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[Music] [Music] [Music] the title today's video is financing tools for broadband projects my name is jessica voltellini i'm with the law firm of icemiller and with me today is jim snyder and kip wallers jim snyder leads the illinois municipal finance group for icemiller he acts as bond council and disclosure council to hundreds of governmental entities and regularly represents clients on municipal and infrastructure financing transactions jim is also a board member of the cdfa kip wallers is a public finance partner in ice miller's columbus ohio office where he focuses his practice on public finance economic development and public law kip has two decades experience representing state and local governments at all levels of bond council we're going to jump right in and start talking about financing tools for broadband projects so first i'd like to ask what are some examples of current municipal finance tools that are available for broadband expansion thanks jessica you know it's interesting because really many of the tools that are available for broadband financing are the tools that have been available probably for many years but in part broadband really wasn't perceived as a need probably until you know probably the last 10 15 years or so even though there was some talk but you know we haven't prepared a slide and this um you know lists a number of these tools um you know some of them have their advantages and their disadvantages starting with you know general obligation bonds um you know those really in virtually every state now broadband and communication finance that's something that can be used the disadvantage of general obligation bonds is that most issuers don't really want to dig into their genes to pay this and they want to have the taxpayers do that so you don't see a lot of geo bond financing or they might not even have the authority to do that under state law because they may not have be able to legally do that so then you're you you're stuck with revenue bonds or other methods of financing revenues of you know revenues will come from broadband right revenues are regular but how do you get that started so often we need to do things like special assessment districts special service areas p3 and other types of of financing vehicles tax increment financing is often used and i think the new federal tax legislation for opportunity zones is also a unique uh tool that that could be used if you're in an opportunity zone and there's you know hundreds of them throughout the country it's going to give even more of an advantage i think that could be uh paired with uh broadband very nicely yeah you know and i would pause on a couple of those items that you mentioned jim um one on the special assessments which is really kind of interesting are these property assessed clean energy bonds and what you see in many states is those are bonds which are um you know these are assessments on property um for clean energy but what is interesting is that a lot of times the definitions of the improvements um you know are pretty loose and so the connectivity that is necessary to accomplish this may enable folks to use pace legislation to fund broadband it's a matter of really looking at the state laws and seeing what works i think in some states that we've looked at that is indeed possible so i mean i guess that would be something that just for the practitioner looking at ways on how to do it that would be that would be interesting um yeah i guess impact fees are another way but you know who wants to pay how again how do you get it started and how do you get it financed another is just social impact bonds um i haven't seen a lot of that but you know there's a lot of people that would be interested particularly in that very community that needs the broadband to buy those bonds make an investment in the community because there's definitely the need yeah you know and i think with impact fees i don't know what you what you what you've been seeing but sometimes you see impact fees almost as sort of like i don't call it like gravy on sort of the um you know sort of on the turkey of what you know you're financing and so sometimes those tend to be free revenues and so you know considering sort of maybe an impact fee type of structure where you're able to get those revenues to a to a government or to whoever where they're unallocated and may be able to use may be used to support broadband because given sort of the uncertainty of all of this uh you know when looking at sort of you know the co the cost model it's not all clear that a system can always be constructed where you know there's going to be enough revenue to support that and so using unrelated revenues uh you know like tiff or impact fees basically combine you're saying combine the revenues that exist create new revenues and pledge those to a bank or an investor or a bondholder to enable the broadband to be constructed that makes sense what about examples of federal tools available for broadband expansion sure the fcc the federal communication commission has a number of programs in place they've had the connect america fund for years there was phase one and also phase two i think it came in in 2014 i believe yeah there was a round of grants in october that i think um 62 million was granted that's i think mostly private as opposed to public so those are private corporations who are getting those grants and so those are significant yeah and then um and then recently there's the um the rural uh digital opportunity fund which i think's about 20 billion dollars that was uh authorized so federal money is out there the idea is you need to you know get get it and then there's an e-rate program and a rural healthcare program for you know both education and healthcare there's also um you know the the u.s the rural utilities service has been around since the 30s it came in under on president roosevelt and basically it was designed federal program designed to get access of electricity to a rural communities right sound familiar move forward you know then they they um started the telecom division of that for obvious reasons and now we you know we have a real need for um broadband and so there's a couple of loan programs the connect loan and grant program the telecommunication infrastructure loan and grant loan guarantee and and several other um programs that are designed to provide loans to rural broadband um projects and then also there's the department of commerce economic development administration that has programs those can qualify if you have you have to have a strategic objective and again broadband connected with economic development a lot of the things that kipp and i work on every day would would likely qualify and then there's also just department of housing and urban development hud there's there's a number of programs again related to housing there's the section 108 loan guarantee where basically you take the cdbg money that that is designed to help economic development in areas that need it and you're able to assign that and get a loan guarantee from the federal government that again could be used to to do a construct broadband we did a project in franklin park illinois which was for infrastructure we used that very program to make some infrastructure improvements the same thing could be done for broadband yeah and the interesting thing about the 108 loan is we had experience many years ago in barberton ohio where they did a 108 loan for a downtown redevelopment project with a developer who ultimately defaulted and ultimately the city really wasn't on the hook for that money except to the extent of the 108 loans and so basically what happened was is that the government basically just took those funds for a while um and used those to repay the city yeah i think that's that's the whole idea of the 108 program is allow the community to access the market get financing for a project they wouldn't be able to otherwise basically they're securitizing their cdbg money with um through through a borrowing that enables them to build their project quicker so i think that you know it definitely could work you know and clearly you know like you know best practices is probably if you're doing something like that and you're a municipality and you're doing that you obviously probably might want to take the approach like city of cleveland ohio does where they make every you know private borrower you know sign get basically do a guarantee agreement as well um and they secure they secure those personally but um that is you know the other thing that might be worth mentioning another bucket because grants are really precious in this area is in the area of health and telemedicine there's a project that just got done down and i believe it was by the appalachian [Music] it was basically from the the the economic development organization down in appalachia and so they wound up getting grants for some telemedicine programs i'm down in southern ohio for broadband access and so in the areas of health there is a lot more opportunity i think for grants as opposed to loans you know and there may be also a requirement for local contribution i think there generally is with grants but you know again as i think we've talked talked about usually you're not going to get in the area of broadband just one source of financing and you're done you know it's going to it requires creativity um well now that you've identified multiple financing tools that could be available um either at the state level or federally for broadband expansion maybe you could address a few of the challenges um tied to some of our more traditional funding models that you've seen as it relates to broadband expansion sure yeah you know i i guess i'll just sort of go back to some of the i mean really who's gonna who is going to pay for it i think it's probably one thing um i mean the challenge here is you know governments are we have limited funds and so figuring that out but then if you're you're using um [Music] you know private sources and you're using debt and traditional financing um you have to deal with the issue of you know tax exemption private business use and those are issues that should be very familiar to anybody who has done utility financing and users but all of that i mean some of the some of the you know some of your ability to do things on a tax exempt basis um you know that's that's that's challenging yeah i think it's possible to do it on a tax-exempt basis but you would have to so to have it be tax-exempt you would need to have both for public use and not have private security so i think we could get the public use uh generally because it's it's infrastructure but how do you get you know the security of that bond if you're doing a bond would if it's if you don't have the geo behind it and you don't have the um uh the the them willing to to put that you have to have a pri often a private guarantee and that would make the bonds taxable so that that of course just lowers the rate and that's why i think a lot of the broadband bond deals have been taxable to date um also i think there's a size issue so a lot of the rural communities you know they really need it but let's say the infrastructure cost it's just you know it's a million dollars so you got to have interest so the size is an issue and frankly i think state law is an issue a lot of state laws are not modernized to really make this a priority you know some states just say yeah we're really excited about broadband we're gonna do everything we can for broadband without providing any detail or any concrete help where other states have exactly specific uh assistance provided and tools provided that can help with broadband in their state yeah i mean i because i think in the rural area especially i mean you sort of look at this and in rural america really you don't have anybody there who has the the resources to take this on or the or even the jurisdiction and so you know let's say that you're operating you know in a rural area and you might want to go across four or five counties well you've got to figure out how to get bring these counties together and they all have you know different needs and diff and different resources and so really what is needed i think you know probably in any state where there is substantial rural area is probably leadership at the very top of state government or at least some kind of structure that would be able to coordinate this financing and put these things together in ohio we have we have entities which are known as port authorities and they do have jurisdiction um over the entire state but even here we really haven't seen um anything of the scale that you would that you would need to really cover uh many of the you know the rural areas in broadband um let's shift and talk a little bit about the community reinvestment act um can you share how cra dollars could be used um for a broadband project and then how to better engage or bring bankers investors and um on brand and inform them on broadband access sure well you know the um basically you hear a lot about cra credit and what it is it's the community reinvestment act and it's a federal um act that's been around for a while that basically uh incentivizes banks to invest in the community and assist those in need frankly um low to moderate income people uh you know areas that have um needs so that places that that aren't typically getting the investment dollars are getting them and so a couple things broadband uh wasn't thought of really as infrastructure years ago as i think as kip mentioned it clearly is now and it's clearly a need and we have there's a lot of statistics out there about how low to moderate area income areas don't have as much access you know obviously they need access to education they need access to computers they need to be able to apply for a job and so how do they do that so so without broadband so broadband projects banks are going to be incentivized to loan for and purchas or purchase bonds for broadband projects um they'll they'll get a you know a better regulatory grade is what it really um uh boils down to and it's there to really reva revitalize and or stabilize the um the the community um and how banks could could do so so the the thought is not everybody's aware of that though so i would do is get community involvement knock on your bank stores in your community they are incentivized to do it and make them aware that you know with the simple question hey are you aware you're going to get cra credit for this and that can help start the conversation to get along well and even for even further i mean the the fed has really taken a pretty uh i mean they're well aware of they're well aware of this issue there was a white paper done i think you could find it under new amsterdam so they did a study of the digital divide and even even more relevant is actually that there is a portion where banks may be incentivized because part of their grade is providing financial services to low and moderate income people so even moving on beyond the workforce you know it's just typically how they interact with their customer base is a way that they're going to be graded by by the fed and so the fed has taken a pretty active a very active interest in this um any other thoughts on how broadband networks can generate investor value or what benefits um being involved in a broadband expansion project can bring to an investor yeah in addition to cra you know there's a lot with sim this the concept is similar to green bonds or social impact bonds which basically we've seen a movement over the years and also with the commit invested you know community invest in your community we've seen a movement towards that so the idea is people investors want to invest in certain projects that have social good and and and are targeted and clearly broadband for a lot of investors would meet that requirement so you would certainly pursue it i think starting with your community and community players and finding stakeholders is absolutely a a great place to start but also looking for other types of investors because if you if they're somebody's looking to invest in that type of project there's going to be more value and greater return for the community and i think and i think your emphasis on the community is exactly right we've had some instances here in ohio where we've had some pro projects where they have you know site locators have looked to see what you know is there is there broadband and while there might be broadband running out to let's say the the site where there wasn't is in in some of the areas where you know the housing was not equipped with broadband and so the type of people that you want living there um or that want that you would expect to live there the professionals you know don't won't have their netflix they won't have their access to their broadband tv and so it becomes a real you know and so it becomes a very much of a challenge for communities that are seeking site location so if you're looking at sort of investing and assembling stakeholders if you are looking at investing and assembling stakeholders assembling those folks to invest in the broadband so that it helps the community and helps their business is something that i think a very strong argument can be made would it be feasible gentlemen to for a broadband project be financed with a bond issuance yes there's plenty of plenty of examples you need to look to state law and the state laws differ widely but you know some very interesting examples it's an example in connecticut it's um i believe it's lime connecticut is they basically the local community in was invested in the broadband infrastructure there's also an example in chesterfield new hampshire that the chesterfield new hampshire broadband project won the cdfa um excellence and development finance award last national summit i actually sat at his table the person who was uh there from chesterfield when he received the award at the lunch and and heard a lot about it and basically they uh a lot of the project was constructed with bonds the structure it wouldn't been possible without state legislation so first they fixed the state law to enable this then they had the um private the private entity um guaranteed the bonds for a period of time i believe it was 20 years and and then but the the community owned the uh the broadband but they didn't want to own it permanently so then the idea is that after the bonds are paid off it goes to the um they transfer ownership to the private private entity so that's a great example there's also a number of these communication districts being considered throughout the country and that's really helpful so if you have a town of 500 people next to another town of 1800 people and you need you want to aggregate it come up with a communication district to enable the entire area more of a regional approach there's also examples in colorado where um law permitted you know if it was approved by voters and they did a bond deal and um and then there was also another large one and i think loveland colorado it was where they did taxable and tax-exempt bonds to finance finance broadband jim and kip you've talked a little bit about how state law differs in this space but could you speak to any federal legislation or legislative changes that might help in the broadband financing space yeah well um cdfa has been a big proponent of mamba the modernization of irb law and then there's also just recently proposed the rural broadband financial flexibility act which would basically it really goes hand in hand with that and it really just allows you to finance with private activity bonds for broadband which would not enable broadband to no longer have this tax issue and be able to be financed on a tax-exempt basis it also seems to me we've done a lot of deals or several deals with tiffia bonds which is a federal program it's a really cheap loan for it's a great program it's for transportation we did help with the chicago in riverwalk project with that and also cta project the for the chicago transit authority for some l financing and that law should be expanded in my view to permit broadband to be financed under that under that law there are proposals to that effect jim on the on the private activity bonds my recollection is on the on the federal side isn't there aren't these analogous to to what the babs were so there would be a bad subsidy so essentially there might be and so that and so the presence of that subsidy as opposed to a tax exemption actually may be able to provide additional capital that's a really neat um feature of that that that is correct that's that was the proposal that came in it's like it's very similar to the bab structure okay so i'm a local government i'm a community how do i get started what do i explore first how do i go by figuring out what sources of funding might be available to me in my state and my local community yeah i would say first you hire somebody or work with people you trust consultants lawyers people who know broadband advisors check the tools right that we went through we have a couple nice charts of of tools that were presented earlier um determine qualifications evaluate restrictions think outside the box don't just say well they don't say broadband so maybe it doesn't work because maybe an educational program a a business program there's so many different ways that broadband applies and as kip mentioned earlier even pace type structure is a good example of thinking outside the box try to get a grant before a loan because free money is better than cheap money and keep in mind that every fund provider wants the community to be well planned broadly supported and likely to succeed you know i think that i mean i think that probably the most important thing that jim mentioned was really hiring the partners that you can trust who can really help you sort this sort out it's not easy you're going to be you know you're baking a cake you are not it's not going to be a straight shot or a straight bath but evaluate your assets build support and you know you will you will have success well thank you both for being with me today and thank you all for joining us for this episode provided by the law firm of ice miller and brought to you on cdfa tv [Music] you