Wednesday, March 30, 2011

$1.445 Billion in Federal Rural Telecom Funds in Jeopardy 03/30/2011 San FranciscoA full $1.445 billion in federal funds slated this year for rural telecommunications project capital subsidies is now in jeopardy. The risk of steep cuts to 4 programs within the U.S. Department of Agriculture, each of which is now open to funding applications, is part of the partisan battle over the larger federal budget.

Neither the total dollar amount involved, nor the magnitude of possible project impacts has been reported previously.  This is despite a series of cautionary statements issued by USDA over the past several weeks as funding application windows were announced for 3 of the 4 programs.

Sources at USDA tell us they are unsure what levels of appropriations will be finalized for the nearly $1.5 billion target figure. The possibility exists for deep cuts to all 4 funding lines.  

A senior government affairs manager at a trade association representing rural telecom interests has confirmed for us this potentially bleak picture, although the possibility is not widely seen today at rural carriers or at the equipment manufacturers that supply them.

As of this writing, inquiries made to the Republican Majority and Democratic Minority staff of the House Appropriations Committee have gone unanswered.

All Post-Stimulus Funding Programs in Limbo
The federal telecom funds cannot be legally issued by USDA to America’s rural communications service providers as budget negotiations between the Obama Administration and Republican leaders on Capitol Hill remain stalemated. The programs in question are managed by USDA’s Rural Utilities Service (RUS), headed by Administrator Jonathan S. Adelstein.

The funds involved are independent of the broadband stimulus efforts of RUS, based on separate appropriations and authorizations of Congress.

RUS saw current year funding for parts of its broadband loan programs cut to zero in the first continuing resolution (CR) budget of last fall. The Administration announced recently that it is attempting to leverage $400 million in previous funds from the 2008 Farm Bill for the Rural Broadband Access Loan Program into $700 million “program level” funding. Program level funds are those monies, inclusive of loan leverage, that actually move to projects in the field. The $400 million appropriations target and the $700 million program level both remain caught in the budgetary crossfire.  

Observers thought the annual funding for the USDA’s Rural Telephone Loan Program, distinct from the Broadband Program, was safe from the budget battle. The Rural Telephone program is now budgeted for a program level of $690 million.

Administrator Adelstein told us in a recent interview, “We have had, and last committed, $690 million in loans under our annual loan program. The program is now going ahead, as it does each year. We don’t need issue a specific notice, as the funding continues from year to year. The program is open, carriers are applying, and we are doing loans.”

As proof of the changing situation, USDA communications staff however subsequently clarified the program’s status in response to our questions. The “$690 million will be available under the CR if Congress makes no changes, but the budget is not yet finalized”, staff wrote to us.  
An unprecedented sixth CR which temporarily funds operations of the federal government expires on April 8. Various national media reports cite an increasingly contentious negotiating cycle between the Obama White House and Republican leaders.

Four Grant and Loan Programs
The 4 grant and loan programs of RUS, with their program level funding are listed below.

Based on our review of the budget process, and off the record discussions with officials, believes all of the programs are at risk of potentially substantial cuts:

Total RUS Rural Telecom Grants & Loans: $1.445 billion      

Subtotal, Grants:                                                $    55 million,     4%
Subtotal, Loans:                                                 $ 1.39 billion,    96%
Community Connect Grants:                           $   25 million

Distance Learning and Telemed. Grants:     $   30 million

Broadband Access Loans:                               $ 700 million

Telecommunications Loans:                            $ 690 million, total
  Direct Loans, Hardship Loans                       $145 million, subtotal                      
  Direct Loans, Cost of Money Loans              $250 million, subtotal
  Guaranteed/Insured Loans                              $295 million, subtotal 

For RUS, No Good Deed Goes Unpunished
In the current risk to the rural telecom funding of RUS there is a tragic irony, a strong sense of no good deed going unpunished.

The vast majority of funds now being held – 96% of the $1.445 billion - are authorized as loans, to be secured by the credit facilities and low loan default rate of RUS. The actual appropriation needed to secure the full program level figure is significantly less, given the loan leverage rate.

Adelstein’s RUS is now disbursing $3.529 billion in grants ($2.357 billion) and loans ($1.191 billion) for 320 projects funded by the $2.5 billion portion of the broadband stimulus program issued to his agency by Congress. The $1 billion difference in program disbursements over appropriations comes from that same leverage ability.

Agriculture Secretary Tom Vilsack and Adelstein suspended the troubled Broadband Loan program, which they inherited from the Administration of President George W. Bush, in order to spend the stimulus monies as mandated by Congress.

They adopted a lessons learned posture, applying insights to their reform of the Broadband Program. These insights, together with the recommendations from past audits by the General Accountability Office (GAO) and the Inspector General of USDA, are seen in the Program’s newly proposed Interim Rule.

On top of these reforms, Administrator Adelstein described for us more changes now rolling out in the RUS broadband – telecom programs. Branded as the Build-Out, Build-On initiative, the effort is marked by better coordination with all USDA economic development programs in the field. We further describe the new imitative in our interview with Mr. Adelstein to be published Friday.  

Now, as the lessons have been learned, reforms put in place to correct the Bush era dysfunctions, and further improvements for the coordination of USDA’s field force are made, even the Farm Bill funds of 3 years ago are effectively suspended.

No good deed goes unpunished, indeed.
Our Take: It is now up to the players and participants in the emerging rural broadband ecosystem to take a stand. Hundreds of RUS “legacy borrowers”, stimulus awardees, and the communities they serve have benefitted from the programs now at risk. Thousands of American jobs are created by the U.S. based manufacturers that produce the network equipment, the cable, and all the other materials that are needed to Build-Out, Build-On networks in rural America.

The carriers and the communities most impacted by the current posture of the Republican controlled House are concentrated in the congressional districts of those same Republican leaders. Those carriers, communities, their associations in Washington, and the suppliers that sell into them need to mobilize now to make sure the promise of broadband for rural America is delivered.  

Rural Telecom Funding provides a link to our Mailing List for updates on the dynamic realm of changing budgets, program rules, and funding flows for telecom in rural America. 

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