Wednesday, March 16, 2011

Obama Administration Aims to Issue $400 Million in New Rural Broadband Funding

Will Loan Leverage and An OK from Congress Allow for Full $700 Million to Projects? 03/16/2011 San Francisco – Yes, the headline is correct, with caveats.

Agriculture Secretary Tom Vilsack (r) with President Obama.
President Obama’s Secretary of Agriculture, Tom Vilsack, and his chief of Rural Develop- ment, Jonathan Adelstein, are working to issue a new funding round, based on an appropriation of upwards of $400 million for broadband networks in rural America.

The final dollar figure to be funded via loan awards is still dependent on negotiations with Congress, and on the the loan leverage rate to be used. The total dollar level sent to projects in the field could reach as high as $700 million.

Vilsack and Adelstein are working to move the funding out to projects now, within six months of issuing the last of their Department’s broadband stimulus awards.

What's a NOSA?
The $400 million ceiling number for 2011 appropriations to the USDA's Broadband Loan Program was recently published in an obscure (never so for grant writers) federal document

The new funding notice, called a Notice of Solicitation of Applications (NOSA), for this funding round was released Monday.  The longer Interim Rule soliticing comments on the Program was issued at the same time.

Audio of Announcement Conference

Secretary Vilsack announced the pending releases last Thursday (audio of announcement conference attached). The Interim Rule is open for public comment until May 13, while the funding window remains open until all loan funds are awarded.

The term NOSA stands for what it is -- it is a solitication of applications, not a more common Notice of Funds Availability (NOFA). The actual final current year appropriations for the program have not been  finalized, so a NOFA cannot legally be published. Instead, the NOSA is employed to exoedite the process of getting applications in, and awards out. 

The final appropriations number is now being set by negotitations between the Obama Administration and Congress. The final dollars delivered to the broadband loan fund in appropriations allow USDA to set its final loan leverage rate for the current year. If these two factors are maximized, the fund could deliver as much as $700 million this year. 

"We didn't want to delay the ability to get these resources out into the countryside," said Vilsack on the media call of last Thursday. "We know there is a tremendous demand, as we saw this when we saw the applications filed for the Recovery Act resources."

$400 Million Appropriations for Loans Only
Administrator Jonathan Adelstein, Rural Utilities Service of USDA
The broadband capital subsidies will be issued only as loans. No grants are available in this funding tranche. The loans will be issued by USDA's Rural Utilities Service (RUS), based on  authorizations within the 2008 Farm Bill. 

As Secretary Vilsack and RUS Administrator Adelstein said during the call of last week, USDA specifically decided to wait for the end of the broadband stimulus funding rounds before issuing these new funds.

Congressional Negotiations
USDA managers wanted to review lessons learned from the agency’s work during the past two years as it awarded nearly $3.5 billion in stimulus loans and grants. The agency issued the last of its stimulus-funded loans and grants on September 30, 2010. RUS also spent months amending the rules for the Broadband Program, an effort mandated by Congress in the 2008 Farm Bill.

The approach by Vilsack and Adelstein to wait to award the 300 plus stimulus projects funded by USDA prior to releasing the Farm Bill-financed Broadband Loan package appears to have bipartisan support of the congressional appropriators who must give final approval to funding levels.

In the press release issued last Thursday by Vilsack’s office, USDA stated that the funding notice for the broadband loans “is being issued prior to passage of the final appropriations act to allow potential applicants time to submit proposals and give the agency time to process applications within the current fiscal year.” The statement continued, “Upon completion of a 2011 Appropriations Act, RUS will publish a subsequent notice identifying the amount of funding available for broadband loans."

The credit worthiness and miniscule default rate of the RUS loan portfolio are the two assets which allow the possible full $400 million in broadband program loans to move ahead. According to last week’s press statement, “USDA's Farm Bill broadband loan program has invested over $1 billion over the past decade in more than 100 projects nationwide.” Currently RUS has $146 billion in rural development loans in its portfolio which spans a variety of infrastructures from water supply to broadband.

New Rules for Broadband Loan Program
Rules for the Broadband Loan Program issued yesterday provide for several important changes and reforms to the prior, and highly controversial, rules which dated back to the Administration of former President George W. Bush.

Higher broadband speeds offered by applicants in their loan proposals will be given competitive incentives. Importantly, proposed service areas of applicants cannot be adjacent to urban jurisdictions of greater than 50,000 under the new rules.

“The new rules for the RUS Broadband Loan program are thoughtful, competitive and extremely fair,” said rural telecom funding expert Ms. Liz Zucco. “We are already seeing significant interest among potential applicants.” Zucco, principal of Canton, GA-based MarketSYS USA told us that this interest within the sector is coming from both legacy borrowers of RUS funds, and from new entities expressing renewed interest in rural telecom opportunities. MarketSYS USA is an affiliated of the corporate parent of this publication.

Cleaning Up the Mess
During the administration of President George W. Bush, USDA came under heavy criticism from Congress, the General Accountability Office (GAO), and the media for mismanagement and misaligned spending priorities in the Broadband Loan Program. Broadband loans made to extend networks to wealthy gated “golf themed” communities in suburban areas of metro Houston, TX became an anecdotal focus of such criticism. The fact that some of the loans dropped into the home district of Tom DeLay, then the influence peddling Republican Majority Leader of the House, highlighted concerns.

Under the Obama Administration, Administrator Adelstein, a former FCC Commissioner, has set about correcting the faults in the program. As the broadband stimulus effort moved forward, Adelstein was credited with changing the rules between Round 1 and Round 2 of the program in order to better solicit more competitive applications from telephone carriers that had objected vehemently to Round 1 funding rules.

Building Consensus for Funding Going Forward
As this new money moves out to rural communities, we think the reforms made to USDA’s broadband program will bring further credit to Adelstein and his staff. By reforming the rules, the RUS managers help strengthen the bipartisan consensus on Capitol Hill that will continue to support rural broadband capital subsidies.

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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