By Nate Anderson
July 23, 2008 - 08:20PM CT

The small town of Monticello, Minnesota seems an unlikely spot for a battle over city-owned fiber-to-the-home. The town, which is a distant commute to Minneapolis, thought it could better attract residents and business by building its own fiber-optic network. After a couple years of due diligence, the town held a referendum; 74 percent of voters agreed to fund the $25 million scheme.

The city sought the needed municipal bonds, but the day before it closed on them, the local telco filed suit to stop the plan. Its claim: taking out bonds to build a fiber network is illegal. Bridgewater Telephone argues that the city cannot use tax-exempt bonds to "enter into direct competition with incumbent commercial providers of telephone, Internet, and cable television services."

The odd thing about the complaint, a copy of which was seen by Ars Technica, is that it makes almost no argument; instead, the company simply quotes a short bit of Minnesota law and essentially says, "See, it's illegal!" without offering an explanation. The statute in question says that cities can use bonds to fund nursing homes, garbage collection, parks, playgrounds, "homes for the aged," and more, including "any utility or other public convenience from which a revenue is or may be derived.

" If the judge finds that fiber-to-the-home is a "public convenience," the case seems to be over. "Current expenses" go back to the future - The only further comment that Bridgewater makes is that bond money cannot be used to pay for "current expenses," a clear sign from the state that towns cannot spend themselves into debt and just keep issuing bonds to pay for the mess.