Report Prepared by: Jeff Bennyhoff, Director of Information Technology
Title
SUBJECT: Review and Discuss Broadband for Unserved and Underserved Residents and Grant Funding Opportunities
REPORT IN BRIEF
Review and discuss broadband for unserved and underserved residents and grant funding opportunities.
RECOMMENDATION
Information only and possible Staff direction on revisions and/or next steps.
Body
CITY COUNCIL PRIORITIES
As provided for in 2023-2024 Council Goals and Priorities § Merced Unity Projects “G”.
DISCUSSION
In December of 2021, Council approved the use of ARPA funds for the expansion of broadband services to unserved and underserved residents.
In May 2022, Council approved a memorandum of understanding with the County of Merced to fund a prorated share for a countywide broadband strategic plan. The City contributed $69,030 of ARPA funds for the study. The County entered into a contract with Magellan Advisors for services to craft the broadband Strategic plan. Magellan Advisors performed outreach via a survey and listening sessions targeting schools, public safety, small business, transportation and utilities, health and wellness, land use and real estate development. The study concluded that approximately 97 percent of residents of the City of Merced have access to broadband services using a blend of public and private data available to Magellan Advisors.
At the conclusion of the study it was apparent there were a large number of broadband grant opportunities on the horizon and the best use of ARPA funds would be to use the funds as match of capital in future grant opportunities.
The first grant opportunity the City could consider was the LATA (Local Agencies Technical Assistant) Grant. The City of Merced wrote a letter of support for the County of Merced grant application in September 2022. The County was awarded a $500,000 LATA grant. The funds for the County LATA grant can be used for environmental studies, engineering’s studies, Broadband needs assessment, and planning.
A current grant opportunity available to the City is the Last Mile Federal Funding Account (FFA) administered through the California Public Utilities Commission. The grant filing opened June 30th, 2023 and the deadline for submission is September 29th, 2023. The funding set-a-side is $26.2 million earmarked for projects targeting unserved / underserved residential broadband via wireline services in Merced County. There is anticipated to be a future round of the FFA grant next year.
The City and County both published RFPs in early August 2023 for vendors to partner with to submit FFA Grant applications. The County RFP called for a partnership opportunity where the County would give the grant funding to a private entity to construct and own the broadband infrastructure. The County received two proposals. The Proposals would see broadband services provided through the vendors private infrastructure expansion. Currently the County is unable to share their RFP proposals due to confidentiality agreements in the vendors proposals. Once the County has executed contracts with the vendors the City would have more insight into the vendors, timelines, and locations be served.
The City RFP called for a public private partnership (P3) to have the city own the broadband infrastructure and the private partner to have rights to utilize the infrastructure to sell their services in exchange for in-kind contributions, capital funding, or a revenue sharing agreement. The private partner would maintain and operate the infrastructure, provide sales, marketing, residential technical support, and billing services. In the exhibit below the County RFP would fall under “ Type 4 Private Developer Open Access” while the City RFP would fall under “Type 2 - Publicly Owned, Privately-Serviced.”
The City RFP called out underserved and unserved locations to be serviced shown as black dots within the yellow hexagons in the exhibit below. The yellow hexagons represent areas of funding opportunities targeted by the FFA grant. The black dots represent 876 locations. In addition to providing retail residential services to unserved and underserve location the RFP called out connecting City facilities and anchor institution to our existing institutional broadband network. These City facilities include CP-42, McNamara Park, Joe Herb Park, Youth Sports Complex, and Steven Leonard Park. The anchor institutions include Farmdale Elementary, Pioneer Elementary, Tenaya Middle School, Gracey Elementary School, Merced Valley Community School, and Golden Valley High School.
The City received two RFP responses from Cal.Net and Onward. Both vendors have a proven track record of working on broadband grants from the federal government and operating active networks based upon the grant awards received. Both proposals did not fully address all the requests of the City as part of the RFP process. For example, Cal.Net agreed in principle to pay to utilizing the City owned infrastructure but said they would like to meet to negotiate further what their contribution structure would be to the City. While, Onward submitted a proposal for a 70 / 30 split revenue share agreement. Onward however did not provide a cost estimate to construct the City owned network.
Neither vendor submitted a letter of intent to partner with the City as part of the RFP requirement. A letter of intent is a key requirement for the city to submit a public private partnership grant proposal. In contacting the vendors both are interested in further discussion on a letter of intent and working to submit a FFA grant application by the deadline.
As both proposals did not address all the requirements of the RFP this presents the City with a high level of risk if we choose to partner with one of them for a FFA grant application. If the City does choose to partner with a vendor, the City recommends a partnership with Cal.Net as we believe it presents the lowest risk of the two vendors based upon the information provided in the RFPs. Cal.Net estimates a high-level construction cost of $14 million for the City-owned broadband network. With the City contributing our $1 million of ARPA funds this equates to a grant request of approximately 50% of available FFA Grant funds of $13 million.
As no other incorporated cities in the County released an RFP this puts the City in a unique situation of having two options to consider for a path forward with broadband and utilizing our ARPA broadband funds of $1 million as a capital match. We can partner with the County of Merced or submit our own FFA grant application. Both options present a different set of risk vs reward scenarios.
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City Partnership with Cal.Net |
City Partnership with County of Merced |
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Risk |
Risk |
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Directly competing for grant funding vs County of Merced |
Unknown vendor(s) |
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Possible cost overruns during construction |
Unknown locations served |
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Future operational repairs and maintenance costs vs revenue received |
Unknown timelines |
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Supply chain constrains and grant timelines |
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Staff and vendor expertise |
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Reward |
Reward |
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Ownership of broadband infrastructure |
Turnkey Services by vendor(s) |
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Possible Future Revenue |
Reduced budget concerns |
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Known location of services |
No unexpected operational costs |
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Increased broadband market competition |
Economy of scale |
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FFA Grant Scoring Rubric vs County of Merced |
Vendor staffing |
In comparing the City and County RFPs to the scoring rubric of the FFA Grant the City has two advantages over the County from a grant application perspective. The City has $1 million of ARPA funds to act as a capital match which grants one additional point out of 130 points within the scoring rubric. The City P3 (Public Private Partnership) model grants up to ten additional points over the County model of private entity owned.
The City recommends continuing our partnership with the County and supporting the County of Merced FFA grant application. This partnership would consist of letters of support for the County grant applications and entered in a MOU giving the County the City ARPA money set aside for Broadband for the expansion of broadband services within the City limits. If council agrees staff will bring back to council a memorandum of understanding with County of Merced to utilized City ARPA funds for the expansion of residential broadband services to underserved and unserved addresses via the County broadband project.
If council chooses to move forward with a City grant application in a public private partnership with Cal.Net a special council meeting will need to be scheduled to adopt a resolution to submit a grant application before the Federal Fund Account grant deadline of September 29th.
One area both the ARPA funds and FFA grants funds does not fully address in relationship to broadband is affordability. The FFA grant requires all broadband services offered to residents to be able to take advantage of the Federal Communication Commission Affordable Connectivity Program. The Affordable Connectivity Program (ACP) allows vendors to offset their cost of residential broadband services by $30 / month. For example, in Merced, qualified recipients can apply for the ACP program and receive wireline broadband services for $9.99 / month. In both proposals received by the City RFP process neither vendor would get services below the currently ACP subsidized market rate of $9.99 / month. Cal.Net would match the $9.99 rate and Onward lowest proposed broadband package that included an ACP discount would be $29.99 / month.
Fiscal Impact
ARPA Funding has been appropriated to support this project. Pending City Council direction, funding needs will be evaluated for a future action.
ATTACHMENTS
1. Presentation
2. MOU with County of Merced for Broadband Strategic Plan
3. Letter of Support for County of Merced LATA Grant Application
4. Countywide Broadband Strategic Plan
5. City RFP
6. County RFP
7. City RFP Responses