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The 2024-25 Budget: Broadband Infrastructure at May Revision
The 2024-25 Budget: Broadband Infrastructure at May Revision
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May 23, 2024
The 2024 25 Budget
Broadband Infrastructure at May Revision
Summary
Proposed Delays and Reductions of Broadband
Infrastructure Funding at May Revision Reasonable Given Fiscal Pressure
Facing State. We find the elimination of proposed funding
for the middle-mile network across two fiscal years and the proposed
elimination of the Loan Loss Reserve Fund (LLRF) to be reasonable given
the serious budget problem in 2024 25 and projected budget deficit in
2025 26 and future years. We also find the delay of last-mile project
grant funding from 2025 26 to 2027 28 to be reasonable, though
additional delays or reductions of funding for this purpose could be
contemplated if needed as alternatives to other General Fund solutions
at May Revision.
Recommend Rejection of Revised Provisional Budget Bill
Language Allowing Middle-Mile Network Augmentation in
2024 25. However, we recommend the Legislature reject the
revised provisional budget bill language that would allow administration
approval of an additional $1.5 billion General Fund for the middle-mile
network in 2024 25 as there is: (1) no funding set aside to support the
augmentation, (2) incomplete information about the standalone
construction projects that would be funded, and (3) limited legislative
oversight afforded by written notification of the Joint Legislative
Budget Committee (JLBC) for such a large request.
Recommend Approval of Alternate Provisional Budget Bill
Language Requesting Middle-Mile Network Information.
Instead, we recommend the Legislature approve alternate provisional
budget bill language with no additional funding that requests, at a
minimum, (1) more detailed information about the standalone construction
projects funded by the current spending plan, and (2) a business plan
for the middle-mile network that explains how it will be maintained and
operated going forward.
Recommend Approval of Increased Federal Funding Authority
for Federal Broadband Equity, Access, and Deployment (BEAD)
Program We also recommend the Legislature approve the
one-time increase in the California Public Utilities Commission s
(CPUC s) federal funding authority to receive the state s $1.86 billion
BEAD program allocation and proposed provisional budget bill
language.
With Limited-Term Funding for Requested Positions and
Revised Provisional Budget Bill Language. However, we
recommend the Legislature make the 31 new, permanent positions in the
request limited term, and revise the provisional budget bill language to
request information from CPUC on (1) how the program funds will be
allocated, (2) any conditions placed on the funding, and (3) any changes
to state-administered BEAD program processes required by the federal
government.
Background
Major Federal and State Broadband Infrastructure Programs
and Projects Underway. In recent years, the state has
initiated a few significant programs related to broadband, in part due
to funding provided by the federal government. There are currently three
major state broadband infrastructure programs and projects underway
pursuant to Chapter 112 of 2021 (SB 156, Committee on Budget and Fiscal
Review): (1) a statewide, open-access middle-mile network; (2) grants to
internet service providers, public entities, nonprofit organizations,
and others for last-mile broadband infrastructure projects; and
(3) grants to local government entities, nonprofit organizations, and
tribes to help them obtain financing for last-mile projects (that is,
the LLRF). The federal Infrastructure Investment and Jobs Act also
provides $65 billion in federal funding for broadband infrastructure
projects nationwide, with $42.45 billion allocated to the BEAD program
mostly for state-administered last-mile broadband infrastructure project
grants. For more information on each of the federal and state broadband
infrastructure programs and projects, see our February 28, 2024 brief The 2024 25
Budget: Broadband Infrastructure .
Governor s January Budget Proposed Additional Middle-Mile
Network Funding, Delays and Reductions in Last-Mile Project Financing
and Funding. In January, the administration proposed
additional appropriations of $250 million General Fund in 2024 25 and
$1.25 billion General Fund in 2025 26 for the middle-mile network. (In
addition, the Governor s January budget included $250 million General
Fund in the California Department of Technology s [CDT s] state
operations budget as an anticipated appropriation based on uncodified
statutory language in Chapter 48 of 2022 [SB 189, Committee on Budget
and Fiscal Review].) The administration also proposed $100 million in
last-mile project grant funding be delayed from 2024 25 to 2026 27, as
well as $250 million from the LLRF be reduced across two fiscal
years $150 million in 2024 25 and $100 million in 2025 26. The aforementioned
brief contains more detail on each broadband infrastructure proposal
in the Governor s January budget.
Early Legislative Action Adopted Delays and Reductions in
Last-Mile Project Financing and Funding Proposed in Governor s January
Budget. Chapter 9 of 2024 (AB 106, Gabriel) included,
among other actions, adoption of: (1) the proposed delay of $100 million
General Fund in last-mile project grant funding from 2024 25 and
2026 27, and (2) the proposed reduction of $250 million General Fund
from the LLRF across both 2024 25 ($150 million) and 2025 26
($100 million).
Proposal
Middle-Mile Network
Eliminates $1.5 Billion General Fund ($250 Million in
2024 25, $1.25 Billion in 2025 26) Proposed in Governor s January
Budget. The May Revision eliminates the additional
$1.5 billion General Fund $250 million in 2024 25 and $1.25 billion in
2025 26 proposed in the Governor s 2024 25 budget for the middle-mile
network. The elimination of this proposal is scored as one of the
solutions to the budget problem facing the state in 2024 25 and
projected budget deficit in 2025 26. However, the May Revision does
maintain the $250 million General Fund included in CDT s state
operations budget in 2024 25. We include an updated broadband
infrastructure spending plan as of the 2024 25 May Revision at the end
of this section.
Revised Provisional Budget Bill Language Would Allow the
Administration to Augment Middle-Mile Network Funding in 2024 25 by
$1.5 Billion General Fund. The May Revision package also
includes revised provisional budget bill language that would allow the
Director of the Department of Finance (DOF) to augment CDT s budget by
$1.5 billion General Fund in 2024 25 for the middle-mile network.
(Proposed provisional budget bill language in the Governor s January
budget allowed the administration to increase the 2024 25 appropriation
by $500 million General Fund.) The revised language includes a 30-day
written notification period for the JLBC to consider the request.
Last-Mile Project Grants
Delays $200 Million General Fund From 2025 26 to
2027 28. The May Revision proposes to delay $200 million
General Fund for last-mile projects planned for appropriation in 2025 26
by two fiscal years to 2027 28. If approved, $100 million General Fund
would remain in 2024 25 and no funding would be appropriated in
2025 26.
LLRF
Eliminates Remaining $500 Million General Fund
($175 Million in 2023 24, $150 Million in 2024 25, $175 Million in
2025 26). The May Revision eliminates the remaining
$500 million General Fund appropriated or planned for appropriation for
the LLRF $175 million in 2023 24, $150 million in 2024 25, and
$175 million in 2025 26.
Federal BEAD Program
Authorizes $1.86 Billion in Additional Federal Trust Fund
Authority for CPUC to Receive the State s BEAD Program
Allocation. The May Revision proposes a one-time increase
in CPUC s Federal Trust Fund authority to receive the state s
$1.86 billion allocation from the federal BEAD program in 2024 25. The
proposal also requests 31 new, permanent positions for CPUC to
administer the program, and provisional budget bill language to
(1) encumber and expend the funds through June 30, 2031 and
(2) re-appropriate some unspent initial BEAD planning funds for
encumbrance or expenditure through November 30, 2027. Figure 1 below
provides the broadband infrastructure spending plan as of the 2024 25
May Revision.
Figure 1
Broadband Infrastructure Spending Plan as of the 2024 25 May Revision
(In Millions)
Program or Project
Fiscal Year
Funding Source
GF
FF
TF
Middle Mile Network
Prior Years
$887
$2,363
$3,250
2023 24
300
73
373
2024 25
250
—
250
2025 26
—
—
—
2026 27
—
—
—
2027 28
—
—
—
Subtotals
($1,437)
($2,436)
($3,873)
Last Mile Project Grants
Prior Years
$647
$550
$1,197
2023 24
253
—
253
2024 25
100
1,864
1,964
2025 26
—
—
—
2026 27
250
—
250
2027 28
200
—
200
Subtotals
($1,450)
($2,414)
($3,864)
All Programs and Projects
Prior Years
$1,534
$2,913
$4,447
2023 24
553
73
626
2024 25
350
1,864
2,214
2025 26
—
—
—
2026 27
250
—
250
2027 28
200
—
200
Totals
$2,887
$4,850
$7,737
a Chapter 48 of 2022 (SB 189, Committee on Budget and Fiscal Review) included a legislative goal to appropriate $250 million in 2024 25 for the middle mile network.
b Last mile project funding amounts do not include $50 million GF in Local Agency Technical Assistance funding.
c Federal funding amounts do not include additional IIJA funding from Digital Equity Act programs, specifically the state planning and state capacity programs.
GF = General Fund; FF = federal funds; TF = total funds; and IIJA = Infrastructure Investment and Jobs Act.
Assessment
Elimination of Additional Middle-Mile Network Funding
Proposed in Governor s January Budget Reasonable Given
the serious budget problem in 2024 25 and the significant projected
budget deficits in 2025 26 and future years, the elimination of the
additional $1.5 billion General Fund for the middle-mile network that
was proposed in the Governor s January budget is reasonable. As one of
the few discretionary spending proposals in the Governor s January
budget, the elimination of this additional funding frees up General Fund
resources in 2024 25 and 2025 26 without reducing core state services.
Furthermore, the current spending plan suggests an operational
middle-mile network of at least 8,300 miles can be developed with
existing and planned funding that would remain.
But Revised Provisional Budget Bill Language Is
Problematic. However, the revised provisional budget bill
language that would allow the Director of DOF to augment CDT s budget by
$1.5 billion General Fund in 2024 25 for the middle-mile network is
problematic for at least three reasons:
No Funding Set Aside for Augmentation.
First, there is no funding set aside at May Revision for said
augmentation, which means any additional funding would require
higher-than-projected revenues or lower-than-projected expenditures to
materialize in 2024 25. While it is at least possible additional funding
could become available, it is also possible (as we discuss later in the
post) the Legislature might want to use that funding for another
purpose.
Lack of Information About Standalone California
Department of Transportation (Caltrans) Construction
Projects. Second, there is still a lack of information
about the standalone Caltrans construction projects that are currently
funded, let alone additional construction projects that would be funded
by this augmentation. Moreover, the administration is considering
additional changes to these projects that could impact whether they, in
fact, require construction (or could be joint-built, leased, and/or
purchased). Changes in the delivery, length, and location of these
projects (among other possible changes) necessitate that more
information be shared with the Legislature.
Proposed JLBC Notification Process Limits Legislative
Oversight. Third, a General Fund augmentation of this
magnitude being reviewed and approved with only 30-day written
notification of the JLBC limits legislative oversight. In addition to
the short time frame the JLBC would have to review the request, the
language also assumes any additional funding available for the
augmentation would be prioritized by the Legislature for middle-mile
network implementation. Given the variety of General Fund solutions
already passed as part of the 2024 25 budget process, as well as the
myriad currently under consideration at May Revision, it is quite likely
the additional funding could be prioritized by the Legislature for other
purposes.
Last-Mile Project and LLRF Changes
Reasonable In our analysis of the broadband
infrastructure proposals in the Governor s January budget, we
recommended that the Legislature consider additional reductions in
last-mile project funding and in the LLRF to address the serious budget
problem in 2024 25 and significant future budget deficits in 2025 26 and
2026 27. The administration s proposed delay of additional last-mile
project funds and elimination of the LLRF at May Revision are consistent
with our previous recommendations and, therefore, we find them to be
reasonable. To the extent that the Legislature does not agree with some
General Fund solutions proposed across the May Revision budget, it may
look for additional, alternative solutions. The Legislature could
consider additional delays and/or reductions in last-mile project
funding as one alternative solution, as $100 million General Fund
remains appropriated in 2024 25 (with $450 million General Fund delayed
into 2026 27 and 2027 28).
But Careful Legislative Consideration of Associated
Impacts Warranted. While we find the changes in last-mile
project funding and elimination of the LLRF at May Revision to be
warranted given the serious budget problem in 2024 25 and significant
future budget deficits, we acknowledge there will be impacts on grant
applicants associated with these changes. To help ameliorate some of the
trade-offs associated with these changes, such as less broadband
infrastructure funds for unserved and underserved communities and
households, the Legislature could consider ways to mitigate the impacts
of these changes. For example, the Legislature might consider how the
remaining last-mile project funds could be used together with federal
BEAD program funding to directly serve the aforementioned communities
and households, especially in historically disadvantaged areas of the
state. Continued oversight of the middle-mile network implementation
also will be critical to make sure last-mile projects in these areas are
able to connect to the network and provide high-speed internet access to
their community institutions and households.
Request for Additional Federal Trust Fund Authority to
Receive State s BEAD Program Allocation Is Reasonable, With Opportunity
for Legislative Oversight. We raise no concerns with the
requested one-time increase in federal funding authority for CPUC to
receive the state s $1.86 billion BEAD program allocation or the
proposed provisional budget bill language. We also find CPUC s request
for 31 new, permanent positions to administer the program generally
reasonable. However, given the federal BEAD program implementation time
line is roughly five years, the Legislature might consider whether
limited-term approval of these positions may be warranted. Finally,
consistent with previous recommendations on the broadband infrastructure
proposals in the Governor s January budget, we find CPUC s request for
additional federal trust fund authority to be a ripe opportunity for the
Legislature to consider revisions to the proposed provisional budget
bill language and seek clarification on how federal BEAD program funds
will be allocated once received. Additional information about any
conditions placed on the funding by the federal government, as well as
about any required changes to state-administered BEAD program processes,
also could be contemplated as part of these revisions.
Recommendations
Approve May Revision Changes to Funding for Middle-Mile
Network, Last-Mile Project Grants, and LLRF. We recommend
the Legislature approve the following General Fund solutions in the May
Revision: (1) the elimination of the $1.5 billion General Fund
($250 million in 2024 25 and $1.25 billion in 2025 26) proposed in the
Governor s January budget for the middle-mile network; (2) the delay of
$200 million General Fund for last-mile projects from 2025 26 to
2027 28; and (3) the elimination of the remaining $500 million General
Fund in the LLRF ($175 million in 2023 24, $150 million in 2024 25, and
$175 million in 2025 26). We also recommend that the Legislature
consider additional reductions in last-mile project funding, if needed,
as alternatives to other General Fund solutions in the May Revision
budget overall. Finally, we recommend the Legislature consider ways to
mitigate negative impacts of these changes on unserved and underserved
communities and households, especially in historically disadvantaged
areas of the state.
Reject Proposed Middle-Mile Network Provisional Budget
Bill Language and Consider Alternative Language Requesting More
Information. We recommend the Legislature reject the
proposed provisional budget bill language that would allow the Director
of DOF to augment CDT s budget by $1.5 billion General Fund in 2024 25
for the middle-mile network. We instead recommend provisional budget
bill language with no additional funding that requests, at a minimum,
(1) more detailed information about the standalone construction projects
funded by the current spending plan, and (2) a business plan for the
middle-mile network that explains how it will be maintained and operated
going forward.
Approve Additional Federal Trust Fund Authority and
Limited-Term Positions to Receive State s BEAD Program Allocation With
Revised Provisional Budget Bill Language. We recommend the
Legislature approve the one-time increase in CPUC s Federal Trust Fund
authority to receive the state s $1.86 billion allocation from the
federal BEAD program in 2024 25, as well as the proposed provisional
budget bill language. However, we recommend the Legislature consider
approving the 31 new, permanent positions on a limited-term basis (for
example, three fiscal years) to reassess whether all or only some of
these positions continue to be needed given the time-limited nature of
the program. Lastly, we recommend the Legislature revise the provisional
budget bill language requesting information from CPUC on (1) how the
program funds will be allocated, (2) any conditions placed on the
funding, and (3) any changes to state-administered BEAD program
processes required by the federal government.
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