A federal requirement for handling grant money could actually make those grants unaffordable for the organizations building out Vermont’s broadband network, according to leaders of communications union districts and officials in the Vermont Community Broadband Board.
The requirement says grant applicants must first place funds equal to 25% of the grants in a bank account to be left untouched.
Those conditions are intended to cover letters of credit from banks in case the projects are not completed, but they also mean the applicants must have substantial cash upfront.
“Newer or smaller entities will struggle to have the amount of cash to put aside for a letter of credit, and so it’s a barrier to many of the entities even participating in the program,” said Ellie de Villiers, chair of the Vermont Communications Union District Association. “Even if you do have the cash, it’s arguably not the best use of cash to be taking 25% of the grant amount and locking it away for the performance period rather than using it to build broadband.”
De Villiers also worries that banks will refuse to issue letters of credit because they’ll be unable to loan out the collateral.
Vermont is set to receive $229 million in grants from the program, called the Broadband Equity, Access and Deployment program. The private companies and communications union districts building out the state’s broadband infrastructure would have to place 25%, or $57.25 million, aside in certificates of deposit in banks in exchange for letters of credit guaranteeing completion of the projects.
De Villiers said this issue is critical for Vermont’s communications union districts. Except for ECFiber, most districts could struggle to get letters of credit because most of their income is from grants that require them to build out fiber-optic cable, not lock up part of the money as collateral for a letter of credit, she said.
Southern Vermont CUD, in Bennington County, is expected to have connected all but a dozen or so addresses by this fall.
Lamoille FiberNet, in Lamoille County, and Otter Creek CUD in Rutland County are on track to be more than three-quarters of the way to completion by the end of next year.
NEK Broadband has secured additional federal funds through the U.S. Department of Agriculture’s ReConnect program and is connecting hundreds of customers in the Northeast Kingdom.
Maple Broadband in Addison County, DVFiber in the Deerfield Valley and CVFiber in central Vermont are all in construction and have connected their first customers.
Northwest Fiberworks is expected to begin construction in Franklin, Grand Isle and Chittenden counties in the spring.
In addition, FX Flinn, chair of ECFiber, said he expects everyone in its coverage area of the Upper Valley and central Vermont to be connected by 2005.
De Villiers said the Vermont Communications Union Districts are working with the Vermont Community Broadband Board to persuade the federal agency responsible for making the grants, the National Telecommunications and Information Administration, to waive the requirement for letters of credit.
Most communications union districts and Christine Hallquist, executive director of the Vermont Community Broadband Board, have signed a letter to the federal agency asking for the waiver, de Villiers said.
If the federal agency does not waive the requirement, Vermont’s communications union districts will have to consider not taking the federal money, de Villiers said.
“The letter-of-credit requirement could mean that very little of the money available to Vermont will be spent,” said Flinn. “The CUDs will be blocked by the requirements like the letter of credit.”
Flinn said he was one of the first signers to the letter to the National Telecommunications and Information Administration, asking it to drop the requirement for letters of credit.
“Their approach does not take into account small entities that are going to reach the last mile,” said Robert Fish, deputy director of the Vermont Community Broadband Board.
“In order to get a letter of credit, you need to have that capital in the first place to put in the bank, then it needs to sit there,” Fish said. “It’s not connecting Vermonters. It’s limiting the pool of applicants that can apply.”
The administrator of the Broadband Equity, Access and Deployment program said at a conference Sept. 22 that the National Telecommunications and Information Administration is working on changes in the letter-of-credit requirement. The announcement was first reported by Broadband Breakfast, an industry publication.
