The 2021-22 California Spending Plan

Broadband Infrastructure

As part of the 2021‑22 spending plan, the administration and the Legislature agreed to spend $6 billion ($1.7 billion General Fund) over three fiscal years (starting in 2021‑22) on broadband infrastructure. Of the $6 billion, $4.372 billion is appropriated in 2021‑22—$4.322 billion in federal American Rescue Plan (ARP) fiscal relief funds and $50 million General Fund. This post details the key actions and events that preceded the 2021‑22 budget agreement, outlines the agreement (including a breakdown of the 2021‑22 appropriations), and describes key components of accompanying changes in state law—Chapter 112 of 2021 (SB 156, Committee on Budget and Fiscal Review). We note that while the administration and the Legislature are considering other broadband-related changes through administrative action and the legislative policy process, this post focuses on broadband infrastructure funding in the spending plan.

Key Actions and Events Preceding 2021‑22 Budget Agreement

Coronavirus Disease 2019 (COVID-19) Public Health Emergency, Highlighting Disparities in Internet Access. The COVID-19 public health emergency (there were emergency declarations at both the federal and state levels) abruptly shifted a number of activities such as education, government services, health care, and human services from physical environments to remote alternatives facilitated by the internet. Increased use of these alternatives highlighted the disparities in internet access—that is, differences in the availability, affordability, quality, and reliability of internet service—across the state. Some research suggests communities of color, low-income households and individuals, and rural areas were less able to access internet service before and during the COVID-19 public health emergency than other California residents.

Executive Order (EO) N-73‑20 Directed State Government Entities to Take Broadband-Related Actions. On August 14, 2020, Governor Newsom signed EO N-73‑20, an executive order that directed state government entities to take a number of actions related to broadband adoption, deployment, funding, and mapping and data. (The term “broadband” commonly refers to high-speed internet access using, for example, fiber optic cables.) Key actions in the order include, among others: (1) the creation of a new Broadband Action Plan by the California Broadband Council (CBC) (which is led by the California Department of Technology [CDT]) by the end of calendar year 2020; (2) the specification of a minimum download speed goal for state broadband infrastructure and program investments of 100 megabits per second; (3) the aggregation and mapping of broadband data led by the California Public Utilities Commission (CPUC); and (4) the direction to the California Department of Transportation (Caltrans) and CPUC (as well as other state entities) to accelerate broadband deployment in, for example, current and future transportation and utility infrastructure projects.

California State Broadband Action Plan Released at End of 2020. On December 30, 2020, the CBC published the final 2020 California State Broadband Action Plan. The plan included findings about the increased household demand for internet access at higher speeds and further evidence of the demographic, geographic, and socioeconomic disparities in internet access. The plan also included a model commissioned by CPUC to estimate the cost of providing high-speed internet access to unserved households—that is, households without any access to internet service—and underserved households—that is, households without access to high-speed internet service. To provide internet service to the unserved and underserved communities at the minimum download speed specified in the Governor’s EO, the model estimated a total required investment of $6.7 billion.

ARP Act of 2021 Includes Funding Available for Broadband Infrastructure. On March 11, 2021, President Biden signed into law the ARP Act of 2021—a $1.9 trillion COVID-19 relief package. Of the $1.9 trillion, the act included $350 billion in funding to state and local governments for fiscal recovery. Of this total, California’s state government will receive about $27 billion from the act’s Coronavirus State Fiscal Recovery Fund and $550 million from its Coronavirus Capital Projects Fund (CCPF). The state has until December 31, 2024 to commit these funds and, according to recent federal guidance, until December 31, 2026 to expend them for a variety of purposes including broadband infrastructure.

Governor’s 2021‑22 May Revision Proposed Major New State Investment in Broadband Infrastructure. The administration’s 2021‑22 May Revision proposed $7 billion in federal and state funds over two fiscal years to fund state broadband infrastructure projects and programs. The proposal would have appropriated $2 billion in federal ARP funds in 2021‑22, with an intent to commit (through a proposed budget control section) an additional $5 billion—$3.5 billion in federal ARP funds and $1.5 billion General Fund—in 2022‑23. The administration proposed funding four infrastructure projects and programs:

• $4 billion for a statewide open-access “middle-mile” broadband network to connect “last-mile” broadband infrastructure projects. (A middle-mile network consists of high-capacity fiber-optic cables laid over tens or hundreds of miles, for example, near the state’s highways. Last-mile projects, by contrast, connect middle-mile networks to individual communities and their households.)

• $2 billion for last-mile broadband infrastructure project grants administered through CPUC’s California Advanced Services Fund (CASF) program to connect individual communities and their households to the middle-mile network. (The CASF program uses revenues from a surcharge rate collected by telecommunications companies to provide broadband infrastructure grants.)

• $500 million for a “loan loss reserve account” to help local entities and nonprofit organizations obtain financing for their broadband internet service projects.

• $500 million for broadband infrastructure improvements at telecommunications companies in CPUC’s California High Cost Fund A Program.

For more information about, and our preliminary comments on, the administration’s 2021‑22 May Revision Proposal, please see our May 24, 2021 budget and policy post—The 2021‑22 Budget: Preliminary Comments on the Governor’s May Revision Proposal for Broadband Infrastructure.

2021‑22 Budget Agreement

As reflected in the budget act and the accompanying changes in state law in SB 156, the administration and the Legislature agreed to spend $6 billion over three fiscal years, starting in 2021‑22, on three of the four broadband infrastructure projects and programs for which funding was proposed in the Governor’s May Revision. Of the $6 billion total, $4.372 billion is appropriated in 2021‑22—$3.772 billion in federal funds from the state’s ARP fiscal relief allocation, all $550 million in federal funds from the state’s ARP CCPF allocation, and $50 million General Fund. The remaining $1.628 billion is General Fund that, while intended by the administration and Legislature to be committed to broadband infrastructure, would need to be appropriated by the Legislature in 2022‑23 and 2023‑24. Figure 1 breaks down the three-year spending agreement between the administration and the Legislature by fiscal year, fund source, and infrastructure expenditure.

The three broadband infrastructure projects or programs funded by the agreement are described below:

• $3.25 Billion for Middle-Mile Network. The spending plan provides $3.25 billion from the state’s ARP fiscal relief allocation in 2021‑22 to CDT to implement the middle-mile network through the department’s Office of Broadband and Digital Literacy (OBBDL). As discussed below, state law requires CDT’s OBBDL to work with a third-party administrator to implement the middle-mile network. Consistent with federal administrative guidance and deadlines in the ARP Act, this funding is available for allocation until December 31, 2024 and for encumbrance and liquidation until December 31, 2026.

• $2 Billion for Last-Mile Projects. The spending plan provides $1.072 billion in 2021‑22 (with the intent to commit $125 million General Fund in 2022‑23 and $803 million General Fund in 2023‑24) to the CPUC from the state’s ARP allocations. Of the $1.072 billion, $550 million is from the state’s ARP CCPF allocation and $522 million is from the state’s allocation from the ARP’s fiscal relief funds. These funds are to be deposited into a new Federal Funding Account within CPUC’s CASF program to provide last-mile broadband infrastructure project grants. A small amount of the appropriation ($22 million in ARP fiscal relief funding) is set aside for CPUC support and technical assistance with broadband infrastructure projects and programs. As with the middle-mile network, funding from this appropriation may be allocated by CPUC until December 31, 2024 and encumbered and liquidated until December 31, 2026. (As we mention later in the post, allocations from and encumbrance of this funding might be required sooner pursuant to SB 156.)

• $750 Million for Broadband Loan Loss Reserve Fund. In 2021‑22, the spending plan includes $50 million General Fund to be deposited into a new Broadband Loan Loss Reserve Fund within CPUC’s CASF program, with the intent to commit an additional $125 million General Fund in 2022‑23 and $575 million General Fund in 2023‑24.

2021‑22 Implementing Legislation

To implement the broadband infrastructure projects and programs that are funded by the 2021‑22 budget agreement, the Legislature passed and the Governor signed SB 156. We summarize some key sections of SB 156 below.

Middle-Mile Network

Establishes CDT’s OBBDL in State Law to Oversee Acquisition and Management of Middle-Mile Network. Senate Bill 156 codifies the establishment of CDT’s OBBDL in state law. The role of the office, led by a Deputy Director of Broadband, is to oversee the acquisition and management of contracts to develop and construct, and maintain and operate, the middle-mile network. Senate Bill 156 requires OBBDL to create a nine-member middle-mile advisory committee to monitor the construction and establishment of the middle-mile network. Five of the nine members are from the administration: one representative each from CDT, CPUC, Caltrans, Department of Finance (DOF), and Government Operations Agency. The other four members are Members of the Legislature (and/or their appointees), two from the Assembly and two from the Senate. The advisory committee is required to meet at least monthly during the first year, and then quarterly thereafter.

Requires Retention of a Third-Party Administrator to Manage Development, Acquisition, Construction, and Maintenance of Middle-Mile Network. Senate Bill 156 also requires CDT’s OBBDL to retain a California-based nonprofit entity to manage the development, acquisition, construction, maintenance, and operation of the middle-mile network. The entity must have experience with serving public libraries, elementary and secondary schools, and institutions of higher education with broadband connectivity. On September 2, 2021, CDT announced that the Corporation for Education Network Initiatives in California—specifically its California Middle-Mile Broadband Initiative, Limited Liability Company—would be retained by the department as the state’s third-party administrator for the middle-mile network.

Requires CPUC, in Collaboration With Third Party-Administrator, to Identify and Prioritize Locations for Middle-Mile Network. State law requires CPUC, in collaboration with the third-party administrator, to provide CDT’s OBBDL with locations for the middle-mile network. Senate Bill 156 specifies priority locations for the middle-mile network as those locations that would enable last-mile projects to connect residences unserved by an internet download speed of 25 megabits per second and an upload speed of 3 megabits per second. (These internet speeds are benchmark download and upload speeds for broadband internet as defined by the Federal Communications Commission.) State law also identifies a number of other entities that might lack sufficient high-bandwidth connections as possible locations for the middle-mile network including (but not limited to) government entities, healthcare institutions, institutions of higher education, schools, and tribal lands.

Last-Mile Projects

CPUC’s CASF Program’s Federal Funding Account of $2 Billion Split Between Rural and Urban Counties for Last-Mile Project Grants. The spending plan provides a total of $2 billion over three fiscal years ($1.072 billion appropriated in 2021‑22, with an intent to commit $928 million across 2022‑23 and 2023‑24) to be deposited into a new Federal Funding Account within the CPUC’s CASF program to provide last-mile broadband infrastructure project grants. State law directs CPUC to allocate at least half of the $2 billion for last-mile projects in rural counties, with the remainder allocated to urban counties. Each county, whether rural or urban, will receive an initial allocation of $5 million in funding. The remainder of the funding will be allocated based on the rural or urban county’s proportionate share of households without access to internet service that provides at least a 100 megabits per second download speed. Any funding that is allocated but not encumbered on or before June 30, 2023 must be made available to CPUC for additional last-mile project grants.

Last-Mile Projects Must Meet Certain Eligibility Requirements. Last-mile projects funded through CPUC’s CASF program must either provide the current benchmark broadband internet speed set by the Federal Communications Commission or an internet download speed of at least 100 megabits per second and an upload speed of 20 megabits per second. Senate Bill 156 also redefines unserved areas as those without at least one internet service offering with a download speed of 25 megabits per second and an upload speed of 2 megabits per second.

Broadband Loan Loss Reserve Fund

CPUC Establishes Allocation Criteria, Eligibility Requirements, and Financing Terms and Conditions for Broadband Infrastructure Projects Financed by Loan Loss Reserve Fund. Any broadband infrastructure projects supported in part or in whole by financing obtained using funds from the Broadband Loan Loss Reserve Fund will be, by state law, subject to requirements set by CPUC. These requirements might include, for example, specific allocation criteria, set eligibility criteria, and certain financing terms and conditions.

Oversight Mechanisms

Annual Reports to the Legislature on the Middle-Mile Network and Last-Mile Projects. Senate Bill 156 requires CDT, in consultation with DOF, to produce a report starting on or before March 1, 2022 (and annually thereafter) for both legislative budget committees with updates on the implementation of the middle-mile network and last-mile projects. Specifically, the report must include the length of the middle-mile network, the number of internet service providers that are using the network, the number of households expected to connect to the network, and the total expenditure for each project.

Biennial Fiscal and Performance Audits of CPUC’s CASF Program. Starting April 1, 2023, CPUC will be required to conduct a biennial fiscal and performance audit of the effectiveness and implementation of its CASF program.

Monthly Last-Mile Project Expenditure Reporting to CPUC. Entities that receive last-mile project grants through CPUC’s CASF program must report to the commission on a monthly basis any expenditure made using project grant funds for a contract or subcontract exceeding $25,000.