Michigan has received a “special dishonorable mention” from a prominent watchdog group for its plans to spend more than $1.5 billion in federal taxpayer money on broadband deployment and adoption programs.

Those funds from the 2021 federal infrastructure bill are being distributed to the state through the National Technology and Information Administration’s Broadband Equity Access and Deployment program and will be administered in the state by the Michigan High-Speed Internet Office.

A new report by Citizens Against Government Waste reviews Broadband Equity Access and Deployment spending plans for all 50 states and singles out Michigan for criticism. All 50 states have submitted applications for funding through the BEAD program. Two states, Alaska and North Dakota, have not publicly released their full plans.

Citizens Against Government Waste identifies two areas where the Michigan funding plan raises important concerns.

First, Michigan is trying to use the funding program to create a regulatory structure to impose price caps. In that, Michigan is unique among the 48 states whose funding applications are publicly available.

Second, the Michigan High-Speed Internet Office plan creates a list of institutions eligible for BEAD funding, but many of those institutions should not qualify, based on the program’s guidance. Stadiums, convention centers, and many of the privately owned, for-profit businesses on the list are found in areas that already have the greatest access to high-speed internet.

Citizens Against Government Waste points out that Michigan’s expected $1.6 billion receipt of BEAD funding is equivalent to $4,232 per unserved location.

We pointed out last year that the state’s estimate of unserved households includes many who have excellent access to the internet but refrain from signing up. If we exclude those households from the estimates, the average funding per unserved location will be far higher than $4,232.

With that level of funding, one might expect that the state would have no trouble making sure every household without internet access will soon have it.

Unfortunately, that will not be the case.

The Michigan High-Speed Internet Office’s funding plan is set to fail because it intends to push out the funds quickly, with much of the funding going to areas with strong internet access already. That will leave many truly unserved areas — mostly in rural areas — with no new internet access after the BEAD funds are distributed.

We examine the problems with Michigan’s proposal in more detail in the next two sections.

PROBLEM 1: USING BEAD FUNDING TO SET PRICES CHARGED FOR INTERNET

The BEAD funding legislation approved by Congress requires states to fund only internet projects that will lead to “affordable” internet service. That is a far cry from creating a system of regulated internet prices. Michigan is one of the states trying to use the funding mechanism in a way that Congress never intended — to create a system of rate caps for any entity that accepts BEAD funds.

Before turning to states that are abusing that process to set specific prices for internet service, Citizens Against Government Waste “identified 13 states whose affordability strategies meet the … requirements in a manner that should enhance private-sector participation and encourage the most rapid rollout of connectivity to unserved areas.”

The 13 states that did meet that standard do not require specific monthly rates for each of the speed tiers, according to the report. Instead, they “determine eligibility either by comparing providers’ applications to the ‘reasonable comparability benchmark’ defined in the Federal Communications Commission’s Urban Rate Survey, or by requiring providers to charge the same rates in areas of their state that qualify to receive BEAD subsidies as they charge in unsubsidized areas.” Citizens Against Government Waste applauds those states for not giving in to the temptation to empower themselves as internet rate regulators through their control of BEAD funds.

However, 24 states, including Michigan, took the opposite approach:

The other 24 states … all dictate specific prices providers must charge to score well in the competitive application process. That requirement will stifle further investment in broadband infrastructure and make it more difficult to spend the BEAD funding effectively and reduce the digital divide. Michigan applies different benchmark prices to different geographic regions of the state.

The report refers to Volume II of the Michigan High-Speed Internet Office’s proposal (on pp. 18-19 and 68-71). Those pages set up a point system for awarding grants that strongly favors recipients charging less than $65 for internet subscribers located in one set of geographic regions and less than $73 for subscribers located in other parts of the state. That division is evidently based on a report by the Michigan Association of United Ways.

According to Citizens Against Government Waste, no other state has adopted different maximum rate structure for different parts of the state.

Michigan’s approach risks slowing infrastructure deployments. When dictated prices are too low relative to costs, providers have no incentive to accept BEAD funds. That defeats the intent of the congressional plan, which is for states to use BEAD funds to bring internet access to those who do not currently have it.

PROBLEM 2: REDIRECTING FUNDS TO AREAS ALREADY WELL-SERVED BY HIGH-SPEED INTERNET

Congress explicitly stated that funding from the Broadband Equity Access and Deployment Program must focus on bringing high-speed internet service to unserved rural areas.

But the Michigan plan goes out of its way to evade the standards set by Congress.

Instead, it redirects funds to projects favored by politically connected interests.

Citizens Against Government Waste directs its strongest criticism at Michigan’s plan to manipulate the definition of Community Anchor Institutions eligible for BEAD funds so they can receive them even if they are in areas that have strong access to high-speed internet services:

Volume I of Michigan’s proposal also deserves a special dishonorable mention for the overbroad definition of Community Anchor Institutions (CAIs), which qualify for support to achieve one Gbps symmetrical speeds. The NOFO guidance describes the types of institutions that should qualify as CAIs, including schools, hospitals, government buildings, senior centers, job training centers, etc.

The proposal submitted by the Michigan High-Speed Internet Office (MIHI), however, expands eligibility well beyond the letter of intent of BEAD guidance by permitting 118 entities categorized as stadiums, zoos, aquariums, wildlife centers, and convention centers — including many privately owned, for-profit businesses — to qualify as CAIs.

As we have discussed previously, Michigan’s plan will, instead of targeting truly unserved households, leave gaps in rural areas and steer tax dollars to build duplicative internet lines to buildings in populated areas that already have gigabit-speed networks at their front door. As a result, the MIHI plan will fund politically connected interests, mostly in populated areas that already have high rates of access to high-speed internet.

It will do little to address the access concerns of rural areas and largely ignore the causes of the digital divide.

HOW THE MIHI PROPOSAL CAN BE IMPROVED

MIHI can improve its initial proposal so that BEAD spending will more effectively give internet access to more households.

First, MIHI should follow the example of the 13 states that received praise from Citizens Against Government Waste. The Michigan High-Speed Internet Office should not dictate prices private companies charge. It should instead either require that rates be in line with the FCC’s “reasonable comparability benchmark” or simply require that BEAD funding recipients not charge more in areas where they receive funds than they do in areas where they don’t.

Second, the Michigan internet office can greatly narrow the eligibility list and reduce the amount of funding to be directed to Community Anchor Institutions. The primary purpose of the long CAI list appears to be to steer funds to more populated areas, which already have access to broadband internet, and away from rural and unserved communities. That approach favors politically connected property developers and runs contrary to Congress’s intent to close the digital gap.

Third, the Michigan High-Speed Internet Office should de-emphasize new internet construction initiatives in favor of helping people connect to the broadband internet already offered in their communities. Rather than building duplicative infrastructure, the office could get far more people online by equipping community organizations with resources to get people connected. Those organizations could hire digital navigators, provide enrollment campaigns for the federal Affordable Connectivity Program, and expand subsidies for broadband to low-income families.

Finally, Michigan should stop trying to pick winners and losers among competing internet delivery technologies. The Michigan High-Speed Internet Office’s funding process favors wireline fiber over the many emerging technologies that either have become or are close to being competitive with the fastest wireline technologies. As we noted before, MIHI is not qualified to draw such sweeping conclusions about which technologies serve households well and which do not. There are good reasons to believe that many households will prefer wireless delivery either now or soon.

The Michigan High-Speed Internet Office still has time to correct the problems with its proposal and bring it into better alignment with the stated intentions of Congress. Failing to do so will only give favors to special interests without helping people who need internet access.

Theodore Bolema is a senior fellow with the Mackinac Center for Public Policy and an antitrust and competition fellow with the Innovators Network Foundation.