewer system or an ice arena. They create a business model at break-even or better, sell revenue bonds for capital costs (such as building the water tower and pipe systems) and charge rates to customers that cover operating and debt-service costs. In other words, your city water system usually supports itself through your water bills rather than your tax dollars. Should the water system fail financially, taxpayers are not responsible for paying off the bonds. The bondholders simply lose their investment.If a city gets into a business where it cannot break even, it usually sells general obligation bonds. This means the city guarantees that taxpayers will pay off the bonds. This is the case for the North St. Paul “Polarnet” proposal. This is why a referendum election is required. North St. Paul taxpayers are being asked to go into debt to lay their own fiber network to compete against the current private providers.

Several cities have looked at this issue, and most ultimately scrapped their plans.

The city of North St. Paul is proposing to dig up the roadways, lay miles of fiber and then compete with the ever-expanding number of private providers. According to the city’s consultant, if the plan is to work, 70 percent of all homes in North St. Paul not only will have to pay for these services but also will have to choose to switch from their current provider (Qwest, Comcast or satellite) to the city-owned provider.

Beyond the philosophical debate on whether this is even the role of government, the real questions for North St. Paul have to do with financial ramifications. Is the proposal realistic? If it fails to meet projections, what is the downside to the city and its residents?

According to the city’s projections, even with a 70 percent hook-up rate, it will take until 2016 for the system to turn a profit and another nine years before all the previous years’ losses are paid and the system becomes a net positive. The year 2025 is a long time from now.

Should the system fail to meet projections, it would have to be subsidized by tax dollars or sold at a loss.

Even running the North St. Paul numbers out to 2030, the best-case scenario (70 percent hook-up) is that the city will “make” $7.5 million over the life of the project. This assumes revenue of a little over $150 million, which means if usage is below 65 percent, the project will be a money loser, short-term and long term.

Perhaps we now know why Windom (population 4,500) is Minnesota’s only municipality with an operational fiber-to-the-premises enterprise offering voice, video and data services. In 2003, Windom was the first to try this, but by 2008 it was considered a financial failure.

Given these recessionary times, no city should be venturing into anything that could be a net negative to its budget. North St. Paul should follow the lead of other cities and cancel the project. In this case, the voters can cancel it for them.

Pat Anderson is president of the Minnesota Free Market Institute. She is a former state auditor of Minnesota and mayor of Eagan. Her e-mail address is