State officials are returning $23 million to the federal government, saying there were too many strings attached to stimulus money that was supposed to be for expanding high-speed Internet service in schools, libraries and government agencies.

The money was to have boosted broadband connections in 380 Wisconsin communities, including 385 libraries and 82 schools. It also could have been used to improve police, fire department and hospital communications in rural areas.

But state taxpayers would have been on the hook for the entire $23 million if the state could not meet the grant's precise requirements, Mike Huebsch, secretary of the state Department of Administration, said in a memo to school and library associations.

"This is simply not an acceptable risk," Huebsch wrote.

Wisconsin received the grant a year ago from the National Telecommunications and Information Administration. It was part of the American Recovery and Reinvestment Act, which included about $7 billion in grants, loans and loan guarantees to extend broadband to underserved rural areas and was compatible with President Barack Obama's goal of making high-speed Internet available to 98% of Americans by 2016.

The money would have been used for the BadgerNet Converged Network, which brings the Internet to schools, libraries, and state and local government agencies. It would have paid for 200 miles of fiber-optic cable, improving the Internet connections at hundreds of public facilities.

BadgerNet, however, runs on infrastructure owned and managed primarily by AT&T Inc. - and that became a sticking point with federal officials who were not used to public-private partnerships, according to the state.

"We, as a state, do not own our network. We purchase a managed service through the BadgerNet contract," said Diane Kohn, acting administrator for the Division of Enterprise Technology in the Department of Administration.

Federal officials wanted a commitment that the fiber-optic cable would be used for at least 20 years, but the state's contract with AT&T is for five years.

"From a federal perspective, it was like we were some kind of unknown start-up firm with all of these risks attached to it," said Robert Bocher, an information technology consultant for the Department of Public Instruction. "In fact, our network has been around since the mid-1990s."

AT&T did not want to be a sub-recipient of the grant, according to Bocher.

"From a corporate perspective, they did not want to get bogged down in federal grant regulations," he said.

The grant also required an environmental assessment for the 467 locations that would receive fiber-optic cable.

State officials said they spent months trying to find a way to keep the stimulus money without violating the terms of the grant.

"It was quite burdensome," Bocher said. "There were many more hoops to jump through every time we proposed something."

Gov. Scott Walker's administration asked AT&T for the company's best offer, without the grant, to get schools, libraries and government agencies the Internet bandwidth they need, Bocher said.

"I am fairly optimistic that we are going to get what the grant would have provided, or something fairly close to it," Bocher said. "But sooner or later, most of our schools and libraries that don't have fiber-optic cable will need it. And then the question becomes, who is going to pay for it?"

The National Telecommunications and Information Administration did not return a Journal Sentinel call asking about the grant requirements. AT&T also did not return calls.

State Rep. Mark Pocan (D-Madison) said Walker's administration was hurting the state.

"Not only is he turning away construction jobs that would have come with the federal grant to expand broadband fiber to schools and libraries across Wisconsin, but he's closing off potential to business growth that comes with bridging the digital divide," Pocan said. "What's worse, the root of his decision wasn't what was in the best interest of Wisconsin, rather the best interest of his big telecommunications campaign donors."

Employees of AT&T Inc. and its political action committee donated more than $20,000 to Walker's campaign, nearly three times more than the $7,600 they donated to his opponent, Mayor Tom Barrett, a Democrat, according to Wisconsin Democracy Campaign.

School and library associations said they were disappointed in the decision since many rural communities, especially, lack fast broadband connections.

For the immediate future, libraries will probably be able to increase their bandwidth with the existing infrastructure. But long term, not having the additional fiber-optic cable is a loss, said Lisa Strand, executive director of the Wisconsin Library Association.

"This really could have been a boon for the state," Strand said.

Increasingly, schools are turning to the Internet for classes, online tests and administrative tasks.

"The state is moving away from paper-and-pencil, fill-in-the-bubble tests for student achievement," said Dan Rossmiller, director of government relations for the Wisconsin Association of School Boards.

It's nearly impossible to stream video and manage photos through a slow Internet connection, said Sandy Heiden, media coordinator for the Seymour Community School District.

"It's like pulling a Culver's milkshake through a tiny cocktail straw," Heiden said.

Currently, state officials are negotiating with AT&T for a renewal of the five-year BadgerNet contract.

Faster broadband might be available even without more fiber-optic cable, according to state officials, because technology that uses copper wire has improved to accept more bandwidth.

Long term, it makes sense to use the lowest-cost technology to accommodate bandwidth requirements, according to state officials.

Daniel Bice and Cary Spivak of the Journal Sentinel staff contributed to this report.