BEAD funds should not subsidize ISPs forever

By James Erwin

A bipartisan group of 14 senators is lobbying NTIA to let states keep the $20 billion in BEAD savings Administrator Arielle Roth has been able to find in the program. As we have argued before, this money should return to the taxpayer, and it certainly should not subsidize ISPs in perpetuity.

Originally budgeted at $42.5 billion, the Broadband Access, Equity and Deployment program was hastily assembled from parts of several broadband subsidy proposals to make it into 2021’s trillion-dollar infrastructure package. This figure was based on a 2017 estimate of what it would cost to bridge the digital divide – that is, to expand high-speed broadband to the last rural areas of America without it. The statute also clearly intended for the funding to go to infrastructure buildout, and, once that was completed, to community anchor institutions and necessary middle mile interconnection. It was never intended to subsidize ISPs forever.

Under the Biden administration, the program was larded up with all manner of special interest handouts and progressive government intervention, from preferences for unionized labor and fiber ISPs to price controls for any service provided through infrastructure built with BEAD funds. Digital Liberty forcefully argued against these policies and suggested free market alternatives that maximized state control and relied on local knowledge to meet broadband needs. Biden’s administration of the program was so incompetent that after three years, not a single home had been connected by the time President Trump took office.

In just one year, all states have rewritten their BEAD plans under new guidelines and are well on their way to approval. Trump’s NTIA Administrator Arielle Roth has achieved something remarkable – by reducing requirements, throwing out price controls, and opening the program to more competitive bidding, she and her team have found $20 billion in savings. Nearly half of the money will not be needed to connect all Americans to high-speed broadband.

Which leaves the question of what to do with the remaining money. Our view is simply that this is taxpayer money that should be returned to taxpayers. The attempts to turn this program into a slush fund for politicians is what has delayed its rollout for so long. There will be a push, perhaps a natural impulse on the part of some politicians, to use the already-appropriated money for the operating expenditures of the ISPs. Indeed, since rate regulation was dropped from the program’s guidelines, these ISPs should expect to fund their operations by charging market rates for broadband. This is exactly the sort of slush fund that made the program such an inefficient mess before the reforms implemented by Administrator Roth saved taxpayer dollars. This is money that ought to be rescinded by Congress, reducing the deficit by a non-trivial $20 billion.

Senator Joni Ernst (R-IA) has introduced a bill to do just that. Her RECAPTURE Act would appropriate the unobligated funding for deficit reduction, which essentially means that it would go to offsetting another program’s costs or to debt servicing. Any member of Congress serious about fiscal responsibility should support it. At the very least, the funding should not go to subsidizing operational expenditures after ISPs have built out infrastructure. If the Trump administration wants to use this funding to achieve other goals, such as debt servicing or using it as an inducement to prevent states from regulating AI before innovators have the chance to experiment, we could be convinced. But the savings certainly should not be used to subsidize ISPs forever.

Unfortunately, Senators Roger Wicker (R-MS) and Shelley Moore Capito (R-WV) have introduced a bill to do the opposite. Their legislation seeks to earmark the savings for more infrastructure deployment, which would result in overbuilding. While they do not explicitly mention operating expenses, they do not rule it out. It is almost guaranteed that some states will try to use their leftover funds for these subsidies unless the language is tightened up.

Regardless of what expenditures are allowed, this is the wrong approach and the opposite of what Congress should be doing. States should not be rewarded for fiscal profligacy – NTIA should be credited instead with bringing the program in 50 percent under budget.

Subsidies are a dangerous path to start down in the first place. The least a Republican trifecta can do with a program created under unified Democrat control is not make it worse.