FILE - 5G broadband wireless

A study just released by the Pew Charitable Trusts examines how states fund broadband projects and reveals the various ways in which governments extract money from taxpayers to subsidize high-speed internet.

The funding mechanisms most often used are grants and loans, although Pew notes that states have varying approaches on how they distribute money and encourage investment. Michigan, for example, appropriated money from its general fund in its 2017-18 budget bill to create a broadband program.

“Any state can appropriate money for broadband in this manner, but if it does so, those dollars will compete with funds for many other state priorities, such as education, transportation, and health care,” the report states.

Ten states have established their own universal service fund (USF). Similar to the USF run by the federal government, these funds were initially created to help expand phone service to every American but are now siphoning money to broadband projects after the enactment of the Telecommunications Act of 1996. The USF fees (i.e. taxes) are designed to offset the cost of deploying internet to unserved areas and are charged to telecom providers and passed on to consumers.

Many states have established grant and loan programs that can be tapped into by private providers, cooperatives and local governments. Some states like Tennessee offer only grants, while others, including West Virginia, fund such projects only through loans.

Tom Struble, technology policy manager at R Street Institute, said loans are much preferred to grants from the taxpayer perspective.

"A grant is just free money with no oversight and no strings attached,” he told the Taxpayers Protection Alliance Foundation (TPAF). Though Pew says many broadband-related grants do have requirements of the grant recipient.

Struble noted Pew found that every state except Missouri requires some matching funds. That policy requires private providers to have some skin in the game, so to speak, but in Missouri, ISPs don’t have to show them the money, though Pew notes that Missouri prioritizes applications with matching funds.

Pew also pointed out that the terms unserved and underserved vary greatly from state to state. For example, Indiana defines an area as unserved if no providers offer download speeds of at least 10 megabits per second, while Georgia says an area is unserved if less than 20 percent of homes cannot access speeds of at least 25 mbps.

TPAF previously reported on Minnesota’s Border-to-Border Fund which considers an area receiving less than 100 mbps as underserved and an area receiving less than 25 mbps as unserved. A state task force member told TPAF the metrics were ludicrous.

Struble said that considering how fast technology improves, states shouldn’t put speeds into statute. He said they should instead follow the lead of Congress, which discussed the need for high-quality connections in the Telecommunications Act rather than try to nail down a particular speed.

“Those are going to be quickly outdated,” Struble said of the state standards. “The FCC has changed the standard several times in the past ten years.”

The current broadband standard as established by the Federal Communication Commission is a download speed of 25 mbps and an upload speed of 3 mbps.

Pew's study study also discovered that 16 states use tax-incentive programs to encourage broadband deployment, often giving breaks on the infrastructure or equipment used to build and maintain networks. Iowa offers property tax exemptions for broadband infrastructure for a decade after it’s installed, while Maine allows ISPs to claim a credit for the equipment they buy or lease.

Struble said he prefers this type of funding as it’s a discount for providers rather than a handout.

Alabama is one state that considered this method before going a different route. Legislation passed in 2017 that would have initially offered incentives to providers to expand to rural areas was changed to a granting program, as previously reported by TPAF.

The Pew study found there is no one-size-fits-all solution for broadband expansion and recommended that states should use creative and diverse ways to serve areas lacking in access. While there is no magic bullet, states should keep taxpayers and their money in mind when promotion high-speed internet growth and ensure the funds are spent effectively.

Johnny Kampis is an investigative reporter for the Taxpayers Protection Alliance Foundation.