California Law Offers New Way to Finance Broadband Projects

On September 29th, California Governor Jerry Brown signed into law a bill that may make building community networks in his state just a bit easier. The memorably-named “Assembly Bill No. 2292” allows broadband projects to be included among the types of public works that can be financed using Infrastructure Financing Districts (IFDs).

IFDs are entities formed by regional coalitions of city, county, or other governmental units. They are designed to provide upfront funding for infrastructure projects that have broad regional benefits (highways, water systems, etc.), and are paid for by earmarking the increased property or other tax revenue the projects are expected to generate over a specified future period (usually decades). 

The idea behind IFDs - capturing future value to provide upfront funding to the projects that will create that value - is much like Tax Increment Financing (TIF) districts in other states. We have seen communities in other states turn to TIFs for broadband networks build outs, perhaps most notably throughout Indiana. 

The text of the bill is all of three lines long, and simply amends the existing authorizing law for IFDs to explicitly allow infrastructure financing districts to be used for “public capital facilities or projects that include broadband.” While the old wording of the statute did not explicitly reject using IFDs for broadband projects, it did not explicitly allow it either.

Removing the uncertainty around the issue should help encourage local governments to consider network investments, especially since one of the major unpredictable costs is incumbent lawsuits. This change will slightly reduce the opportunity for incumbents to slow a municipal network with a lawsuit.

The bill was written and sponsored by Representative Rob Bonta, who represents parts of both Oakland and San Leandro in the Bay Area. It is no coincidence that San Leandro is a city seeing the benefits of robust fiber optic infrastructure, and San Leandro mayor reportedly pushed the idea to Rep. Bonta, who made the case for the bill as an economic development driver:

Broadband provides cities and counties with an opportunity to stimulate the economic climate by providing businesses with the competitive advantage of being connected to high speed fiber optic networks. AB 2292 will help boost local economies, create local jobs and increase access for schools, libraries and other public facilities to state of the art telecommunications networks. 

While AB 2292 shows a growing awareness of the need for more public investment in broadband, it is far from a silver bullet. The political process necessary to create an IFD is cumbersome and challenging:

IFDs have to be approved by all the local agencies that would be contributing tax revenue, local property owners have to be consulted and then it goes through a series of public votes, including two – to form the IFD and then to issue bonds – that require a two-thirds majority to pass.

These are huge hurdles to clear for any major public project, and the California legislature recognized this by creating a new category of Enhanced Infrastructure Financing Districts (EIFDs) in this year’s session that are more flexible and lower the bar to a single public vote and 55 percent approval. Unfortunately, the bill creating EIFDs (SB 628) does not explicitly include or exclude broadband projects, falling into the same murky middle ground that the old IFD legislation did.

The end result of the California legislative session is a partial win for community broadband networks. They get new access to an existing financing tool, but only a taste of the new and improved system. The goal for the future should be clear: get next generation broadband projects definitively included in the Enhanced Infrastructure Financing District statute, so more local communities can start to enjoy the benefits of fiber the way San Leandro and Santa Monica do today.