The Infrastructure Plan and Broadband

The administration finally published their infrastructure plan last week. The document is an interesting read, particularly for those with a financial bent like me. There is no way this early to know if this plan has any chance to make it through Congress, or how much it might change if it does pass. But it’s worth reviewing because it lets us know what the government is thinking about infrastructure and rural broadband.

First, the details of the plan:

• The proposed plan provides $200B of federal funding over 10 years;
• $100B goes to States in the form of a 20% grant for new projects that won’t require additional future federal spending;
• $50B is set aside as grants to states as a grant program for rural infrastructure. States can use the money as they wish;
• $20B goes to projects that are in the demonstration phase of new technologies and that can’t easily attract other financing;
• $20B would to towards existing federal loan programs including Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Water Infrastructure Finance and Innovation Act (WIFIA).
• Finally, $10 billion would be used to create a revolving fund that would allow the purchase, rather than the lease of federal infrastructure.

The funding for the program is a bit murky, as you would expect at this early stage. It appears that some of the funding comes from existing federal highway infrastructure funds, and one might suppose those funds will still be aimed at highways.

This plan gives governors and state legislators a lot of new money to disperse, meaning that every state is likely to tackle this in a different way. That alone is going to mean a varied approach to funding or not funding rural broadband.

The plan is completely mute in terms of broadband funding. This makes sense since the plan largely hands funds to the states. The program does not promote rural broadband, but it certainly does not preclude it. The most likely source of any funding for rural broadband would come out of the $50B rural pot of funding. We’ll have to wait and see what strings are attached to that money, but the proposal would largely hand this money to states and let them decide how to use it.

The larger $100B pot is to be used to provide up to 20% of the funding for projects and there are very few rural fiber projects that don’t need more than 20% assistance to make them viable. If the 20% funding basis is firm for this pot of funding I can’t see it being used much for broadband.

States are not going to like this $100B funding pool because this completely flips the role of the federal government in infrastructure funding. Today, for many road and bridge projects the federal government supplies as much as 80% of the funding, and this flips the 80% to the states. Because of this, States are likely to view this as an overall long-term decrease in federal infrastructure spending. The trade-off for the flip, though, is that the money is immediate and the states get to decide what to fund. Today, when the feds are involved it can take literally decades to finish some road projects.

The overall goal of the plan is to promote private investment in infrastructure projects, which contrasts to today where almost all infrastructures projects are 100% government funded. Historically public/private partnerships (PPPs) have played only a small role in US infrastructure spending. PPPs have been successful in other countries for helping to build infrastructure projects on time and on budget – which is a vast improvement over government projects that routinely go over on both. But incorporating PPP financing into infrastructure spending is going to take a change of mindset. That challenge is going to be complicated by the fact that most of this spending will be dispersed by the states. And it’s the states that will or will not embrace PPPs, so we’ll probably have a varied response across the country.

One of the most interesting ideas embedded in the plan is that projects should be funded in such a way as to cover the long-term maintenance costs of a project. That’s a big change from today where roads, bridges and other major projects are constructed with no thought given about the funding for the ongoing maintenance, or even for related costs of a project for environmental and other ancillary costs. This is going to force a change in the way of thinking about infrastructure to account for the full life-cycle cost of a project up-front.

I’ve read a few private reports from investment houses and their take on the plans. The analysis I’ve seen believes that the vast majority of the money will go to highway, bridges and water projects. That might mean very little for rural broadband.

One thing is for sure, though. If something like this plan becomes law then the power to choose infrastructure projects devolves largely to states rather than the federal government. Today states propose projects to the feds, but under this plan the states would be able to use much of the federal funding as they see fit.

There are states that already fund some rural broadband infrastructure, and you might suppose those states would shuttle some of this new funding into those programs. But there are other states, some very rural, that have rejected the idea of helping to fund broadband. Expect a widely varying response if the states get the power to choose projects.

In summary, this plan is not likely going to mean any federal broadband grant program. But states could elect to take some of this funding, particularly the $50B rural fund, and use it to promote rural broadband. But there are likely to be as many different responses to this funding as there are states. We have a long way to go yet to turn this proposal into concrete funding opportunities.