Unlock rural broadband | Mitchell, Williams, Selig, Gates & Woodyard, LLC

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Statewide, the consensus is that broadband is the tool to transform Arkansas’ rural economies, but the question has been how to deploy it cost-effectively. There is a perception that the US federal bailout and bipartisan infrastructure law, along with state grant funds, provide sufficient funding to fund universal rural broadband deployment. The truth is that these resources are probably insufficient.

However, there could be an existing tool, used as part of a capital stack, with private sector investment, federal funds, and grants, to more quickly fund universal rural broadband infrastructure in Arkansas. . Recent legislation may have cracked the code on cost-effective broadband deployment in rural Arkansas. Bill 795 of 2021 (Bill 795), sponsored by Rep. Lanny Fite (R-Benton) and Senator Kim Hammer (R-Benton), authorized the creation of “Broadband Improvement Districts.”

Law 795 allows improvement districts, horizontal property regimes, and rural development authorities to enter into public-private partnerships with experienced private entities to form broadband improvement districts. Law 795 also allows broadband improvement districts to fund public facilities or capital projects, including broadband Internet service. The concept of creating Broadband Improvement Districts is an innovative idea and the inclusion of Rural Development Authorities as participants in Broadband Improvement Districts in Law 795 could be a real game-changer.

Rural Development Authorities are entities created under Arkansas law to assist rural areas with a wide range of economic development projects. The legislature declared economic development to be a public objective and granted rural development authorities wide powers to achieve this objective.

Several factors make rural development authorities a compelling option for broadband projects. Rural development authorities generally have broader powers than other entities authorized to establish broadband improvement districts under Law 795. In addition, these rural development authorities generally cover larger geographic areas. Last but not least, rural development authorities have a proven track record as there are numerous rural development authorities operating across the state.

A notable power of rural development authorities is their ability to finance public capital or projects with bonds. These obligations are secured by the revenues and assets of a project and are not considered a debt of another entity, such as a city or county. Rural development authorities also have the option of leasing the built broadband infrastructure to a private partner to repay the debt. In a nutshell, the rural development authority could issue bonds, as part of an equity stack, to fund broadband infrastructure, leasing that infrastructure to an ISP or other private entity, using these lease payments to pay the debt.

Rural development authority bonds have several potential benefits for investors. First, there is a significant possibility that the interest component of bonds issued by a rural development authority for a broadband project may be exempt from tax for the investor in those bonds. Generally, under federal tax law, bonds that fund projects with a substantial private interest would be taxable for federal income tax purposes. But a key provision of the bipartisan infrastructure law allows qualified broadband projects in rural areas to be funded with bonds on a tax-free basis. There are requirements and restrictions that must be met, but many broadband projects across the state will likely qualify for tax-exempt financing.

With the rise in interest rates, the possibility of a tax increase at the federal level and the desire of investors to finance projects with an Environmental, Societal, Governance (ESG) connotation, the debt issued by a rural development authority for broadband projects could be attractive.

Harnessing the power of rural development authorities and broadband improvement districts could be a key element in achieving the goal of universal rural broadband. Connecting rural Arkansas to the rest of the world would provide citizens with more health care options, opportunities, and access to education, while providing local businesses with resources for economic growth.

Republished with permission. Originally published on Let’s talk business and politics website.

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