16 Nov 2021

Broadband and the Infrastructure Investment and Jobs Act

by Marc McCarty | posted in: | 0

The Infrastructure and Investment and Jobs Act (the Act) has finally become law! Signed by the President on Monday, November 15, it is widely touted as the most consequential piece of infrastructure legislation in a generation. Now comes the complicated part: implementing the provisions of this 1039-page Act.

For months, folks have heard the “$65 billion for broadband” sound bite, listed along with billions more for roads, bridges, rail, mass transit, electric, water, sewer, and other infrastructure needs. Since it’s now law, it’s time to “unpack” the various components of the broadband-related provisions of the Act and to begin thinking about what all of this will mean for state and local government and private internet service providers over the next decade.

Here is the breakdown for the various components of the $65 billion dedicated to high-speed internet access, affordability and adoption:

Item	Primary Focus	Amount (billions $)	Act Sections
New Infrastructure (BEAD)	Access	42.45	§§60101-60105
Broadband Affordable Connectivity Fund	Affordability	14.20	§§60501-60506
Digital Equity Act of 2021	Adoption	2.75	§§60301-60307
Rural Broadband — USDA RUS	Access	2.0	Division J, Title I
Tribal Lands	Access & Adoption	2.0	§60201
Middle-Mile Infrastructure	Access	1.0	§60401
Private Activity Bonds for Broadband Infrastructure	Access	0.6	§80401
Total		65.00

Each broad category listed above will have different procedural requirements and timelines for implementation.

New Infrastructure “DATA” leads to “BEAD” (§§60101-60105)

It wouldn’t be a new federal law without a bunch of new acronyms, and this Act certainly has more than its fair share! Most of the broadband funding will be distributed to states and territories as part of a new “Broadband Equity, Access, and Deployment” (BEAD) Program. BEAD and many of the other new provisions of the Act are expected to be administered by the Department of Commerce’s National Telecommunications and Information Agency (the NTIA). NTIA hosts the BroadbandUSA website and is currently administering a number of broadband infrastructure grant programs funded under the Consolidated Appropriations Act of 2021.

The BEAD Program appropriates up to $42.45 billion to plan and build high speed fixed internet service in “unserved and underserved locations.” The Act defines an unserved location as one that lacks reliable internet service at speeds of at least 25 megabits per second (Mbps) download and 3 Mbps upload (25/3 Service) and underserved locations as those that lack reliable internet service of at least 100 Mbps download and 20 Mbps (100/20 Service). For a project area to qualify and be eligible for funding, at least 80% of the locations must be unserved or underserved.

Both definitions also require that the new services are sufficient to support real-time interactive activities by reducing the “latency” of the connection. Latency is the delay in transmitting data to and from the user over the internet, and activities such as telecommuting, running cloud-based applications and streaming video games require low latency times as well as relatively high data transfer rates. As a practical matter, this requirement likely eliminates funding for high-earth orbit satellite service as a technology that can be funded, but not new low earth-orbit satellite technologies such as “Starlink.”

A significant condition for distributing this money will be the publication of new DATA maps by the Federal Communication Commission (FCC). These maps will identify unserved and underserved locations throughout the United States that will be eligible for funding under the BEAD Program. The Act seems to assume that these maps, that Congress required the FCC to create in the Broadband DATA Act last year, will be available within the next year or so, but no deadlines are established for their release.

The BEAD Program contemplates that money will be distributed to each state, and that the states in turn will apply those funds in accordance with an approved comprehensive plan. The process should begin within 180 days when NTIA’s publishes a notice of funding opportunity (a “NOFO”). The NOFO will formally request state participation in the BEAD Program, outline the process, and detail requirements that states will need to follow to obtain funds. This procedure will be complex; it involves submission by each state of a letter of intent to participate in the Program, a Preliminary Plan, and a Final Plan. The Act provides funding to NTIA to administer the Program and to provide states technical assistance.

A minimum of $5.1 billion ($100 million to each state and, collectively, all U.S. territories and possessions) is set aside to ensure that every state gets something, but the balance of the funds will be distributed based on a formula that takes into account each state’s percentage of unserved, underserved, and high-cost locations located within their borders. States will learn how much money will be available to them (based on the state’s relative percentage of unserved and underserved locations) once the DATA maps are complete. The process provides for periodic installment payments to states during each stage of the approval process to help states finance the cost of developing their comprehensive plan.

The Act lays out in some detail the procedure for obtaining funds, and to cover them all in detail is far beyond the scope of this blog. However, here are some highlights.

Hopefully sometime next year — NTIA will tell each state how much money they should expect based on the number of unserved, underserved, and high-cost locations within the state based on the completed DATA maps. The expectation is that the state’s plan will provide a minimum of 100/20 Service for all unserved locations in the state. Thereafter the state can prioritize access to underserved and certain community anchor locations.
To receive funds, each state must prepare and submit a plan for spending the funds provided. Following submission of the state’s letter of intent, the Act contemplates a two-stage process – a preliminary and a final plan. The plan must include provisions for local government input, and significant input by NTIA seems to be contemplated as well. The plan needs to cover at least a 5 -year period.
Each state must contribute 25% toward the cost of their plan (in other words no more than 75% of the costs funded can come from the BEAD Program). However, ARPA funds and CARES Act money that has been distributed to states and local government can be used to fund this “match” requirement.
The Act contemplates the BEAD Program funds will be distributed to “subgrantees” to implement the plan. Subgrantees can include local government, nonprofit or for-profit entities. Any subgrantee will be subject to the same spending requirements and BEAD Program rules as those applicable to the state.
The Act permits entities that have previously received grants or other amounts from a federal, state, or local program to pay for broadband service expansion, can also receive funds under the BEAD Program, so long as the amounts received pays for costs not covered by the other funding award.
Subgrantees (ISPs) that receive funds under the BEAD Program must provide a minimum of 100/20 Service and must meet certain performance requirements and standards; including offering service to any customer in the area that desires service and offering at least one low-cost service plan.
The state’s plan cannot exclude cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts, or local governments as “subgrantees.”

If any State decides not to participate in the BEAD Program, or fails to satisfy the requirements for participation in the BEAD Program, a local government or region within the state can apply for and receive funding.

If all of this strikes you as a time-consuming and complex process, you are reading things correctly, and it’s important to keep in mind that while the Act represents a “once in a generation” commitment to infrastructure investment, it’s likely to take the better part of a “generation” to plan, construct and deploy over 40 billion dollars’ worth of broadband infrastructure.

Broadband Affordability – The Affordable Connectivity Fund Replaces the EBB Program §§60501-60506

Broadband “access” is of little use if the service provided isn’t affordable. The Act appropriates $14.2 billion to fund a revised version of the Emergency Broadband Benefit (EBB) program. The EBB was originally funded at $3.2 billion as part of the Consolidated Appropriations Act of 2021, and it provided a $50 per month benefit for high-speed internet service to qualifying households, along with a one-time payment toward equipment to access the internet (capped at $100). The new Affordable Connectivity Fund caps the qualifying individual household benefit at $30 a month. This $30 per month benefit can be used to pay for whatever level of internet service the household desires. The idea is to give qualifying households the option of selecting a faster internet service (and paying more) if that is needed to meet their needs. The Act also contains directives and rules designed to enhance consumer awareness and curb perceived abuses that limit eligibility to the new Affordable Connectivity Fund.

Broadband Adoption – The State Digital Equity Capacity Grant Program §§60301-60307

The Act creates a new grant program within the Commerce Department called the State Digital Equity Capacity Grant Program. This program is funded with $2.75 billion and is expected to be administered by NTIA. The funds will be distributed to an entity appointed by the governor of each participating state pursuant to that state’s “Digital Equity Plan.” To receive a grant under this program, the state’s Digital Equity Plan must satisfy criteria designed to increase the availability and use of broadband applications and internet-based technology. The state’s plan can address issues of digital literacy, cybersecurity and privacy, access to affordability programs, workforce development, education and health outcomes, and civic and social engagement. In developing and administering the state’s Digital Equity Plan, the state is expected to work in partnership with state agencies, local government, and nonprofit entities.

Rural Utilities Service—Distance Learning, Telemedicine, and Broadband Programs Division J, Title I

The Act provides an additional $2 billion of funding for the Distance Learning, Telemedicine, and Broadband Program administered by the USDA. This appropriation is for the current fiscal year ending September 30, 2022, and funds will be available until spent. The new appropriation is for unserved areas (50% or more of locations having service at speeds less than 25/3 Mbps). To the extent possible the Act requires that projects receiving funds under this program be capable of providing at least 100/20 Service. The Act permits funds granted or loaned under the program to be used to pay for attachment fees and pole replacement costs incurred by electric cooperatives, so that fiberoptic cable or other wireline infrastructure can be co-located on the utility poles. Other provisions waive the requirement for local matching funds to qualify under the USDA program for areas with persistent high levels of poverty.

Tribal Lands §60201

The Act provides an additional $2 billion of funding broadband on Tribal Lands under the existing Tribal Broadband Connectivity Program established by Consolidated Appropriations Act of 2021 and administered by NTIA. In addition, the Act makes some technical amendments to the program to provide more realistic deadlines for expenditure of funds and completion of projects. Funds provided under the Tribal Broadband Connectivity Program can be used for planning, infrastructure, and adoption on Tribal lands.

Middle Mile Funding §60401

The expansion of internet service in unserved and underserved areas has been impeded in part by the lack of affordable and reliable connection points to carriers that transport data from a local internet service provider’s endpoint to the internet “backbone” – a location that transports data across the nation and around the world. This portion of the internet is generally referred to as “middle mile” infrastructure.

The Act attempts to address this issue by establishing a new program, also expected to be administered by NTIA, that will make up to $1 billion of grants to fund middle mile infrastructure. Grants will be awarded under the program based on a competitive process that prioritizes areas in greatest need of middle mile connection and will include areas in need of connection options and alternative data routes in the case of failure of an existing primary middle mile connection. Telecommunications companies, technology companies, electric utilities, and utility cooperatives are all eligible to participate in the program. Grant recipients will be required to offer service on a nondiscriminatory basis to all ISPs in the area covered by the award.

Private Activity Bonds for Broadband Infrastructure §80401

The interest on tax-exempt bonds (bonds and other forms of state and local government debt) is generally exempt from income tax, and these bonds have been used to finance public, and some privately-owned projects. Because investors do not pay income tax on interest received on the bonds, they are willing to accept a lower interest rate, and this reduces the overall cost of financing a capital project. One category of tax-exempt bonds is a “private activity bond” and they have been used to provide tax-exempt financing for certain capital costs for specific types of projects that will be owned and operated by private companies.

The Act adds a new category of tax-exempt private activity bonds for broadband infrastructure projects.

Generally, these bonds must finance capital investment for projects in unserved areas and there are numerous technical restrictions applicable to the use of the borrowed funds. Private activity bonds must be issued by a state or local government and the overall amount of private activity bonds issued by a state is limited. This means that private activity bonds must receive an allocation of a state’s overall limit (its annual private activity “bond volume cap”). In Missouri the Department of Economic Development is responsible for allocating the state’s bond volume cap to particular projects.

Digital Connectivity: Are We There Yet?

At least some of the accolades that have accompanied final passage of the Act are warranted. Even in the “post-COVID” era, spending a trillion dollars (a thousand, thousand, million dollars) still should get our attention. It is a lot of money, but most would agree, much of our nation’s infrastructure is badly in need of expansion and upgrade. Of course, the fact that Congress was able to “do something” – particularly something of this size — with help from both political parties is a unique achievement these days.

However, it’s important to keep things in perspective. If your family or business does not have access to adequate high-speed internet service now, passage of the Act won’t mean you’ll have it next week, next month, or even quite likely next year. The BEAD Program will take many months to initiate, and many years (think five to ten years) to fully implement. Other programs, such as the Affordable Connectivity Fund, additional funding for the Rural Utility Service, and some of the other adoption grant programs, may be funded more quickly, particularly if the responsible federal agencies quickly publish a Notice of Funding Opportunity, and act promptly to approve and distribute the funds.

So, while we certainly do seem to be on the road to “digital connectivity,” there likely are many more miles to travel before we arrive at that destination.

11 Nov 2021

Closing the Digital Divide: Houston, Missouri Finds a Solution

by Marc McCarty | posted in: | 0

Don Tottingham, longtime Mayor of Houston, Missouri, loved his City and thought it was a great place to raise a family. But he also recognized it had a major infrastructure issue: its residents and most small businesses lacked an adequate, reliable, high-speed internet connection.

The Vision

Mind you, Houston, Missouri, a city of approximately 2100, located in the south-central part of the state, is not entirely without high-speed internet service. Some businesses and many schools, libraries and other public institutions had the money needed to fund special, high-speed internet connections, but upon investigation Houston public officials found that the commercial providers who offered this service to businesses in the City, could not make a “business case” for extending service to all the individual residences and small businesses in the City.

This situation may sound familiar to many small towns, subdivisions, and even some neighborhoods in larger cities. However, what is unusual is that Houston’s local officials decided to do something about the problem. They decided to build a fiberoptic internet network that will offer service to all residents and businesses in the City.

I spoke recently with Houston City Administrator, Scott Avery (via Zoom) to learn more about the City’s vision and lessons learned as the project has moved forward.

When we spoke, the City’s network was under construction: an 18-mile fiberoptic cable “ring” around the community had been completed, internet access for the City’s new network with two separate providers had been secured, and work was underway on the second stage of a four-stage neighborhood build-out to homes and businesses throughout the City.

Service has been offered to residences and businesses in the completed sections of the City beginning in March 2021, and when the network is finally completed (expected by year-end), every home and business in the City will have the option of connecting to the internet at speeds of up to 1 gigabit per second!

Community Outreach – Meeting the Needs of the Community

Mayor Tottingham lost his battle with cancer in July 2019, but by that time the City had already hired an engineering firm to conduct an internet feasibility study. The results of that feasibility study and a key component, a community survey, became available at about the time the time Scott Avery came on board as City Administrator in September.

Scott noted two key findings of the community survey. First, 78% of respondents said they would subscribe to reliable internet service offered by the City. This of course was strong confirmation of public support for the City to move forward with municipal broadband. Second, the survey showed that the overwhelming concern for residents and businesses was to have reliable internet service– meaning service that was robust enough to allow them to connect online and have confidence that the connection would remain stable for as long as it was needed. This led the City to intentionally construct a network designed to be highly reliable and capable of expanding to meet both current and future needs of residents and businesses.

Scott observed that the community outreach effort was crucial not only for Houston’s leaders, but for any community that wants to address the lack of high-speed internet access and adoption. “We could sit here in city hall and guess all the time without actually understanding what services they want the City to provide.” He added, “Having the survey gives you a chance to ‘paint the picture’ to let folks know what you are doing.” and that “helped answer the questions Aldermen had when considering whether to make the investment.”

Houston’s project is closely tied to its municipal electric utility system. Funds from the electric system have financed the expansion; city employee linemen have been cross-trained to install and repair fiber; the fiber is mounted on City-owned poles; and billing and back-office administration are incorporated with those already used for the City’s electric, water, and sewer utilities. Once fully operational, the network is expected to deliver better utility and other government services to the community, as well as provide the City’s residents and businesses reliable high-speed internet.

“In the Trenches” – Building a Fiber Network

In early 2020, based on the findings from the survey and the feasibility study, the City decided to move forward with a City-owned and operated internet network. It selected a contractor through a request for qualifications process, and secured contracts to connect the City’s network to the internet from two separate providers. Scott’s experience in emergency services, and the community’s concerns about reliability, led to the decision to have a second provider for the City’s network. By doing this, the City has redundant access to the internet, so that a service failure with one provider would not cause the City’s network to go down, as the other provider’s capacity alone was more than that needed to service the City’s users. The City also took advantage of favorable pricing to buy more capacity (bandwidth) from these providers than was strictly necessary based on the engineer’s design. The goal was to build a system that could easily grow to meet increases in demand or perhaps a new business such as a data center that might need much higher levels of bandwidth.

The City published pricing and service levels in 2020 before network construction began. It now offers a range of service options for households ranging from $30 a month for 25Mbps (upload and download) to $90 a month for gigabit level service (1000 Mbps). Business customer options range from $75 to $250 per month but provide the customer priority routing over the network.

When it created the various options and pricing, the City focused on two considerations. First, what was the minimum level of service citizens needed to do most household tasks such a streaming video and working or taking online classes from home. Even for individuals that select the lowest service level, their connections speeds should be sufficient for those purposes. Second, the service is priced at a level sufficient to operate and maintain the City’s network over the long term, but with no expectation of making a profit. As Scott put it — “the goal, the focus, all along is that a single mom with four kids at home – trying to get them an opportunity that they wouldn’t have had otherwise, and I think this fiber broadband and an online education opens doors for people in this community more than anything else because it attaches them to the outside world.”

With this amount of advance planning and help from outside experts, existing right-of-way, poles throughout the City to run fiberoptic cable, and a city staff experienced in operating other utilities, you might expect things would have gone relatively smoothly. Scott was quick to admit that wasn’t the case. “We started construction in March of 2020. I don’t know if you heard what happened in March of 2020, but there was a shut down from this thing called COVID.” As I laughed, he pointed to his graying hair and observed, “I had brown hair when we started this project.”

Joking aside, the COVID lockdown initially stopped and then slowed the progress on the project. Once things began to reopen, the City was faced with labor delays and shortages of fiberoptic cable and related equipment needed to construct the network. This problem is not unique to Houston, it has plagued even the largest internet providers throughout the United States. The City’s network build-out is now 14 months behind schedule, but in large part because City employees are now able to handle fiber installation even if the outside contractor is delayed, they are in a much better position to move forward to complete the build out. The City has also discovered a few “work arounds” to mitigate the supply chain issues. For example, it recently was able to fill a need for 65 “fiber dead-end connectors” by sourcing what was needed from several suppliers that could fill part, but not all, of the City’s order.

These delays also have reduced the number of subscribers from those initially projected, but the City believes this will be reversed once the entire network is complete and folks understand the value of service being offered. Noting the public’s problem with unreliable internet, Scott observed that the City’s new network has not suffered a service outage since it “went live” in some sections of the City in March.

Lessons Learned

A final list of “lessons learned” from Houston’s approach awaits completion and full operation of the new network. One lesson that Scott offered was the need to make certain that engineers and other outside advisors understand that municipal leaders, even those that lead a city’s IT department, likely do not “know what they don’t know” when it comes to designing and constructing an internet network. Open communication is critical to avoid unpleasant surprises for any community contemplating a broadband project. Other lessons he mentioned were more closely tied to the extraordinary challenges of the COVID pandemic. For example, the City’s solution to supply shortages previously described, and the need to develop effective strategies to keep the project moving forward even when contractors are stretched too thin and face severe labor shortages.

What seems equally clear is that any city or county undertaking a project like this needs to have a clear vision of its ultimate objective, a public mandate to move forward, and a tenacious innovative staff that remains calm and focused on the ultimate objective in the face of the unforeseen challenges and setbacks. Here Scott’s experience in emergency services likely was a huge plus for the City. As he put it – no matter how many problems come your way, at least you know nobody is going to die, and that certainly helps keep things in perspective.

There is also one final “lesson” for other communities facing similar challenges of inadequate internet service that may not be as apparent: Houston’s approach may not be appropriate or necessary to address the problem. Not every community will have the experience, leadership, and resources needed to construct and offer-high speed internet to every home and business as a municipal utility. Even in communities that do, the citizens may not want their city or county to take on this role.

However, that doesn’t mean there isn’t an appropriate role for local government to play in efforts to close the digital divide. Every city and county in the state has received federal funds to plan and pay for necessary broadband infrastructure. There are variety of contractual arrangements that local governments can use to encourage the expansion of privately-owned high-speed internet for unserved and underserved areas. However, public funds and public support for private internet expansion needs to have a public purpose — it needs to meet needs of the citizens of the community for more effective government, and real improvements to the health, education and economic well-being of the community. The first logical step in that process is to develop a comprehensive plan that identifies and meets the needs of the community.

1 Nov 2021

Missouri Legislature Broadband Update

by Marc McCarty | posted in: | 0

Several bills were introduced in the last session of the Missouri General Assembly related to Broadband. Of particular interest were HB 321 and SB 184. This legislation was similar to bills introduced in the 2020 legislative session and would have authorized investor-owned electric utilities to offer broadband service to its electric service customers in much the same way that many rural electric cooperatives and a few city-owned electric utilities do today.

In recent years electric utilities have begun to install fiberoptic cable-based internet networks on electric power poles to regulate electric transmission and distribution over their network, and some investor-owned utilities would like to use that same fiber to provide their customers internet service as well. However, to do so they need legislation to authorize this new line of business and establish the regulatory treatment of this new line business by the Missouri Public Service Commission. Efforts to pass the legislation this year were again unsuccessful.

Whether investor-owned electric utilities can play a meaningful role in bridging the digital divide remains unclear. In one encouraging development, in October 2021 the Missouri Public Service Commission did authorize Ameren to lease approximately 1 1/2 miles of its fiber optic cable to an internet service provider.

What did pass this most recent legislative session was yet another “special district financing” option. This legislation joins last year’s amendments to the Missouri’s Community Improvement District (CID) and Neighborhood Improvement District (NID) statutes (discussed in an earlier blog). The new legislation amends Chapter 71 of the Missouri Statutes to add a new section — 71.1000. The new law permits two or more municipalities to form a “broadband infrastructure improvement district” or “BIID.” Broadband Infrastructure Improvement Districts are authorized to partner with a telecommunication company to deliver broadband internet service to the municipality’s residents in “unserved or underserved areas.”

Just what the term “partner” means was undefined in the final bill, but one would expect it could include a wide variety of contractual arrangements known as public-private partnerships or (P3s) involving a sharing of risks and rewards of owning and operating a local internet network. We do know that in every case the telecommunication facilities must be “wholly owned and operated by” a telecommunications company (rather than the BIID or the municipalities that created it). The new statute provides that a broadband infrastructure improvement district can finance operations through grants, loans, bonds, user fees and (with voter approval) a 1% sales tax.

So why hasn’t this new legislation gained more attention? Probably a couple of reasons.

First, like the CID and NID legislation passed last year, a BIID can only operate in areas that are certified by the Missouri Department of Economic Development as unserved or underserved. This requirement was not part of the bills (HB 735, HB 1378 or SB 570) that were originally introduced, but it did end up as a requirement in the law that was finally passed. The “unserved or underserved area” definition used in the new broadband infrastructure improvement district legislation and the CID and NID amendments last year is contained in Section 620.2450, which is the statute that authorizes direct grants of state funds for broadband infrastructure projects.

Using that standard, any area that has wireline (cable or fiber) or fixed wireless service (e.g., satellite) at download speeds of at least 25 megabits and upload speeds of at least 3 megabits per second is deemed “served” and cannot use the new BIID legislation. Many applications today for commercial and even household use require a connection that is faster than that, and communities served at that level will not be able to partner with private providers to upgrade and expand service to meet those needs using the BIID statute.

Second, for municipalities that believe they are unserved or underserved, the Department of Economic Development has not issued guidance on how a newly created NIID (or a CID or NID under last year’s legislation) can meet the unserved or underserved standard, and until it does, the new statute and the CID and NID legislation enacted last year, cannot be used.

For communities that cannot meet the unserved or underserved criteria, other provisions in Missouri law may already permit the type of cooperative “partnerships” contemplated by the new statute. Sections 70.210-70.325 of the Missouri Statutes authorizes municipalities (and most other types of local governments) to “partner” by contract with other municipalities, the state and federal government, nonprofits, and businesses to achieve valid public purposes. As the last few months have demonstrated, having the infrastructure in place to deliver affordable, reliable, high-speed internet service to every home and business in a community is critical to the effective delivery of government services, and it is an essential prerequisite to economic development for all communities as well. Addressing either of these needs likely could serve as a basis for the type of cooperative effort contemplated by the BIID legislation.

Next year promises more legislative activity to improve internet access and adoption. Governor Parson recently announced his administration would seek legislative authorization to spend $400 million of federal funds made available to state by the American Rescue Plan Act (ARPA) for broadband infrastructure and adoption. This amount is in addition to the ARPA funds already made available to every municipality and county in the state, that also can be used to plan and construct broadband infrastructure.

22 Oct 2021

Helpful Guidance on the Use of ARPA Funds by Local Governments

by Marc McCarty | posted in: | 0

We’ve written earlier about the use of American Rescue Plan Act (ARPA) Funds to pay for broadband infrastructure projects. Besides the cryptic language in the statute (necessary broadband infrastructure) we noted two helpful additional sources published by the U.S. Treasury Department — the “Interim Final Rule” effective May 17, 2021, and a series of answers to Frequently Asked Questions about the statute and the Interim Final Rule (the FAQs).

But some pointed to the “Interim” label on these rule – cautioning that the guidance was not final and implying that local governments relying on them might find themselves in a box if the “final” guidance that eventually is issued by the Treasury (a new or updated rule) somehow turned out to be materially different from what is in Interim Final Rule. The concern was that the Federal government might attempt to recoup money from the local government based on the theory that it was improperly spent under new “final” rule, even though it appeared to be permitted under the Interim Final Rule.

Undoubtedly, this has led some local governments to reconsider spending ARPA funds it had on hand, because the Treasury Department recently addressed this very concern directly in an undated “explanation” posted on its website.

The Treasury explanation begins by referring to the guidance already given and noting that ARPA funds were provided to local governments with the expectation that they would be spent promptly to remedy issues caused or made evident by the COVID pandemic. The explanation then cautions everyone not to expect to see a new final rule anytime soon, because the Treasury is now considering almost 1000 separate public comments it received to the Interim Final Rule published this spring.

Given this situation, the explanation goes on to state the following:

“Until Treasury adopts a final rule, and the final rule becomes effective, the Interim Final Rule is, and will remain, binding and effective. This means that recipients can and should rely on the Interim Final Rule to determine whether uses of funds are eligible under this program. Treasury encourages recipients to use funds to meet needs in their communities.

Funds used in a manner consistent with the Interim Final Rule while the Interim Final Rule is effective will not be subject to recoupment.”

What about the FAQs? Again, the explanation is helpful:

“Finally, recipients may also consider FAQs issued by Treasury to help assess whether a project or service would be an eligible use of Coronavirus State and Local Fiscal Recovery Funds.”

So where does that leave local county commissions, city councils, and boards of aldermen? Well obviously, they can and should consult with their professional advisors for advice in special cases, but clearly the language used in the explanation leaves little doubt that Treasury wants to encourage state and local governments to use and rely on the guidance it has already provided, and not to delay spending ARPA funds for fear that “final” rules may provide something different.

16 Aug 2021

Using American Recovery Plan Act Funds for Broadband Infrastructure — Guidance for Local Governments

by Marc McCarty | posted in: | 0

By Marc McCarty

Memories are short. As I write this in mid-August, the focus is on the bipartisan Infrastructure Investment and Jobs Act (the IIJA) that passed the Senate on August 10th. That Bill has made headlines in part because it promises to make $65 billion available for broadband infrastructure and adoption. Even though it still faces additional hurdles and an uncertain future, the IIJA has captured the limelight, and many seem to have forgotten about another piece of funding legislation – the American Rescue Plan Act (“the ARPA”).

Signed into law on March 11, 2021, the ARPA also provided billions of dollars — both to states and local governments (counties, cities, and towns) throughout the United States — that can be used to pay for critical infrastructure needs, among them: broadband infrastructure. Unlike the IIJA, which in its current form will fund investment in broadband infrastructure over several years pursuant to a long-term strategic plan developed by each state, money appropriated under the ARPA is available to local government (and to the State) now, and could complement the longer-term strategy for investment in broadband infrastructure contemplated by the pending IIJA legislation.

The Missouri State Treasurer’s Website contains a comprehensive set of documents and general information related to ARPA funding. This Blog focuses on the use of money appropriated to “local government” — which includes Missouri counties, metropolitan cities (cities with populations greater than 50,000) and other cities, towns, and villages across the State for broadband infrastructure. While not specifically covered here, these same rules generally would apply to the more than $1.3 billion appropriated directly to the Missouri State government by ARPA as well.

ARPA & Broadband Infrastructure

The relevant language in ARPA permits counties, metropolitan cities and other cities, towns and villages to use the appropriated funds for several specific purposes including – “to make necessary investments in water, sewer or broadband infrastructure.” These funds must be encumbered by December 31, 2024 and spent no later than December 31, 2026.

Obviously, this is a “big deal” for cash-strapped local governments. It is almost as if the Federal government suddenly deposited money in their checking account, but of course, like anything that seems too good to be true, questions quickly arose about what conditions and limits were placed on the “withdrawal” of that money, particularly broadband — since broadband has only recently been recognized to be “infrastructure.” Certain uses, such as funding public pension shortfalls or using the funds appropriated to reduce or offset taxes are prohibited by the statute itself, but there were other uncertainties that needed further clarification.

For many local government-decision makers who want to use ARPA money to bring better internet service to their community, these questions could be summarized as follows:

What is “broadband”?
When is it “necessary”?
What types of costs can be included as “broadband infrastructure?

What is “Broadband”? and When is it “Necessary”?

Thankfully, many of those uncertainties have been resolved through publication of an Interim Final Rule by the United States Treasury Department on May 17, 2021 and the answers to Frequently Asked Questions (FAQs) published by the Treasury Department that were last updated in late July.

The Interim Final Rule defines broadband to include any internet service capable of downloading and uploading data at speeds of at least 100 megabits per second (100/100 Mbps). In areas where construction of internet infrastructure capable of delivering service at those speeds is not practical, the Interim Final Rule allows funding for networks capable of providing service at speeds of at least 100 Mbps download and 20 Mbps upload (100/20 Mbps), so long as the network can be scaled up to 100/100 Mbps service or higher at a later date.

To put this in perspective, internet service at this level is between 4 to over 30 times faster than the FCC’s current definition of “broadband“. The Interim Final Rule requires that broadband infrastructure projects be targeted to serve areas that are “unserved or underserved,” which is defined as an area lacking consistent wired internet service at speeds of at least 25 Mbps download and 3 Mbps upload (25/3 Mbps).

The Interim Final Rule generally defines a “necessary” investment for broadband to include those designed to provide adequate service to locations where it is unlikely that the investment could be made using only private sources of funds. By way of a practical example, the Interim Final Rule says that the service offered must be sufficient to allow multiple members of a household to work and attend school online at the same time. To avoid duplication of internet service, the preamble to the Interim Final Rule encourages local governments to avoid investing in locations that have existing agreements to build reliable wired internet service at 100/20 Mbps or higher — but only if that service will be in place by December 31, 2024.

**What Qualifies as an Investment in Broadband Infrastructure?**

The Treasury Department FAQs provide some answers to many other practical issues a local government may face as they determine whether a particular use of funds is an “investment” in broadband infrastructure. In general, the FAQs appear to give local government substantial latitude to structure practical uses of ARPA funds. For example, local government may elect to transfer funds to a special purpose unit or agency of government or to a nonprofit organization or for-profit business, so long as that entity uses the funds for necessary broadband infrastructure. (FAQ 1.3 and 1.8). In addition, ARPA money may be used to fund loans to individuals, NGOs, or business — if the loan proceeds are used for broadband infrastructure (FAQ 4.11).

Unlike some other federal grant programs, so long as the objective of the local government is to prioritize broadband infrastructure to reach unserved or underserved locations, ARPA funds can also be used to improve service in other locations in the project area that already are “adequately served” (that is — locations able to connect through a wired internet service consistently and reliably at speeds of 25/3 Mbps). (FAQ 6.8 and 6.9).

In addition, the FAQs give the local governments wide latitude to determine if a particular area is unserved or underserved, and they need not accept download/upload speeds advertised by ISPs operating in the area if other available data does not support those claims. Instead, local government decision-makers “…may choose to consider any available data, including but not limited to documentation of existing service performance, federal and/or state-collected broadband data, user speed test results, interviews with residents and business owners, and any other information they deem relevant.” (FAQ 6.11)

In evaluating this information, local government also can consider whether the service is available at all hours of the day, and other factors that can affect the performance of internet applications such as latency or jitter, or the fact that the service is being delivered by outdated technologies such as DSL over copper or earlier versions of cable internet. (FAQ 6.11). The FAQs also clarify that funded projects may include “mid-mile” infrastructure — connecting ISPs rather than individual and business end users. (FAQ 6.10).

Finally, the FAQs broadly define investments in broadband infrastructure to include “pre-project development” expenses — expenses that are tied to a broadband project or reasonable expected to lead to a broadband project. This would include among other things, costs such as community planning, engineering, mapping, evaluation of needs and technologies, etc., so long as those expenses were incurred as part of a process intended to result in a broadband infrastructure project. (FAQ 6.12).

Obviously, a blog of this length can’t cover all questions that have been addressed already related to the use of ARPA to fund broadband infrastructure, and additional guidance almost certainly will be needed for special situations. However, the guidance now available does provide an excellent start for local government leaders and their advisors, and hopefully we will soon see some of those appropriated funds being spent on broadband infrastructure planning and construction projects.

August 16, 2021

[1] The information provided is not intended as legal advice and is offered for general informational purposes only based on information believed current as of the date written. Local government decision-makers are encouraged to seek advice from their legal advisors for answers to any specific questions related to the use of ARPA funds.

15 Jun 2021

Four Critical Questions Every Community Should Ask Before Providing Public Support for High-Speed Internet Infrastructure

by Marc McCarty | posted in: | 0

Seemingly overnight communities around the country have realized that affordable, reliable, high-speed is more than a “nice thing to have” – it’s a necessity. The COVID pandemic exposed the risk of relying on stop-gap solutions such as smart phones, hot spots and obsolete DSL technologies. Public officials and local businesses are beginning to understand that hoping for a technological breakthrough to solve their digital connectivity problem is a poor plan for the future of their community.

Just like the electric grid, every community, no matter how isolated needs to be connected to the “information grid.”

This has given way to the sobering realization that, just like the electric grid, every residence and business in every community needs to be connected to the “information grid” — the network of fiber optic cable supplemented by various wired and wireless technologies that connects communities to outside world and to the 21^st century technologies that rely on high-speed internet access to provide better health, education and economic outcomes for all.

Some will continue to insist that this is a problem that only can be addressed through private, for-profit companies. Others will argue that an internet connection is so critical to everyday life that it is a “utility” and should be publicly owned and controlled, so that all individuals and business have a minimum level of internet service at a price they can afford. However, it’s likely neither of these extremes is the answer for most of neighborhoods and communities still waiting for adequate high-speed internet service.

Instead, many local governments have instead turned to public-private partnerships to bridge the digital divide in their community. Public-Private Partnerships –- often referred to as “P3s” — are contractual agreements that allocate the “4Rs” – the roles, responsibilities, risks, and rewards — associated with the design, construction, maintenance, operation, and ownership of a modern high-speed internet network.

P3s operate from the premise that local, State, and federal government can do some things well, while others are best handled by for-profit business and nonprofit organizations (NGOs). P3s dispense with political and ideological rhetoric, in favor of a finding a practical approach that recognizes that government, NGOs and business can create a better solution by working together for the common good.

All P3 arrangements involve some degree of “risk sharing.” They operate from the premise that the best result is achieved when all stakeholders are motivated by the risk of failure – along with the anticipated rewards that accompany success. For the most part businesses and most operating NGOs are familiar with these concepts and are comfortable balancing their appetite for success (profit) with their aversion for risk – the risk of failure.

The same cannot be said for many local government “public partners.” Too often, public partners tend to assume that a public private partnership is a one-way street, where business and NGOs (the private partners) will assume all the risks, fulfill all the public partner’s objectives, and deliver and operate the project for the common good – just because someone calls the arrangement a “public private partnership.”

This mindset can have disastrous consequences for the public partner (and the public at large). Just as there are many examples of successful P3s, there also are also many examples of P3’s that have failed, leaving the public partner (and its taxpayers) on the hook for the additional funds needed to provide the promised network.

Does this mean that P3s are a bad choice for communities? Of course not, but it does mean that public entities contemplating a P3 arrangement to solve their digital connectivity problem need be aware that a P3 is simply a tool, and like all tools, it needs to be used properly. Of course, that means that no public partner should enter into a P3 without first obtaining legal and financial representation to represent the public’s interests. But it also means that local government decision makers need to focus on 4 key questions that largely will determine how their P3 will be structured.

Public entities contemplating a P3 arrangement to solve their digital connectivity problem need to focus on 4 key questions when structuring a P3.

Question 1 — Design and Construction:

Which party – the public partner or a private partner is best able to design and construct an effective high-speed internet network for the community?

Regardless of who will ultimately own, maintain, and operate the internet infrastructure once it is completed, a properly negotiated and documented P3 can assign responsibility for the design and construction of internet network to the private partner. Arrangements that do this are often called design-build contracts. A public partner using a design-build P3 would first go through a process to define its objectives for the network (for example, speed (throughput), reliability, expandability, etc.). and leave to an expert private partner to determine how those objectives will be achieved.

The process of decerning the core objectives for the network is critical. A properly negotiated design-build P3 can reduce and eliminate many of the risks associated with the design and construction, but in the end it only promises to achieve the results the public partner identified in the contract specifications. If those specifications are insufficient to meet the needs of the community, that is a risk assumed by the public partner.

In addition, ideally, a design-build P3 should be set up as “fixed price contract” and payment should be required only when the network is completed, and all design specifications are satisfied. While this may seem somewhat obvious, there are several projects (both for internet infrastructure and other capital projects) where the public partner failed to follow this guidance, and instead agreed to make required to make “progress payments” – even if though the private partner’s work was incomplete. While such an arrangement may be appropriate in some special cases, it is critical that the public partner understand the risks associated with making payment for a network that has not been completed.

Question 2 — Maintenance

Which party – the public partner or the private partner should be responsible for maintaining the community’s internet network?

Once a network is completed, a second question needs to be addressed: who will be responsible for maintaining it in working order. This really can be divided into two questions. First, which partner is responsible for replacing equipment that wears out, fails, or is that is damaged by weather or some other natural cause? Second, which partner is responsible for making certain the network does not become technologically obsolete: assuming responsibility for upgrading the equipment and associated software so that it continues to meet the evolving needs of individual and business users in the community?

A high degree of technical knowledge about network design and industry trends are critical to meet these maintenance requirements. For that reason, it isn’t surprising that in many settings this responsibility will be assumed, at least in part, by a private partner, even if the public partner wants to own and operate the network.

Maintenance for the network can be addressed in variety of ways. For example, a private partner might include a long-term warranty and extended service plan as part of a design-build P3, converting it P3 to a “design-build-maintain P3. Concerns related to technological obsolescence might need to be combined with and made a part of a “maintenance and operation” P3.

In either case, a threshold question for the public partner is whether it has the personnel and the expertise necessary to maintain the internet network. If not, then it must decide how to select a private partner to assume that responsibility.

Question 3 — Operation

Which party – the public partner or the private partner should be responsible for operating the internet network?

Operating an internet network certainly requires a significant level of technical expertise to monitor network demand and data traffic (for example, how many folks are accessing the network and how much bandwidth are they using), but it also requires competency in handling more pedestrian issues, such as billing, customer relations, and marketing. This means that a partner handling network operation, needs to have resources available to address issues as complex as negotiating guaranteed access through a mid-mile or backbone provider, to helping a customer trouble-shoot a bad connection inside their home or business.

For the public partner, the first question again is whether it has experience and personnel available that can address these issues. Logically, one might thing that a public partner that has extensive experience operating other utilities would be best equipped to assume responsibility for operating an internet network. But this may be an oversimplification. After all, the technologies involved in delivering water and sewer service to residents are quite different than those used to operate a high-speed internet network.

Question 4 — Ownership

Which party – the public partner or the private partner should own the completed internet network?

This might seem like the most important issue in any P3 arrangement, but usually it isn’t. Legal ownership often is not the critical factor in terms of achieving the practical objectives of the parties. For example, the right to use and control internet network assets or the responsibility for designing, constructing, maintaining, and operating the network can be assigned to a partner even though that partner doesn’t “own” the network.

However, the “legal ownership” of portions of the network assets may have significant state law and tax implications, both for the public partner and the private partner. For example, there are a variety of public financial and tax incentives that can be provided to help make it possible for a private partner to go forward with the construction and operation of a high-speed network in the community, but the availability of these incentives may hinge on which partner has legal ownership of the assets. These issues are often best addressed by the public partner’s legal counsel and financial advisors.

The Digitally Connected Community Guide

Obviously, the issues associated with a P3 are complex. No one approach will be right for every community, and clearly no community should commit public funds or enter into a P3 arrangement without expert legal and financial advice.

Nevertheless, many communities need information and guidance as they work to understand and evaluate various potential P3 options. The Digitally Connected Community Guide is a facilitated program sponsored by MU Extension that can help communities and their stakeholders develop a workable proposal that uses a P3 to help their communities become “digitally connected.” To learn more about the program and how your community can participate — contact info@mobroadband.org.

18 Dec 2020

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

by Marc McCarty | posted in: | 0

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

That statement might come as a surprise to some folks.

Some articles have stated – without qualification — that Missouri law bars political subdivisions (such as cities, counties, municipal utilities, school districts and other local government entities from offering internet access service to their citizens, or even owning the equipment that others use to provide that service.

The authority given for this conclusion is Section 392.410.7 of the Missouri Revised Statutes. That statute does generally prohibit Missouri political subdivisions from owning telecommunication equipment or offering telecommunication services, and in Nixon v. Missouri Municipal League, the United States Supreme Court did decide that federal law does not prohibit the Missouri legislature from restricting or prohibiting political subdivisions from providing any type of telecommunication service. Since one reason the Missouri Municipal League challenged Section 397.410.7 was to allow municipalities to offer internet access service as part of a municipal telecommunication utility, it is not all that surprising that commentators have raised concerns about the statute.

However, the issue actually addressed by the United States Supreme Court in the lawsuit, was whether federal law (the Telecommunications Act) prevented the Missouri legislature from restricting political subdivisions that wished to offer telecommunication services. The case did not decide whether the particular statute in question (Section 392.410.7) actually did restrict political subdivisions from offering the public access to the Internet (as opposed to other types of telecommunication services). In the twenty-plus years since the statute was passed, technologies and business models related to Internet access have evolved. Today a number of Missouri cities now offer public access to the Internet directly or through partnerships with private ISPs. While the approaches adopted by these political subdivisions have varied, in each case a way has been found to navigate Section 392.410.7 to avoid violating the limits imposed by that statute.

Just what does Section 392.410.7 prohibit – and why is it no longer particularly relevant to the Internet access offered by political subdivisions today?

The Missouri legislature passed Section 392.410.7 in 1997 in response to federal legislation that deregulated the telecommunications industry. Faced with the prospect of increased competition from the private sector, legacy telecommunication companies, convinced legislators that it would be unfair to allow municipalities (political subdivisions of the State) to offer traditional telecommunication services. The rationale was that, unlike private competitors, a political subdivision (or for-profit entities that partnered with them) would have an unfair competitive advantage over existing “legacy” telecommunication companies because political subdivisions do not pay income or property tax and they are able to raise capital to finance operations through taxation.

For that reason Section 392.410.7 generally prohibits a political subdivision from “providing or offering for sale, either to the public or to a telecommunications provider, a telecommunications service or telecommunications facility used to provide a telecommunications service for which a certificate of service authority is required pursuant to [Section 392.410].” A “certificate of service authority” (issued by the Missouri Public Service Commission (PSC)) was, and continues to be required before some telecommunication services may be offered, but Section 392.611.2 specifically excludes “Broadband and other internet protocol-enabled services” from regulation by the PSC, except to the extent the provider offers voice over internet protocol service (“VoIP” or “internet telephone” service).

Additionally, the general “prohibition” against offering telecommunication services contained in Section 392.410.7 contains additional exceptions. First, and most importantly, the statute does not prohibit a political subdivision from providing “Internet-type services” (as opposed to telephony service). Second, it does not prohibit political subdivisions from providing any type of telecommunications services for its general governmental purposes, to students at educational institutions or for any educational or medical purpose. Third, political subdivisions may own and/or operate telecommunications equipment to provide E911 or other types of emergency telecommunications services. Finally, a city’s municipal utility (water, gas, electric, etc.) is expressly authorized to provide other telecommunication companies access to the municipal utility’s telecommunication and other assets on a nondiscriminatory, competitively neutral basis, at a price equal to what the political subdivision would charge if it were a for-profit business.

Read together, these exceptions make the statute largely irrelevant for a political subdivision that today wishes to own and operate a system designed to deliver access to the Internet for its citizens. Today internet access provides the public multiple opportunities to obtain online healthcare, buy goods and services, obtain an education, and launch a new business – as well as communicate with friends located anywhere in the world. The services that use the Internet to make this possible are offered by government, business, and nonprofit organizations. Those services are subject to varying degrees of federal, state and local government regulation, but the transfer data over the Internet by a political subdivision is not prohibited by the express language of Section 392.410.7. Additionally, as noted above, the statute provides wide latitude for political subdivisions to provide any other type of telecommunication service in addition to internet access) in order to deliver governmental services: public administration, healthcare, education and public safety.

If Not Specifically Prohibited — Should Political Subdivisions Undertake to Provide Internet Access to the Public?

This is a much harder question to answer. It requires communities, in consultation with legal and financial advisors, to carefully consider of a number of other legal questions, as well as economic and local public policy concerns. For example, a school district considering participation in a public-private partnership with the goal of offering internet access to each student’s home for online learning, would need to be careful that the arrangement did not jeopardize the district’s existing E-rate funding that now provides internet service to school buildings and classrooms. Many of these questions will be identified and examined in future articles, and developing strategies to address them will be part of a systematic online “Digital Community Guide” that will be made available to local government officials, community stakeholders and their advisors on the Missouri Broadband Resource Rail early next year.

However, at least part of the answer can be found in the Report published earlier this summer following the University of Missouri System’s online Broadband Internet Workshop. A core conclusion of the Workshop was that local government (political subdivisions) should actively consider arrangements involving public-private partnerships with internet service providers and other interested stakeholders to speed the deployment of affordable, reliable, high-speed internet service, and the adoption of new digital applications that use the Internet to deliver better health, education and financial opportunities for their citizens.

9 Dec 2020

The FCC’s RDOF Award Announcement – Good News, but Only One Step toward Closing the Digital Divide

by Marc McCarty | posted in: | 0

Some quick reaction to Monday’s FCC Rural Digital Opportunity Fund (RDOF) Auction Award Announcement:

It’s good news of course! – Over $346 million allocated to seventeen providers that proposed to bring gigabit level service to almost 200,000 (199,211) locations through-out Missouri. On average – that means the Federal government is offering to contribute about $1,740 per location over the award period.

Overall the auction award was not as large as what was authorized (around $20 billion) — $9.23 billion was awarded nationwide. So more funds are expected be awarded in the future, hopefully using a revised system to identify unserved areas within census tracts that are now partially served. Only census tracts that had no adequate broadband service were eligible to participate in this round of awards – a fact that all agree is a significant shortcoming of the award program that needs to be corrected.

A bit of additional fine print:

Companies receiving awards are required to submit much more detailed information to the FCC throughout next year before their award is final. That information includes engineering data, deployment plans and a financial data, and failure to submit it by the deadlines can result in forfeiture of the award.

Once the award is final, the winning bidders will receive their grant over a ten-year period in equal annual installments. In other words the average award of $1,740 for each Missouri location, entitles the winning bidder to a $174 annual subsidy paid over ten years for each location. This likely means that companies will need to find separate financing sources to fund costs of constructing the broadband infrastructure that ultimately will be repaid from annual award installments.

Companies that received awards are provided a significant period of time to complete actually provide the promised service. The first 40% of locations must be served after three years, and final build out need not be completed for six years (2027).

Finally, while the awards were based on locations in census tracts, the winning bidders were not required, and did not agree to serve all residents in living in the census tract.

Does this mean that the RDOF Award is not “good news” for residents in rural Missouri?

Of course not!

But it would be a mistake to think that the award is more than a single step in bridging the digital divide. To close the digital divide, government and community stakeholders will need to continue to work creatively with internet service providers.

In that regard, it’s also important to keep in mind that bringing internet infrastructure to a location, is not the same thing as actually providing service to residents and businesses at that location. As important as the RDOF program likely will be to closing the digital divide, it does not directly address the issues of affordability and digital literacy, and we know that both must be solved before underserved populations can actually reap the benefits of the new digital technologies that use broadband.

17 Nov 2020

Rural Access to Industry: Barriers from the Infrastructure Planning Front Lines

by canfieldci | posted in: | 0

As part of this research initiative, we conducted a qualitative analysis of 11 semi-structured interviews with the planning community in Missouri to identify what barriers they recognize for the deployment of rural broadband in Missouri. Participants reported that the return on investment and the financing of rural broadband projects constitute the main barriers. Technology was the most frequently discussed barrier in the literature, but the Regional Planning Commissions identified technology as the least significant barrier to rural broadband infrastructure deployment. They understand the required technology is available, but paying for it is the main challenge. The Regional Planning Commissions had had limited involvement in the planning of rural broadband infrastructure as most investment decisions regarding rural broadband infrastructure have been made by private internet service providers. Several Regional Planning Commissions expressed a lack of confidence in managing broadband projects due to their limited experience. On the other hand, they are looking forward to supporting an anticipated statewide planning initiative to be promoted by the Missouri Office of Broadband Development.

Rural Access to Industry 4.0:
Voices from the Infrastructure Planning Front Lines Download

3 Sep 2020

New Missouri Statute Encourages Public-Private Partnerships for Broadband Infrastructure

by Marc McCarty | posted in: | 0

9-3-2020

New Missouri Statute Encourages Public-Private Partnerships for Broadband Infrastructure

For many years Missouri cities and counties have used Community Improvement Districts (CID) and Neighborhood Improvement Districts (NID) to finance public infrastructure and to encourage economic development in designated geographic areas (“districts”) located within their borders. CIDs and NIDs are well-suited for this purpose, because when approved by property owners or individuals living in the district, a CID or NID can raise revenues through taxes and/or special assessments on property located or sales occurring in the district. For more general information about CIDs and NIDs see Missouri Local Incentives.

Up until now Missouri statutes did not specifically state whether internet broadband was a “public improvement” eligible for financing by a CID or a NID. However, in this past session the Missouri legislature enacted HB 1768 which made some significant changes to both the CID and the NID Act. In each case a new provision has been added that permits these districts to be used for public-private-partnerships that will construct or improve broadband infrastructure. CIDs and cities and counties that create NIDs are now specifically authorized:

“[T]o partner with a telecommunications company or broadband service provider in order to construct or improve telecommunications facilities which shall be wholly owned and operated by the telecommunications company or broadband service provider…”

However, this specific authorization is limited to areas that are certified by the Missouri Department of Economic Development to be unserved or underserved. As a practical matter this means that the area to be covered in an agreement with a telecom or other broadband service provider (an “ISP”) must currently have internet service below speeds of 25 mps download and 3 mps upload. This requirement is imposed by cross-reference to the Missouri’s Broadband Grant Program statute.

How can Missouri cities and counties use a CID or a NID to “partner” with a broadband provider and bring broadband service to their community?

One example might be for a CID (or the City/County acting through an NID) to contract with an interested ISP to build broadband assets and to deliver broadband service to residents and businesses located in the district, in exchange for an upfront lump sum cash payment. This cash payments would constitute the CID/NID’s “contribution” to the partnership formed with the ISP. The ISP partner would obtain conventional financing and/or grants from the federal government to pay for the balance of the cost of the system, and the ISP would operate and maintain the newly-constructed system. Residents and businesses would subscribe for service on the system pursuant to a normal internet service model, but the cost of that service could be more affordable, because a portion of the capital investment was covered by the CID and/or NID.

To further government and public purposes, the newly-constructed broadband system could be made available for use by the city and county government and other government entities such as the local school district, the county public health department and municipal utilities. These “government users” would use broadband to better deliver government services to the district’s residents and businesses. For example public schools might use the system to provide remote learning opportunities to children – and help solve the homework gap.

The upfront investment from in the partnership by the CID/NID could be financed with debt paid by revenues produced from special assessments, taxes imposed in the district, or from fees paid by local government users of the system.

The picture below illustrates how this “ISP Public Support Subsidy Model” would work. The CID or NID provides a portion of the funding for the broadband project, along with possible ongoing contributions by other local government entities that will use and benefit from the system. Together, these public entities “partner” with an interested ISP to make broadband and its applications a reality for the district’s residents and businesses.

In the above-example, the CID or NID is only one part – albeit a critical part – of an overall plan to bring public support to a broadband infrastructure project that will be owned and operated by a private ISP. Implementing the plan assumes that residents and businesses located within the CID or NID boundaries want broadband – and that they are willing to join together to help fund the “gap” that currently makes the expansion of broadband into their community financially impossible for the ISP acting alone. However, one advantage of taxing districts is that their boundaries can be tailored to include those areas where residents and property owners clearly favor the approach and are willing to join together to help pay for it.

This and other approaches are described at pages 48-54 of the Workshop Report prepared for Bollinger County, Missouri, as part Broadband Workshop hosted by University of Missouri System earlier this summer.

Whether a CID or an NID is a practical solution for a particular community requires individualized legal and financial advice of professionals. Many steps are necessary to properly explore and implement a workable financing plan that adequately protects the interests of the public and that provides a fair economic return on the ISP’s investment. That said, the changes made by HB 1768 are a welcome new tool to allow local communities to begin to enjoy the benefits of Broadband.