Government Spending

The High Price of a Stimulus Success

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He just won a bull auction.

Whenever anyone agues that some stimulus project was a success, the most important question to ask is: How do you define success? A report in Wired makes the case that the rural broadband expansion funded by the American Recovery and Reinvestment Act was, according to the headline, "a stimulus success story." But Wired's implicit definition of success stacks the deck in favor of government spending. The story seems to work from the premise that if the federal government spent money and got some sort of service or benefit in return, then the program was a success. Here's Wired:

The stimulus package earmarked $7.2 billion in grants and loans for projects to bring broadband to rural and urban areas. The FCC says the projects funded so far will bring broadband to 2.2 million Americans. That's a good start, the FCC says, but more than 28 percent of rural Americans — some 18 million people — still can't order fixed-line internet connections faster than 3 Mbps down, according to the FCC's June 2011 report.

The piece goes on to cover the benefits of the new broadband connections at length: A high-speed connection to a health center on a reservation in North Dakota will allow for greater utilization of high-tech health care, including distance examinations. Reservation Telephone Cooperative, the company being paid to install the lines, sure seems to like the program. One of its operations managers explains the benefits: "You have people running a trucking company or a veterinarian or doing remote medical transcription — so without fiber they can't work from home…People have bull sales live on the internet, but without that fiber connection you can't do that." No, I suppose you can't.  

Here's a question Wired doesn't ask: Was the stimulus-funded broadband investment worth it? Sure, the money was spent. But was it spent wisely? The piece lists a number of specific potential benefits that a few of the new connections are expected to enable, but doesn't attempt a broader cost-benefit analysis or a judgment about whether the program met its stated goals. That, however, is exactly what Jeffrey Eisenach and Kevin Caves of the consulting firm Navigant Economics did, and the results don't exactly scream success. Here's a summary of their findings from Nick Shulz at Forbes

The ARRA stimulus funds for broadband constitute "the largest Federal subsidies ever provided for broadband construction in the U.S." An explicit goal of the program was to extend broadband access to homes currently without it.

Eisenach and Caves looked at three areas that received stimulus funds, in the form of loans and direct grants, to expand broadband access in Southwestern Montana, Northwestern Kansas, and Northeastern Minnesota. The median household income in these areas is between $40,100 and $50,900.  The median home prices are between $94,400 and $189,000.

So how much did it cost per unserved household to get them broadband access?  A whopping $349,234, or many multiples of household income, and significantly more than the cost of a home itself.

Sadly, it's actually worse than that. Take the Montana project. The area is not in any meaningful sense unserved or even underserved. As many as seven broadband providers, including wireless, operate in the area. Only 1.5% of all households in the region had no wireline access. And if you include 3G wireless, there were only seven households in the Montana region that could be considered without access. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

Call me a cynic, but I don't find it terribly surprising to find that, given a few billion dollars to blow on new broadband, the government managed to pay for the installation of some high-tech new services that people might like, and that the contractors who got gigs installing those services are now touting the program's virtues. But this hardly constitutes a runaway success. Give me a few billion dollars and I could probably find a way to expand broadband's reach too, and probably make some telecommunications contractors happy in the process. The question when looking at taxpayer-funded government programs like this isn't whether there were benefits at all, but whether, overall, they were worth the cost.