Regulation - What is it Good For?

Let the BEAD Grant Process Begin!

The Notice of Funding Opportunity (NOFO) for the $42.2 billion BEAD grants came out late last week. I expect there will be dozens of summaries of the key grant rules published, and I’m not going to repeat that effort. Instead, I’m going to write a series of blogs that explore some of the nuances that potential grant applicants need to understand. Today’s blog is a high-level summary of the issues I’ll be exploring in more detail.

The Grants Draw a Firm Technology Line. The NOFO uses the term ‘reliable broadband service’ to mean existing technologies that are considered to be broadband. This includes only fiber-optics, cable company hybrid-fiber coaxial technology, DSL, and fixed wireless service supported by licensed spectrum. Every other technology does not count as broadband in terms of defining areas eligible for the grants. The NOFO means that grants can be used to overbuild areas served by satellite broadband or by WISPs using unlicensed spectrum – regardless of the speeds being provided.

The Grants Are Complicated. When I started to make a full list of all of the grant requirements suggested by the NOFO, I realized that these are going to be the most complicated broadband grants ever – more complicated even than ReConnect grants. It looks like the NTIA made a list of everything that could possibly go wrong with a project or an ISP and made each into a grant requirement.  Here are just a few of the new requirements I’ve never seen in a grant before: a cybersecurity plan, a climate resiliency plan, a supply chain risk management plan, a middle-class affordability plan, and a project workforce continuity plan if not using union labor.

The Grants Add a Lot of Cost to Projects. These grants layer on a lot of costs onto broadband projects that would not be there for an ISP building a rural project on its own. Some of the big ones include environmental and historical preservation studies; prevailing wages for grants over $5 million; bank letters of credit and a legal opinion on the lines of credit; construction contractors must certify commitments to workforce development, including participation in apprenticeship programs; buy America requirements that will drive up the cost of materials; heavy-duty reporting requirements that layer on work after taking the grant. Additionally, grantees must fund all non-grant eligible assets and costs, as would be expected. I also should remind folks that grant funds are going to be considered a taxable income by the IRS. The bottom line of all of this is that the real cost of taking one of these grants is going to significantly exceed the supposed matching fund percentage.

The Grants Are Clearly Stacked Against New ISPs. This is ironic because the rules as written by Congress and alluded to throughout the NOFO talk about favoring what the NOFO calls non-traditional broadband providers like non-profits, electric cooperatives, local governments, public utility districts, and Tribes – but the detailed grant rules are stacked against new ISPs in a dozen places.

The Grants Want to See Skin in the Game. While grants can be as high as 75%, the NTIA expects States to award grants to applicants that ask for the lowest amount of grant funding. And while the grants allow for matching funds from ARPA and state grants, the rules will favor ISPs who supply their own matching funds.

There are Some Gotchas In the Financial Requirements. There are financial requirements that are going to stop a lot of entities from requesting the grants. An applicant must get a bank letter of credit just to apply for the grant – something that’s expensive and not easy for many entities to get. This is then followed up with an irrevocable standby letter of credit for the full matching funds (even if some of those funds are being supplied with other matching funds or with in-kind matching. The NTIA also gives the government a lien on assets until the end of economic life – something that some commercial lenders will refuse to allow for loans.

This is Going to Overwhelm State Broadband Offices. Remember that these grants are going to be administered by fifty separate grant offices. The complexity of the grant rules will overwhelm most state grant offices, which are often newly staffed. I think the NTIA thinks all of the extra requirements will make it less likely to make bad grant awards. I expect the complexity will do the opposite since inexperienced reviewers will have trouble distinguishing the few requirements that really matter from the many that are peripheral.

Penalties for Non-performance. The grants seem to have some teeth for non-performance, something that’s been lacking in grants in the past. Penalties against non-performing grant recipients can include the imposition of additional award conditions, payment suspension, award suspension, grant termination, de-obligation/clawback of funds, and debarment of organizations and/or personnel from using future federal funds. We’ll have to wait to see if these penalties are actually ever imposed, but it’s promising that the penalties are listed.

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