Considerations for Leveraging Federal Funding to Close the Digital Equity Gap

HOST: DENISE LIPPUNER: I lead Cherry Bekaert's state and local advisory practice. We have two guests today. Paul, please introduce yourself.

PAUL FOLKERS: I am Paul Folkers, 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, which gave me broad experience interacting with state and federal governments.

PAUL FOLKERS: I've been with Cherry Bekaert for about a year and a half. I look forward to discussing opportunities to address broadband needs nationwide.

HOST: DENISE LIPPUNER: Bob, please introduce yourself.

BOB LOUBE: I am Bob Loube, vice president and co-owner of Roka Loeb LLC. As an economist, I have testified on broadband availability and competition in numerous states, mapping customer locations for small telephone companies versus cable companies, and I have testified on the cost of fiber networks.

BOB LOUBE: I filed a report for the IRS in a district court on a universal service proceeding, which was a memorable opportunity.

HOST: DENISE LIPPUNER: Let's start with an overview of funding opportunities. What specific acts and digital equity programs will we discuss today? Paul, please go first.

PAUL FOLKERS: The amount and variety of funding programs have expanded significantly. One initial large source was the American Rescue Plan Act, which provided coronavirus relief funding and allowed spending flexibility that included infrastructure such as broadband. Many states and local governments have used those funds to support access, affordability, and reliability.

PAUL FOLKERS: Another major source is the Infrastructure Investment and Jobs Act, which provided approximately $65 billion toward broadband. Most significantly, it created the Broadband Equity, Access, and Deployment (BEAD) program, about $42.5 billion targeted to support planning and build capacity in state broadband offices, with oversight by the National Telecommunications and Information Administration (NTIA) and prioritization for unserved and underserved communities.

PAUL FOLKERS: There was also a Coronavirus Capital Projects Fund of $10 billion. Those are some of the larger programs, and Bob has in-depth knowledge of these and other federal funding programs.

BOB LOUBE: The Infrastructure Investment and Jobs Act is divided into parts, including the BEAD program, which has $42 billion. Approximately each state received about $100 million initially, and the NTIA received administrative funds—about $6 billion of the $42 billion has already been allocated. The remaining approximately $36 billion will be allocated soon.

BOB LOUBE: The Federal Communications Commission has announced it will release a revised national broadband map on May 30. I expect the NTIA to use that revised map between now and June 30 to determine how much of the additional $36 billion each state will receive, allocated based on unserved locations in each state compared to unserved locations nationwide. That is an important date for states anticipating new allocations.

BOB LOUBE: The Infrastructure Act also provides $1 billion for middle-mile infrastructure, from a head end or wire center to the Internet backbone. The NTIA has already received over $5 billion in requests for that $1 billion, and it is analyzing requests to determine awards.

BOB LOUBE: There is also tribal funding designated to help tribal lands gain greater access. Other federal agencies involved include the FCC and the Rural Utility Service (RUS) under the Department of Agriculture.

HOST: DENISE LIPPUNER: What do state and local governments need to consider when utilizing these funds? Bob, your perspective?

BOB LOUBE: States must conform to NTIA rules and regulations for submitting a preliminary proposal. Each state must include a challenge process in that proposal. The state must publish a list of eligible locations based on two factors: whether a location is unserved, meaning less than 25/3 Mbps service, or underserved, meaning less than 100/20 Mbps.

BOB LOUBE: The state must cross-check those locations against the broadband funding map to determine which locations are covered by the FCC, the RUS, and Treasury projects. The state combines its knowledge of unserved and underserved locations with commitments by other agencies, publishes the list of eligible locations for BEAD, and allows challenges.

BOB LOUBE: When a challenge is filed, the state must allow the provider to rebut the claim, then decide whether the information is acceptable. Challenges can address speed accuracy, and a provider might defend a location by providing convincing evidence of planned construction, which can be difficult for states to evaluate.

BOB LOUBE: Once proposals are accepted and construction begins, the state must establish a process for monitoring buildout. There are four monitoring approaches: real-time monitoring, which records date, GPS location, photos, activity, and inventory as work crews proceed; post-construction universal tracking, where engineers inspect completed builds; sample tracking, where engineers inspect a subset of locations; and self-certification, where providers certify milestones, which I do not recommend.

PAUL FOLKERS: I agree with Bob. Federal funds carry significant responsibility and accountability. States and local governments must ensure funds are used for eligible activities and that dollars achieve required performance standards and outcomes.

PAUL FOLKERS: A robust risk assessment upfront is essential. These are large, discrete grants, so assess risks associated with managing and disbursing funds, ensuring eligible use, and verifying outcomes. This is a generational opportunity to build future-proof broadband access, so compliance and monitoring should assure not only financial compliance but that access meets identified standards.

HOST: DENISE LIPPUNER: Bob, can you discuss cost considerations for governments implementing these programs?

BOB LOUBE: Costs are typically divided between capital costs for constructing the network and operating costs for running it. The Infrastructure Act covers 75% of capital costs, so the remaining 25% must come from other sources such as private firms, state or municipal funds, or non-restricted federal funds. Be careful: some federal funds can be used as matching funds and others cannot. For example, Coronavirus Capital Projects Fund money from the American Rescue Plan can support BEAD and Infrastructure Act projects, but FCC funds cannot be used as part of the match.

BOB LOUBE: Revenue must cover operating costs, depreciation, and a return on the portion of capital supplied by private sources. You cannot separate capital and operating costs entirely because capital choices affect operating expenses. For example, fiber costs more upfront but has a longer service life than fixed wireless, which can result in lower annual depreciation for fiber.

BOB LOUBE: Fiber-to-the-home networks have few moving parts and typically lower operating costs than legacy systems like DSL or some fixed wireless solutions. Evaluate total project cost over the network's life expectancy and the total revenue available to support the project.

HOST: DENISE LIPPUNER: What do states and local governments need to do to ensure program longevity after implementation?

BOB LOUBE: Require providers to submit anticipated prices and projected take rates for each service. Multiply price by take rate to project revenue and assess whether the provider expects sufficient revenue to support the network. At least one price offering must meet the Infrastructure Act's affordability requirement.

BOB LOUBE: After construction, require regular reports on customer adoption and the services purchased. Verify that customers receive the speeds and services advertised. If projects need ongoing support, the FCC has indicated it may supply support after reviewing project outcomes, but there is no guarantee. States should estimate potential future support needs and the approximate value of that support.

PAUL FOLKERS: States should build sustainability into program design from the start. Consider whether the system will meet standards one, two, or five years after buildout, and whether affordability can be maintained so new subscribers retain access. Build testing and verification mechanisms into programs to ensure long-term reliability and affordability.

HOST: DENISE LIPPUNER: To conclude, please share a key takeaway for listeners. Paul, you first.

PAUL FOLKERS: There are different approaches states and local groups can take, including partnering with existing private broadband providers or developing public-sector solutions. My key message is that it is not one or the other; effective efforts will often involve cooperative partnerships between the private and public sectors.