California’s broadband upgrade fund could lose $120 million, after senate committee caps subsidy bill

by Steve Blum • , , , ,

Los alamos verizon plant 29oct2015 625

CASF funding status Part 1:

The California senate’s appropriations committee slammed a hard limit on the amount of money the California Public Utilities Commission can collect from taxpayers to fund broadband infrastructure subsidies. If the cap becomes law, it will lead to a cut of about $120 million from money previously approved for expanding and upgrading broadband service in California, primarily in rural communities.

The amendments to senate bill 1130 – approved behind closed doors on Thursday – would remove the CPUC’s authority to increase the tax on telephone bills that’s collected for the California Advanced Services Fund (CASF). About 90% of CASF money is earmarked for broadband infrastructure construction grants. The rest goes towards broadband facilities for public housing, regional broadband consortia and broadband promotion.

The result, in very round numbers, could be a total CASF shortfall of $130 million. Which means the amount available for broadband infrastructure grants would be cut by something like $120 million, assuming the hit follows the historical 90% share given to infrastructure. That’s without adding investment income, which was $4.5 million in the last fiscal year, or subtracting out the CPUC’s administrative overhead costs, which were $3.5 million (10% of total CASF expenditures) in the same period. Both are trending up, although investment income is more volatile and, in any event, will drop as subsidy checks are written.

The blame or credit, depending on your point of view, doesn’t fall entirely on California lawmakers or the cable and telephone company lobbyists that pay them millions of dollars to protect monopoly-model businesses from competitors offering better service at a lower price. The CPUC set the current CASF tax bite at 0.56% of the monthly charges billed to telephone customers for in-state calls, beginning in 2018. That rate was reckoned at the time to be sufficient to collect the maximum $330 million CASF supplement – $66 million per year for five years – that was authorised by the legislature in 2017.

Things didn’t turn out that way. According the latest CASF annual report published by the CPUC, yearly revenue will be $41 million in 2020 and is expected to drop to $35 million in the next two years, just a bit over half of the authorised amount.

“This revenue shortfall is attributed to the continuing downward trend in intrastate telecommunications services that are subject to CPUC surcharges”, the annual report states.

Under current law, the CPUC can raise the 0.56% tax rate –“surcharge”, as the jargon goes – to keep CASF topped up, as it has done in the past. It has also lowered the rate in order to stay within caps set by the legislature. Whether commissioners have any appetite for raising it now is an open question. The 0.56% rate is the highest the CASF surcharge has ever been and, given the sharp drop in overall state revenues due to the covid–19 emergency, broadband subsidies are probably low on the Newsom administration’s tax hike priority list.

Details of the changes made to SB 1130 only became public over the weekend, as legislative staff worked through the dozens of bills that the senate appropriations committee blessed or killed on Thursday. The committee vote was five ayes and two noes, with the split breaking along party lines. Steven Bradford (D – Los Angeles), Jerry Hill (D- San Mateo), Connie M. Leyva (D – San Bernardino), Anthony Portantino (D – Los Angeles) and Bob Wieckowski (D – Los Angeles) were in favor; Patricia Bates (R – San Diego) and Brian Jones (R – San Diego) opposed it.

No other changes were made. As it now reads, SB 1130 would raise California’s minimum broadband service standard to 25 Mbps upload/25 Mbps download speeds. Sorta. A community that lacks that level of service would be eligible for a broadband upgrade grant from the California Advanced Services Fund (CASF), but the maximum speeds supported by subsidised infrastructure could be as slow as 25 Mbps download/3 Mbps upload.

SB 1130 is queued up for a floor vote by the full California senate, where it needs a simple majority to pass.

CASF funding status Part 2: California broadband subsidy fund dwindles to less than a third needed for pending projects

CASF funding status Part 3: Nearly all broadband subsidy proposals could survive California’s chopping block. Nearly

I’ve advocated for SB 1130, and for other useful changes to CASF. I am involved and proud of it. I am not a disinterested commentator. Take it for what it’s worth.