Readers: This story was updated at 3:45 p.m. Monday, March 15, to correct the initial proposal carried a loan cap of $8 million, and that the version before the House Appropriations Committee proposes a loan cap and program maximum of $4 million and $10.8 million, respectively.
MONTPELIER — As a proposal to bridge the state’s high-speed broadband gap makes its way through the House of Representatives money committees, attention is being paid to where the money to build out the network might come from.
The answer will likely wait for the state Senate to get a hold of the bill if it passes the House.
The bill, H. 360, establishes the Vermont Community Broadband Authority and gives it the ability to lend funds to Communications Union Districts (CUDs) — local municipal boards authorized by prior legislation to tackle the last mile problem.
The initial draft of H. 360 called for the Vermont Economic Development Authority — the state’s public economic development fund — to provide revolving loan funding to CUDs and providers working with them, in return for guarantees of universal access. It also proposed raising VEDA’s loan cap to $8 million and set a program loan maximum of $36 million.
But the version of the bill before the House, which was referred to its Appropriations Committee on Thursday, sets the cap at $4 million and the program maximum at $10.8 million. That’s far less than the what’s needed to complete the job, and collateral funding is still being sought — potentially from federal sources.
Why the change? In a word: Risk.
As State Treasurer Beth Pearce and VEDA chief executive officer Cassie Polhemus explained to the House Ways & Means Committee on Wednesday during its review of the bill, the proposal would expose 14 percent of the agency’s capital. “That is not insignificant,” Polhemus said.
Typically, VEDA loans no more than 40 percent of the value of a project, with a cap of $1.5 million (and $2 million for energy projects), Polhemus said.
VEDA gets its money from banks. And those banks, Pearce and Polhemus said, are not interested in taking on the risk of building last-mile broadband infrastructure.
“There’s no appetite to take on broadband loans. Otherwise, they’d be making these loans themselves,” Polhemus said of the banks.
CONTINGENCY PLANS
But that doesn’t mean Pearce and VEDA are throwing up their hands. Pearce said she’s working on “Plan A” with lenders and federal funding sources, which could provide subordinated debt to back up the primary lenders, reducing risk. “Plan B,” she said, could be the state appropriating funds to sit in reserved to guarantee the projects.
Pearce does not want to rely upon the state’s “moral obligation” to back the loans, Pearce said, because in that case, the state is on the hook if the enterprise fails. Pearce cited the example of 38 Studios, the video game company owned by former Boston Red Sox pitcher Curt Schilling, which obtained $75 million in loan guarantees from the State of Rhode Island. When the business went bankrupt and lawmakers balked at paying off the loans, that put Rhode Island’s bond ratings at risk.
State officials estimate that about 23 percent of the state doesn’t meet the federal benchmark for high-speed internet access — 25 megabits per second for downloads and 3 megabits per second for uploads.
Energy and Technology Committee chairperson Rep. Tim Briglin, D-Windsor-Orange 2, and vice-chair Rep. Laura Sibilia, I-Windham-Bennington, presented the bill to the Ways & Means Committee. They explained how the proposal builds on a 2019 law that allowed the creation of CUDs, and how the COVID-19 pandemic made the case that finally bridging the broadband gap is a pressing need. They also outlined a tax incentive that would exempt new broadband equipment from property taxes, so long as requirements were met.
Asked if the $100 million proposed for Vermont broadband expansion in the $1.9 trillion COVID rescue package could be applied to the bill, Sibilia said it was designed to accommodate such funding. “We have established buckets and structures able to receive funding and get the funding out, she said.
Gov. Phil Scott has proposed $20 million for broadband improvements in his proposed fiscal 2022 budget. And Lt. Governor Molly Gray said Thursday in a letter to legislative leadership that stakeholders including the Vermont Principals Association, AARP-Vermont, the Vermont Chamber of Commerce and the Vermont Medical Society had emphasized the importance of addressing the online gap during a “seat at the table” forum.
“As we now take on the task of deploying federal broadband resources across Vermont, we must first identify the individual broadband accessibility and affordability needs of Vermonters, home by home and community by community, and put these needs at the center of our planning and action,” Gray said.
“Second, we must include in our process, those stakeholders and groups who have provided services through digital means throughout this pandemic, and who have witnessed, firsthand, what a lack of access has meant for so many members of our state.”