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Backroads Broadband

We ARE going to get there from here. The Backroads Broadband Program, which was proposed by Governor Jim Douglas in his State of the State address to the legislature last week, is aimed at making broadband available to the last most-difficult 5% or so of Vermont residences, which are sparsely scattered along remote dirt roads or on the wrong side of signal-blocking hills and mountains. The proposed plan helps the economics of telecom providers that serve the very difficult to serve by accelerating the signup rate so that these providers can get a faster return on their investment than they would otherwise and so Vermonters get the advantage of being online sooner rather than later.

We currently estimate that about 85% of Vermont addresses have access to reasonable broadband (satellite doesn't count!). That number could rise to as much 95% assuming that FairPoint and Comcast complete the buildouts they are legally obligated to do and assuming that most of our broadband applications for stimulus money are granted (that's probably optimistic).

It's frustrating but the feds have been very slow to announce winners of the broadband grants. First they said they would do so in early November, then December. Come December they announced just a few percent of the national total and have only dribbled out a few announcements since then. Many telecom projects have been delayed this year as carriers wait to find out what they can get grants for. Stimulus announced but delayed has a contrary effect; it costs jobs and its costs progress. Soon there is supposed to be an opportunity to apply for a second round of broadband stimulus, but the rules for that haven't been announced. It's also hard to plan for the second round when we don't know the results of the first.

But, complaining aside, we need to move ahead to make sure broadband is available and adopted everywhere in the state. Rural economic survival depends on affordable broadband access as do the ability to deliver e-health, e-education, and e-government. Backroads Broadband proposes to use $3.17 million of flexible stimulus money (technically state fiscal stabilization fund or SFSF) that we know we have to assure that we're moving ahead in our most difficult areas.

Up until now providers who want to serve Vermont's rural areas have faced three obstacles:

  1. Lack of affordable highspeed wholesale connections to the Internet in rural areas (like not having any Interstates or even state highways);
  2. The high cost per residence of deployment due to the low number of residences per mile and difficult terrain;
  3. Relatively slow signup in areas that have not previously had service both because of setup fees required for some technologies and because, when a whole community has gotten by without Internet, immediate signup is not as compelling as when all your neighbors are already online and posting stuff you want to see to YouTube.

Problem #1 is well on its way to being solved. VELCO, our statewide electrical wholesale transmission utility, is in the process of building 1200 miles of high-capacity fiber to pretty much every corner of the state. This is being done without state or federal money and should be done within two years. The $69 million Smart Grid grant awarded to Vermont and the $69 million of utility money that will match it will further improve our data backbone. A collaboration the Vermont Telecommunications Authority (VTA) is managing with wholesale providers to use this capacity should result in wholesale and commercial rates for Internet access in rural Vermont which are competitive not only with our own little cities but also with major metropolitan areas in the US.

Problem #2 isn't going to go away. We don't want Vermont to be either over-populated or flat. We've got to live with sparse population and tough terrain but we can't let these stop us.

Backroads Broadband addresses problem #3. As proposed, money will be available as an incentive to formerly unserved households to hook up quickly. The incentive is only available through providers who agree to cover 100% of an area; we don't want to leave even smaller and less economic scraps of unserved geography behind. Providers who do agree to full coverage will be able to offer qualified new subscribers either deeply discounted (maybe even free) first year service or a big break on setup costs; financing for this incentive will come from the VTA funded first by the SFSF money and, assuming the program is successful but a little more is needed, up to $1.83m of general funds from fiscal year 2012.

The Backroads Broadband Program is over after two years; the deadline itself will create a sense of urgency. Both for consumers and for providers, the message is use it or lose it. In two years, broadband should be everywhere. We should reach a critical mass of people online so that there is a compelling reason for almost everyone offline to actually get connected and so Vermonters can count on broadband for their own purposes and so the State can count on broadband to deliver services and for e-education.

Right now this program is just proposal although initial reaction to it has been positive. Legislation will be introduced to appropriate the federal money for this purpose (under Vermont law, the Governor cannot spend this money without a legislative appropriation). Hearings will indubitably be held by the relevant committees. You'll have a chance to comment for, against, or something else. Suggestions for improvement are welcome.

We are going to get there from here.

Vermont, Challenged and Stimulated

Now, when recovery from the worldwide recession is beginning, Vermont has an opportunity to emerge with a stronger economy, a cleaner environment, a broader tax base, and better jobs than we had before the downturn. We also face the enormous challenges of far too many Vermonters out of work, a state budget which was expanding at an unsustainable rate even before the recession, declining state revenues which will not return to bubble highs anytime soon, unfunded pension liabilities, the looming loss of hundreds of millions of dollars of budget bandaid from the Stimulus Bill (aka American Reinvestment and Recovery Act or ARRA), and a country whose national debt won't allow it to bail out the states (or anyone else) much longer. Oh yeah, our dominant telecom carrier is in bankruptcy too.

In my new job as Vermont's Chief Technology Officer (CTO), I'll be working on ways to use technology to seize the opportunities to overcome the challenges. Here's some of what we have going for us. Note that the opportunities go way beyond creating short term jobs; they build the infrastructure for a permanently stronger economy.

  1. Most Vermonters are tough, resilient, and hard working.
  2. ISO New England (the New England Power Grid) is financing a $53 million dollar buildout of high capacity data-carrying fiber by VELCO (Vermont's wholesale power transmission utility) as part of region-wide grid improvement. This fiber is not only the "state highway" path for the information which makes the smart grid smart, it also brings ultra highspeed Internet backbone affordably close to even the most rural parts of the state.
  3. The Department of Energy recently announced a nearly $69 million competitive grant to Vermont utilities. This money will be part of a $138 million project, which, at its completion at the end of 2012, will give Vermont the nation's first statewide smart grid, smart meters for almost everyone, a very competitive cost of electricity, and opportunities to use clean electricity to supplant petroleum as both a transportation and a heating fuel. Just as the VELCO network and other fiber already in place are the state highway system for data, the information needs of the smart grid project should provide substantial funding for "town highways" bringing high speed Internet access all the way to our homes and businesses.
  4. Vermont has already received one of the four first competitive broadband stimulus grants announced so far and may well receive funding for more projects when the rest of the grants are announced starting in December.
  5. Regardless of future stimulus funding, a newly-revitalized Vermont Telecommunications Authority has $40 million of revenue bonding which it should be able to deploy quickly to achieve our goals of universal cell coverage and high speed broadband availability. The smart grid projects listed above and any stimulus broadband grants make a tough job much easier (but not easy).
  6. There is $135 million of stimulus-funded low interest bonding available through the Vermont Economic Development Authority for credit-worthy businesses that want to expand in a state which is about to have both excellent telecommunications and relatively low cost energy – and is also a great place to live. The bonds must be issued by the end of 2010!
  7. There are $90 million of low interest stimulus bonds available to Vermont municipalities through the Vermont Municipal Bond Bank to make needed upgrades at lower cost. Again bonds must be issued by the end of 2010!
  8. A very high percentage of our state government workforce is due to retire in the next few years. This can either result in poor service and high costs if we don't prepare or substantially lower cost of government and better outcomes IF we use technology and the universal broadband adoption to improve the way state services are delivered in a way which was never possible before.


As CTO, it's my job to coordinate to assure that we actually do get the synergies between smart grid, broadband, and cellular coverage that are theoretically possible. It's also part of the job to assure that state government is using new technologies like smart grid for lower energy costs and broadband and the web to provide better state government at much reduced cost.

What The $69 Million Smart Grid Grant Will Mean to Vermont

The nearly $69 million dollar stimulus award Vermont utilities received from the federal Department of Energy (DoE) this week will have a much greater and long lasting effect on the Green Mountain State than hundreds of millions of dollars in stimulus band aids that we are also receiving. When the supplemental Medicaid and educations dollars are gone, we will have bought some much-needed time but still have a huge budget hole to fill. When the utilities finish building a smart grid statewide in the next few years, Vermont will have a stronger economy, a better job market, a cleaner environment, better broadband, a lower cost of living, and a stronger tax base to support the cost of government services with lower tax rates than would otherwise be possible. Almost sounds to be too good to be true but it isn't – assuming we do a good job with this money and the additional $69 million of investor and ratepayer money with which the utilities will match the grant.

By the end of 2012 Vermont will be the first state in the nation with a smart grid stretching border to border and from almost every consumer, through the transmission network, and back to generating sources. It's likely that DoE awarded us more than 2% of the total amount of money in the nationwide pool precisely because our size allows us to complete the project quickly and because we submitted the only application in the country which included every electric utility in the state in a massive and ambitious collaboration. We did promise to make detailed reports available on what worked and what didn't to the rest of the country.

We would have eventually done all this work and paid the whole cost ourselves. The way we distribute electricity is antiquated and wasteful. We consumers have neither the information nor mechanism for adjusting our usage to avoid high cost peaks. Now we will sometimes actually be paid for avoiding peak use because that's cheaper for the utility than buying peak power on the spot market. Only businesses the size of IBM have been able to afford sophisticated ways to keep peak usage and bills low; now the smallest businesses in the state will be able to have pretty much the same control. We pay for and build transmission and generation capacity for anticipated peaks. The more we can avoid the peaks, the less we have to build. Mass adoption of plug-in cars is unthinkable with a dumb grid; it would just collapse when they are all plugged in at 6PM.

If we had done the job ourselves with the amount of money the utilities can prudently raised, it would take us eight years instead of the three years we plan with the addition of the federal grant. We'll be leaders and we'll make mistakes; that's part of what the federal money is paying us for. But we'll also get the benefits five years earlier and we'll lead rather than lag the nation in this crucial technology.

Our utilities took a chance in banding together for one big ask instead of applying for smaller amounts separately as most other utilities (which bothered to apply) did. Only 100 out of more than 400 applications got funded. The answer could have just been "no". But they did envision a fast lane to the future; they did work together; the Department of Public Service, The Office of Economic Stimulus and Recovery, and the state's Congressional Delegation and the Governor all strongly supported the application, which is an excellent and persuasive document. The Governor took me along on a visit to Vice President Biden, who advised us that a unified application was the best way to assure that a whole coordinated program got funded – but pointedly and properly couldn't assure us that it would be accepted.

And we got the grant, phew. Now we have to deliver.

Vermont’s Broadband Recommendations

Which broadband grant applicants does Vermont like or not like? That's the question the National Telecommunications and Information Administration (NTIA), which is the part of the US Commerce Department and is charged with distributing some of the stimulus funding for broadband, asked the Economic Stimulus and Recovery (ESR) office, which has the responsibility for answering such questions in Vermont.


The American Recovery and Reinvestment Act (ARRA or "the stimulus bill") requires NTIA to consult with the states. Originally NTIA said it would do a preliminary screen of applications, then give the screened list to the states. When they saw how many applications there were, however, they decided to give the whole unscreened list to the states – which is what we'd asked them to do in the first place. Trouble is we're not sure how much attention they'll pay to our recommendations. They made clear that they would neither accept nor reject an application purely on our say so.


Just to make things a little more confusing, we are only asked to look at those applications submitted to NTIA. The stimulus bill also gave money to Rural Utilities Service (RUS, part of the US Agriculture Department) to finance broadband. RUS is coordinating with NTIA and many, but not all, applications were made jointly to RUS and NTIA. However, RUS is not required by the law to consult with the states so it isn't going to do so.


Vermont ESR was well positioned to look at the applications since we had coordinated the preparation of a set of applications statewide which could, at best, result in broadband coverage in Vermont expanding to at least 95% of the residences in the state. We recommended those applications when they were initially submitted. However, only four of these coordinated applications were applications to NTIA (two other were RUS only); so we only got to opine on the four (but we snuck in a good word for the RUS applications just in case).  These four applications span the three separate categories in which NTIA plans to fund projects:  Infrastructure (including both last mile and middle mile applications), Sustainable Broadband Adoption, and Public Computing Centers.


The four applications which got our highest recommendation because of their importance and synergy were:

  1.  A last mile application from local carrier VTel to offer Wireless Broadband to serve unserved areas of southern and central Vermont and to upgrade its existing service in the Springfield area to very modern fiber. (Note: VTel proposes to use newly-available 700 MHz spectrum, which is old UHF TV spectrum now available due to the transition from analog to digital broadcasting.)
  2. A last mile application by FairPoint to serve unserved portions of the very rural Northeast Kingdom. Even though FairPoint is having financial and other difficulties, the assets they propose to build are badly needed by the residents and businesses of this area.
  3. A sustainable broadband adoption application by The Vermont Council on Rural Development. Their proposal is to help overcome obstacles to broadband adoption in newly-served communities such as lack of training, lack of equipment, lack of money, and lack of relevant local content. Greater adoption obviously means more benefit from any deployment; a higher adoption rate also improves the difficult economic of rural broadband deployment.
  4. A public computing center proposal by the Vermont Department of Libraries aimed at assuring that libraries are well-equipped in areas where broadband is not widely available. This both helps mitigate (but doesn't solve) the availability problem and builds a user base for broadband when it does arrive.


We recommended two other applications as well: 

  1. A middle mile application by TelJet Longhaul, LLC which, if funded, will improve backbone connections to and from Boston and within Vermont and significantly increase bandwidth, redundancy, and wholesale and commercial broadband competition in parts of the state.
  2. A sustainable broadband adoption application by Health Care and Rehabilitation Services of Southeastern Vermont, Inc that proposes to use broadband resources to mitigate the chronic shortage of mental health professionals in the area.

Although we like to be positive, we recommended AGAINST many applications including all proposals to use satellite service to provide broadband. Although satellite is better than dialup, it's not good enough to meet the broadband needs of Vermonters and other rural Americans. We don't think Hughes Network Systems and EchoStar should be grabbing off the available grant money to build substandard solutions. Most of the rest of the applications we recommended against were national proposals that claimed to bring benefits to Vermont but didn't substantiate that claim.


You can read our full recommendation to NTIA at http://recovery.vermont.gov/broadband#staterecommendation.

How Many Jobs Were Stimulated?

There's going to be a lot of controversy and confusion nationwide on October 30 when stimulus reports from states are made public on recovery.gov. The reported numbers for "jobs created or retained" will be particularly contentious since they will be much lower than the job forecasts by state which used to be posted on recovery.gov (I can't find them in the new and excellent redo of the site) and the total reported by the states won't come close to the total jobs forecast to be created by the stimulus bill (aka American Recovery and Reinvestment Act or ARRA).

Actually, the numbers SHOULDN'T match but that's tough to explain. Nevertheless, in the interest of transparency, I'll try an explanation here.

The original forecasts were made using an econometric model. In English, that means that a bunch of economists decided how a computer should make an estimate of how many direct, indirect, and induced jobs will be created or retained by each dollar of government spending. You'll find all of the details of the methodology at http://www.recovery.gov/Documents/Jobs_Report_Final.pdf.

Direct jobs are the people working directly on a project; think of the crew that you see fixing a bridge. Indirect jobs are the jobs created or retained at suppliers to the project; think of the people who made the steel that goes into the bridge. Induced jobs are the jobs created when people spend the money they earned or received as benefits; think of the people working in the mall where the road crew spends the money they wouldn't have if they didn't have jobs.

The economists go on to estimate that one job can be created for one year by $92,136 of federal government spending, $145,351 of tax cuts, or $116,603 of state fiscal relief (which presumably saves us from either having to cut services or raise taxes at the state level). There is no mention in this paper on current or future job loss caused by the increase in federal debt or the need to pay it back (I'm not opining, just reporting).

OK, now you understand where the projections came from. There's roughly $787 billion allocated by ARRA so the economists just have to divide this into spending, tax cuts, and state tax relief to figure out how many years of jobs will be created or retained. Their answer is 6.8 million job-years through the end of 2012. They estimated 8,000 jobs for Vermont with this methodology. That's a big number since we lost about 10,000 jobs total in the recession.

Let's look at what the states are going to report:

  1. We report only the jobs created by the money that flowed to or through the state government – not the tax cuts, not the direct grants to companies, cities, and counties and other recipients. That's "only" $246 billion out of $787 billion total.
  2. We report (this time) only on money spent through September 30, 2009. "If you look at the Recovery Act as a two-year marathon, we're at the nine-mile mark," says Vice President Joe Biden.
  3. We report only the direct jobs created by that money – the people building the bridge but not the ones who made the steel or sold goods to the crew. In most cases we report prime contractors but not subs. 80% of the money that came into Vermont through mid September was for Medicaid ($105 million). None of this created or retained DIRECT jobs so no jobs are reported for this although we would certainly have been in a pickle without this money and have a huge hole to fill when it's gone.
  4. We're not really reporting job-years but rather an estimate of the number of full time equivalents that were hired for the period (usually one quarter this time).

The truth is that we'll never know how many jobs were saved by ARRA; the economy is simply too complex to give us a simple answer. A woman from the Federal Reserve Bank of Boston called our office the other day and asked "If you didn't have the ARRA Medicaid money, would you have raised taxes, cut benefits, or cut somewhere else?" We answered "probably all of the above" but we'll never know in what proportions those three things might have happened or what the effects of them might have been.

We'll report a job number as required by law. When we report it, we'll give even more detail on how we calculated it. You now know why the state numbers won't match the federal estimates.

Even though you should look at both the federal job estimates and the state reports with several grains of salt, the right questions to ask are, I think, "was our money spent well?" and "what are we going to do in a year when most stimulus dollars will have been spent?"


Broadband Stimulus in Vermont

Grants.gov kept crashing on August 14, the deadline for submitting applications for broadband stimulus funding; not to worry, the feds extended the deadline by six days – and even then had to allow submission of attachments to the application on CD by mail since their systems weren't yet stable by the new deadline.

Nevertheless Vermont organizations managed to file a set of applications which, if funded in the entirety, will leave less than 10,000 homes out of 242,000 without access to broadband AND will give us a very good start on attacking other obstacles to broadband use like lack of computers, training or money. The goal of SmartVermont, our overall plan for discretionary stimulus money, is not just universal broadband availability; it's universal adoption so that applications like e-health, e-education, and e-energy (smart grid) can depend on broadband connections in every Vermont building on the electrical grid.

Five Vermont organizations applied for over $130 million of stimulus grants and loans for last mile broadband projects. Technologies proposed by the applicants include fiber to the home, DSL, and wireless. There is no guarantee that all of these (or even any of these) will be funded. We think (and hope) that these applications will have an advantage nationally because Vermont began a broadband mapping effort several years ago and the Vermont Office of Economic Stimulus and Recovery (ESR, my department) was able to provide authoritative maps to be submitted with applications which demonstrate to the anonymous grant application reviewers that these proposals do, indeed, meet the stimulus requirement of bring service to the unserved. ESR also worked with the Department of Information and Innovation (DII) to coordinate broadband support plans for community anchor institutions like schools, hospitals, and government offices and get letters of support from those organizations for the applicants who promised to provide the organizations with high-capacity low-cost connections to the fiber backbone being built statewide by VELCO, the state's transmission utility. Applicants get extra points for supporting these institutions; the institutions, needless to say, need to get connected.

The Vermont Council for Rural Development requested $2.5 million for a sustainable broadband adoption program to help assure that Vermonters in 24 pilot communities have the equipment, training, and motivation to use broadband. This effort will focus on towns where broadband has recently become available or is just becoming available to speed up adoption so that broadband capabilities can quickly become part of community life. Also, the higher the adoption rate in a local community, the better the business case for the provider. We don't have as many homes per mile as more urbanized areas; but we can mitigate that economic disadvantage by having a higher percentage of homes which sign up. The Department of Public Service (DPS) and the State Colleges both helped with preparation of the sustainable adoption grant request.

The Vermont Center for Geographic Information applied for a $1.96 million grant to continue and extend Vermont's broadband mapping effort. Extended mapping will go beyond advertised claims to verify speed and quality of service down to the individual structure level. It will also be useful in making sure that successful last mile grant recipients deliver what they've promised. We are reasonably certain this application will be funded since the feds have said they plan to grant one such application in each state.

Recognizing that there are communities and families who don't currently have broadband or the equipment to use it, The Vermont Department of Libraries applied for 80% federal funding of a $754,000 public computing center project – basically computers in libraries. The Edgar May Health and Recreation Center in Springfield filed its own $4 million request for public computing center funds.

There is certainly no assurance that all of these Vermont applications will be funded. The funding agencies – the US Department of Agriculture and the Commerce Department – announced that almost 22,000 applications totaling nearly $28 billion were filed nationally; this is seven times the amount actually available for this round. The agencies plan to accept another round of applications by the end of this year and one more in spring, 2010.

ESR has begun work on a plan to make sure that the remaining Vermont households which were not covered by applications in this round will have applicants willing to provide service in the next round. As soon as preliminary results from this round are known, which could be as early as mid-September, any areas where applications were unsuccessful will be added to the to-do list. The goal remains 100% broadband availability AND adoption.



Where Are the Signs?

"How come there are no stimulus road projects in Vermont?" As Vermont's stimulus czar, I hear this question all the time.

"There are lots of stimulus-funded road projects in Vermont," I reply. But I know what's coming next.

"I just drove home through New Hampshire [or New York or Massachusetts] and there were lots and lots of signs for ARRA projects. There are no signs in Vermont."

Right. Those signs cost $1500 each. You need at least two for each project. The exact form for the sign and the ARRA (American Recovery and Reinvestment Act) logo are spelled out in federal guidelines along with a "recommendation" that the signs be displayed.

Here in Vermont we decided that we'd rather spend the stimulus highway dollars on roads than signs. We have lots of projects but we don't have signs. Once I explain almost everyone agrees with this decision.

However, if you are worried about the number of projects here, ProPublica, a citizen reporting network, just reported that Vermont is #2 nationally (New Mexico is #1) in the percentage of approved road and bridge projects which have been given a final construction green light. We got going early; we already had a project list; and, as VTRANS spokesman John Zicconi says, "unlike Texas, we can't work through the winter."

So, don't worry; we're working on the roads and bridges. You can find a list of all the stimulus projects in Vermont that we know about (some go straight from the feds to recipients and we report them as best we can but not perfectly) at http://recovery.vermont.gov/sites/stimulus/files/1VT_ARRA_Programs_by_Location.xls and lots of information about stimulus transportation projects in particular at http://apps.vtrans.vermont.gov/stimulus/. The web is cheaper than signs.

Vermont Utilities Unite to Seek $66 Million in Smart Grid Funding

All 20 Vermont electric distribution utilities (the people you buy electricity from); the transmission utility, VELCO, which brings electricity to them; and the efficiency utility, Efficiency Vermont, whose role is to reduce demand, have united to design a single $133 million plan for implementation of a "smart grid" in Vermont and have submitted a joint application to the US Department of Energy for stimulus funding to cover 50% of the cost. The Vermont Department of Public Service and Office of Economic Stimulus and Recovery helped with coordination; the project had great support from Governor Douglas, Senators Leahy and Sanders, and Congressman Welch; but the heavy lifting was done by the utilities.

This is an extraordinary collaboration for a very good cause; if this project is funded, Vermonters will have the benefits of a smart grid five years sooner than we would otherwise. I'm not aware of this sort of coordinated state-wide application from anywhere else, which is one of the reasons why I'm optimistic that it'll get funded. However, it is in competition with other grant requests nationwide for a pool of $3.4 billion dollars, which almost certainly is NOT going to be enough to give all applicants everything that they ask for; so this is no sure thing.

The project is called eEnergy Vermont because smart grid means using digital technology to make better use of energy resources than was ever possible before. For consumers the smart grid means better information about our energy use and much better control over it including substantial opportunities to save money by using electricity when it is cheap and shunning it when it is expensive as well as better reliability. For utilities the smart grid means an opportunity to cooperate with their customers to reduce expensive buys of peak electricity, avoid the need to build as much generation and transmission capability as would otherwise be necessary to deal with escalating peaks (the grid must be sized for peaks), and lower operational costs which include but go way beyond the obvious cost of sending someone out to read your meter. The distributed small sources of renewable power popping up around the state are better used and therefore more valuable if plugged into a smart grid. For the country a smarter grid means reduced reliance on foreign oil and lower CO2 emissions as well as a stronger economy because of lower energy costs.

The communication backbone for eEnergy Vermont is a 72 strand optical fiber network that VELCO is building to every one of the 270 electrical substations in the state. Engineering for the backbone is already underway, funding has been obtained, and it will be built regardless of whether or not the stimulus grant is obtained (but we think that having this fiber available for eEnergy will help us obtain the grant). This same network is also the backbone for much of the state's broadband plan (stimulus grant applications due 8/14), eEducation, and eHealth (applications due later). In other words, the same communication infrastructure which carriers meter readings from substations to utilities, delivers electrical use and price information to consumers, and supports substation automation also will be the way many of us access Internet services, the path for transmitting electronic health records and connecting monitoring devices from home to hospital, and will provide gobs (technical term) of reasonably-priced bandwidth to schools and libraries.

A smart grid is necessary for Vermont and the nation's future. Suppose that next year plug in electric vehicles are available from a number of manufacturers, some at a reasonable price. If our Prius population is any indication, Vermonters will start to snap them up for environmental reasons even before they are strictly justified by economics. If we do that and plug them all into a dumb grid when we get home at 6PM, the grid would simply go psst! (another technical term) and not be able to handle the load. But, if these are smart cars or plugged into smart outlets and there is a smart grid behind this all, we'll fill up with electrons when they're very cheap in the middle of the night AND when the transmission bandwidth is available to deliver them to us. An added benefit here in Vermont is that we can buy more very clean, very green electricity from Hydro Quebec so long as we do that when transmission capacity is available; so we will have displaced oil with hydro power as a transportation fuel.

55.5% of Vermont homes are heated with oil and another 14% with propane. Electric storage heat, which was once in fashion and then not, is much more practical with a smart grid when you can assure that you don't burn fossil fuel at a power plant to create heat to create electricity which is then converted to heat again in the home with lots of loss along the way. With a smart grid utilities can offer way off-peak interruptible rates, which would, even at today's relatively low fuel costs, save $750/year for the typical family using propane heat (after they buy the electric storage heat setup which is probably less than $4000 installed). The trick for many will be to keep the propane furnace as backup in case there's either a power outage or a few days of high electricity prices in a row (all switching automatic, of course). The $750 savings was calculated assuming that electricity only provides 75% of the heat required and the rest still comes from propane. The economics are not as good for conversion of oil heat today – just above break even on fuel costs; but are likely to get much better as oil prices climb faster than the price of off-peak electricity. If our homes are heated by hydro power, that's a lot of oil we don't buy and a lot of CO2 we don't produce.

It's not an exaggeration to say that smart grid enables the energy future Vermont wants to have. We'll get there sooner rather than later – and be a great example to the rest of the country – if this grant is granted.


Readers’ Guide to the Education Funding Announcement

"$52 MILLION IN RECOVERY FUNDS NOW AVAILABLE FOR VERMONT TO SAVE JOBS AND DRIVE REFORM," says the headline of today's press release from the Federal Department of Education (www.ed.gov/news/pressreleases/2009/07/07272009.html). "Application for Part 1 of Vermont's State Stabilization Funds Approved Today," the subhead explains.

This is formula money, money we knew we were going to get as long as we filled the form out correctly; still, it's nice to know that we DID fill the form out correctly (you can read it at www.ed.gov/programs/statestabilization/stateapps/vt.pdf). Vermont's method for funding local schools is unique and we had a lingering nervousness that someone somewhere in Washington wouldn't understand and that might cause complications in getting our money.

The $52 million is the first installment of $77 million that Vermont will receive to help with funding of K-12 and public institutions of higher learning over the two year life of the stimulus bill (aka American Reinvestment and Recovery Act or ARRA). Actually, though, we prudently budgeted half of this for each year so won't draw down all that we can from the feds until later. BTW, the rules only allow you to draw down this money immediately prior to sending it to the schools so we can't just get it all and put it in the bank to earn interest.

This money is NOT a windfall to the schools who will receive it (but there is a windfall coming, see below); it is aid to the State so that it doesn't have to either cut its level of support for schools or take money away from somewhere else – that's why it's called "state fiscal stabilization fund". The money will probably make up part of the September money the State sends to school districts, but, other than the new reporting requirements that come with this federal money, that really won't make any difference to the districts. They'll get what they would've gotten anyway.

There are strings besides the reporting requirements. For one thing the State has promised to do no less than level fund the schools at the higher of the 2008 or 2009 levels for 2010, 2011, and 2012. That was part of our application. But note that the stimulus money only lasts two years. Unless the economy has come roaring back by then, we're going to have a hole to fill and cutting aid to the schools, for 2012 at least, won't be an option. It's not clear constitutionally how this binds the future legislature which makes the budget for 2012, but let's not go there now.

Other strings include all kinds of reports and commitments to improving education in ways we've already committed to improving it.

The press release goes on to say "To date, Vermont has received [sic] nearly $46 million in education stimulus funds—representing a combination of funding for Title I, IDEA, Vocational Rehabilitation Grants, Independent Living Grants and Government Services funds. On April 1st, Vermont received [sic] nearly $13 million in Title I funding and more than $14 million in IDEA funding.  This represents 50 percent of the Title I and IDEA funding Vermont is eligible for in total." It is NOT accurate to say Vermont has RECEIVED this money; in fact, we haven't although most has been approved and we can draw it down. Applications are available to schools at http://education.vermont.gov/new/html/dept/recovery_act.html and that page also has links to district-by-district allocations.

The Title I and IDEA funds go to school districts by formula and DO represent a substantial increase over the funding schools usually receive under these programs – but only for two years. So schools are going to have to be very careful not to ratchet up expenses on these programs to a level that will not be sustainable when the ARRA tap is shut.

Leveraged Stimulus

Q. When does $72,000 equal $1 million?

A. When leveraged, of course.

The US Department of Agriculture (USDA) is taking advantage of this financial magic trick. The stimulus bill (aka American Recovery and Reinvestment Act or ARRA) allocated $2.5 billion to USDA to encourage broadband buildout in unserved and underserved rural areas. If USDA gave out all this money as grants, there would be $2.5 billion to be divided among applicants from various states. But USDA has announced that it will give them money out as a combination of grants and low interest loans and will actually be able to give out between $7 and $9 billion. The catch, of course, is that most of this money will have to be paid back. Still, for both stimulation and broadband penetration purposes, this isn't a bad idea because more actual money will go into projects than would have been possible with grants alone. If things go well, more and bigger projects'll get done and more people'll be put to work.

Here's how the leverage magic works: USDA takes some portion of the money and uses it to set up a loan loss reserve. For this calculation they assume that there will be $72,000 in losses for every million dollars they lend; this $72,000 is the COST to the USA of lending $1 million. Of course the USA also has to pay interest but the borrower is expected to pay interest approximately equal to the federal borrowing cost so there is no net interest cost to the treasury. So let's do some math:

First divide one million by 72,000. That answer is approximately 14 meaning that one dollar in loss reserves will "pay for" $14 in loans. Another way of saying this is that RUS believes that it will get back $13 in principal repayments for every $14 it lends. So, if USDA takes $500,000,000 million of the $2.5 billion which it has been allocated and uses this as a loan loss reserve, it can make $7 billion in loans and expect to "lose" no more than $500,000,000. That's apparently what USDA intends to do and, assuming they are discerning enough in making their loans so that their losses aren't higher than anticipated, this is a pretty good way to get lots of programs going.

But now suppose you're a telco which formerly didn't find the reward of building in a rural area worth the cost; will this program convince you to build affordable broadband in areas you previously bypassed? Obviously if you get grants – free money – that can be pretty persuasive. You invest less but get back the same return. But loans have to be paid back. Couldn't you have just borrowed before and built? Why would you want to do that now?

My guess is that the loans will help to incent the development of projects which wouldn't have happened otherwise. I know that there are companies prepared to apply for them in Vermont. One reason these loans are so attractive is simply the fact that they're available. This recession began as a credit contraction and, to a large degree, still is. Credit is very, very hard to get; patient money even harder to find. The rewards from building in a rural area take time. People who didn't have broadband before don't have a perceived need to get it immediately; their neighbors aren't posting to YouTube or living in Facebook; the schools aren't giving online homework. People who couldn't get broadband may not have the equipment to use it. The market develops but it takes time. The availability of any money at all is an incentive; the availability of money which can be paid back slowly as the market develops is further incentive.

Also the interest rate on the USDA loans is approximately the borrowing cost of the US government – just over 3% for five years and under 5% for ten years. On their own, if they could get loans at all, many of the companies who might build in rural areas would have to pay interest rates which are at least twice that. The difference between what loan applicants pay USDA and what they would pay in the open market is just as good as a grant – it's cash that stays with them instead of leaving.

The rules for broadband funding were published last week. The forms and instructions are available online at http://broadbandusa.sc.egov.usda.gov/. The deadline is August 14th. The scramble is on. USDA making some of its (our) money available as loans means that there are more funds nationwide and more potential for bringing Vermont closer to its goal of universal broadband penetration – a key component of SmartVermont.

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