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Mar 29, 2023

Regional Utility Districts Can Help Fill Gaps in Broadband Service

MCA continues to explore how we can support BUDs as a tool to getting high-speed internet to all Mainers. For more information, check out our webpage:

Regional utility districts formed among multiple towns or municipal entities represent one of several emerging frameworks for providing broadband service to unserved or underserved areas, particularly in more rural parts of the country. Historically, such utility districts have been formed to build out infrastructure and provide essential services.

This has been a common model in rural America, used to provide a variety of services, including water or emergency medical services. In recent years, states such as Vermont and New Hampshire have adopted policies to support formation of such districts to provide high-speed internet to residents. Other options being explored include allowing electric cooperatives to offer service in these areas and using investor-owned utilities to improve the availability of critical infrastructure.

Bringing broadband to rural areas is difficult because of the economics; the infrastructure is expensive to deploy, and sparse populations mean a small customer base for traditional internet service providers. Creating regional districts raises aggregate demand by combining the populations of multiple towns. This provides myriad benefits: It increases the number of potential customers, mitigates the risk facing individual towns, and allows services to be provided more efficiently through one regional network rather than individual systems.

States authorize towns to band together to provide broadband
In 2020, Vermont and New Hampshire adopted policies regarding the formation of municipal districts to provide broadband services. Lawmakers in Vermont passed legislation authorizing the creation of communications union districts (CUDs) in which two or more towns join together to support construction of communications infrastructure. Once formed, a CUD must obtain funding for its operations through grants, loans, or revenue bonds but cannot use tax dollars for initial operation costs.

Vermont’s broadband program includes grant and loan programs that identify CUDs as entities eligible for funding. Governor Phil Scott (R) last year proposed investing $223.5 million in federal American Rescue Plan funds to support work by nine newly authorized CUDs. The money would be used to build out infrastructure that would deliver broadband service of 100 megabits per second symmetrical, setting the same minimum speed for uploads and downloads.

Vermont also awarded $9.9 million in preconstruction grants to four of the CUDs for feasibility studies, business planning, and other legal or administrative expenses.

Similarly, the bill enacted in New Hampshire allows for formation of communications districts for development of broadband systems. The legislation authorized the districts to issue bonds to finance broadband infrastructure projects. Although New Hampshire did not have a broadband program at the time the communications districts were authorized, lawmakers enacted a bill in 2021 that established a matching broadband grant program that identifies the districts as entities eligible for funding. As of late March, no communications districts had been formed officially, but the 19 towns in Carroll County had banded together to create the Carroll County Broadband Committee. Panel members are conducting feasibility studies and creating a business plan for the construction of broadband infrastructure.

Maine also made policy changes to allow the establishment of regional municipal utility districts to provide broadband services. In 2015, the state amended its statute to allow for formation of the districts and authorized them to issue revenue bonds to raise funds for their operations. Since then, two regional broadband utilities have been established. The Downeast Broadband Utility is a nonprofit organization formed by the towns of Calais and Baileyville in 2017 to support construction of broadband infrastructure to serve their residents. The utility funded the effort to build the $3.1 million fiber network with loans from local banks and provider fees from customers. The network was completed in 2019.

In 2021, citizens of three coastal towns—Camden, Rockport, and Thomaston—voted to enter into an agreement that would establish the Midcoast Internet Development Corp., a nonprofit regional broadband utility. The regional network would follow an open access model: The municipalities would own the fiber network while private internet providers would bring service to retail end users within the service area. ConnectMaine, the state broadband program, includes broadband utility districts as one of the recommended grant applicant entities in its 2020 broadband action plan.

Bond financing can help fund regional utility districts
When working to launch their operations, regional utility districts for broadband often face difficulties obtaining money to finance infrastructure. In addition to state and federal funding sources such as grants and loans, the districts can issue municipal tax-exempt bonds to pay construction costs. Using such bond financing allows construction to be financed exclusively with bonds and without any cash or equity. The districts also may be able to obtain bond terms matching the expected life on assets of 25 or 30 years and receive interest rates lower than those on commercial loans.

Two types of bond funding may be available: revenue bonds and general obligation bonds. Revenue bonds are backed by the revenues and assets of the broadband network and probably would not have to be repaid if the projects fail. Most municipal fiber networks that have been built out have been financed using revenue bonds. General obligation bonds, on the other hand, are backed by the municipalities’ tax revenues and must be paid back if the projects fail. Rockport, one of the participating towns in the Midcoast Internet Development Corp., has experience issuing bonds and identified establishing credibility for municipal revenue bonds from its broadband operations as a goal for the project.

The regional utility model has been used to provide essential services to residents who otherwise would not have access to those services. Although the multi-town framework of providing services has been used for services such as water, sewerage, and emergency medical response, creation of regional districts to provide broadband has recently emerged as a viable option. With the rise of utility districts for broadband service, more rural and unserved communities will now have expanded access to high-speed internet.

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