Regional utility districts can help bridge broadband service gaps

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This article is part of a series that examines three approaches to extending broadband access to rural areas that lack sufficient services.

Regional utility districts formed between multiple cities or municipal entities represent one of many emerging frameworks for providing broadband service to unserved or underserved areas, particularly in more rural parts of the country. Historically, these utility districts were formed to build infrastructure and provide essential services.

This has been a common model in rural America, used to provide a variety of services, including water or emergency medical services. In recent years, states such as Vermont and New Hampshire have adopted policies to support the formation of these districts to provide high-speed Internet access to residents. Other options are being explored, including allowing electricity cooperatives to provide service in these areas and using investor-owned utilities to improve the availability of critical infrastructure.

Bringing broadband to rural areas is difficult because of the economy; the infrastructure is expensive to deploy and sparse populations mean a small customer base for traditional ISPs. Creating regional districts increases overall demand by combining the populations of multiple cities. This offers a myriad of benefits: it increases the number of potential customers, mitigates the risks faced by individual cities, and enables services to be delivered more efficiently through a regional network rather than individual systems.

In 2020, Vermont and New Hampshire passed policies regarding the formation of municipal districts to provide broadband services. Vermont lawmakers have passed a law authorizing the creation of Communications Union Districts (CUDs) in which two or more cities come together to support the construction of communications infrastructure. Once formed, a DUC must obtain funding for its operations through grants, loans, or revenue bonds, but cannot use taxpayers’ money for initial operating costs.

The Vermont Broadband Program includes grant and loan programs that identify DUCs as entities eligible for funding. Governor Phil Scott (R) proposed last year to invest $223.5 million in US federal bailout funds to support the work of nine newly authorized CUDs. The money would be used to build infrastructure that would provide symmetric 100 megabits per second broadband service, setting the same minimum speed for uploads and downloads.

Vermont also awarded $9.9 million in preconstruction grants to four of the CUDs for feasibility studies, business planning, and other legal or administrative expenses.

Similarly, the bill enacted in New Hampshire allows the formation of communication districts for the development of broadband systems. The legislation allowed districts to issue bonds to fund broadband infrastructure projects. Although New Hampshire did not have a broadband program at the time Communication Districts were authorized, lawmakers signed into law a bill in 2021 that established a matching broadband grant program that identifies districts as entities eligible for funding. By the end of March, no communications district had been formally formed, but Carroll County’s 19 towns had come together to create the Carroll County Broadband Committee. Group members conduct feasibility studies and develop a business plan for building broadband infrastructure.

Maine also made policy changes to allow for the creation of regional municipal utility districts to provide broadband services. In 2015, the state changed its statute to allow the formation of districts and authorized them to issue tax bonds to raise funds for their operations. Since then, two regional public broadband services have been created. The Downeast Broadband Utility is a non-profit organization created by the cities of Calais and Baileyville in 2017 to support the construction of broadband infrastructure to serve their residents. The utility financed the $3.1 million fiber network construction effort with loans from local banks and supplier fees from customers. The network was completed in 2019.

In 2021, citizens of three coastal towns – Camden, Rockport and Thomaston – voted to strike a deal that would establish the Midcoast Internet Development Corp., a nonprofit regional broadband utility. The regional network would follow an open access model: municipalities would own the fiber network while private Internet service providers would bring service to retail end users in the service area. ConnectMaine, the state broadband program, includes broadband utility districts among the recommended grant-applying entities in its 2020 Broadband Action Plan.

As they work to launch their operations, regional broadband utility districts often face challenges getting money to fund infrastructure. In addition to state and federal funding sources such as grants and loans, districts can issue tax-exempt municipal bonds to pay for construction costs. The use of such bond financing makes it possible to finance the construction exclusively with bonds and without cash or equity. Districts may also be able to obtain bonds matching the expected life of assets of 25 or 30 years and receive lower interest rates than commercial loans.

Two types of bond financing may be available: revenue bonds and general obligation bonds. Revenue bonds are backed by broadband network revenues and assets and would likely not have to be repaid if projects fail. Most of the municipal fiber networks that have been built have been funded by revenue bonds. General bonds, on the other hand, are backed by municipal tax revenues and must be repaid if projects fail. Rockport, one of the participating cities of the Midcoast Internet Development Corp., has experience issuing bonds and has identified building municipal tax bond credibility from its broadband operations as objective of the project.

The regional utility model was used to provide essential services to residents who otherwise would not have access to these services. Although the multi-city service delivery framework has been used for services such as water, sewer and emergency medical response, the creation of regional districts to deliver broadband has recently emerged as a viable option. . With the rise of utility districts for broadband service, more rural and unserved communities will now have expanded access to high-speed Internet.

Anna Read is a senior executive and Lily Gong is associated with The Pew Charitable Trusts Broadband Access Initiative.

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