California has signed on for federal broadband money, but agreeing to the terms is apparently a whole other story. While Sacramento disputes the fine print, the residents the money is supposed to connect will keep waiting.
On Nov. 2, California became the last state to sign an agreement accepting its share of the $42.5 billion Broadband Equity, Access, and Deployment (BEAD) program. But the California Public Utilities Commission (CPUC) accompanied its signature with a letter challenging a condition attached to the money: a commitment not to enforce rate regulation, net neutrality rules governing how providers treat internet traffic, and other “utility-style” rules against BEAD-funded providers.
The CPUC told the National Telecommunications and Information Administration (NTIA) that the condition is vague, can’t bind the rest of state government, and is void under California law. It won’t finalize a single funding agreement with a provider until the dispute is resolved.
California wants the money without the strings, but its legal arguments are weak. The condition is clear, consistent with the statute, and binding on the state as a whole, regardless of how California divides authority among its agencies.
The costs of delay are harder to dispute. As providers extend service elsewhere, the locations still awaiting broadband become harder and costlier to reach. Meanwhile, rising costs and changing market conditions threaten the bids California is sitting on. Whether the state eventually relents or fights in court, the people who most need the program risk losing out.
You Had One Job: Connect Everyone
Congress created BEAD to make high-speed broadband available to all Americans. NTIA distributes the money to the 50 states under a funding formula. States then hold competitions to select providers to build networks in unserved and underserved areas.
The statute sets a strict funding order. First come “unserved” locations—those without service offering download speeds of at least 25 megabits per second (Mbps) and upload speeds of at least 3 Mbps. Next come “underserved” locations, which lack speeds of at least 100 Mbps for downloads and 20 Mbps for uploads. Community anchor institutions, such as schools and libraries, follow. Funded networks must meet performance requirements, and states must certify that every unserved location will receive coverage before funding underserved locations. The design reflects BEAD’s ambition to be the final federal broadband deployment program: finish the job of connecting everyone.
The statute also requires a low-cost service option and a 25% funding match, makes labor-law compliance a priority when scoring applications, and permits spending on efforts to encourage broadband use. Each provision supports the same basic goal: getting networks built and used. The ultimate test is whether every American location can get a high-speed connection.
From Strings Attached to Shovels in the Ground
Under the Biden administration, NTIA layered additional requirements onto BEAD’s deployment mission. These included a strong preference for fiber connections all the way to each customer, a middle-class affordability plan, climate-resilience assessments, labor and workforce standards, and scoring preferences for networks that accommodate competing providers and follow net neutrality rules. States also faced pressure over pricing for the required low-cost option—pressure that congressional critics argued amounted to rate regulation, which the statute expressly forbids.
The paperwork piled up while the connections waited. By September 2024, more than 1,000 days after Congress enacted BEAD, the program hadn’t connected a single household. NTIA’s administrator had told Congress that May that BEAD was “a 2025, 2026, shovels-in-the-ground project.” By March 2025, NTIA had approved just three final state proposals, and no households had gained service. The extra conditions had become a major obstacle to the deployment the program was supposed to deliver.
On June 6, 2025, NTIA changed course. Its BEAD Restructuring Policy Notice, branded the “Benefit of the Bargain” reforms, removed mandates the statute didn’t require and refocused BEAD on connecting unserved locations quickly and at the lowest cost to taxpayers. Costs fell sharply. By November 2025, NTIA estimated savings of at least $21 billion against the original allocations. By August 2026, it had approved final proposals for all 50 states and six territories.
NTIA’s November 2025 update to its General Terms and Conditions extended that logic from selecting projects to keeping them viable once built. The agency argues that broadband-specific state rules, including rate regulation and net neutrality requirements, raise operating costs and discourage investment. Applying different rules to BEAD-funded and other locations, it says, adds compliance costs and increases the risk that providers default during the “federal interest period”—the period when federal funding obligations continue to govern the projects.
That brings us to Condition 50, “Ensuring Timely and Effective Deployment of BEAD Projects.” It tracks the language of NTIA’s rulemaking authority under § 1702(i)—and sits at the center of California’s dispute.
California Reserves the Right to Cash the Check
The CPUC’s Nov. 2 letter tries to have it both ways. California accepts $1.42 billion to connect roughly 270,000 locations but says Condition 50 doesn’t mean what NTIA says it means, can’t bind the rest of state government, and is void under state law. NTIA’s answer is straightforward: The signed award is the agreement. The letter isn’t part of it.
An Inconvenient Understanding
California’s first argument is that Condition 50 is vague, so its acceptance rests on its own interpretation. Federal funding conditions must be unambiguous so states know what they’re agreeing to.
In Kentucky v. Yellen, for example, the 6th U.S. Circuit Court of Appeals considered the American Rescue Plan Act’s (ARPA) prohibition on using funds to “directly or indirectly” offset tax cuts. Congress wanted the money to increase spending, but Kentucky and Tennessee argued that the condition could effectively swallow their taxing authority: Any tax cut might count as an indirect offset. The court agreed with Tennessee’s vagueness challenge because the provision left the state unable to tell which tax decisions would jeopardize its funding.
California sees a parallel in Condition 50’s references to “utility-style rules” and laws that “indirectly” regulate “terms and conditions.” It argues that those phrases could broadly restrict its authority over broadband providers.
The comparison falls short. The uncertainty in Kentucky v. Yellen concerned how to distinguish a prohibited tax offset from an ordinary tax decision. Here, NTIA identifies the rules it means. Its definition of net neutrality rules expressly includes bans on blocking, slowing traffic, and paid prioritization, along with data-cap limits and general conduct standards that subject providers to common-carrier obligations—duties traditionally imposed on utilities.
Rate regulation also has an established meaning in utility law. A requirement that providers charge less than the market would otherwise support would violate the grant condition. California’s objection looks less like uncertainty about the bargain than unwillingness to honor it.
‘Applicable Law’ Isn’t an Escape Hatch
The CPUC points to Condition 3’s requirement to comply with applicable laws. Supporters of California’s position make a similar argument under § 1702(g)(2)(A)(i), which requires states to select providers capable of carrying out funded projects lawfully.
In context, this is a test of a provider’s ability to build and operate a network, obtain permits, follow labor and safety laws, and meet similar obligations. It doesn’t promise that every state law will apply to every provider throughout the grant. Condition 50 requires the state to refrain from enforcing a limited category of broadband-specific economic regulations. It doesn’t require providers to break the law.
Congress also expressly limited NTIA’s own authority over rates: “Nothing in this subchapter may be construed to authorize” the agency to regulate broadband prices. That restriction sits alongside NTIA’s authority to ensure timely and effective project completion.
The connection to deployment is practical. Providers may decline costly projects if rate controls prevent them from earning enough to justify the investment. The hardest-to-reach locations could remain unserved despite the federal spending. State net neutrality rules can likewise constrain network operations and limit returns, even when they don’t directly set prices.
Requiring states to refrain from applying those rules to funded projects is therefore a reasonable and lawful way to protect the program’s purpose: using federal dollars efficiently to connect everyone.
Separate Offices Don’t Mean Separate States
California also argues that the CPUC’s acceptance can’t constrain “other State of California entities,” chiefly the attorney general, who enforces the state’s net neutrality law. It cites a Government Code provision treating state agencies as separate legal entities and denying the attorney general control over their decisions. The California Supreme Court has also described the attorney general as an independent constitutional officer with broad powers, while recognizing the governor’s supreme executive authority.
But BEAD’s grantee is the state, not the CPUC. California chose the CPUC to administer its award. Whether that signature binds California is a federal question, and federal law doesn’t generally let states escape obligations by pointing to their organizational charts.
First, states answer for their subdivisions’ handling of federal money. In Bell v. New Jersey, state education agencies assured the federal government that local agencies would spend grant funds properly. When those agencies misspent the money, the federal government could recover it from the states. A state has no sovereign right to retain federal funds while disregarding valid conditions—a principle the Court also reaffirmed.
Second, state-law limits on an official’s authority don’t necessarily shield the state from federal consequences. In Lapides v. Board of Regents, Georgia argued that its attorney general lacked authority under state law to give up the state’s immunity from suit. The Supreme Court held that federal law determined whether the state’s actions waived that immunity. By the same logic, California can’t accept BEAD funds through the CPUC and then point to limits on the commission’s authority under state law to avoid the funding conditions.
Third, different state offices can represent the same legal interest. Courts routinely recognize that officers of the same government may be in “privity”—a relationship that allows a judgment involving one to bind another. California applies that principle to its own agencies. In People v. Sims, the California Supreme Court treated a county welfare department and a district attorney as representing the same governmental interest, despite their different duties and chains of command.
That principle supports treating the CPUC and the attorney general as agents of the same sovereign. Neither represents a personal right to regulate broadband. Both act for California, whose chosen administrator accepted the money and its conditions.
Finally, state law can’t rewrite the terms of a federal subsidy. In Lawrence County v. Lead-Deadwood School District, South Dakota tried to require local governments to distribute federal payments compensating for tax-exempt federal lands in the same proportions as general tax revenue. A locality spending 60% of its tax revenue on education, for example, would have had to devote 60% of the federal payment to education, too. The Supreme Court struck down that requirement because it conflicted with Congress’ directions for the money.
The same principle applies here: California can’t override valid federal funding conditions. If its attorney general enforces Senate Bill 822, the state’s net neutrality law, against a BEAD-funded provider, NTIA can treat that action as California’s breach. The state shouldn’t expect to keep the money regardless.
The CPUC’s letter also invokes Senate Bill 822’s anti-waiver clause, which makes waivers “unenforceable and void.” Whether that clause, aimed at contractual waivers, even covers a state’s decision to refrain from enforcement remains an open question of state law.
Either way, California gets the hierarchy backward. A state statute can’t narrow valid conditions on federal money; conflicting state law yields. If California truly lacks authority to make the required promise, it can decline the funds or sue before signing, as a group of law professors urged. Signing first and invoking the anti-waiver clause afterward doesn’t create a secret third option.
The Strings Stretch Statewide
Condition 50’s statewide reach presents the strongest constitutional concern, although California’s letter largely leaves it implicit. The condition covers funding recipients and their affiliates wherever they operate in the state, including locations BEAD doesn’t fund.
Courts ask whether funding conditions relate to “the federal interest in particular national projects or programs.” They are more wary when the government uses funding to regulate conduct “outside the contours of the program.”
BEAD-funded connections are part of larger networks. Providers use the same infrastructure, operating systems, and pricing structures to serve customers with and without BEAD support. Statewide rules that raise a provider’s costs or discourage investment can therefore make its BEAD projects less viable, too. Applying one set of rules to BEAD-funded locations and another to everyone else also adds compliance costs.
As we’ve argued for years, de facto rate regulation taxes the very investment BEAD seeks to encourage. A court could still find that Condition 50 reaches too far. But calling its statewide coverage “unrelated to the program” requires overlooking how the networks actually work.
The High Cost of Staying Offline
While the letter’s legal arguments are weak, its practical consequences are substantial. The CPUC says it will sign funding agreements with providers only “if and when” it resolves its disagreement with NTIA. That means California’s BEAD projects will sit idle for as long as the standoff lasts.
Five years after Congress enacted BEAD, the program hasn’t connected a single Californian. The state’s planning timeline set March 2, 2027, as the deadline for agreements with providers. An open-ended dispute puts even that date in doubt.
The broadband market, meanwhile, isn’t waiting. Private investment, other subsidy programs, and new technologies—especially low-Earth-orbit satellites—continue to reach locations BEAD was designed to serve. The Advanced Communications Law & Policy Institute estimates that the number of BEAD-eligible locations has fallen 69% since the initial funding allocations. Of roughly 3.8 million locations in states’ final proposals, about 38% already have service. Another 135,000 no longer count as locations at all.
That’s good news for households gaining connections. It also changes the economics of reaching those still waiting.
Private investment generally goes first where networks can pay for themselves: the edge of an existing service area, a dense cluster of homes, or a road with underground conduit already in place. As providers connect those locations, the remaining ones tend to be farther apart, harder to reach, and more expensive per home.
California will therefore return to a different map when it finally signs its agreements. The remaining locations may require larger subsidies, and projects that looked viable in 2025 may no longer justify the risk in 2027.
The bids themselves also have a shelf life. Providers priced their offers around the labor, materials, financing costs, and competitive conditions they faced at the time. None of those costs freezes while regulators argue.
The Federal Communications Commission’s Rural Digital Opportunity Fund offers a warning. Providers defaulted on about $3.3 billion of $9.2 billion in awards, leaving roughly 1.9 million of 5.2 million locations without the promised buildout. Defaulting providers frequently cited rising construction costs, and California was among the hardest-hit states.
BEAD risks a similar outcome. The longer California waits, the more likely winning bidders are to seek higher payments, renegotiate, or walk away. Each withdrawal could trigger another selection round, adding delay as the economics deteriorate. A program meant to finish the job could leave the hardest-to-reach households waiting yet again.
California says it’s protecting broadband consumers from blocking, throttling, and unfair pricing. But the residents bearing the greatest cost of this standoff still lack the service those protections would govern.
California is free to challenge Condition 50 in court. It could, of course, have sued before signing, though its arguments offer little reason to expect success. What it can’t do is rewrite a federal grant’s terms simply because it dislikes the bargain.
Sacramento may be able to afford a legal standoff, but unconnected Californians shouldn’t have to endure one.
