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HOST: Welcome back to Cherry Bekaert's Government and Public Sector podcast series. In this episode, we focus on opportunities for state and local governments to fund broadband implementation with an emphasis on compliance and monitoring considerations.

HOST: I am Denise Lipiner, and I lead Cherry Bekaert's State and Local Advisory practice. We have two great guests for you today. Let's start with Paul. Paul, please introduce yourself.

PAUL FULKERS: Yes. Hello. Thanks, Denise. I'm Paul Fulkers, a senior manager with Cherry Bekaert. I spent almost 30 years working in local government as an assistant manager for two cities and two counties in Maryland and Florida, so I gained a full range of experience working in local government and the value that provides.

PAUL FULKERS: In those positions, I interacted with state and federal governments. I've been working with Cherry Bekaert for about a year and a half. It's a pleasure to be here, and I look forward to discussing the opportunities to address broadband needs throughout the nation.

BOB LOBE: Yes. I'm Bob Lobe, vice president and co-owner of Roal Lo LLC. As an economist, I've testified on behalf of public advocates in broadband cases in numerous states. I have testified on broadband availability and competition, mapping locations of customers of small telephone companies versus customers served by cable companies.

BOB LOBE: I have also testified on the cost of fiber networks. I filed a report for the IRS in a district court on a universal service proceeding. You can't imagine how I felt when the call came from the IRS and, instead of asking me for money, they said they would pay me. That was a special opportunity and the thrill of a lifetime.

HOST: Thank you for the introductions, Paul and Bob. I appreciate your participation in today's podcast. Let's start with an overview of funding opportunities for our audience. What specific acts and digital equity programs will we be discussing today? Paul, why don't you take this one first.

PAUL FULKERS: Thanks, Denise. I'll hit a couple of the major ones, and Bob has more in-depth knowledge on these and other funding programs available to address broadband needs. The amount and variety of funding programs have expanded tremendously over the last couple of years.

PAUL FULKERS: One of the initial larger sources of funding came from the American Rescue Plan Act, which provided federal coronavirus relief funding and direct aid, and allowed for spending flexibility that included infrastructure, including broadband. That funding has been used by many states and local governments to support broadband needs, addressing access, affordability, and reliability.

PAUL FULKERS: Another major source is the Infrastructure Investment and Jobs Act. Most significantly, it created the Broadband Equity, Access, and Deployment (BEAD) program, about $42.5 billion, a targeted effort to support planning and build capacity in state broadband offices for outreach and coordination with local communities.

PAUL FULKERS: The BEAD program provides oversight by the National Telecommunications and Information Administration (NTIA) and prioritizes unserved and underserved communities. There was also the Coronavirus Capital Projects Fund of $10 billion. Those are some of the larger programs, and I'll turn it over to Bob for additional details and other federal programs.

BOB LOBE: The Infrastructure Investment and Jobs Act is divided into parts and includes the BEAD program. There's about $42 billion for BEAD, of which each state gets approximately $100 million and the NTIA receives administrative funding. About $6 billion of the $42 has been allocated; the remaining $36 billion will be allocated soon.

BOB LOBE: The FCC has announced it will release its revised National Broadband Map on May 30. I expect the NTIA to use that revised map between now and, hopefully, June 30 to tell states how much of the additional $36 billion they will receive. That money will be allocated based on the unserved locations in the state compared to unserved locations nationwide.

BOB LOBE: The Infrastructure Act and Treasury funding have different service requirements. The Infrastructure Act provides money for middle-mile infrastructure—from a headend or wire center to the internet backbone—but only allocated $1 billion for that. The NTIA has already received over $5 billion of requests for that $1 billion, and it is analyzing those requests to determine recipients.

BOB LOBE: There is tribal funding designated for tribal lands to improve access. Other federal programs involve agencies such as the Federal Communications Commission (FCC) and the Rural Utilities Service (RUS) under the Department of Agriculture.

HOST: Thank you, Paul and Bob. I didn't realize there were so many different funding opportunities available to state and local governments for this. That was insightful. I'd like to discuss what state and local governments need to consider when using these funds. Bob, can you give us your perspective?

BOB LOBE: The first thing states must do is conform to NTIA rules and regulations for submitting the preliminary proposal. Within that proposal, each state entity must include a challenge process. To have that challenge process approved by the NTIA, the state must publish a list of eligible locations.

BOB LOBE: Eligible locations are defined by two factors. A location is unserved if it has less than 25/3 service, and a location is underserved if it has less than 100/20 broadband speed at that location. Once the list is published, the state must check the Broadband Funding Map to see which locations are proposed to be covered by other programs such as the FCC, the RUS, and Treasury projects.

BOB LOBE: The state must combine knowledge about underserved and unserved locations with commitments by other agencies, then publish the list of eligible locations for the BEAD program. The state must allow anyone to challenge whether locations are served at the speeds providers claim.

BOB LOBE: When a challenge is submitted, the state must allow the provider to rebut the accusation, and then the state decides whether the information is acceptable. Challenges can concern speeds or claims that a provider plans to build at a location; it is difficult for state entities to evaluate plans to build.

BOB LOBE: Once proposals are accepted and construction begins, the state must establish a process for monitoring network buildout. There are four monitoring approaches: real-time monitoring, where workers carry a device that records date, GPS location, a photo of activity, and inventory data; post-construction verification, where an engineer inspects the build after completion to determine milestones and compliance; sample tracking, where engineers inspect a limited number of locations; and self-certification of milestones, where the provider signs off on its own progress. I do not recommend self-certification.

HOST: Paul, what are your perspectives?

PAUL FULKERS: I affirm and support what Bob said. There is significant responsibility and accountability with the use of these federal funds to ensure they are used for eligible activities and achieve required performance standards and outcomes. States and local governments should conduct a risk assessment of managing and disbursing these funds, ensuring financial compliance and that broadband access meets identified standards.

PAUL FULKERS: This is a generational opportunity to future-proof broadband access, so compliance and monitoring must be robust and verify both financial compliance and that access meets standards over time.

BOB LOBE: Regarding cost considerations, we typically divide costs into capital costs—the cost of constructing the network—and operating costs—the cost of running the network. The Infrastructure Act will cover 75% of capital costs, so someone else must provide the other 25%. Sources for the match could be a private firm, a state, a municipality, or federal funds, but be careful: some federal funds are allowed as match and some are not.

BOB LOBE: For example, the Coronavirus Capital Projects Fund under the American Rescue Plan Act is allowed to support BEAD and Infrastructure Act projects, but FCC funds are not allowed as part of the match. Revenue must cover operating costs, depreciation, and return on the portion of capital supplied by private sources.

BOB LOBE: Do not completely separate capital costs from operating expenses because the type of capital affects operating costs. Fiber costs more upfront but has a longer service life than fixed wireless, which can result in lower annual depreciation for fiber despite higher initial cost. Fiber-to-the-home networks have fewer moving parts and typically lower operating costs than legacy systems like DSL or fixed wireless.

BOB LOBE: You must evaluate total project cost over the life expectancy of the network and the total revenue available to support the project.

HOST: Once states and local governments have programs up and running, what must they do to ensure longevity and continued service to their communities?

BOB LOBE: Request providers submit anticipated prices and projected take rates for each service offered. Multiply price by take rate to get projected revenue and assess whether the provider expects to generate sufficient revenue to support the network. One price offering must meet the Infrastructure Act's requirement for an affordable rate.

BOB LOBE: After construction, require the provider to give regular updates on customer adoption and service offerings, and verify that customers receive the advertised speeds. If a project needs ongoing support, the FCC may provide support after reviewing outcomes, but it is not guaranteed. The state entity should estimate the potential value of projects that may need support and how much support they might request from the FCC in the future.

PAUL FULKERS: Bob addressed this well. States should build sustainability into program design from the front end, focusing on reliability and affordability over time. Consider whether the system will meet standards one, two, or five years from now and whether affordability can be maintained so access persists. Build sustainability into the program and include ways to verify and monitor long-term outcomes.

HOST: We've covered a lot. Can each of you share a key takeaway for our listeners? Paul, go first.

PAUL FULKERS: Different approaches exist for states and local governments. Some work with existing broadband providers to expand networks, while others involve local governments leading efforts to address the digital equity gap. My key message is that it is not one or the other; seek cooperative efforts and partnerships between private and public sectors. Broadband providers and local governments should work collaboratively, and the program approach should encourage ongoing partnerships.

HOST: Bob, your key takeaway?

BOB LOBE: Don't be afraid to ask for many details, and once you have them, track and monitor construction against the proposal to ensure it is done on time and on budget.

HOST: Thank you, Paul and Bob, for joining us today. If you want to contact Paul, he can be reached at Paul Fulkers — p a l . f u l k e r s @ c b . c o m — and Bob Lobe can be reached at r l b e @ r o a l l o . c o m. We appreciate you listening to this podcast and hope you found it informative.

HOST: Be sure to follow or subscribe to our podcast on your preferred listening platform, and look out for our next podcast on topics state and local governments should be considering. [Music]