The White House’s $65 billion broadband subsidies lack accountability

By Mark Jamison

The White House has announced what it calls a historic bipartisan infrastructure deal that would cost about $1.2 trillion. About 27 percent of the money goes to what is generally thought of as infrastructure: roads, bridges, railroads, the electric grid, and water and wastewater systems. $65 billion, or about 6 percent of the total, is for broadband. The remaining 65 percent is apparently for green energy, public transit, electric vehicles and charging stations, environmental remediation, etc.

The draft legislation has the federal government directing the $65 billion to specific broadband projects and providers through some combination of the Department of Commerce (DOC), Department of Agriculture (DOA), and state governors.

The process largely appears to be a repeat of the broadband grant programs implemented during President Barack Obama’s first term — which were wrought with problems. Presidents tend to send money to political supporters rather than to those in need, with predictable results: Obama’s DOA wasted nearly $3.5 billion because it chose to fund broadband projects with incomplete or inaccurate applications, failed to monitor whether projects were keeping promises, and sent money to entities that simply duplicated existing broadband networks. Obama’s DOC wasted nearly $4.7 billion that was supposed to expand broadband for underserved and unserved areas but had almost no impact.

But all is not lost. There are ways to hold politicians, bureaucracies, and their subsidy recipients accountable.

The best approach would be to utilize the Federal Communications Commission’s (FCC) reverse auction process. Economist Sarah Oh has demonstrated that these reverse auctions provide twice as much broadband as government grants do. Economist Joseph Gillan found that the FCC’s auctions generated a 70 percent savings relative to the FCC’s old system for determining rural broadband subsidies. Using the FCC’s auction system could save taxpayers $30 billion and would get them twice as much broadband for their buck.

The draft legislation would provide funds for mapping where broadband is and is not. Mapping is hard to do well. The FCC appears to have the best broadband maps in the government, but even its maps are sometimes criticized for overstating the amount of available broadband and at other times criticized for understating it. Before spending money on mapping, the departments and states would do well to examine alternative mapping sources, such as the Technology Policy Institute’s maps and those by BroadbandNow and Ookla.

Using the FCC’s auction mechanism to choose subsidy recipients avoids duplication of subsidies, diminishes political interference, improves cost effectiveness, and leverages the FCC’s existing accountability mechanisms. The draft legislation appears to allow for funds to be released prior to service being made available. On the contrary, the best practice for broadband subsidies is to require that subsidy recipients perform their promised work before receiving their funding, as is the case in building construction in the private sector, for example.

Some observers advocate state and local governments using public-private partnerships (PPPs) for expanding broadband. (See here, here, and here.) A PPP is a contractual arrangement between a government and a private entity to provide public infrastructure or services. These observers, however, write as if PPPs are a recent invention and made to order for broadband. In reality, PPPs resemble the US telephone regulation of the late 1800s and early 1900s. That regulatory approach was unsustainable for reasons that create challenges for broadband PPPs today: Industry negotiators always have a significant information advantage over governments, and it is nearly impossible to write contracts that adapt to unanticipated changes in technologies, economic conditions, customer needs, competition, and politics. The PPP advocates assume away or minimize these risks. For example, the Coalition for Local Internet Choice and the Benton Institute argue that fiber optics is a non-evolving technology and that it is the most economical technology now and for years to come.

If state and local governments want to use PPPs, they would do well to incorporate the FCC’s system. The reverse auction removes much of the business information advantage, which Oh and Gillan demonstrate is quite substantial. The FCC’s system also already allows that technologies can evolve and that markets should be competitive and provides a barrier between political favoritism and the funding mechanism.

Whatever mechanisms the departments and states choose, they should emphasize transparency so individual citizens and interest groups can hold the government accountable. This was not true in the Obama broadband subsidies. The DOC refused to give economists Gregory Rosston and Scott Wallsten sufficient information for their analysis of its $4.7 billion subsidy program. And the DOA ceased making information on its $3.5 billion program available once it became clear that the program was failing. Taxpayers deserve better.