Wednesday, August 10, 2011

"Subsidizing" Makes a Return Engagement—With a Twist

To begin at the end of today's LUS Fiber budget hearing: all the old nonsense about "subsidizing" LUS Fiber returned again today. And, surprising no one, it came riding back in with Tim Supple. Supple's long history of opposition to LUS Fiber has long included this particular falsehood. To give the devil his due Tim was definitely goaded by councilman Keith Patin after Keith and fellow rural member William Theriot failed to come up with a sufficiently news-worthy phrase during the questioning. Tim tried not to answer in the simple affirmative for a couple of rounds while Patin repeatedly pressed him to phrase his characterization of the LUS financials as being a subsidy that had to be being paid for by "somebody." Supple finally caved and said it was, indeed, just like subsidizing Parks and Recreation as Patin suggested.

That, of course, is utter nonsense. Nonsense that Terry Huval immediately spiked. A loan that must be repaid with interest is nothing like using tax monies to support Parks and Recreations. But  Huval really shouldn't have had to lay that out. A subsidy would illegal under state law. If LUS were breaking that law both Cox and ATT would make sure we all knew by suing us again. It's silly to have to treat it as a sensible question.

For those who weren't following this blog way back when the recurring issue of subsidization first arose way back in 2005 the idea was supposed to be that any publicly owned fiber utility would obviously and necessarily be subsidized by the public. The idea of a publicly-owned competitor being subsidized by taxes was promoted by BS (BellSouth, now ATT) and Cox as "unfair" and an affront to their two monopolies of phone and cable service—which they characterized as "free enterprise." That was nonsense from the beginning—plenty of utilities are run without subsidies, including LUS' electrical and water divisions and plenty of private companies are actually subsidized. LUS never, at any point, planned on using Lafayette taxes to subsidize the new utility. But the idea that some municpality might was one of the tools that BS/ATT and Cox used to convince the Louisiana legistlature to pass what would become known as the Local Government Fair Competition Act (or as I prefer: the (Un)Fair act). That state law outlawed any cross-subsidy. But only for LUS--Cox is free to subsidize from its extensive newspaper holdings and ATT from its wireless division.—Hence my preference for (un)Fair. There has been no subsidy, and if there was any half-rational way to characterize anything that has happened as a subsidy Cox and ATT would be happily suing Lafayette—yet again.


Subsidy with a Twist

But as a by-blow to all this an interesting subsidy did emerge. But it runs the other way...LUS Fiber is subsidizing LUS' other divisions and through that, indirectly, Lafayette city-parish government.

Again it all goes back to the (un)Fair Competion Act. One of the things put in that act during negotiations is a concession that LUS Fiber would be able to borrow from LUS' other utilities just like any other corporation could set up internal borrowing arrangements. This is not a subsidy, it's a loan—with real interest. One of the efforts to raise an issue by Messrs Patin and Theriot centered around "imputed" taxes. Those are extra costs that Cox and ATT got the state to require that LUS include in order to force LUS to raise their price to customers (you!) above the actual cost. (Yes, really. See this. And these.) The idea was that LUS should have to pretend to pay taxes that it doesn't actually pay when setting its pricing—and include those fake costs when competing against Cox or ATT. PSC regulations (not the law) requires LUS Fiber to send those monies to the larger LUS. So LUS utilities is holding money LUS Fiber earned. LUS electricty, water, and sewer loans it back to LUS Fiber—at interest. The net effect of this is to subsidize LUS' other utilities on the back of the new utility, LUS Fiber.

That's the only subsidy uncovered today.

You can't make this stuff up. Only in Louisiana.

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