State versus Federal Broadband Grants

The recently enacted $1.9 trillion American Rescue Plan Act includes some interesting broadband funding. For example, there is $500 million aimed for infrastructure for Tribes, to supplement the $1 billion of other grants also earmarked for this purpose.

But the biggest broadband news from this Act is the “Coronavirus Capital Projects Fund” to be distributed by the  Department of the Treasury. This is $10 billion funding that is largely being earmarked for broadband. The money will be awarded in the form of state block grants – each state will get a block grant between $100 million and perhaps $500 million.

This award by Congress contrasts massively from the massive broadband money being proposed in the Accessible, Affordable Internet Act for All being proposed by Rep James E. Clyburn from South Carolina and Sen. Amy Klobuchar from Minnesota. That bill proposes spending an astonishing $79.5 billion on broadband infrastructure. Over $60 billion would be used for one gigantic federal reverse auction. There is also funding in this bill that would give another $100 million to each state for broadband expansion – but this money would be constrained, and states would have to follow rules established by Congress. My reading of the bill’s language would require states to also hold a reverse auction, which would take away any state authority over how money is spent.

The current American Rescue Plan Act funding is a true block grant to the states. The Act doesn’t proscribe a lot of rules on how states can use the money, which has been the case for many other federal broadband funding mechanisms. It’s likely that, within reason, that states can decide how best to spend the money. The federal legislation does say that the money needs to be spent for capital projects. The money could go to build new broadband infrastructure. The funding could go instead to connect low-income homes or student homes to existing broadband networks. Each state is free to use the money in the way it finds the most useful.

The difference between these two sources of federal funding raises a huge policy question. Should we trust states or the federal government to spend broadband grant money? I’ve been giving this a lot of thought for the last month and I come down on the side of state block grants for broadband, for a lot of reasons:

• States know where the pain points are in terms of areas that most need a broadband solution. The federal government will instead make decisions on where to spend grant money based upon the egregiously erroneous FCC mapping data.
• We have already seen that there is a lot of accountability for ISPs that accept state grants. ISPs generally must furnish proof, such as construction cost receipts, that the broadband facilities were constructed, and states often visit and inspect grant projects. Contrast this with FCC grants that have almost no accountability and that hand money to ISPs and hope the ISPs do the right thing.
• State grants will likely make a judgment call about the ability of an ISP to complete a grant project. States will make judgment calls about the solvency and balance sheet of a grant recipient and won’t give large sums of money to a company that has never tackled a large-dollar project before. A state grant program might be leery of funding a start-up that doesn’t have customers or of funding a technology that a grant recipient hasn’t built and operated before. States also make judgment calls on technology. For example, some states only fund wired gigabit technologies.
• States grants often don’t insist that grants projects pay prevailing wages – city labor rates – for projects where numerous contractors are willing to accept lower market labor rates. States want grant dollars to spread as far as possible and to help as many households as possible.

I could go on with this list and show many other ways where states are likely to be more responsible with grant dollars than the FCC. State grants are likely less likely to waste dollars, and states are a lot less likely to give grants to bad actors or bad technologies.

This is not to say that state grants will be perfect – because governments never are. There will be states where politics will be the primary driver behind who gets funded. We don’t have to look any further than $100 million CASF grants in California in 2016 to see a program where all of the state grant money was handed to AT&T and Frontier. Some states will make poor funding decisions – but most will not.

This leads to the most fundamental reason I favor state block grants. If a state screws up a grant funding program, voters who want better broadband will have somebody to blame and vote out of office. What’s the accountability to the public if the FCC duplicates the failures of the RDOF grants in a bigger reverse auction – nobody gets to vote against the FCC.

It’s really hard for me to come up with even a single reason that would argue in favor of federal broadband grants over state grants. I hope the folks in Congress who are likely to decide this issue take a little time and think through the issues I’ve discussed in this blog. Federal legislators tend to like federal solutions – and like having their names attached to grant funding bills. But the chances are high that the coming big burst of infrastructure dollars will be the last money given to solve rural broadband for the foreseeable future, so let’s please not screw this up.