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This article is from the In-Depth Report Stimulating Science: Following the Recovery Money

Will broadband investment in stimulus package work without tax credits?

Senate and House negotiators reportedly stripped out billions of dollars in tax cuts for big telcos, including Verizon Communications, Inc., and AT&T, from the compromise $789-billion stimulus package that were included in the Senate version to spur expansion of broadband coverage into rural areas.

The Senate money measure had called for 10 percent tax credits for companies that increased Internet service in pockets where it exists but is scarce and a 20 percent tax breaks for building new networks in currently unserved parts of the country. The House bill did not contain any plan for tax credits.

Still in the package: $7.2 billion in grants for mid-sized and small telcos and cable companies "that need an extra push to build out from their current markets," Dow Jones Newswires reports. The measure authorizes both the Commerce Department and the Department of Agriculture to dole out the funds, with the latter expected to favor small rural carriers looking to extend Internet services to their entire markets.

Some analysts say that broadband grants will fall short of lawmakers' goal to provide high-speed Internet access to the entire nation.

"Tax credits are the way to go if we're going to do this," says Robert Crandall, senior fellow in economic studies with the Brookings Institute, a Washington, D.C., think tank. "Otherwise it's dumping more money into these small rural telecos, and there's very little evidence is that the $4.2 billion a year they already get (in government subsidies) has any effect on service."

The key to making the proposed grant system work is ensuring terms of the loans and grants are enforced, but it's unclear that the small and mid-sized companies expected to receive the federal funds have the means to quickly expand broadband coverage in the way that the stimulus package promises, Crandall says. "The idea that we should be telling little rural telephone companies to build out sophisticated communications system is unwise," he says.

The compromise stimulus legislation also includes $19 billion to modernize health information technology systems. This amount was slightly less than the $20 billion the House had proposed, but a significant jump from the $3 billion the Senate had proposed allocating to meet President Obama's goal of computerizing all medical records within five years.

Yesterday's deal also calls for $11 billion to modernize the electric grid and to promote smart-grid technology that gives people real-time information about their energy. The House had wanted $32 billion to transform the nation's energy transmission, distribution, and production systems through smart-grid, while the Senate's version of the bill included $4.5 billion for this work. The White House has stated that it wants 3,000 miles of new or modernized transmission lines and 40 million smart meters installed across the U.S.

If Obama gets the bill as is, it will allocate $5 billion in "weatherization" money to help low-income households make their homes more energy efficient, while another $4.5 billion will be spent on the repair of federal buildings to increase energy efficiency using green technology. The House had wanted $6.2 billion for weatherization and $6.7 billion for renovations and repairs to federal buildings while the Senate initially proposed $2.9 billion and $2.5 billion, respectively. The compromise legislation also includes $6 billion for local clean and drinking water projects. This amount was similar to the Senate's initial proposal and more than what the House was planning to request.

Both the House and Senate are expected to vote on the compromise and get the legislation to Obama's desk by Presidents' Day, The Washington Post reports. Each chamber will only be allowed to okay or nix the bill, but will not be allowed to amend it.

Image: ©iStockphoto.com/Kativ

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