Waste Watch: Nepotism and Mismanagement Create Costly Consequences for KentuckyWired

Waste Watch dives into some of the most egregious, examples of government waste that politicians are leaving for future generations of American taxpayers to clean up. 

The topic of the Second Edition of Digital Liberty’s Waste Watch is the haywire management of KentuckyWired.

KentuckyWired is a statewide municipal broadband project that was supposed to build 3,000 miles of fiber-optic cable across Kentucky. Even though the cable is not intended to directly reach any specific properties, the state planned on selling access to the network to third-party ISPs. Unfortunately, like most government-driven initiatives, egregious mismanagement has caused this project to run wildly overbudget.

Three years ago, ProPublica released a stunning report exposing this project’s history of nepotism, favoritism, and corruption. This culture bred an environment of dishonesty that caused the Kentucky state government to make multiple erroneous decisions while developing the project. The Commonwealth of Kentucky began talks with an Australian investment bank, Macquarie Capital, in spring 2015 to secure funding, and Macquarie agreed provided that Kentucky could pay back to them $1.2 billion over three decades. It turns out that Kentucky did not have sufficient funding to cover this loan.

Then-Governor Steve Beshear, a Democrat, hired a consultant to advise him if his state could attain the funding to cover this expense. However, he did not choose to hire a consultant with any experience in telecommunications. Instead, he chose to hire Frank Lassiter, a forestry and landscaping consultant. Lassiter did not appear to have any experience with any project remotely similar to KentuckyWired. He was, however, the husband of Governor Beshar’s cabinet secretary, “the highest appointed position in the executive branch.” The nepotistic ties of Lassiter to Beshear’s administration apparently made him a better fit for the job than any qualified consultant.

Lassiter’s lack of experience was matched by his lack of ability. He advised the Beshear Administration to pursue the costly deal with Macquarie Capital, arguing that Kentucky would qualify for the Federal Communications Commission’s E-Rate Program and thereby receive sufficient federal funding to cover the costs. The FCC itself had previously indicated that Kentucky would not qualify for the program. The Beshear Administration, nevertheless, blindly accepted the faulty advice of this landscaping consultant over the warnings of the federal commission actually responsible for deciding whether the state qualified for the program.

Other strange assumptions guided the logic and planning of the project. For example, a 2019 report from Kentucky’s Legislative Research Commission on the project found that the Beshear Administration made an economically irrational prediction that the state would allocate at least 1% more in internet funding each year to cover shortfalls in the project. The Commission wisely notes its skepticism regarding that projection, given that competition and other economic factors have brought the overall cost of broadband spending down in recent years. Since the report was published, more recent reports reflect that this trend has only continued.

This illogical planning will have lasting, multi-generational effects on Kentucky taxpayers. State Auditor Mike Harmon, for example, concluded that the project could cost taxpayers $1.5 billion over the next 30 years, which is 50 times more than initial estimates. KentuckyWired is not an anomaly, rather it is part of a larger trend of disasters that result from expecting governmental officials to manage projects effectively. The issues plaguing KentuckyWired and similar municipal broadband projects emphasize the importance of state legislatures avoiding similar mistakes.