BEAD — Let’s Not Throw Away Our Shot Part 2 –Affordability

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By Marc McCarty

& Meredith Morrison

The last Blog described the Missouri Office of Broadband Development’s (OBD) proposal to spend up to $1.7 billion for broadband projects that will be funded by the federal government’s Broadband Equity Access Deployment (BEAD) program. We highlighted ways local government and nonprofit organizations (Public Organizations) can play an important role at the outset, by helping to make the list of locations eligible for BEAD funding as accurate as possible, and by initiating contact with internet service providers (ISPs) to express the community’s interest in partnering to “digitally connect” their community.

Three ingredients are essential for communities to digitally connect while holistically benefitting the health, education, and economic advancement of its residents: (1) access to internet service, (2) the skills necessary for service adoption, and (3) a pricing model that makes service affordable. BEAD only directly addresses internet access. Internet adoption and affordability will require Public Organizations to organize and enter into partnerships with existing and new ISPs.

This blog focuses on the challenge to make broadband service affordable; a challenge that has been made much more difficult because of the end of funding for the Affordable Connectivity Program (ACP).

Why Affordability Matters

Obviously, community residents and businesses cannot reap the benefits of broadband service if they can’t afford it! Like other utilities, broadband service comes with a monthly fee, and all ISPs generally must earn enough in monthly subscription revenue to cover the costs of capital investment, network maintenance, and service operations. In Missouri, most ISPs are “for-profit” companies, in which shareholders/investors must earn a reasonable return on their investments. For this reason, particularly, in hard to reach communities where there are fewer locations per square mile, obtaining a high percentage of paying subscribers can be critical to an ISP’s survival.

Most Missourians are understandably unwilling or unable to pay for high-cost broadband service. Multiple surveys show that a high monthly internet subscription cost is one of the biggest roadblocks to the adoption of broadband. Of course, in part the affordability of broadband service depends on whether potential subscribers feel confident they need and can use fixed broadband, or instead, can continue to rely on their internet-connected mobile phone or public hotspots. The next blog will cover how Public Organizations can address this issue by boosting internet adoption.

Many Missourians face a “would if I could” problem when monthly internet subscription costs compete with basic necessities, such as food, housing, water, and other utilities. Ironically, these households most desperately need broadband service to effectively access government and nonprofit assistance and improve their economic prospects for a better life. Clearly, some targeted program to make broadband affordable to low-income households is needed.

The Affordable Connectivity Program

The Affordable Connectivity Program was enacted along with BEAD as part of the 2021 infrastructure law to address this specific concern. In the two years it has been in place, 23 million households nationwide (nearly 400,000 in Missouri alone) received a $30 per month subsidy for internet service and a one-time discount they could apply to the purchase of a basic computer or tablet. Roughly 1 in 6  households across our state benefited from ACP, and in many rural counties 1 out of every 4 or 5 internet subscribers, received service subsidized by ACP.

The ACP became a victim of its own success. As structured, 42 million households were estimated to be eligible for the ACP benefit. Even though just a little more than half those families eventually applied and began participating in the ACP, the original $14 billion appropriation for the program is almost entirely depleted. The FCC has barred any new subscribers, and the program will end next month. While bipartisan legislation has been introduced to fund the ACP until year end, it is not expected to be enacted, and of course it is only a stopgap measure. In order to truly meet the needs of families, and provide a stable subscriber income base for ISPs, the program needs a permanent funding source, and this need is particularly evident as ISPs attempt to build out broadband in hard to reach unserved and underserved areas using the BEAD program.

Certainly absent a viable alternative, many participating households served by the ACP may be forced to drop service. While the federal government’s Lifeline program can offer some current ACP subscribers discounted broadband at connection speeds up to 25/3 Mbps, that is below the 100/20 Mbps mandated by the BEAD and ARPA programs. Additionally, the qualifying income levels for Lifeline are lower, and other eligibility requirements are more difficult to meet than those imposed by the ACP. Finally, many ISPs are not qualified to offer customers the Lifeline program benefit.

The Subscriber Revenue Gap Created by the End of ACP

Of course, the end of the ACP also creates some significant financial challenges for ISPs. ACP gave ISPs an incentive to build infrastructure in low-income communities, because the program increased their estimated take rate and subscriber revenues.  One study estimated that the loss of the ACP will translate into a decline in subscribers that will raise the cost of bringing broadband to unserved rural communities by 25%!

It is also unclear how ACP’s termination affects the sixty ISPs that were awarded grants as part of Missouri’s  $261 million Broadband Infrastructure Grant Program. These grant came from Missouri’s share of the American Recovery and Reinvestment Act — Coronavirus State and Local Fiscal Recovery Fund (SLFRF). Federal Regulations for the SLFRF program require that grant recipients offer low-income households affordable subscription options, commensurate with ACP’s benefits in areas served by grant-funded broadband infrastructure. While this requirement may soften the blow from the loss of the ACP in these isolated communities, the question remains, how will ISPs afford to implement a “commensurate” ACP benefit on their own?

Taken together, the loss of the ACP seems destined not only to make it harder for lower income households to subscribe for internet service, it also may make it significantly harder for Missouri to achieve the overall goals of the BEAD program – to extend broadband service to all unserved and to as many underserved areas of the state as possible.

How can Public Organizations Help?

In 2022, Governor Parson proposed using state funds to supplement broadband subscription costs for low income households.  However, that legislation ultimately was not enacted, and other than the Lifeline program previously discussed, there is no comprehensive federal or state program that directly subsidizes the monthly cost of broadband for lower income families. However, that does not mean that Public Organizations – particularly local government – are unable to indirectly help ISPs provide affordable broadband service to households that need financial assistance.

The key here is to recognize that ISPs can provide an ACP-type benefit to their customers so long as that cost is subsidized and that subsidy can take the form of either a direct payment to help the customer pay for service or, indirectly, by further reducing the ISP’s cost of building the broadband infrastructure. A BEAD grant can do that in part, but likely not if the ISP’s subsidy needs to be increased by 25%, because the ACP is not available! Yet it makes no sense to increase the government subsidy to the ISP for construction unless the ISP is willing to use the amount saved to provide an affordable broadband connection to its customers, through a program similar to the ACP.

For example, assume that an ISP was able to build and successfully operate a broadband network with a BEAD grant of $2 million, so long as it could rely on ACP-funded subscriber revenues to help pay for the infrastructure and cost of network operations. Based on the Commonsense study, one would conclude that the ISP would need 25% more ($2.5 million) because of the loss of the ACP. In that case Public Organizations might agree to provide the ISP the additional money needed to close the funding gap ($500,000), but only on the condition that the ISP agrees to self-fund an ACP-type benefit for the community in the future.

Unspent Local ARPA Funds

One possible source of the additional money needed, that some local governments may have available is the local government component of ARPA SLFRF money. In addition to money paid directly to the state, Missouri’s 114 Missouri counties and 15 cities received a separate SLFRF award. These local governments have the flexibility to use these funds for many purposes, one of which is “high-speed broadband infrastructure.” All local SLFRF money must be obligated by December 31, 2024 and spent by December 31, 2026. As of September 2023, Missouri’s local governments reported that they had obligated only $1,450,997,654 of the $2,419,661,436 in SLFRF Funds. This means that as of last Fall, just over 40 percent of the money awarded remained available.

Other possible local programs to access local money.

Many communities may already have appropriated their entire ARRA SLFRF award for other permitted purposes. In these cases, there are other options that can be used to provide financial support to ISPs that agree to provide affordable broadband service to lower income households. Again, the overall strategy is the same: use locally generated funds to reduce the ISP’s cost installing broadband infrastructure in unserved and underserved locations, in exchange for the ISP’s commitment to provide a targeted low-cost subsidy to qualified low income subscribers.

These options include special financing districts and government sponsored tax-exempt financing.

Special District Financing

Three  types of special financing districts are available to Public Organizations seeking to raise money to support an ISPs broadband infrastructure project. In each case, these special financing districts must support and fund a “public private partnership” (P3) that will provide broadband service within a specific geographic area or “District.” Each type of District may impose various new local taxes or special assessments for that purpose. The three types of districts are (1) a Community Improvement District (CID), (2) a Neighborhood Improvement District (NID) and a Broadband Infrastructure Improvement District (BIID).

The statutes set out the procedure and powers for each of these districts and while they are not identical, they do share some common elements:

  • The area served by the District can be specifically tailored to include all or a portion of a city or county, or in the case of CIDs and BIIDs multiple jurisdictions.
  • The District may fund a public private partnership that will bring broadband service to one or more unserved or underserved areas (as certified OBD). The statute defines unserved and underserved using similar criteria to that used for BEAD grant funding.
  • The District can impose a variety taxes (sales tax, property taxes, or a special property assessment to fund its contribution the P3). However in most cases, voter approval of the affected district residents is required to impose the tax.
  • In each case, the P3 agreement must provide that the ISP will own and operate the broadband network infrastructure (not the District).

A significant advantage of Missouri’s special financing district laws is that they are flexible and can be adapted to a variety of situations. Since Districts can impose local taxes and/or assessments that only apply in the District, it is possible to tailored them to include only those areas that need broadband. In this way they could be an ideal source of locally sourced funds to help ISPs close a funding gap and make it economically feasible to provide broadband service to residents of all income levels. This is important both because of the gap created by the loss of the ACP funding and, more generally because all BEAD – funded projects must have at least 25% of the project costs funded from some source other than the BEAD grant.

 

Example of a Special District Financing to Support Broadband Affordability

A community might decide to create a CID to assist in funding broadband infrastructure for 20 unserved farms and homes along a county road. Property owners along that road could petition the County to form and authorize funding for the CID. The District’s objective would be to lower the cost of installing broadband so that the ISP was financially able to provide free or low-cost service to low income families with school age children.

To fund the CID, property owners in the area would agree to impose an annual special assessment (collected along with real property taxes each year) from each property owner in the District. As part of the P3 agreement, the CID would agree that amounts collected each year would reimburse it for part of its cost of funding the broadband project that was not paid for out of the BEAD grant, and that the collected amounts would be applied to fund a monthly broadband service subscription subsidy for lower income families.

Tax-exempt Private Activity Bond Financing

Tax-exempt private activity bond financing may provide another option for Public Organizations that want to reduce an ISPs infrastructure cost, so that a low cost broadband subscription option can be offered to lower income residents. Tax-exempt private activity bonds are a special type of local government debt. Unlike traditional bonds where the local government is the named borrower and responsible for repaying the debt, private activity bonds are usually repaid only from money provided by a private entity (in this case an ISP).

These tax-exempt bonds can only be used in a specific geographic area where 50% or more of the structures are “unserved” (broadband service less than 25 Mbps download and 3 Mbps upload). When completed, the constructed project must provide at least 90% of the previously unserved locations with connection speeds of at least 100 Mbps download and 20 Mbps upload. If these and other requirements are met, interest paid to investors (bond purchasers) is exempt from most federal and all Missouri income tax. Because investors do not pay income tax on the bonds they own, they are willing to accept a lower interest rate than a similar taxable bond or loan. In this way, the ISP benefits because it pays substantially less interest each year on the debt used to finance the project.

 

Example of Tax Exempt Private Activity Bond to Support Broadband Affordability

 

Assume an ISP wished to bring broadband service to all structures in a county, and that the cost of constructing the network was $50 million. The ISP receives a BEAD grant for $35 million, but is responsible for raising the additional $15 million. The County’s residents want the service, but know that a significant number of residents simply cannot afford to pay the monthly subscription cost for broadband service. For a variety of reasons, the county cannot provide financial assistance to the ISP through a new tax or assessment.

Instead, the County might issue $15 million of private activity bonds that the ISP would use to fund the project. The ISP (not the County or any Public Organization) will be solely responsible for repaying the bonds.  The bonds have an interest rate that is 1.5% lower than a taxable borrowing. This means the ISP “saves” $225,000 of interest cost each year the bonds remain outstanding.

As a condition for issuing the bonds, the County requires the ISP to offer lower income subscribers a special low cost broadband plan, which it is able to fund because of the interest expense saved each year. 

Where There’s a Will….

In a perfect world, funding for broadband affordability would not have run out just as funding for broadband access and adoption was becoming available. Of course no one would say that the ACP was a perfect solution. Many would argue that the ACP and Lifeline programs need to be combined and a permanent funding model needs to be put in its place, and there is considerable merit to that position. But allowing ACP to expire without reworking the Lifeline program or providing some other workable alternative is difficult to justify. The unfortunate result for many communities is that they must work creatively with their ISPs to make sure that the broadband infrastructure built is affordable to all members of the community. The alternatives listed here all seem to be feasible, and there are many others (described in a recent “White Paper”) that communities can consider. However, all require a community effort, and some creative thinking. The question for many communities – is whether they are willing to make this effort, or will they instead risk “throwing away their shot” at digital connectivity.

The Affordable Connectivity Program May “Go Away” Just When it is Needed Most

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By Marc McCarty

They say timing is everything, and that certainly likely will be the case as we move forward this year to implement major components of the 2021 Federal Infrastructure legislation (the Infrastructure Act). You may recall that the Infrastructure Act appropriated $65 billion with the objective of providing every residence, business and institution in the United States a high-speed internet connection – broadband, and the skills to use it. The Act has three goals: building out the infrastructure needed to connect unserved and underserved locations (broadband “access”), getting individuals the skills-based training and resources they need to use a broadband connection effectively (“adoption”), and finally, making broadband affordable for households that lack the financial resources to subscribe for the broadband connection they need (“affordability”).

The rationale for this “three-prong” approach is logical. It makes little sense to build out a broadband network in unconnected communities if most of the targeted individuals are afraid to go online or lack the skills needed to use the internet applications that would help them the most. These skills, include using the internet to start a business, pay bills and bank online, connect with a health care provider, or get an advanced education certification or degree. Equally obvious, having a fiber optic broadband connection at your home is of no value if you can’t afford to subscribe for service, or if you can’t afford a basic device to connect to the internet efficiently.

With this in mind, an earlier Blog noted that the Infrastructure Act had allocated at least $46 billion of grants and low interest loans for broadband access, up to least $4.75 billion for broadband adoption programs, and $14.2 billion for broadband affordability (the Affordable Connectivity Program or “ACP”).

The ACP was designed to permanently replace the Emergency Broadband Benefit (“ECB”) a similar temporary program enacted during the COVID pandemic. Like the ECB, ACP is targeted to help families that lack financial resources pay for the internet service they need to use the internet effectively. While there are several ways to qualify for ACP, generally families earning less than twice the annual poverty income ($60,000 for a family of 4) are eligible for the ACP.

The ACP provides these households a $30 per month credit that can be applied to monthly cost of internet service and a one-time $100 credit toward the cost of a desktop, laptop or tablet computer to connect to the internet. The program began funding in 2022 and as of last week, over 22.5 million households were receiving benefits. One advantage of the ACP is that the “credit” can be applied by families toward any level of broadband service offered, so even if a household was able to pay for some internet connectivity before, the ACP enabled them to upgrade to a higher more expensive level of service, so they can take advantage of applications such as telemedicine and online learning that require a faster and more stable internet connection.

Many Missouri families now use this benefit. In several rural Missouri counties more than one in five households that are connected to the internet are receiving ACP. The truth is ACP has been so successful, that it is about to run out of money. The FCC administers this program, and it has already instructed internet service providers (“ISPs”) to send out the first of three written notices beginning January 25, to customers warning them the benefit will expire (likely sometime in May).

The ACP has wide support among participants, internet providers and the general public. Last week bipartisan legislation was introduced to extend funding for the ACP through the end of 2024. Certainly given the political environment, that may be the best we can do at this time, and even in this case passage of this legislation likely will not occur unless constituents make their wishes known.

Ironically, this comes at the very time when almost all the Infrastructure Act money set aside for broadband access (BEAD) and broadband adoption (DEA) remains unspent! The delay in funding BEAD and DEA occurred for many reasons, some of which I’ve written about already. However, Missouri’s Office of Broadband Development (OBD) now awaits approval of its “Initial Proposal” to distribute the first 20% of the $1.7 Billion dollars of BEAD funding along with a smaller DEA “State Capacity Grant” to fund broadband adoption. Those approvals (granted by the National Telecommunications and Information Agency –NTIA) are expected as early as late spring, followed by competitive grants that could begin funding new projects by year-end.

For a variety of reasons, the State’s BEAD proposal primarily contemplates using existing private and public ISPs to extend broadband service to the 400,000 locations in the state with no – or with inadequate – broadband access. Those ISPs provide access to the internet (fund capital expansion, maintain, and operate) primarily through subscriber revenues paid by businesses and residents. Locations needing broadband access lack it in most cases because the ISPs that potentially could serve them cannot make an adequate profit to justify the investment. The objective of the BEAD program is to use just enough public money to induce ISPs to expand service to these unserved and underserved locations.

For example, if the average cost of extending service to a group of locations was $5,000 per location, but an ISP could only be profitable if installation costs were no more than $1,500 per location, an efficient BEAD grant program would provide the ISP a grant of $3,500 per location, conditioned on the ISP going forward to provide broadband access to all of these unserved locations. But that example assumes that families and businesses in those locations actually will subscribe for the service (at levels as high as – or higher— than other areas where service is currently available). In other words – ISPs don’t need or necessarily want more locations with access to the internet – instead they want more locations with internet subscribers.

That is one practical reason why both the DEA, and the ACP exist. From a purely economic standpoint, both of these programs are designed to work alongside BEAD to increase demand for broadband service (the “take rate” as it’s known in the industry). The DEA gives folks the skills needed to appreciate and safely use internet based applications and technologies; the ACP makes that service affordable, so families to pay for the service they need.

Taken together one can think of these broadband programs BEAD, the DEA and the ACP as something like a three legged stool. The three legs of that stool provide funding for broadband access, adoption and affordability. Remove one of those legs, affordability in this case, and the stool – a $65 billion stool – may well topple over.

Of course there are many good reasons for providing financial assistance to families that can’t afford the broadband service they need besides creating a broadband network that is financially viable. Connecting most businesses and individuals to broadband has led to extraordinary gains in productivity and quality of life, but as the COVID pandemic illustrated, those gains have been uneven, with millions lacking adequate internet service and unable to use these new internet-based applications. We all pay when we leave the most economically vulnerable families disconnected to the internet applications we take for granted, in higher costs for healthcare, basic government services, substandard education, and fewer economic opportunities. A program like the ACP can help remove financial barriers to internet connectivity, and certainly it can be justified for that reason alone. However, allowing a program like the ACP to go away after all the work done over the past two years, and just as we are ready to spend over $45 billion on broadband expansion, is most certainly a mistake.

Remember the FCC RDOF Auction? When is a “Funded Area” Actually “Funded”?

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By Marc McCarty

Today I re-read my Blog from December 2020 about the winners of the FCC Rural Digital Opportunity Fund (RDOF) auction awards. It was an exciting time! Over $9.2 billion awarded — $346 million to Missouri providers that promised to connect nearly 200,000 Missouri locations to high-speed internet!

Twenty months later, while some Missourians now have the service available, many do not, and for some the connection promised by the funding will never come at all.

Why?

Part of the answer was described in the December 2020 Blog:

“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 financial data, and failure to submit it by the deadlines can result in forfeiture of the award.” 

As this map shows, as we approach the second anniversary of the initial FCC award announcement, companies who won awards in the areas of the state shaded in yellow still have not been able to satisfy the FCC’s criteria to begin receiving funding. Those areas shaded in red represent locations where companies have “defaulted” and lost their chance for federal funding.  This map does not include the latest disqualifications of “winning companies” — $885 million to Star Link (disqualified because it could not show it could deliver service to all locations at the promised speeds) and $1.3 billion to LTD Broadband (disqualified because it failed to obtain necessary state issued licenses to offer internet service). LTD Broadband’s disqualification is particularly relevant for Missouri because it represents the majority of Missouri locations that had not been funded.

Of course, even in areas where the final applications for funding have been approved by the FCC, another reason many folks are waiting for broadband service is that the funding is spread over 10 years and the providers have 6 years to meet their obligation. 

On August 15, the Department of Economic Development began taking applications for up to $265 million of state grant funding for broadband infrastructure, and Missouri likely will receive hundreds of millions of dollars more funding over the next few years through the Infrastructure Investment and Jobs Act programs.

Government officials are very concerned that this new funding does not go to areas already covered by another federal grant funding award. For example, under the DED program:

“project areas where high-cost support from the federal Universal Service Fund has been received by rate of return carriers, funding from the National Telecommunications and Information Administration Broadband Infrastructure Program, or where any other federal funding has been awarded to provide broadband service at speeds of 100/20Mbps will not receive Program funding.”

This of course, seems very logical. Why should the federal or state government pay twice for the same promised broadband access?

However, this logic breaks down when the promised federal funding is delayed for months or even years and then ultimately denied, or where the funded project cannot deliver the promised levels of broadband access.

This is a problem that is unlikely to go away. The FCC, NTIA and USDA (Reconnect) all have had funding programs in place over the past several years, with slightly different criteria for eligibility, requirements for connectivity levels, and build-out timelines. In some cases, the funding program did not require, and the provider did not commit to build out the locations to the current 100/100 Mbps or 100/20 Mbps standard.

Some of these issues can be addressed through a focused grant application and challenge process of the type DED has implemented. After all, providers that do expect to move forward with federal funding should be able to make that intent known. Further, in situations where “preliminary” awards were granted only to ultimately be rejected during an extended evaluation process – such as Star Link and LTD Broadband — the DED Broadband office has already taken steps to encourage applicants to make the case for funding through a new addition to its broadband program grant FAQ:

Questions added August 22, 2022:

Q31:The Federal Communications Commission today announced that it is rejecting the long-form applications of LTD Broadband and Starlink to receive support through the Rural Digital Opportunity Fund program, what does that mean for my broadband application?  

A31:Due to the FCC rejecting the long-form applications of LTD Broadband and Starlink, areas within Missouri that may have been considered federally funded/awarded may no longer be considered federally funded. In the application, for Section IV Questions 13 & 13a, if your proposed service area was a previously funded area, but it is no longer, provide an explanation of how the area was previously awarded,  and why that proposed service area is eligible for this Program’s funding.

Certainly, it also would be helpful if all federal agencies had more consistency in their requirements and process for funding programs and more transparency to identify when an “awarded” area:  (1) actually is reasonably likely to qualify for funding and (2) is building infrastructure capable of meeting modern standards for broadband service (100/100 Mbps or 100/20 Mbps).

Finally, it might be appropriate to consider more objective criteria for determining if an area that is unserved or underserved actually should be excluded because of a competitor’s challenge.  For example, Ohio’s state grant program definitions exclude unserved and underserved communities from participation in its grant program only when a competitor’s network is actually under construction and expected to be deployed within 24 months. Likely there are other ways of addressing this issue, but for the sake of residents and businesses currently on the other side of the digital divide, solutions need to be found. For Missourians without access, it is little comfort to learn that they live in an area that cannot participate in new rounds of federal and state funding for broadband, because funding was promised but never provided in a prior award or was used to construct infrastructure that doesn’t meet current standards. In either case, these folks are unconnected, with no realistic prospect of becoming connected, unless their homes and businesses are eligible to participate in future federal and state grant programs.

A Wrap-up – Broadband and the 2022 Missouri Legislative Session

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The Missouri General Assembly closed out its regular session on May 13, 2022 (Friday the 13th). The General Assembly committed unprecedented amounts of new public investment in high-speed internet infrastructure. Yet, the amounts provided were substantially less than what the Governor proposed last fall and did not address some of the key objectives identified in his budget proposal. Aside from the appropriation, limited progress was made on other fronts as well, and these are discussed in more detail below.

The ARPA Broadband Appropriation

Much of the General Assembly’s work this session centered on the Governor’s American Rescue Plan Act (ARPA) spending proposals – a key component of which was spending for Broadband. Using federal money provided by ARPA, the Governor proposed a multipronged approach that included infrastructure funding (broadband access), adoption (digital skills training) and affordability. In this regard, the Governor’s proposal mirrored the approach of the Infrastructure Investment and Jobs Act (the IIJA) enacted by Congress last year and described in an earlier blog.

As shown in the following table, while the General Assembly provided funds for internet access, it did not approve funding for the Governor’s adoption or affordability proposals. Administration of the new grant funding program (as well as development of a 5-year plan to apply for and secure more federal funding from the IIJA programs) will be provided by Department of Economic Development’s Broadband Office (DED), which received $10 million of additional funding this session.

ProgramGovernor Parson’s Proposal (Missouri Department of Economic Development (DED)General Assembly Appropriation
Access (Infrastructure)$250 Million  — Competitive Grant Program for locations lacking fixed wired or wireline service of at least 100 Mbps/20Mbps250 Million
“Digital Literacy”  (Adoption/Digital Skills)$30 Million – Competitive Grants  to Nonprofit and Educational OrganizationsNot Funded
Affordability (Assistance for broadband subscription cost )$30 Million – Would funds an additional $10 per month benefit to households eligible for the $30 per month benefit provided as part of the IIJA’s Affordable Connectivity ProgramNot Funded
Pole Replacement (supports fiber on pole deployment)$0* *Pole replacement costs could be funded through broadband infrastructure grant program  $15 Million
New Cell Towers for Wireless Access$30 Million$20 Million

There are a couple of observations that seem relevant here:

  • First, while the amount of money appropriated for broadband infrastructure far exceeds previous funding, it will not be enough to provide broadband to every location in Missouri that needs one.

The Governor’s proposal was expected to be enough to connect approximately 75,000 households in the state.  However, in a webinar presentation last month DED noted that a recently completed gap analysis showed that nearly 500,000 locations in Missouri lack broadband service at speeds of 100/20 Mbps (the new standard for “underserved” locations). The cost to connect those locations was estimated at a little less than $2 billion, whether wireless or wired technologies are used to provide service.

That said, the goal of funding universal broadband access across Missouri seems to be well within reach. The $285 million appropriated by the General Assembly this session is money the federal government provided to the state through the ARPA last year. An additional $1.3 billion (the second installment of State and Local Fiscal Recovery Funds (SLFRF)) will be deposited with the state later this year. This money also can be used to fund broadband and other infrastructure needs. Thereafter, Missouri is eligible to receive a sizable portion of the $42.5 billion available to states to fund broadband infrastructure as part of the IIJA. Finally, of course, assuming a public-private partnership model is used to provide broadband access, no one thinks that the federal and state governments will need to finance the entire cost of building out broadband to all underserved locations, as the private sector can fund the investment as well.

In other words, over the next several years, there appears to be an opportunity to access enough federal money to construct the infrastructure needed to close Missouri’s digital divide. However, this will require continued support from the General Assembly to appropriate the federal money. ARPA money left unspent by the end of 2026 must be returned to the United States Treasury. IIJA funding will be allotted to states based on need and funded only after submission and approval of a five-year plan designed to provide access to all unserved locations in the state. Thankfully, in this session the General Assembly began this process by appropriating money to DED this session from ARPA funds to develop this five-year plan, so that Missouri can fully participate in the IIJA funding programs both for access and adoption over the next several years.    

  • Second, the General Assembly’s decision to “zero-out” the Governor’s proposed appropriation for internet adoption is somewhat puzzling. One could make the case that $30 million was not the right amount – that it was too much – or that the need for adoption programs could be deferred to a later date and paid for out of future IIJA grants, and did not need to be included in this year’s appropriations. 

It may be simply that the proposal suffered from “misbranding”– the decision to call it “Digital Literacy.”  One would think most folks don’t like being referred to as “illiterate” – even if it’s “digitally” illiterate, and that term doesn’t really do a very good job of describing what the money was intended to pay for – or why it was needed in the first place.

Likely what was lost in the debate was an appreciation that the public benefit of broadband access, what justifies the investment of hundreds of millions of public dollars for broadband infrastructure, comes only when all individuals throughout the state can actually use that resource in ways that make a positive impact on public health, education and economic opportunity. This would include visiting their doctor online (telehealth); starting an in-home, internet-based business; reversing population declines in rural communities and saving commuting time and expense through telecommuting; obtaining an advanced degree or skill online from a university or junior college; monitoring crops in the field, reducing fertilizer and production input costs through precision agriculture; accessing online federal, state and local government services; and otherwise using high-speed internet in ways that make business, government and other institutions more efficient and effective.

In short, to fully realize the public benefit of broadband that justifies the unprecedented public investment in broadband infrastructure, there is a need to move beyond smart phones and recreation-centered internet-based applications (things like texting, social media, YouTube videos, online gaming etc.) and to provide everyone – not just the “tech-savvy” with the training and skills needed to effectively use this new resource. While certainly most everyone believes these goals and programs are worthwhile and necessary, the private sector has limited motivation (and expertise) to provide them. This was the rationale of an internet adoption program that would use nonprofit, local government, and educational organizations to develop the skills-based resources designed to further these objectives. Hopefully, as the need for these resources becomes more evident, funding for adoption programs will be included in future appropriations so that communities receiving public funding for internet  access will have the means to fully realize the benefit of this new resource.

Senate Bill 820   

Aside from the appropriations bills, significant – but more incremental progress was made through passage of  Senate Bill 820. This legislation incorporated several of the proposals from the work of the House Special Interim Committee on Broadband Development chaired by Representative Louis Riggs.

Among the changes, was a proposal supported by the DED, that incorporated a badly needed update to the definition of areas that lack access to adequate broadband service (underserved areas). This definition is important because it is used to identify broadband infrastructure projects that can be financed by Community Development Districts, Neighborhood Improvement Districts, and Broadband Infrastructure Improvement Districts, as well as describing locations that can qualify for direct grant funding administered by DED.

Assuming SB 820 is signed by the Governor later this summer and becomes law, underserved areas will be defined to include areas lacking fixed wired or wireless service equal to  100 Mbps download and 20 Mbps – a substantial increase from the old standard (25/3 Mbps).  This new standard is the same as that contained in the Infrastructure Investment and Jobs Act (the IIJA). SB 820 also permanently ties the definition to future increases in the speeds necessary to qualify internet service as “broadband” as changed by Federal Communications Commission – the  FCC – from time to time. By raising the standard used today, many more projects will qualify for funding and can use existing financing district legislation today, and by tying the definition to future increases implemented by the FCC, the statute will continue to be a useful tool in the future as new technologies such as virtual reality and artificial intelligence require even faster internet connections.

SB 820 also includes a new Vertical Real Estate Act (new §8.475) to expressly authorize any political subdivision to erect wireless telecommunication towers and related ground-based equipment and to enter into public private partnerships for the same purpose.  Finally, the new law adds several provisions designed to enable DED to better enforce and administer state broadband infrastructure grants in the cases where the recipient has failed to construct the promised infrastructure.