Who knows best where to deploy broadband access? Task force divided

Legislators looking to make the state budget come out right last spring raised money by eliminating a $75 million sales tax exemption for telecommunications companies that buy equipment to expand their central office operations.

Phone companies big and small objected, of course. They were joined by at least some broadband access proponents. Losing the sales tax exemption, those proponents argued, would hinder Minnesota’s goal to extend high-speed Internet access to the half million households considered underserved (almost all of them rural). Among those making the argument was Margaret Anderson Kelliher, former House speaker and now the chairwoman of Gov. Mark Dayton’s broadband task force.

But at a meeting in St. Paul today, that task force was divided over whether to recommend restoring the exemption in the coming legislative session, finding itself embroiled in a classic marketplace-vs-government intervention debate. The group is trying to come to agreement on what to recommend to Dayton in its annual report next month — restore the exemption in the belief that telecommunications firms will invest more in broadband service or use the tax revenue the state now receives on telecommunications equipment purchases to encourage deployment in underserved areas.

The argument to put the exemption back in place: The needed hundreds of millions of dollars in investments by telecommunications companies will not be made if they have to pay the sales tax. They’ll take their money to other states if they can, and rural Minnesotans who would have gotten better broadband service from those investments will suffer as a result. What better way to determine where investments should be made than to let the private marketplace decide?

“I would rather trust people making broadband decisions than government,” said Paul Weirtz, AT&T Minnesota state president and a member of the task force, said at today’s meeting. “We (the state) should not be in a position of picking winners and losers.”

The argument against restoring the exemption: Providing a sales tax break provides no guarantee that money will be used to further the state’s  goal that every household in Minnesota have broadband available by 2015. Companies could take the money and use it elsewhere or build better service in areas not considered underserved. It would be better for a task force charged with extending the reach of broadband to recommend a fund the state could direct or perhaps a tax exemption only if it could be shown the equipment would enhance service in underserved areas.

“There’s no  connection between the money (staying in the coffers of telecommunications companies) and the goals of the state,” said Bernadine Joselyn, director of public policy and engagement for the Blandin Foundation and also a task force member.

Kelliher told task force members Tuesday they need to seek common ground and come to a conclusion in the next month. What to recommend on the sales tax question — and whether to extend it to additional kinds of equipment  — are the big ticket items in the draft report at this point.