You may have recently seen our representatives in Lansing, Rep. Beth Griffin and Senator Aric Nesbitt, boasting of the their hard work to bring internet to underserved areas. Of which Van Buren County has a lot.

 

There are still too many homes without broadband in VBC

Griffin (who has received more than $14k from telecom industry PACs) and Nesbitt (who has received over $20k) recently introduced legislation (SB46 & HB4210) to address the problem.

The bills seek to reduce costs for broadband providers through the time honored tradition of tax cuts. The thought being that cutting taxes will lower overhead costs leading to new investments in expanding their infrastructure. The problem is that these bills do little to actually accomplish that.

Let's first take a look at the legislation. The quick take is that it would exempt "eligible broadband equipment" from property taxes if it addresses a "lack of broadband service". Sounds good, right?

Follow The Money

You can usually tell a lot about a bill by the supporters and who opponents it. In this case, unsurprisingly we see the telecommunications industry line up in support. Which makes sense because they're getting a tax cut.

The opposition is primarily representatives of local government such as the Michigan Townships Association, Michigan Municipal League and the Michigan Association of School Boards. You may be surprised by this, as logically local governments and schools would want to bring their communities online.  However, as property tax revenue funds local governments and the School Aid fund, this bill means further budgets cuts. Cuts that potentially impact essential services like schools, police and fire.

How much are we really talking about though? According to the House Fiscal Agency analysis "the bills would reduce state and local tax revenue by an unknown amount". Faced with an uncertain financial impact, local governments are justifiably hesitant to get on board.

Serving The 'Unserved'

Senate Bills 46 states that  "eligible broadband equipment that resolves lack of broadband service" is "exempt from the collection of taxes". The bill defines "lack of broadband service" as:

"either no terrestrial internet access or access to terrestrial internet delivered at speeds of less than 10 megabits per second downstream and 1 megabit per second upstream."

That creates a huge potential loophole as broadband equipment may serve customers in over a wide area. Consider the following scenario. Two adjacent areas: Area A has near universal broadband coverage and Area B is lacking service completely.

An example of potentially tax exempt equipment in a fiber-to-the-home network

If the broadband provider extends their network in Area A to a single nearby household in Area B then a number of pieces of equipment in Area A potentially becomes tax exempt, despite the very limited service expansion because much of the eligible equipment is shared among many customers. There is nothing in the legislation connecting the amount of the tax break to the number of newly covered customers leaving it ripe for exploitation.

The problem is worse when you consider wireless providers. If AT&T, Verizon or T-Mobile upgrade an existing tower and a single customer now gets 1 bar of service, the equipment is now potentially tax exempt. It doesn't require building new towers to serve new customers, just upgrades to existing towers to slightly boost range.

Who is actually paying?

Have you ever looked at the details of your internet bill? There's a good chance if you did you might see a charge for your service plus additional surcharges. Often creatively named to make it seem like a government mandated charge, however many of the fees are not and are actually tacked on the pass the cost of infrastructure on to the customer without raising the marketed price.

The thing is, according to the providers these fees are supposed to cover the government induced expenses.  You know expenses like property tax? AT&T, for example, charges customers a AT&T Cost Assessment Charge. AT&T's Michigan Guidebook describes the charge as:

"The CAC is established to recover property taxes"

Frontier, which serves much of Van Buren County, charges an Internet Infrastructure Surcharge. Verizon Wireless charges a Regulatory Charge ("which helps defray various government charges we pay") and an Administrative Charge ("fees and assessments on our network facilities and services; property taxes; and the costs we incur responding to regulatory obligations"). One thing in common? Not a single one of these fees are government mandated.

So in other words, what Rep. Griffin and Senator Nesbitt are offering are tax breaks for taxes the largest providers often aren't even paying... because you are.

So how does removing an expense which they're already not paying help spur infrastructure investment? When you consider the potential risk to local government services, the numbers simply don't add up.

Don't buy the hype, this is a handout disguised as a plan.

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