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Treasury Department Publishes Second Round of Regulatory Guidance on Opportunity Zones

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The U.S. Treasury Department on Wednesday published its second round of regulatory guidance regarding opportunity zones, providing further context and security around the investment vehicle included in the 2017 federal tax legislation, dubbed the Tax Cuts and Jobs Act.

As defined in law, the statutory opportunity zone systems allows a taxpayer to defer all or part of a gain that would otherwise be taxable if it is invested into either a qualified opportunity fund, or into a business operating in an opportunity zone.

Under the 2017 tax law, governors in all 50 states (and U.S. territories and districts) have designed opportunity zones, generally in low-income or otherwise economically-disadvantaged areas.

That gain is deferred until the investment is sold or on December 31, 2026, whichever comes sooner. In an investment is held for at least 10 years, the investor may be able to permanently exclude their gain.

The regulations issued on May 1, 2019, are separated into seven sections, Proposed Treasury Regulation section 1.1400Z2-1(a) through 1.1400Z2-1(g). The rules impact everything from investing capital gains into QOFs, structuring basis issues related to investment in QOFs, investing in the opportunity zones by the QOF, operating within the opportunity zones, and rules about exiting the opportunity zone.

The Treasury Department issued its first set of regulations in October 2018. They provided basic rules and definitions of eligible taxpayers, eligible gains, QOF self-certification, and special rules for qualified opportunity zone business assets.

This second set of regulations provides clarity on the interaction of partnership rules, strategies to exit or unwind an investment from a QOF, or from a qualified opportunity zone business.

The idea behind the opportunity zones concept is that investors, seeking tax benefits, will accelerate business, real estate and broadband investment.

The significance of the opportunity zones investment vehicle has been slow to dawn on developers and broadband advocates. But many in the broadband development space now see the opportunity zones regulations as one of a handful of new government-supported investment vehicles providing stimulus toward greater broadband investment.

(Image from New York Fed.)

Drew Clark is the Editor and Publisher of BroadbandBreakfast.com and a nationally-respected telecommunications attorney at The CommLaw Group. He has closely tracked the trends in and mechanics of digital infrastructure for 20 years, and has helped fiber-based and fixed wireless providers navigate coverage, identify markets, broker infrastructure, and operate in the public right of way. The articles and posts on Broadband Breakfast and affiliated social media, including the BroadbandCensus Twitter feed, are not legal advice or legal services, do not constitute the creation of an attorney-client privilege, and represent the views of their respective authors.

Expert Opinion

Christopher Mitchell: Brendan Carr is Wrong on the Treasury Department’s Broadband Rules

The Federal Communications Commission has no excuse for why the agency finished with the same bad data it started with.

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The author of this Expert Opinion is Chris Mitchell, director of the Community Broadband Networks Initiative at Institute for Local Self-Reliance

With all due respect to Federal Communications Commissioner Brendan Carrhis reaction to the Rescue Plan Act’s State and Local Fiscal Relief Fund (SLFRF) spending rules is way off base. As I wrote last week, the rules for broadband infrastructure spending are a good model for pushing down decision-making to the local level where people actually have the information to make informed decisions. (Doug Dawson recently also responded to Commissioner Carr’s statement, offering a response with some overlap of the points below.)

See Christopher Mitchell, Treasury Department Rescue Plan Act Rules Improve Broadband Funding, Broadband Breakfast, January 13, 2022

The Final Rule from the Treasury Department gives broad discretion to local and state governments that choose to spend some of the SLFRF (SLurF-uRF) funds on broadband infrastructure. The earlier draft of rules made it more complicated for networks built to address urban affordability challenges.

However, in coming out against the rules, FCC Commissioner Carr is giving voice to the anger of the big cable and telephone monopolies that cities can, after collecting evidence of need, make broadband investments even in areas where those companies may be selling services already. Commissioner Carr may also be frustrated that he has been reduced to chirping from the sidelines on this issue because the previous FCC, under his party’s leadership, so badly bungled broadband subsidies in the Rural Digital Opportunity Fund (RDOF) that Congress decide NTIA should administer these funds and have the state distribute them.

Nonetheless, the issues that Commissioner Carr raised are common talking points inside the Beltway and we feel that they need to be addressed.

Background Note

The failure of the FCC to assemble an accurate data collection is many years in the making. No single presidential administration can take the full blame for it, but each of them could have corrected it.

President Joe Biden’s FCC is not yet fully assembled because of delays in appointment and in Senate confirmation, but it would not be reasonable to lay blame on the current FCC for the failures discussed below. That said, it is not clear that we are on a course for having better maps and data that will resolve these problems anytime soon.

Commissioner Carr’s Criticism 

Commissioner Carr jumps immediately into the rural vs urban frame, suggesting that the Biden Administration could leave rural families behind by allowing local governments to invest in broadband in areas where an existing provider may already claim to offer service. Outlawing this practice – which he and others close to the largest cable and telephone companies call “overbuilding” – has been a major point for Republican FCC Commissioners.

  • Rather than directing those dollars to the rural and other communities without any Internet infrastructure today, the Administration gives the green light for recipients to spend those funds on overbuilding existing, high-speed networks in communities that already have multiple broadband providers. This would only deepen the digital divide in this country.

Pardon me? Logically, it is not clear what exactly Commissioner Carr is griping about here. Using Maryland as an example, if Baltimore is allowed to spend some of its funds to ensure unconnected families in public housing have high-quality Internet access, it is not clear that rural Garrett County in the western part of the state is harmed. Local governments do not receive different amounts of funds based on whether they spend it on broadband or other allowable expenses.

See Christopher Mitchell and other from the Institute for Local Self Reliance in the Broadband Breakfast Live Online for Wednesday, January 19, 2022 — The Community Broadband Network Approach to Infrastructure Funding

Broadband Breakfast on January 19, 2022 — The Community Broadband Network Approach to Infrastructure Funding

States could be the issue. Perhaps Commissioner Carr is concerned that Maryland will use some of its SLFRF money for broadband and it will spend too much in urban areas rather than rural regions. That would be an historical anomaly, even though there are far more people living in urban areas than in rural areas who are not on the Internet. And yet, nearly all state and federal dollars have gone to rural areas for infrastructure improvements, with very little being spent to help the low-income families left behind in urban areas. There is no history of states prioritizing urban investments over rural.

Bad Data, Srsly?

What I found really galling though was this bit:

  • It gets worse. The Treasury rules allow these billions of dollars to be spent based on bad data. It does this by authorizing recipients to determine whether an area lacks access to high-speed Internet service by relying on informal interviews and reports—however inaccurate those may be—rather than the broadband maps that the federal government has been funding and standing up

It is 2022. The FCC announced three weeks ago that it did not have a timeline for better maps.  Many of us have complained for more than 10 years about the misleading and inaccurate collection of claims that the FCC advances as its understanding of where broadband exists in the United States.

Commissioner Carr has been an FCC Commissioner for more than four years, nearly all of that time when his agency was run by a Republican. For part of that time, the Republicans controlled the Presidency, the House, and the Senate. They have no excuse for why his party’s FCC finished with the same bad data processes it started with. No one was defending the FCC data or maps during those years, but the FCC did not bother to begin collecting new data.

Now Commissioner Carr claims that “parts of this country” have broadband services at speeds near 100 Mbps down and 20 Mbps up. OK, Commissioner. Where? Do you have a secret list? No, these are talking points to obscure the fact that Commissioner Carr and his agency has utterly failed to track precisely what “parts of this country” actually has access to broadband.

Will I agree that most, perhaps 80 percent, of the country has access to 100 by 20 Mbps? Yes. But that doesn’t matter if no one can agree which homes are well-served. And it opens up a whole other set of questions that Carr neatly sidesteps, which is that contemporary broadband service goes beyond the academic question of whether an ISP provides that service most of the time at some price. If the price isn’t affordable, then there is a problem that needs to be addressed. Or as we like to say, if it’s not affordable, it’s not accessible. And, if the service is not very reliable, then there is a problem that must be addressed.

This is why the final rule is both necessary and good: because it allows communities the flexibility they need to address not just the gaps in infrastructure, but reliability and affordability as well. But of course Commissioner Carr should know that we do not have this information at the federal level, because I’m quite sure he opposes collecting pricing and other information. Despite the many instances in which providers have lied to the Commission in presenting the areas they offer service, Carr objects per se to local evidence gathered via interviews to understand where broadband actually is.

A Prediction: This Is Not A Problem

It is remarkable to see the amount of performative horror Commissioner Carr expresses at the prospect of a city like Baltimore using some of the Rescue Plan dollars to ensure its families in public housing are on the Internet, even if a cable provider could theoretically sell them Internet access for $75/month, or provide a subsidized service if they jump through all the right hoops. Compare that to the silence from the Commissioner when it became clear that the largest telephone companies took billions of dollars in broadband subsidies and might have forgotten to upgrade their services.

The SLFRF Treasury Rules give the appropriate amount of deference to local and state leaders to act in an utter void of information about what is available to each home. Commissioner Carr is deeply worried – because the largest cable and telephone companies are deeply worried – that some places will use these dollars to build networks that are unneeded or would create too much competition for the existing companies.

My prediction is that communities will not do this. Of course it’s not zero: a cardinal rule of dealing with large numbers of humans is that there are always outliers. But of the cities that allocate some of their SLFRF dollars to broadband infrastructure, they will overwhelmingly focus on areas where there are real affordability and reliability challenges from existing services. The reality is that very few of these investments will result in any material losses to existing ISPs, but the monopoly providers know that even modestly opening the door to locally built and operated infrastructure driven by community-driven solutions could open the floodgates to the competition they fear so much.

Commissioner Carr has spent years as one of a very small number of people that could correct the abject failure of the FCC to collect useful information about broadband deployments. The rest of us have had to move on and figure out how to work in the absence of data. The best option is to allow for local decision-making where they can collect evidence and act. And most importantly, they will have to take responsibility for their actions and lack of action in ways that FCC Commissioners often do not.

Editor’s Note: This piece was authored by Christopher Mitchell, director of the Institute for Local Self Reliance’s Community Broadband Network Initiative. His work focuses on helping communities ensure that the telecommunications networks upon which they depend are accountable to the community. He was honored as one of the 2012 Top 25 in Public Sector Technology by Government Technology, which honors the top “Doers, Drivers, and Dreamers” in the nation each year. This piece was originally published on MuniNetworks.org on January 20, 2022, and is reprinted with permission.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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FCC

FCC Chairwoman Rosenworcel Shares Proposal to Promote Broadband Competition In Apartment Buildings

If adopted, the FCC’s regulations would increase broadband options for tenants.

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FCC Chairwoman Jessica Rosenworcel

WASHINGTON, January 21, 2022––Federal Communications Commission Chairwoman Jessica Rosenworcel shared a draft regulation that aims to would promote competition and greater broadband choice for tenants in apartment buildings.

If adopted, the regulations would prevent practices that keep tenants from choosing their own broadband provider.

“With more than one-third of the U.S. population living in apartments, mobile home parks, condominiums, and public housing, it’s time to crack down on practices that lock out broadband competition and consumer choice,” said Rosenworcel.

The proposal would prohibit broadband providers from entering into revenue-sharing agreements with apartment building owners. If approved by her fellow commissioners and hence adopted as official agency rules, the regulation would also require providers to disclose any existing marketing arrangements they have with building owners to tenants.

“Consumers deserve access to a choice of providers in their buildings. I look forward to having my colleagues join me in lifting the obstacles to competitive choice for broadband for the millions of tenants across the nation,” Rosenworcel said.

Her proposal builds on a September 2021 notice that invited a new round of comments during an examination of broadband access In apartment and office buildings. The FCC said the proceedings revealed “a pattern of new practices that inhibit competition, contrary to the Commission’s goals, and limit opportunities for competitive providers to offer service for apartment, condo and office building unit tenants.”

More than one third of the U.S. population lives in condominiums or apartment buildings.

Exclusive agreements between broadband providers and buildings owners limit options for tenants, who are precluded from access to new carriers. “Across the country throughout the pandemic, the need for more and better broadband access has never been clearer,” Rosenworcel added.

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Funding

Preparing Collaboration Model, Data Collection Suggested Before Infrastructure Money Flows

With infrastructure bill, there is no longer a shortage of funds for states to expand their broadband infrastructure, consultants said.

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Joanne Hovis, president of CTC Technology and Energy

WASHINGTON, January 20, 2022 – While billions in federal dollars from the Infrastructure Investment and Jobs Act are still many months away, work can be done to tie-up some loose ends, including figuring out internet speed criteria and best partnerships for broadband builds, said a consultant Wednesday.

Heather Gold, founder and CEO of broadband consulting firm HBG Strategies, noted on a Broadband Bunch webinar that the $65 billion for broadband from the infrastructure bill won’t be available until next year. But she noted that infrastructure money and existing American Rescue Plan Act funding means states are no longer financially limited in their efforts to expand broadband.

That means internet service providers and states need to be thinking about how to manage this pool of funds, according to Joanne Hovis, president of engineering and consulting firm CTC Technology and Energy.

Hovis said local service providers can get ahead by choosing the right collaboration model for broadband builds. That includes partnerships with electric cooperatives, which can own wood poles on which telecoms attach their equipment, or a partnership with the local government, such as that being done in Vermont.

Hovis also encouraged data collection efforts to make broadband service prices publicly available and easily accessible knowledge, and advocated for competitive bidding processes for broadband grants that result in benefits for as many service providers as possible.

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