BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1040 - Padilla Hearing Date:
April 6, 2010 S
As Introduced FISCAL B
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DESCRIPTION
Existing law establishes the California Advanced Services Fund
(CASF), administered by the California Public Utilities
Commission (CPUC), to help fund deployment of broadband
infrastructure and bring high-speed Internet access to all areas
of the state. Existing law authorizes $100 million for the CASF
and sunsets the program on January 1, 2013.
This bill would authorize an additional $125 million for the
CASF for allocation over a five-year period, designate separate
accounts within the CASF to promote broadband deployment
statewide, and extend the sunset date of the program to January
1, 2018.
BACKGROUND
This bill seeks to ensure that the CASF continues to support
broadband deployment for the benefit of all Californians and to
ensure continuity of this program as the federal government
begins to implement the National Broadband Plan released in
March by the Federal Communications Commission.
According to testimony presented at this committee's broadband
hearing on February 16, 4% of Californians - 1.4 million people
in mostly rural areas - do not have access to broadband service.
Only about half of Californians have Internet access at the
target speed of 3 megabits per second download and 1 megabit
per second upload (3/1), considered necessary for telecommuting
and accessing vital information. Moreover, only 62% of
Californians reside in a household that subscribes to broadband
service even if it is available. The broadband adoption rate is
even lower among subgroups such as Latinos (39%), low-income
households (40%), and persons with disabilities (47%), resulting
in a significant Digital Divide among Californians.
CASF Established - The CPUC established the CASF in 2007 in
order to ensure broadband deployment statewide and to comply
with state law declaring that California's telecommunications
policies include closing the Digital Divide and assuring that
all Californians have universal access to high-quality,
state-of-the-art, advanced telecommunications services
(D.07-12-054). The CASF, codified by SB 1193 (Padilla, 2008),
is a $100 million program funded by a two-year 0.25% end-user
surcharge on intrastate telephone service that provides up to
40% of the capital cost of broadband infrastructure. First
priority for CASF grants is to be applications for unserved
areas of the state, where Internet connectivity is available
only through dial-up service or satellite, and then applications
for underserved areas, where broadband is available but no
facilities-based provider offers service at the target 3/1
speed.
State and Federal Broadband Funds - The enactment of the
American Reinvestment and Recovery Act (ARRA) in 2009 prompted
changes in the CASF to allow applicants to utilize CASF funds as
leverage for seeking ARRA broadband grants. ARRA grants provide
up to 80% of the cost of a qualifying broadband project, and the
CPUC authorized ARRA applicants to seek a portion of the 20%
required match from the CASF (D.09-07-020). AB 1555 (Perez,
2009) expanded CASF eligibility to any entity eligible for ARRA
broadband funds.
As of February 25, 2010, the CPUC had approved CASF grants
totaling $87.11 million for 42 broadband projects covering
28,741 square miles and benefiting an estimated 294,857
households.
CASF funding for broadband deployment complements other
significant state efforts during the past decade to bring
broadband to all Californians. In 2005, with funds derived from
conditions on mergers of telecommunications companies, the
California Emerging Technology Fund (CETF) was created as a
nonprofit organization dedicated to making grants to community
based organizations for projects to help bridge the Digital
Divide. The following year, the Legislature enacted AB 2987
(Nunez, 2006), the Digital Video and Telecommunications Act of
2006 to authorize statewide video franchises and promote
increased deployment of broadband facilities. The same year,
Governor Schwarzenegger's Executive Order S-23-06 established
the California Broadband Task Force, which brought together
business leaders, academics, engineers and public policy experts
to develop state goals and make recommendations which were
reported in 2008 in the "State of Connectivity; Building
Innovation Through Broadband." In addition, the California
Broadband Initiative is operated within the office of the State
Chief Information Officer to promote broadband deployment
statewide.
CASF Existing Funds Not Adequate - According to the CPUC, the
$100 million currently authorized for the CASF is not sufficient
to meet the program's goals. In addition to the $87.11 million
in CASF grants already awarded, additional applications are
pending from ARRA applicants. Moreover, ARRA applicants that do
not get a full 80% in federal funding for a broadband project
may reapply for additional CASF funding up to 40% of the project
costs or 50% of the requested ARRA funding that was denied,
whichever is less. All ARRA grants are to be awarded by
September 2010, and there is a high probability of applications
for additional CASF funds after that date.
The CPUC also claims that extending the sunset is necessary
because the CASF is a cost reimbursement program, and funded
projects likely will not be completed until after the existing
sunset date, especially given likely delays from compliance with
the California Environmental Quality Act. Audits, verification
of five-year service commitments, and other activities required
to ensure funds are spent in accordance with CPUC authorization
will need to continue beyond the existing sunset date. The CPUC
also claims that additional time is needed to achieve the goal
of bringing broadband service to the 4% of Californians residing
in unserved areas. Finally, extending the CASF program through
2018 corresponds to the FCC's proposed timeframe for reform of
the federal universal service program to support broadband
service, as recommended in the National Broadband Plan and a
rulemaking that the FCC is commencing this month.
COMMENTS
1) Universal Service Goals . The CASF is a continuation of
California's long history of providing support to cover the
cost of providing service in high-cost areas so that all
Californians can be connected to the telecommunications
network at affordable rates. State and federal policy
increasingly recognizes that, as high-speed Internet access
becomes essential to modern life, universal service goals
require support for broadband where private investment has
not been viable. As stated by the CPUC, "the areas that
are being funded and will be funded by CASF are areas that
have no broadband precisely because these are high cost
areas that are characterized by rugged terrain and low
population density, which would not otherwise be
economically viable or make business sense for private
entities to invest in without CASF funding assistance"
(Resolution T-17233).
Telecommunications facilities previously capable of
providing only "plain old telephone service" - dialtone and
voice service - are being replaced by broadband networks
that support high-speed Internet access and other advanced
services, as well as voice service. The FCC is proposing to
modernize the existing federal universal service program to
shift from supporting legacy telephone networks to directly
supporting high capacity broadband networks. The question
of whether to redefine basic telephone service to include
broadband for purpose of California's universal service
programs remains before the CPUC. But absent action to
include broadband in those programs, the CASF remains a
viable means to promote broadband deployment in high-cost
areas consistent with state universal service policies and
goals. The CASF program requires applicants to ensure that
voice service be made available over any broadband facility
funded with a CASF grant.
2) Leveraging Additional Federal Funds . Just as existence
of the CASF allowed California to respond rapidly to
opportunities for federal funds when ARRA was enacted, the
continued existence of the CASF program could enable
California to be well positioned to maximize opportunities
for federal funding as the new National Broadband Plan is
implemented. The Plan specifically points to the CASF and
the CETF as strong state programs to further the goal of
universal access to broadband. As the FCC rolls out
rulemakings to fill in details of the Plan in the coming
months, and as Congress considers legislation to fund
recommendations in the Plan, California will have in place
a mechanism to potentially leverage additional federal
funds. Thus, it would seem prudent for California to
continue support for the CASF during this critical time for
broadband deployment nationwide over the next five to ten
years.
3) Funding Allocation Over Five Years . This bill would
establish two new accounts within the CASF and make a
specified amount of CASF monies available for grant awards
from each account over five fiscal years beginning July 1,
2010 through the fiscal year beginning July 1, 2015. A
technical amendment is required on page 3, lines 18 and 21,
to delete "2017-18" and insert "2015-16" so that the $125
million in additional funds equals the amount that may be
encumbered over each of the five years as follows:
$20 million for the Broadband Infrastructure
Grant Account;
$2 million for the Rural and Urban Regional
Broadband Consortia Grant Account; and
$3 million for the Broadband Infrastructure
Revolving Loan Account.
1) Consortia Grant Account . According to the author,
establishing this new account in the CASF would authorize
the CPUC to award a relatively small amount of total CASF
monies to eligible consortia for costs other than broadband
infrastructure, such as collection and analysis of market
data, regional demand aggregation, and engaging civic
leaders and stakeholders to submit cost-effective
applications for CASF and other grants. According to CETF,
nearly all California counties have joined or are joining a
rural or urban consortium designed to bring broadband to
unserved and underserved communities. CETF further claims
that the "Regional Consortia have had a measurable impact
on encouraging cost-effective proposals to the CASF?.79% of
the CASF awards by dollars and 83% of the households served
were projects associated with the work of the Regional
Consortia."
Consortia already are eligible to apply for CASF grants to
reimburse capital costs of broadband infrastructure as long
as the lead fiscal agent for a consortium is an entity with
a certificate of public convenience and necessity (CPCN)
from the CPUC. The author and committee may wish to
consider amending the bill to provide that:
a) a consortium eligible for a grant
from the Rural and Urban Regional Broadband
Consortia Grant Account may include
representatives of local and regional
government, public safety officials, K-12
education, health care, libraries, higher
education, community-based organizations,
tourism, parks and recreation and agriculture
and business but is not required to have a
fiscal agent with a CPCN; and
b) a grant from this account may be
used to fund the cost of broadband deployment
activities other than the capital cost of
facilities.
2) Revolving Loan Account . According to the author, the
new Broadband Infrastructure Revolving Loan Account would
provide potential applicants for CASF grants a new option
for securing the 60% match required to be eligible for a
CASF grant to fund a broadband infrastructure project.
Potential applicants claim that obtaining the 60% match is
a difficult challenge. Several stakeholders have
recommended that CASF grants should cover more than 40%
because projects are not economically viable without
additional grant support. For the same reason, small local
exchange carriers under rate of return regulation have
asked the CPUC to allow rate recovery of their broadband
investment not covered by a CASF grant when that facility
also is used to provide voice service. The Broadband
Infrastructure Revolving Loan Account is another
alternative to help CASF applicants meet the 60% match
requirement.
Revolving loan programs established for other purposes in
state government typically specify additional details on
administration of the program and an interest rate. The
author and committee may wish to consider amending the bill
to specify an interest rate applicable to loans from the
Broadband Infrastructure Revolving Loan Account. The bill
specifies that a joint powers authority may administer the
loan program, but the author indicates that a technical
amendment is necessary to delete this provision. In
addition, the bill sunsets the CASF program on January 1,
2018, but the author and committee may wish to consider
amending the bill to specify that this program continue
beyond that date solely for the purpose of administering
outstanding loans.
3) Transparency and Accountability . Several stakeholders
have suggested changes to administration of the CASF
program, such as providing more transparency in scoring
criteria and more verification of applicants' technical
capabilities and financial resources. At the February 16
broadband hearing before this committee, the Division of
Ratepayer Advocates recommended that CASF grant applicants
be required to provide more information about project costs
and that the applications be more publicly available. The
CPUC claims that the program requirements, established
through several decisions and resolutions and a technical
workshop, provide for Internet posting and public
disclosure of applicants' nonproprietary information,
afford parties an opportunity for comment on each
application and for filing competing proposals, and impose
audit and performance bond requirements on CASF grant
recipients to ensure accountability.
4) Report on CASF Program . Existing law requires the CPUC
to conduct a financial and performance audit of the CASF
program and report findings to the Legislature by December
31, 2010. Several stakeholders have urged delay in
extending the program until after this report is made. On
the other hand, the author, CPUC, and CETF argue that
extending the program now is essential to ensure that
sufficient funds are available for pending applications and
new applications for matching funds expected after ARRA
grants are awarded in September. Moreover, the CASF
already has been modified several times, including
legislation last year to quickly respond to a new
opportunity to leverage ARRA funds. Nothing precludes
additional changes to improve and refine the program after
the report is made in December.
Stakeholders also have suggested that this report should
include data on the types and numbers of jobs created as a
result of the CASF program. The author and committee may
wish to consider amending the bill to require that the
report on the interim and final audits of the CASF program
include data on the types and numbers of jobs created as a
result of this program.
POSITIONS
Sponsor:
California Emerging Technology Fund
Support:
California Center for Rural Policy
California Emerging Technology Fund
California Library Association
Central Coast Broadband Consortium
Del Norte County Board of Supervisors
Frontier Communications
Humboldt Area Foundation
Humboldt State University Office of the President
Monterey County Board of Supervisors
Northern California Small Business Development Center
TechNet
United Way of Greater Los Angeles
Valley Vision
Oppose:
None on File.
Jackie Kinney
SB 1040 Analysis
Hearing Date: April 6, 2010