On Nov. 29, 2021, The Pew Charitable Trusts sent a memo to state broadband offices that are participating in Pew’s broadband education and training initiative, examining how states have developed and used their own funding mechanisms to support broadband expansion programs.
The full text of the memo is below.
This memo includes information on the funding mechanisms that states use to support broadband grant and loan programs or otherwise support broadband projects, but it importantly excludes federal funding, which has recently emerged as a significant component of state broadband grant programs.
Although there has been a recent influx of federal funding, the state-funded portions of broadband grant and loan programs have historically come from three main sources:
States also support broadband projects through tax provisions, bonds, and related programs (e.g., economic development, housing, or telehealth programs).
Before the recent influx of federal funds, the majority of states operated broadband grant programs through a special fund designated for broadband deployment. States use a variety of funding mechanisms to support these broadband grant programs, including appropriations from the general fund, revenue from state universal service funds, or revenue from other designated sources.
The authorizing language for these special funds typically outlines the eligible uses and role of the legislature or governing bodies, for example:
Most states make annual or biennial appropriations from the state general fund to their broadband grant funds to support broadband deployment. For example, since 2018, Virginia has allocated a combined $124 million in general state funding for the Virginia Telecommunication Initiative. Michigan appropriated $20 million from its general fund when it created a one-time broadband program in its 2018-19 appropriations bill. Any state can appropriate money for broadband in this manner but will need to balance other priorities, such as education, transportation, and health care, that typically also command general fund dollars.
As of 2021, 42 states operate some form of a state universal service fund (USF); these funds support a range of broadband-related activities, including internet bill assistance through Lifeline, phones, and devices, and captioning services for people with hearing impairments. Originally, states and the federal government developed these funds to ensure the availability of landline voice communications, with the goal of enabling “universal service,” the idea that every American should have access to telephone service. Since the enactment of the Telecommunications Act of 1996—a federal law designed to help deregulate the telecommunications industry and promote competition—these funds can also be used to expand internet connectivity. States established funds to support the deployment of telecommunications service to rural and high-cost areas. The money for these funds is sourced from fees levied on telecommunications providers, which are passed on to consumers, and is used to offset the cost of deploying phone and internet to areas without access and those that are expensive to connect, such as rural communities.
Of the 42 USFs, only 10 states (Arkansas, California, Colorado, Maine, Nebraska, New Mexico, Oregon, Utah, Vermont, and Wisconsin) have USFs that can be used to support broadband projects.
States have also used other revenue streams to fund their broadband grant programs:
Sixteen states use special tax provisions to encourage broadband deployment, such as tax deductions or exemptions for companies that purchase broadband equipment, and tax incentives for broadband investments in unserved and underserved areas. For instance, Maine’s high-technology investment tax credit allows providers to claim a credit for leasing or buying broadband equipment. Indiana allows municipalities to designate areas as “infrastructure development zones” and exempt broadband infrastructure in those areas from property taxes, and Iowa exempts broadband infrastructure from property taxes for 10 years after it is installed.
States also support broadband deployment programs with funding streams dedicated to related policy areas, such as community development, housing, transportation, and infrastructure: