This is episode 199 of the Community Broadband Bits Podcast. Valparaiso, Indiana, uses a dark fiber network to serve businesses and encourage economic development. Chris chats with Patrick Lyp about the funding mechanism behind the project and what's next. Listen to this episode here.
Patrick Lyp: This one company had established the need and then, as we spoke to other businesses in the community, it became abundantly clear that this was a deficiency access to fiber and our community was limited.
Lisa Gonzalez: Welcome to Episode 199 of the Community Broadband Bits Podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. Valparaiso, Indiana, northeast of Chicago, has recently announced the Valparaiso Dark Fiber Project. The City is employing a dark fiber network to serve existing local businesses and spur economic development. In this episode, Chris connects with Patrick Lyp, general counsel and economic development director for the City. The two cover how the community decided to invest in this dark fiber project, their funding mechanism and expectations for the network. The Community Broadband Bits Podcast brings you information from communities like Valparaiso every week, commercial-free. Your contribution will help us continue to share stories from these communities. Contribute today at ilsr.org or muninetworks.org. Click the donate button. Thanks for doing your part. Now, here's Chris with Patrick Lyp, general counsel and economic development director for Valparaiso, Indiana.
Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. Today, I'm speaking with Patrick Lyp, the general counsel and economic development director for the City of Valparaiso in Indiana. Welcome to the show.
Patrick Lyp: Chris, good morning. How are you?
Chris Mitchell: I'm doing well. I'm excited to hear a little bit more about your community. I think people have heard of Valparaiso, the university, but tell us about the community that surrounds it.
Patrick Lyp: By the numbers, we have about 32,000 residents within the corporate boundaries of the community and another about 5,000 or 10,000 residents that live right on our periphery. We're about somewhere close to 50,000 residents in total. Location, we're about an hour southeast out of Chicago. Looking at a map, essentially, we're at the tip of Lake Michigan. About 10 or 15 miles south of that tip on Lake Michigan. We're the home of Valparaiso University. That's always great to see the local university participate in athletics and things of that nature and to see our community's name emblazoned right on their uniforms or on the TV screen. This year, we're fortunate to receive the eCity Google designation for 2015. Essentially, that indicates that the businesses in our community have a very strong online presence as well as a volume of the eCommerce that they engage in. Also, semi-final list in the Frontier Communications, America's Best Communities. The finalist will be announced this month in Durham, North Carolina. We're hoping to be in that finalist round. If we're successful in the entire program, we may receive up to $3,000,000 for our community projects. We're excited about that. We think we have one of the nicest downtowns in all of the mid-west of a community of our size. About 13 years ago, our current mayor really focused on our downtown. Our downtown is perceived to be is the heart of a community. If the heart's beating well, the rest of the community is usually doing well as well. Our downtown is doing very, very well.
Chris Mitchell: That's great. One of the things that the Institute for Local Self-Reliance has been working on for longer than broadband internet access, is the health of local businesses in downtowns. I'm excited to hear that. We're going to be talking about some of the issues around broadband internet, but it sounds like your community probably has a pretty good familiarity with why that's important, judging from being a finalist and winner of some of those contests you mentioned.
Patrick Lyp: That's correct. To keep in speaking generally about the communications and fiber and the importance of connectivity, really that's what drew the City's interest into this fiber project, which I know we'll talk a little bit more about in this discussion here. Looking from the community's perceptive and knowing the other utilities that we provide and provide very well in terms of sewer and water and roads and police and fire protection and things of that nature, it was almost a natural fit when we saw a need in our business as well as our residential community for fiber that we investigate and get to the point where we are now in our fiber project.
Chris Mitchell: As we head into this discussion, let's just briefly talk about dark fiber. It plays an important role in your planning. I think some people are confused. When you say, "dark fiber," what does that mean?
Patrick Lyp: I'll tell you, initially, I was probably in the group of confused people when I first was exposed to dark fiber and we would tell the jokes that it was the name of a breakfast cereal, a healthy breakfast cereal, if you will. As I understood the term, the term how we use it, is that it's unlit fiber or fiber that is not currently being used. As mentioned before, it essentially is no different than other physical types of utilities within the community. Again, sewer lines, utility poles, water lines, roads, things of that nature. Again, back to the question as to what dark fiber is, it is fiber that is available to be used by, in our case, a business citizen in our community, for connectivity and connection to the internet.
Chris Mitchell: Let me get a better sense of what it means for the community. Rather, what is your plan for how the community can dark fiber to improve access for businesses?
Patrick Lyp: I guess to answer the question, let me back up a little bit to how we got to where we are right now. As I mentioned my earlier joke about dark fiber, when this notion of the need of fiber in our community was first discussed, was back in 2014. We had a local business, a high technology-based business, 110 jobs, and for a community of our size, that's a large employer in terms of the technology field. Approached the City, and essentially said, that we've outgrown our current space, and we need to expand, which is obviously any community wants to hear. The challenge though, was that for them, the issue wasn't land, it wasn't utilities or roads in the traditional sense. Their business was predicated on fiber connectivity. They're a company that handles business and bank transactions for banks, other financial institutions. Really, my job, on top of others, was to identify a location in our community that would meet those specific needs. As we found, that was much more typical than we initially thought, and during that process, it occurred to me and others, is that if this company was seeing this difficulty for their fiber needs, were they simply an outlier, or were they just had needs that no other company could address, or whether this was more indicative of other businesses that were having their growth stunted or not seeing the best in terms of what they could do in our community because of a lack of fiber availability.
Chris Mitchell: I think that's really worth emphasizing that you are dealing with local businesses and that had succeeded and wanted to continue to expand because there's recently a report that had come out that was criticizing local governments getting involved in these matters. One of its arguments was that it's just a means of trying to pull businesses our of other communities. It didn't really represent growth in the economy. Your story is similar to that I've heard from many others, is that your first priority was not to bring in businesses from maybe other communities, but rather to serve your existing businesses.
Patrick Lyp: That's absolutely correct, but the notion of dark fiber or fiber in general, was not on my radar in 2014. It wasn't until this one company established the need and then as we spoke to other businesses in the community, it became abundantly clear that this was a deficiency for Valparaiso, access to fiber in our community was limited. Now, a company could, if they had enough resources, could have a local provider provide fiber out to their grow location. The costs were expensive. As I often tell, and it's factually accurate, is that local business, in an industrial park here in Valparaiso, decided that they needed to get fiber connectivity. Go to one of the local providers. They say, "Sure." About an $80,000 cost for the build-out out to their plant. As a smart business owner, he went to other businesses in the industrial park and said, "I've got this quote. Why don't we share or in some way divide the cost and we both could benefit?" Unfortunately, no other business in the industrial park would agree. He bit the bullet and paid the capital cost to have fiber out to his business. Sure enough, within 6 months after his project was done, that provider was talking to other businesses in the industrial park. They were then hooking up to the fiber out there, but, unfortunately, the first adopter, if you will, the first customer, was paying the total capital cost there. In my world, that's rather inefficient and not appropriate. Unlike other utilities, where there's some later recapture costs, in Indiana, if you are the person who incurs the cost for sewer or water expansion, there are some instances where you can recapture if other users eventually tap into what you've paid for. As far as I know, in the world of fiber, that isn't honored. Again, it's very inefficient. We saw that as one example of where, if the community chose to invest in this, incidences like that would be non-existent.
Chris Mitchell: Right. I think it's admirable for that company to have effectively paid that cost to benefit all those other business, but, in our experience, usually even the one company will not pay that. Then, the fiber just will not be expanded. I think that's a really good illustration of what happens with a city doesn't have a proactive approach, which is something that you're now rectifying. What are you planning on doing to help businesses make sure that they won't have to be the next ones that have to pay a prohibitive cost?
Patrick Lyp: In terms of the design of our system as mentioned, in terms of our location, we're very fortunate in many ways. One of the ways is that being so close to Chicago, and also to South Bend, Indiana, is that those are two larger hubs of bandwidth and can often be used as the last mile. If you have a fiber connectivity within your community, if you can get that last mile or last couple of miles through those larger transcontinental lines that usually run along interstate highways or along rail lines, you can connect onto those. That's where then your community and your businesses in terms of accessing more appropriately cost bandwidth becomes more realistic. From our design, we've essentially done two loops around various parts of our community and then essentially a straight shoot up-towards Lake Michigan where those east/west lines are. Then, they'll be a connection point there. At that point, local businesses and as part of our due diligence and our many stakeholder meetings with those businesses, some hospitals, the university, and other businesses that have an interest, have said, "If you can get that last mile, if you will, of fiber in, and provide us with the dark fiber, so a certain degree, we can take it from there. We have the technology, we have the IT department, to light that fire, to negotiate our own bandwidths." From some numbers that we have seen in terms of what current providers' costs are for a bandwidth and what the cost will be to our local businesses once they have that access to other providers of bandwidth, the cost savings are very beneficial to the businesses here. Hopefully, in the future, other businesses that chose to locate or expand in Valparaiso, will see that benefit as well.
Chris Mitchell: Did you consider other approaches? What made the dark fiber approach that you ended up settling on the most attractive for your community?
Patrick Lyp: In terms of the dark fiber approach, and I know when we did a research, there were communities that have gone beyond just simply the capital infrastructure of the fiber, but have also, in essence, a service provider or have, in essence, formed their own business or have partnered with either a Chamber of Commerce or some other entity. Then, not only become the capital owner of the fiber in leasing it, but then they also sell the bandwidth then. That model, although presumably not a bad model for other communities or other regions, was not an area that we were looking to get into. One of the things that we were attempting not to do is directly compete against the current providers in our community. In large part, this was to supplement in and provide service where the private sector had not chosen because of cost or other reasons, had chosen not to invest. In some ways, it's no different than a community putting in a road in a business park that, at that point, doesn't have any development, but, at some point, the expectation the development will come there. If you're a current provider, your investment structure might not say, "Let's extend 5 or 10 miles of fiber into an area where we might see some return down the road." If you're a City Council, if you are a mayor, if you're a re-development commission looking more forward and simply your next quarterly business report, those are decisions you can make. Our choice, at this point, was not to get I not the bandwidth sale component, but was to put the infrastructure and the fiber in and initially work with those businesses that could take that dark fiber and light it for their own benefit.
Chris Mitchell: Let's talk about how you're financing this. What's the plan for how you're going to pay for the cost of doing it?
Patrick Lyp: Valparaiso is very fortunate in the sense that we had the foresight, in the early 1990s, to establish a redevelopment commission and do what is commonly known as "TIF," which stands for tax increment financing or tax increment funds. Each state has their own, what I call, "tool box of tools for economic development and incentives in ways in which they can help spur growth within their community." To a certain degree, Indiana communities are limited in what we can do. One is tax abatement that we can provide to a business. The other is the use of tax increment funds for investment in infrastructure or investment in public improvements. Because of the good stewardship of our redevelopment commission, we have funds available for this project. I think given the need and the importance of fiber, the redevelopment commission has chosen to invest about 2.5 to 3 million dollars in the initial build-out of the fiber loop. Then, depending upon the needs for legs and laterals and other ways to get the fiber directly to the end user. We're discussing ways that will make that cost effective for the residents in the greater Valparaiso area.
Chris Mitchell: I'm curious, because I know that TIF is something that's happened in other places in Indiana. Were you modeling your program on some of the other projects? Or, is this something that you more-or-less developed independently? How did you come up with this approach?
Patrick Lyp: I think to a certain degree, it's independent. I mentioned before, South Bend. I think South Bend was one of the pioneers in terms of a fiber project, similar along the lines of what we're doing. The nice thing about the South Bend project, is that it was initially all self-financed. You had, as I understand it, some hospitals, Notre Dame University, and some other large users in the South Bend area, in the early 2000s, each ponied up some money, and then their metro-net was born from that. We didn't have enough of those types of businesses in our community that would write those types of checks up-front. It was the need of the redevelopment commission to have those funds. As I mentioned earlier, being good stewards with that money, we had funds available that were, in essence, unencumbered. Oftentimes, redevelopment commissions, which is not a bad thing, but redevelopment commissions are working on a project, when they receive their tax increment, when they receive that tax revenue for that particular project. It often goes back into paying debt service or paying for the bonds that paid for the road or the other infrastructure improvements in an area there. Again, the good stewardship of our redevelopment commission, our major, our city council, we have essentially unencumbered TIF revenue that allowed us then to do this project where I think other communities might not have had the resources. The other thing I've noticed, is that in other communities, their fiber projects was an organic outgrowth from a much smaller project. For example, you might have the police department and the fire department and city hall connected. You might have a business say, "Listen, you've got your fiber out there. Do you mind if we hook on?" It organically would grow from that. We didn't have that base so, to a large degree, we're starting literally from square one in building this fiber project out. Unlike other communities where it just grew organically or grew with direction and plan, this was really on a design as to where our current and future needs are. Where are the customers that have said that if the fiber's there, we'll connect on. Really basing the development on current usage and then our anticipated usage of other businesses in the future.
Chris Mitchell: I'm curious how are businesses and other folks reacting in the community to this project to expand fiber access?
Patrick Lyp: I'll tell you, it has been an overwhelming positive response. I think in part it was due to, I guess, the thoughtful diligence of those involved in the project. This was not a spur-of-the-moment. This was not a reaction to some other community doing it and saying, "Well, if they're doing it, we need to do it. We need to rush and hire consultants and hire fiber contractors." As I mentioned, it began in 2014. We reached out to the businesses in our community to see if there was, in fact, a need for this. That need was confirmed. Really partnering with our local Chamber of Commerce and partnering with a couple of other economic development groups in our community, the community was kept apprised of what was going on. The culmination, if you will, was probably in early April of this year. In March, the redevelopment commission approved the award of our fiber construction contract. As we speak right now, the crews are out, around our community, beginning the actual install. A couple of weeks ago, we had our first community meeting where people could come and literally ask questions and sign up, if you will. We initially had a room in our Chamber building here that held about 70 people. It was quickly apparently that that would not be enough and moved it to a larger venue. We had about 120+ people come. Presumably, there was some just there kicking the tires and curious as to what was going on, but there was a lot of business interest. There was many internet service providers that were there to see how they could partner and be involved in this process there. It really, I think, as our mayor often says, "A good process leads to a good result." This process was thoughtful. It was inclusive. We really have the community's backing of this. We think once the backbone is put in, if you will, those two circular loops, and businesses that we first identified are hooked on there, it's going to be really neat to see how this fiber loop and the fiber project develops. Presumably, there are things that we're not thinking of, and I think in a good sort of way, that people much smarter than myself and others will say, "Well, how about this? What if you do it this way?" It's going to be neat to see how this capital project for our community grows positively.
Chris Mitchell: As a final question, I'm curious what you are hoping to see over the next 5 years? How will you know if you're successful with this investment?
Patrick Lyp: I think success can be defined in many different ways. On the more pragmatic approach, our redevelopment commission has tasked myself and others to insure that their capital investment of about 2.5 to 3 million dollars will, in essence, be recaptured over a 10-year period. We are monitoring in terms of the revenue that the redevelopment commission collects in fee and other costs as offset by our expenses to see where we are and based upon how we project this, we think we will do okay. In terms of looking at the success of this project more holistically, seeing businesses able to secure connectivity to the internet at a more cost-effective rate. The other aspect that I have not talked about before, but I think it's important to reference, is the importance of redundant services. Another aspect that we heard, loud and clear, from the businesses in our community, is that we're at one point, just having an internet connection and fiber connection was important. As businesses grow, having that redundant or, in essence, assurance of their connectivity is vital. For you and I, if our Netflix goes off at 8:00 and can't see a movie, it is what it is. If a business is down for a period of time, nothing gets done. To have that redundant ability, to provide that at a cost-effective rate for businesses will be valuable. I guess the big picture, from Indiana's perspective, where we focused on assessed value, looking at our community, looking at how whether it's residential, whether it's the business community and how the values of those businesses are growing and how that impacts the City. Seeing businesses chose Valparaiso, to come here to expand their footprint because of that benefit, is something that we expect to see, and hopefully, will see.
Chris Mitchell: Terrific. Thank you so much for coming on to tell us more about your approach in Valparaiso.
Patrick Lyp: Thank you, Chris.
Lisa Gonzalez: That was Chris and Patrick Lyp, general counsel and economic development director at Valparaiso, Indiana. Remember, contributions like yours keep the Community Broadband Bits Podcast broadcasting weekly. Go to ilsr.org or muninetworks.org and donate. Send us your ideas for the show. Email us at email@example.com. You can follow Chris on Twitter. His handle is @communitynets. You can also follow muninetworks.org stories on Twitter where the handle is @muninetworks. Thank you, Kathleen Martin, for the song, Player vs. Player. Licensed through Creative Commons. Thank you for listening to Episode 199 of the Community Broadband Bits Podcast.