A Different Take on the Great BEAD Rate Regulation Debate: Is NTIA Coercing the States?

There has been much discussion and debate about whether certain elements of the BEAD program constitute “rate regulation.” Many stakeholders, including the ACLP, have argued that any attempt by NTIA or the states to require ISPs to offer broadband at a specific price has all the hallmarks of rate regulation, which, for internet access services, is impermissible under federal law. However, as discussed below, a closer look reveals significantly more legal nuance and highlights a potentially more relevant line of argument vis-à-vis NTIA overreach.

After providing an overview of the ongoing rate regulation debate, this post situates that discussion in the context of Supreme Court precedent outlining the extent to which Congress can attach conditions or “strings” to federal funds. When viewed in this context, certain NTIA actions could plausibly be interpreted as coercive or tantamount to commandeering the states to do what NTIA cannot (i.e., regulate rates).

The BEAD Rate Regulation Debate

The focus of rate regulation discussions in the context of BEAD is the low-cost broadband service option (LCBSO) requirement. Per Section 60102(h)(5) of the Bipartisan Infrastructure Law (BIL), states must propose a low-cost service option as part of their BEAD program. The BIL does not define LCBSO; instead, the law requires states to define it. A state’s proposed LCBSO is to be reviewed and approved by NTIA. The BIL also includes a clear limitation of NTIA’s authority: “Nothing in this title may be construed to authorize [NTIA] to regulate the rates charged for broadband service.” That this provision is included in the LCBSO section strongly implies that Congress identified this aspect of BEAD as a potential locus for rate-setting activity.

Much of the BEAD rate regulation debate stems from NTIA guidance for the LCBSO. Even though the BIL appears to provide states with latitude in defining the parameters of the LCBSO, other provisions of the law, coupled with the overarching thrust of the BEAD statute, make clear that NTIA possesses significant authority to ensure that its preferred definition of the low-cost option prevails in state plans (this dynamic was evident throughout the review and approval process for state V1s). For example, NTIA has the authority to deny a state’s proposed LCBSO definition and must offer that state specific instructions for “cur[ing] the defects in the proposed definition” so that it aligns with NTIA’s favored approach. That approach is NTIA’s proposed LCBSO model plan, which recommends setting the price for the low-cost option at $30/month.

Per the ACLP’s BEAD tracking, most states have adopted a version of the NTIA LCBSO model in their BEAD plans. Indeed, as of this writing, each of the 13 states that have had Volume 2 of their Initial Proposal approved by NTIA include a low-cost option at a specific price point (see Table below). These options must be offered to eligible customers for 10 years.

State	LCBSO Monthly Price-Point	Waiver Available?
Colorado	$30 (if ACP remains) $50 (if ACP lapses)	Yes; if approved, subgrantees can offer up to $50
Delaware	$30	Yes; if ACP lapses, and if approved, subgrantees can offer up to $65
Illinois	$30	No
Kansas	$30	No
Kentucky1	$30	Yes; if approved, subgrantees can offer up to $65
Louisiana	$30	Yes; if approved, subgrantees can offer up to $65
Maine	$30	Yes; if approved, subgrantees can offer up to $65
Nevada	The lower of $50 or cost of existing low-income plan	No
New Hampshire	$30	Yes; if approved, subgrantees can offer up to $50
Oregon	$30	Yes; if ACP lapses, and if approved, subgrantees can offer up to $50
Pennsylvania	2% of the max eligible annual income, outlined by ACP with a HH of one, divided by 12	No
Washington	$30	No
West Virginia	$50	No

A handful of states have expressed an unwillingness to specify a price-point for the LCBSO. Two states, South Carolina and Virigina, have stated that they believe it is impermissible under federal law to establish a rate for the LCBSO and have proposed allowing subgrantees to set their own price for the low-cost option. These plans have not yet been approved by NTIA, and adjustments to the plans made by the states in response to curing edits from NTIA suggest that this alternative approach might be a sticking point.

Georgia, on the other hand, has walked back its previous resistance to setting a price for the LCBSO. In its most recent V2 draft, Georgia opted to use the FCC’s Urban Rate Survey to set a pricing benchmark for the LCBSO. The state reasoned that the “benchmark and its underlying Urban Rate data provides a clear way to assess affordability by use of an objective metric as the data is collected and updated annually, providing consistency, and reflects real market pricing.”

Is it Rate Regulation?

NTIA and others have argued that “[o]ffering a low-cost service offering is a condition for receipt of BEAD subgrants.” In other words, since BEAD is a voluntary program – i.e., states theoretically do not have to participate in it – those who opt to pursue funding must assume all the responsibilities and meet all the requirements attached to those funds. This includes the LCBSO.

It is generally permissible for the federal government to attach strings to grant funding. In a seminal 1987 Supreme Court case, South Dakota v. Dole, the Court upheld a federal law that conditioned the receipt of highway funding on states raising their drinking age to 21. Citing precedent stretching back decades, the Court observed that Congress “has repeatedly employed [this] power to further broad policy objectives by conditioning receipt of federal moneys upon compliance by the recipient with federal statutory and administrative directives.”

The Court noted that this power was not limitless. To the contrary, it is subject to several limitations:

1. “[T]he exercise of the spending power must be in pursuit of the general welfare.” Courts “should defer substantially to the judgment of Congress” on this determination.
2. If a string is attached to funding, Congress “must do so unambiguously…enabl[ing] the States to exercise their choice knowingly, cognizant of the consequences of their participation.”
3. Strings on funding could be “illegitimate if they are unrelated to the federal interest in particular national projects or programs.”
4. In some cases, other Constitutional provisions might negate a string attached to funding.

Under this framework, and when viewed in isolation, it is possible that the LCBSO requirement might constitute a permissible string attached to BEAD funding.

Is NTIA Coercing or Commandeering the States?

The South Dakota case goes on to note that, “in some circumstances, the financial inducement offered by Congress might be so coercive as to pass the point at which pressure turns into compulsion.” In that case, the Court did not find evidence of compulsion or coercion because South Dakota only stood to lose 5% of its highway funding if it did not comply with the string (i.e., raise its drinking age to 21).

In the BEAD context, NTIA could withhold approval of a state’s Initial Proposal – and thus delay or cancel a state’s BEAD program – if the state does not accede to NTIA’s preferred approach to any issue, including the LCBSO. This appears to be the case in Virginia, which was one of the first states to submit its V2 to NTIA but has yet to receive approval after several rounds of “curing.” A major impediment appears to be Virginia’s concerns with the LCBSO (discussed above). With BEAD representing an historic, once-in-a-lifetime investment of federal funding in broadband expansion, states might feel compelled to agree to anything suggested by NTIA lest they risk losing out on getting the resources needed to finally close their digital divide.

Based on similar Supreme Court precedent, it could also be argued that NTIA is attempting to circumvent the BIL’s prohibition on rate regulation by commandeering the states to accomplish that goal in its stead. The Supreme Court has long found such attempts by Congress to “require the States to govern according to [its] instructions” to be unconstitutional because they impede the ability of states to operate as independent sovereign entities according to principles of cooperative federalism (quoting New York v. U.S. (1992)). Further, the Court in New York held that:

“No matter how powerful the federal interest involved, the Constitution simply does not give Congress the authority to require the States to regulate. The Constitution instead gives Congress the authority to regulate matters directly and to pre-empt contrary state regulation. Where a federal interest is sufficiently strong to cause Congress to legislate, it must do so directly; it may not conscript state governments as its agents.”

A more recent Supreme Court decision implicating these issues is NFIB v. Sebelius from 2012. There, the Court addressed several challenges to key provisions of the Affordable Care Act (ACA) (aka Obamacare). Of relevance here is the Court’s analysis of the ACA’s approach to encouraging states to expand their Medicaid programs. Under the ACA, states that opted not to expand Medicaid risked losing all Medicaid funding. The Court described this condition as akin to Congress putting a “gun” to the head of the states. The Court found that this string went too far and struck it down.

The many strings attached to BEAD funding are not quite as dramatic as those in Sebelius. However, the amount of funding at stake for broadband deployment is significant – much higher than the relatively paltry amount at stake in South Dakota. Indeed, states that hold fast to their objections to the LCBSO or any other BEAD requirement risk losing out on at least $100M in funding for broadband infrastructure expansion. Given the historical dearth of state-level broadband funding programs, BEAD funds represent the lions-share of resources available to support network expansion into unserved and underserved areas.

Failure to secure these funds would risk leaving millions of Americans stranded on the wrong side of the digital divide. This could be framed as the kind of “economic dragooning” that the Court chided Congress for in Sebelius, leaving states “with no real option but to acquiesce” to NTIA’s preferred approach to BEAD, including setting a price for the LCBSO.

Where Do We Go From Here?

In recent years, there have been several state-led lawsuits challenging the legality of strings attached to federal funding. One case in the 11th Circuit resulted in a ruling that found certain aspects of the American Rescue Plan Act violated the principles discussed above. A similar case is still working its way through the 6th Circuit. These cases, coupled with the Supreme Court cases discussed above, could provide fertile ground for state challenges to various elements of BEAD, including the LCBSO.

It is unclear whether states would pursue a legal challenge of BEAD and whether it would be successful. Regardless, the preceding analysis demonstrates that the debate over whether BEAD requires states to engage in rate regulation via the LCBSO is a much more nuanced topic than most stakeholders might realize. It also implicates much larger issues that might benefit from legal review.

Footnotes

1. Per most recent cured V2