Stimulus funds for Internet: wise or wasteful?

WASHINGTON — At first glance, an item in the nearly $900 billion stimulus bill on Capitol Hill would seem to offer a perfect jump-start to the economy: expanding broadband Internet service to rural and underserved areas.

Proponents say it will create jobs, build crucial infrastructure and fulfill a campaign promise of President Obama's: to expand the information superhighway to every corner of the land, giving local businesses an electronic edge and offering residents a dazzling array of services like online health care and virtual college courses.

But experts warn that the $9 billion effort could become a cyberbridge to nowhere, representing mistakes lawmakers could make in rushing to approve one of the largest spending bills in history.

"The first rule of technology investment is you spend time understanding the end user, what they need and the conditions under which they will use the technology," said Craig Settles, an industry analyst and consultant who has studied rural broadband.

"If you don't do this well, you end up throwing millions or, in this case, potentially billions down a rat hole. You will spend money for things that people don't need or can't use."

The Congressional Budget Office said Monday that, overall, the Senate version of the stimulus package would have a swifter impact on the economy, with a combined $694 billion in spending and tax breaks by October 2010, compared with $526 billion for the bill that the House approved.

The total cost of the Senate bill is $884 billion, about $64 billion more than the House bill. The new cost analysis came as the Senate opened debate on the plan Monday, and Democratic congressional leaders met with Obama to discuss the looming floor fight.

Senate Republicans, meanwhile, said they would aggressively push for changes, such as a provision that would help all creditworthy homeowners to refinance their mortgages at rates of 4.5 percent or lower.

Dozens of programs included in the stimulus measure could entail a similarly complicated cost-benefit analysis.

But with Congress and the White House intent on adopting the economic-recovery package by the end of next week, taxpayers are unlikely to find out whether these are great investments or a total waste — or something in between — until long after the money is out the door.

The proposals for expanding broadband service offer a particularly useful case study because, unlike other proposed programs, the potential benefits of wider network access are indisputable.

And yet, supporters cannot simply wave away the potential pitfalls, including the fact that it would take at least until 2015 to spend all the money on infrastructure to deliver the service — vastly limiting the stimulating punch.

Already there has been sharp criticism of provisions in the Senate version that seem intended to benefit large Internet service providers, particularly Verizon, which could potentially claim hundreds of millions of dollars in tax credits.

"I see multiple motivations in this bill, based on the language," said Brett Glass, founder of Lariat.net, an Internet service provider in Laramie, Wyo., who is an advocate for expanded broadband.

"I do see a motivation to try to stimulate the economy. I think that's a good thing. I also see a motivation to hand out money to certain large corporations that are very good at lobbying."

Critics like Glass say the legislation being developed in Congress is flawed in various ways that could mean much of the money is wasted, or potentially not spent at all — arguably an even worse outcome given that the most immediate goal of the stimulus measure is to pump new spending into the economy.

An "open access" requirement in the bill might discourage some companies from applying for grants because any investments in broadband infrastructure could benefit competitors who would gain access to the network down the line.

And meeting minimum-speed requirements set forth in the House version of the bill could force overly costly investments by essentially providing Cadillac service where an economy car would be just as useful.

"Really, the devil is in the details," Glass said. "Yes, there is $9 billion worth of good that we can do, but the bill doesn't target the funds toward those needs."

Other critics say the effort will provide neither a true nationwide information superhighway, which some advocacy groups say would cost up to $100 billion, nor a good short-term lift to the economy, because there are so many requirements to be met in applying for federal broadband grants.

Supporters of the measure say the potential benefits of broadband access outweigh any risks.

"Broadband can be the great equalizer between the rural areas and the urban-suburban areas," said Rep. Mike McIntyre, a North Carolina Democrat who is the chairman of a subcommittee on rural development. "Rural areas tend to get overlooked."

McIntyre said his district, in a rural part of the state, has already seen many benefits from expanded broadband access, including education services and health-care access that links local clinics to top research hospitals more than 100 miles away.

But he said several counties in the area still have little or no broadband coverage.