Monday, March 7, 2011

Virginia Planning District Gives Back $20 Million Broadband Stimulus Award to USDA

Adelstein: “Lenowisco is unwilling to move forward…” as Both Sides Praise Former Rep. Boucher & USDA's Rural Utilities Service 03/07/2011 San Francisco - The LENOWISCO Planning District Com- mission located in the Town of Duffield in rural southwestern Virginia has given back a $20.2 million federal broadband stimulus award to the Rural Utilities Service of the U.S. Department of Agriculture (RUS). 

RUS Rescinds on February 25
David Villano, the Deputy Administrator of RUS for Telecommunications Programs this morning confirmed for this publication that USDA has canceled the award.  "Yes," he stated in an email reply to our question of last evening "RUS has rescinded the subject award." sought confirmation from RUS officials over the weekend, following the first news reports of the award give back in local media in Virginia. Today we secured the letter, below, which is the legal notice of the federal funding rescission.

Glen Skinner, Director LENOWISCO (l), Paul Elswick, CEO Sunset Digital Communications, 
Rep. Boucher, Jessica Zufolo, Dep. Administrator RUS, and Ryan Elswick, VP of Sunset. 
At event announcing the RUS loan/grant award of September 7, 2010.
(Photo: Creative Energy for Sunset Digital)
RUS Administrator Jonathan S. Adelstein acknowledged the decline of the award by awardee LENOWISCO in a letter received by the District and its private sector operating partner over the past week. The Adelstein document, dated February 25, gave official notice of the federal deobligation and rescission of the funding. We publish the letter below for the first time.

“We understand that Lenowisco is unwilling to move forward with the loan/grant award”, wrote Adelstein. “After careful review,” he continued “RUS is rescinding the offer of the Broadband Initiatives Program award.”

Adelstein's letter, which followed a second extension of a negotiating deadline set by RUS, was triggered following the efforts by the federal agency “to resolve the impasse of the organizations inability to enter into the Loan/Grant and Security Agreement” issued to the parties by RUS on November 18, 2010.

Duane Miller, spokesman for LENOWISCO told us in a telephone interview last evening that the Planning District received Adelstein’s letter last Thursday, March 3rd.

Failed Year Long Negotiations
The move comes following almost a year of increasingly contentious negotiations between LENOWISCO and Sunset Digital Communications, the District’s operating partner. Negotiations failed as LENOWISCO pushed to renegotiate the gross revenue split rate of 10.4% per year delivered to the District under a multi-year network management contact between the two entities. LENOWISCO’s Mr. Miller stated to us that negotiations failed over the associated and critical issue of repayment terms for the loan portion of the loan/grant combination award issued by the federal agency.

According to the LENOWISCO spokesperson, the District and Sunset Digital had been in discussions for months, commencing as the Commission filed the Round 2 application by the federal Round 2 application deadline of March 29 of 2010. 

Paul Elswick (l) and Rayn Elswick of Sunset Digital Communications
“This is a travesty that the project is not going forward with the RUS at this time,” said Sunset CEO Paul Elswick in a telephone interview with us this morning. His son, company Vice President Ryan Elswick, told us during the interview, “They spent twelve months trying to cancel our contract with them, not trying to negotiate with us.”

Negotiations failed following what Mr. Miller describes as "140 hours of face to face negotiations" with Sunset, over the same one year time frame referenced to us by the Sunset executives. In response, Sunset's retained spokesperson, Karen Jenkins, told us "It is apparent that LENOWISCO is unwilling to negotiate. Sunset was clearly in each of those negotiating session over those 140 hours."

LENOWISCO successfully applied for the loan/grant combination under the Obama Administration's $7.2 billion broadband stimulus program. Comprised of a $14.158 million grant and a $6.067 million loan, the award was announced last September 7 in a press statement by Agriculture Secretary Tom Vilsack. 

“When the application was submitted,” said Miller “we discussed with Sunset that the contract in place should be renegotiated.” In 2003 the two entities executed a series of three agreements under which Sunset would operate LENOWISCO’s fiber network for a period of 20 years. In is that group of long term contracts which Sunset alleges the Planning District has sought to break.

Credit to Former Rep. Boucher and to USDA’s RUS
LENOWISCO and Sunset agree on two things, and perhaps only two things: The role of Rick Boucher,and the role of RUS. Boucher, the former Congressman representing the LENOWISCO area worked tirelessly to help secure the federal funding for the award.   

For those that follow not only the broadband stimulus program, but also American telecommunications policy in general there is in this no little irony. Seeing the loss of stimulus dollars in Rick Boucher's former district will be an irony that borders on the tragic for many in the American tech and telecom sector that appreciated his leadership on issues that matter to our industry. This is especially true for any of us that have had the pleasure of appearing in front of him during his long tenure as member and then Chairman of the House Subcommittee on Telecommunications and the Internet, renamed the Subcommittee on Communications and Technology has the House swung to GOP control.  

"Rick was certainly very helpful to us, to say the least," said the Planning District's spokesperson Duane Miller. Even following his defeat last November by Republican Morgan Griffith (R-VA-09), members of his staff continued to attempt to facilitate an accommodation between the contending parties, according to Miller. "We did work very closely with Rick Boucher on this," agreed Sunset's Paul Elswick.  

Both the Planning District and Sunset Digital representatives we spoke with also have nothing but praise for the work of USDA's Rural Utilities Service on the project. "RUS bent over backwards for us," said Paul Elswick in our interview with the telecom entrepreneur. "We have nothing against RUS at all," agreed LENOWISCO's Miller. "We hated that the funds were rescinded. It was not the fault of RUS."  

Sunset Works Toward New Partnerships
Sunset Digital disclosed to the name of a third party entity in the region which they state had agreed to fully secure payback terms for the $6.067 million loan issued by RUS in the combination award. This publication has agreed to not publish the name of that in-region entity, as the Sunset principals are presently unsure of disclosure agreements in place with the organization. Without our ability to disclose the entity name given to us, it is clearly impossible to validate how real a new partnership may be.

Additionally, independent of the undisclosed entity which Sunset principals remain hopeful about, VP Ryan Elswick told us that the company has been in communications about possible financing deals for expansion of the current network with Commissioners of the Virginia Tobacco Commission.

Formally chartered in 1999 by the Virginia Legislature as The Virginia Tobacco Indemnification and Community Revitalization Commission, the authority provides economic developmental investments for areas of the Old Dominion impacted by the decline of the tobacco industry. The  Commission has provided the capital to design and build the optical fiber network held in trust by LENOWISCO branded the Rural Area Network, and operated by Sunset.         

Background in Brick and Mortar Infrastructure
LENOWISCO is one of twenty-one planning districts in the Commonwealth of Virginia. It is a non-profit organization, which according to Miller is legally tied to the governments of the three separate counties (Lee, Scott, and Wise) and the one city (City of Norton) it represents. Fifteen Commissioners comprise the Planning District’s governing Board of Directors.

Since the Commission’s inception in 1965, it has successfully planned, secured financing for, and managed the construction of road, water, and sewer infrastructure projects in its designated area. Generically we call LENOWISCO a quasi-public entity, in many ways similar to other regional economic development bodies that have secured broadband stimulus project funding around the nation.  
Rus to Sunset-lenowisco of 02-25-2011 Cpp560603                                                                                           

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