Bonds, Broadband Bonds
Friday, February 4, 2022
Bonds, Broadband Bonds
Private Activity Bonds for Qualified Broadband Projects
You’re reading the Benton Institute for Broadband & Society’s Weekly Digest, a recap of the biggest (or most overlooked) broadband stories of the week. The digest is delivered via e-mail each Friday.
Round-Up for the Week of January 31-February 4, 2022
Today is the deadline for written public input on the Infrastructure Investment and Jobs Act broadband programs that the National Telecommunications and Information Administration (NTIA) will administer (luckily, the comments were submitted electronically, so no trees were sacrificed). Much attention is rightly being paid to the many billions of dollars NTIA will distribute to states in the coming months to ensure broadband networks reach everyone in America. However, there's been less attention given to a provision in the new law creating a new vehicle for broadband deployment: private activity bonds.
State and local governments issue debt for most large public capital projects such as new schools, public buildings, and roads. On occasion, state and local governments will issue debt for projects whose purpose is less public in nature, such as privately owned and operated multifamily residential housing. Nevertheless, these projects are often afforded the same tax privilege as debt issued for strictly government-owned and -operated projects. Congress limits the use of tax-exempt bonds for private activities because of concern about the overuse of tax-exempt, private activity bonds.
The Infrastructure Investment and Jobs Act amends the Internal Revenue Code of 1986. (See, now I have your attention.) Specifically, the Infrastructure Investment and Jobs Act amends Section 14(a) of the Internal Revenue Code of 1986, creating a new category of "exempt facility bond": "qualified broadband projects."
Private Activity Bonds
For those of us who file a 1040 EZ... the federal tax code classifies state and local bonds as either governmental bonds or private activity bonds. Governmental bonds are intended for governmental projects, and private activity bonds are for projects that primarily benefit private entities. Typically, the interest earned by holders of governmental bonds is exempt from federal income taxes.
The federal tax code allows state and local governments to use tax-exempt bonds to finance certain projects that are considered private activities. The private activities that can be financed with tax-exempt bonds are called “qualified private activities.” Tax-exempt bonds for governmental purposes and for qualified private activities are special because, unlike corporate bonds or U.S. Treasury bonds, the bond buyer does not have to include the interest income from the bond in federal gross income. The bond buyer is willing to accept a lower interest rate because the interest income is not subject to federal income taxes. The lower interest rate arising from the tax-exempt status subsidizes state and local investment in capital projects.
Exempt facility bonds are allowed to finance airports, commuting facilities and high-speed rail, water and sewage facilities, facilities for the local furnishing of electric energy and gas, public educational facilities, and green buildings (just to name a few examples). The Infrastructure Investment and Jobs Act adds a limited class of broadband facilities to the list.
Congress uses an annual state volume cap to limit the amount of tax-exempt bond financing generally and restricts the types of qualified private activities that qualify for tax-exempt financing to selected projects defined in the tax code. The total 2022 private activity bond volume cap for all states and the District of Columbia is about $39.8 billion. The less populous states are more likely not to use the entire annual cap amount.
To illustrate: The cap for California is over one-tenth of total new volume in 2022, or $4.3 billion. However, as measured against total California personal income, the new volume cap is below the national average. For every $100 of 2020 personal income in California, approximately $0.16 of private activity debt can be issued in 2022, whereas the U.S. average is $0.20. In contrast, Wyoming could issue up to $0.93 of private activity debt for every $100 of personal income using its 2022 volume cap allocation. This disparity arises from the two-part volume capacity calculation, which provides for a minimum of $335 million, regardless of state population. In addition, states that have total personal income below the national average would also have a relatively high debt allowance as measured against personal income.
For broadband, government-owned projects will not be subject to volume caps while privately-owned projects will—with a 75 percent exemption.
Qualified Broadband Projects
A qualified broadband project must be designed to provide broadband service to at least 90 percent of the locations in 1 or more census block groups at speeds not less than 100 megabits per second for downloads and 20 megabits per second for uploads. An area qualifies if, before the project, 50 percent of residential households did not have access to fixed, terrestrial 25/3 broadband service.
Prior to the project launch, the bond issuer must notify each broadband service provider in the area of the project and its intended scope, including a request for information from each broadband provider with respect to the provider’s ability to deploy, manage and maintain a broadband network capable of providing gigabit-capable internet access to residential or commercial locations. Broadband providers have 90 days to respond to the notice and request for information.
Bonds can be issued on a tax-exempt basis for qualified broadband projects on and after January 1, 2022.
- FCC Announces Over $1.2 Billion For Broadband Through Rural Digital Opportunity Fund While Adding New Accountability And Transparency Measures (FCC)
- NTIA Awards Additional $1.5 Million in Broadband Grants to Tribal Groups (NTIA)
- Parks Associates estimates that almost 114 million US households access the internet at home (Parks Associates)
- NDIA Requests FCC Update and Release of Broadband Adoption Data (National Digital Inclusion Alliance)
- California's net neutrality law upheld (Associated Press)
Weekend Reads (resist tl;dr)
- Bipartisan Infrastructure Law Guidebook for State, Local, Tribal and Territorial Governments (White House)
- Remarks of Commerce Secretary Raimondo to Senate Appropriations Committee on Broadband Programs in the Infrastructure Investment and Jobs Act
- Lifeline Program Year 2021 in Review (Universal Service Administrative Company)
- How State Broadband Offices Use Scoring Metrics to Evaluate Grant Applications (Pew Charitable Trusts)
- A comparative study of digital equity plans of four large US cities (Journal of Community Informatics)
- American Connection Corps Releases Year-End Report (American Connection Project)
ICYMI from Benton
- The Era of the Broadband Public-Private Partnership: New trends and opportunities in the wake of COVID-19 (Joanne Hovis, Ryland Sherman, and Marc Schulhof)
- How Can the FCC Make it Easier to Shop for Broadband? (Kevin Taglang)
- Benton Applauds California's Net Neutrality Court Victory
Feb 8—2022 Policy Summit (INCOMPAS)
Feb 8—The ReConnect Application Workshop (Department of Agriculture)
Feb 8—Key Legal Issues: From Plan Implementation Through Ongoing Operation and Regulatory Compliance (International Municipal Lawyers Association)
Feb 9—Nomination Hearing for Gigi Sohn (Senate Commerce Committee)
Feb 9—Infrastructure Investment and Jobs Act Broadband Programs Public Virtual Listening Session #4 (National Telecommunications and Information Administration)
Feb 9—FirstNet Combined Board and Board Committees Meeting
Feb 17—Future-focused economic development in rural America (Center for Rural Innovation)
Feb 17—Fireside Chat with FCC Chairwoman Jessica Rosenworcel and Colorado Attorney General Phil Weiser (Silicon Flatirons)
Feb 18—February 2022 Open FCC Meeting
Feb 22—Technological Advisory Council Meeting (FCC)
Feb 23—Infrastructure Investment and Jobs Act Broadband Programs Public Virtual Listening Session #5 (NTIA
Feb 24—Disability Advisory Committee (FCC)
Feb 28—State of the Net Conference 2022 (Internet Education Foundation)
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