An Economic Analysis of Opt-In/Opt-Out: Revenue Opportunities
11 Pages Posted: 21 Dec 2017
Date Written: December 16, 2017
FirstNet was created to establish a Nationwide Public Safety Broadband Network (NPSBN) to provide reliable, modern and interoperable communications to first responders. Every Governor has the right to “opt-out” of the FirstNet plan for his or her state and develop an alternative plan for the radio access network of his or her state.
FirstNet has sought to convince states that they have nothing to gain, and much to lose, by opting out of the federal plan for their state. The conventional wisdom holds that because all revenue generated by an opt-out network (RAN) must be reinvested in the network, an opt-out state has nothing to gain, fiscally, from its decision. That turns out to be untrue because it fails to consider all associated impacts.
Opting in or opting out of FirstNet’s plan can produce radically different financial outcomes for a state. Specifically, opt-out providers can offer strategies for monetization and special economic incentives that are quite different from the federal plan. These differences can affect state finances on at least three fronts: i) revenues from taxes on communications services, ii) revenues from corporate taxes, and iii) expenditures on communications services for first responders.
According to our estimates, if all states opt-in, states can expect a nationwide revenue increase of $6.1 billion over the 25-year contract, an increase of $4.2 billion in taxes on communication services, an increase of $1.9 billion in corporate taxes, and no change in expenditures on communication services for first responders.
On the other hand, if all states opt-out, states can expect a nationwide revenue increase of $41.3 billion over the 25-year contract, an increase of $10.8 billion in taxes on communications services, an increase of $14.5 billion in state corporate taxes, and a decrease of $15.9 billion in state expenditures on first responders’ communications services.
Keywords: FirstNet, Public Safety, Opt-Out, Public Safety Networks, Communication Taxes
JEL Classification: D44, D61, L51, L96, L98
Suggested Citation: Suggested Citation