Vermont Takes a Regional Approach to Rural Broadband Expansion

Overview

The economics of rural broadband are challenging for private internet service providers (ISPs) and governments alike. The small populations spread out over large geographic areas make installing infrastructure extremely expensive and offer a limited customer base to offset the costs. As states work to connect these high-cost areas to broadband, they are increasingly turning to a partnership model, often called a regional utility district, as a potential solution. 

These partnerships involve multiple towns or municipal entities joining together to form a new local government entity for the provision of utility services. Although using regional utility districts for broadband is a relatively new model, in some states, including Vermont, this strategy already has a long history of delivering other essential services, such as water and sewer, to rural communities. And other states have had success with a similar system in which they allow local electric cooperatives, which were initially formed to supply electricity to rural and remote areas, to also provide retail broadband service.

So, in 2015, after a local initiative demonstrated that the model could also work for high-speed internet in the state, the Vermont General Assembly passed legislation allowing towns and cities to collaborate and form communications union districts (CUDs) to provide broadband service. In the years since, CUDs have become a central component of Vermont’s efforts to close the digital divide.

Why regional utility districts make sense for broadband

Regional districts change the market dynamics of broadband projects in several ways. First, they aggregate demand across a large area, which helps create a sufficient customer base to make infrastructure projects financially feasible. They also boost the efficiency of service delivery by using one large network, rather than multiple systems serving individual communities.

Further, because the regional district—and by extension, local taxpayers—owns the infrastructure, the projects typically have longer return-on-investment timelines than would be required by a for-profit company. But although these networks are publicly owned, they are often maintained and operated in partnership with a private ISP, which can help distribute some of the risk and cost of owning broadband infrastructure.

Regional partnerships propel broadband expansion in Vermont

In 2007, a group of small towns in east-central Vermont, a rural area nestled in the Green Mountains, grew frustrated with private ISPs’ unwillingness to serve their communities and came together to explore ways to collectively extend broadband to all residents, businesses, and civic institutions in the region. In March 2008, 24 towns voted to create ECFiber, a community-owned open-access network. ECFiber then partnered with ValleyNet, a local ISP, for the construction and management of the network.

However, faced with financing challenges associated with the financial crisis that began in 2007, ECFiber began fundraising from local investors in 2010, and by 2015, it had raised about $7 million. Within the next two years, ECFiber had built its network, connected hundreds of customers, and paid its investors back in full, despite relatively high interest rates ranging from 6.65% to 11%, all of which enabled the partnership to finally gain access to the capital markets.

However, financial institutions were unsure how to treat the interlocal agreement between two dozen towns and pointed out that if ECFiber were a consolidated utility district, like the water and sewer districts that are common in rural Vermont, it would have an easier time securing financing.  

Vermont formalizes the ECFiber model

In 2015, the Vermont General Assembly passed legislation, based on ECFiber’s efforts, that allows two or more towns to join together and form CUDs to provide broadband service. Member towns must vote to form the CUD, and each town must select one representative to sit on the CUD’s board.

Under the legislation, CUDs can issue revenue bonds to finance projects. These bonds are the funding mechanism behind most municipal fiber networks and are backed by the revenue and assets of the networks they finance. Unlike general obligation bonds, which are backed by municipalities’ taxes and must be paid back if projects fail, revenue bonds do not create liability for taxpayers, may not have to be repaid if a project fails, and can be used to fund entire projects without the CUD contributing any additional cash or equity. The bonds also can extend through the expected life of assets, typically 25 to 30 years for broadband projects. CUDs can also be funded through other sources such as grants or donations.

A year after the legislation passed, ECFiber officially formed the state’s first CUD, the East Central Vermont Telecommunications District, issued $9.2 million in revenue bonds to finance its network, and became the first CUD to offer broadband service to end users. It has since secured more than $60 million in revenue bonds. In 2020, eight new towns joined the CUD, which at the time was serving about 6,500 premises in 23 towns with more than 1,400 miles of fiber. When construction is finished, the CUD expects to have a total of 2,100-plus miles of fiber and serve 31,500 premises in an area with a density of fewer than six customers per square mile.

As of Nov. 10, 2022, 213 municipalities in Vermont had joined 10 CUDs. According to the Vermont Department of Public Service, those towns account for 76% of the state’s population but 93% of the residences, businesses, and community institutions without broadband service. In addition to ECFiber, a second CUD, NEK Broadband, which covers the state’s rural Northeast Kingdom region, has started offering broadband service, and the other eight districts are in various phases of planning and network design.

Vermont Community Broadband Board supports CUDs

In 2021, the state’s General Assembly created the Vermont Community Broadband Board (VCBB) “to coordinate, facilitate, support, and accelerate the development and implementation of universal community broadband solutions.” The VCBB provides administrative and technical support to CUDs—which are largely volunteer-led—facilitates partnerships between regional districts and ISPs, and administers the Vermont Community Broadband Fund, which was also established in 2021.

The fund requires that projects meet the state’s service level target of universal broadband at speeds of no less than 100 megabits per second (Mbps) symmetrical—that is, for downloads and uploads—in their districts and prioritizes awarding grants to CUDs over other potential applicants. It also has provided a mechanism by which the state can establish minimum service standards that regional districts—at least those seeking financial support—must meet to help ensure that CUD projects align with state broadband goals.

Federal funding accelerates investment in CUDs

In addition to the state’s funding, Vermont allocated more than $240 million in State and Local Fiscal Recovery Fund and Capital Projects Fund dollars through the American Rescue Plan Act (ARPA) to support the state’s goal of universal broadband access at speeds of 100 Mbps symmetrical. Some of this funding was directed to the Preconstruction Grant Program, which provides support to CUDs for pre-deployment activities such as feasibility studies, business planning, and design and engineering. And another portion of the funds went to the Broadband Construction Grant Program, which provides funding to CUDs, small communications providers, or ISPs in partnership with a CUD to build networks and deliver broadband to every address that is connected to the electric grid within the grantee’s service area. The VCBB administers both programs and as of September 2022 had awarded more than $226 million of the ARPA allocation:

• $31 million in Preconstruction Grants—$21.8 million to seven CUDs to support pre-deployment activities and another $9.2 million to four CUDs for pre-emptive materials purchases intended to limit the impacts of supply chain disruptions.
• $195 million in Construction Grants—$179.4 million to nine CUDs and $15.6 million to broadband providers that were not CUDs.

Vermont plans to continue investing in CUDs with broadband funding available through the Infrastructure Investment and Jobs Act (IIJA).

Other states look to regional solutions

CUDs are central to Vermont’s efforts to expand broadband access, but it is not the only state where this model is being used for broadband service.

Maine

Maine has authorized the creation of special regional utility districts since 1987, and since then, municipalities have collaborated to form special districts to provide a variety of services, including electricity, fire, and water. These districts are treated as independent governments, separate from other municipalities such as towns and cities, which gives them the power to tax and collect fees for service. In 2009, the Maine Legislature amended the original 1987 statute, allowing municipalities to participate in joint exercise of powers, meaning all parties to an agreement share the same privileges and powers. And in 2015, the Legislature made further amendments to allow these districts to offer broadband service and to support those efforts through the issuance of revenue bonds. To join a regional utility district, municipalities must pass an ordinance or resolution or take some other action under law.

Maine currently has two regional broadband utility districts:  in the eastern part of the state and the Midcoast Internet Development Corporation in the Rockland region. In 2016, the president of the Downeast Broadband Utility, Daniel Sullivan, approached Julie Jordan, the district’s economic development director, about building a broadband network. The pair asked Pioneer, a private ISP, to conduct a feasibility study, and that analysis found that a broadband network in the area would be feasible based on potential customer needs. With that information in hand, Sullivan and Jordan pitched the project to the towns of Baileyville and Calais, which in turn held town meetings and unanimously voted to fund the network with $3.1 million in taxpayer dollars.

The Maine Connectivity Authority, a quasi-governmental entity established in 2021 and charged with achieving universal access to affordable high-speed internet across the state, offers support and resources for broadband utility districts, including helping them find legal support and bond counseling. The authority also helps districts access Maine’s municipal bond bank, which provides tax-exempt bonds to local entities for utility projects. Maine’s new broadband fund, Connect the Ready, allows broadband utility districts to partner with private ISPs to apply for funding.

New Hampshire

In 2020, the New Hampshire Legislature passed legislation that allows two or more municipalities to create a communications district for the purpose of broadband expansion and authorizes the districts to use bonds to fund network construction. Participating municipalities must vote to create a planning committee, appoint two representatives to the committee, and host public hearings and information sessions. The planning committee must then send the proposed agreement to New Hampshire’s attorney general for review.

The following year, the Legislature created the Broadband Matching Grant Initiative within the Department of Business and Economic Affairs to support those efforts by providing broadband expansion grants to ISPs, political subdivisions, and communications districts across the state.

Two regions are considering forming communications districts. In Carroll County, 19 towns formed the Carroll County Broadband Committee to conduct a study of available broadband service in the area. Based on the findings, the committee will decide on the best path forward. In southwest New Hampshire, the Monadnock Broadband Group, formed to examine broadband issues in the area, is exploring options for expanding access, including the creation of a communications district.

Washington

In 1930, voters in Washington state supported a ballot measure allowing rural communities to form public utility districts (PUDs) to provide water and electric service. Today, PUDs serve less than 15% of Washington’s population but more than 50% of its geography. Similarly, the Port District Act of 1911 created independent municipal port districts, each governed by an elected commission, to manage ports, airports, railroads, and industrial parks and to promote economic development in their communities.

In 2000, the Legislature passed a bill that allowed PUDs and rural port districts to provide wholesale telecommunications services; for example, the resale of “dark fiber”—lines that have been installed but not yet connected to devices or internet service—to an ISP. Then, in 2021, the Legislature noted that the COVID-19 pandemic has underscored the importance of high-speed internet to education, health care, and economic inclusion and identified allowing PUDs and port districts to provide retail broadband service in unserved areas to be “one of the most effective tools” for ensuring statewide access. In light of this determination, the Legislature amended the law to allow districts that were in existence on or before June 8, 2000, to provide broadband service directly to consumers.

Before expanding into retail broadband, PUDs and port districts must submit plans to the Washington Statewide Broadband Office detailing their timelines and how their projects will align with the state’s goal of universal broadband access at speeds of 150 Mbps symmetrical by 2028. The law also requires districts—even those delivering retail broadband to local customers—to operate open access networks, meaning they must allow other ISPs to lease their networks at transparent and nondiscriminatory rates for the purpose of also offering retail broadband service to customers. 

To support network build-outs, PUDs and port districts are eligible to receive funding through the state’s broadband grant programs, and several have already received grants to begin providing broadband. The PUD in Jefferson County—a rural jurisdiction with a population of just over 30,000—has received $24 million in grant funding to provide 2,600 homes with broadband service at speeds of 100 Mbps to 1 gigabit per second symmetrical and plans to become the first of Washington’s 28 PUDs to provide retail broadband.

Similarly, the Port of Columbia is entering the final stages of deploying a fiber optic network that will provide service to consumers in the city of Dayton and surrounding areas of Columbia County. The network, which should start operating in late spring or early summer 2023, was kick-started by a $2 million grant from the state’s Community Economic Revitalization Board along with matching funds from the county and other local entities. Although the port district will own the network, its model differs from Jefferson County’s in that rather than functioning as its own ISP, the district has partnered with two private ISPs that will deliver the service to end users.

Conclusion

States and the federal government have made substantial investments in recent years to expand access to high-speed internet. And today, the communities that still lack broadband service are those with expanses too wide and potential customer bases too small to attract private ISPs, even in the face of robust public funding. As states plan to deploy new federal funds available through the IIJA and work to reach their remaining unserved areas, they can draw on systems that have been used for decades to deliver other essential services in rural areas. 

Regional utility districts offer a mechanism through which communities can come together to aggregate demand across small towns and sparsely populated rural areas to form larger customer bases. They can tolerate a slower return on investment than private providers can, and they help distribute the risks associated with broadband networks across multiple communities. And whether a state has existing utility districts that could be leveraged to provide broadband service or must create new districts to do so, states such as Vermont offer a model that can promote regional collaboration and deliver high-speed internet to many of the nation’s hardest-to-reach areas.