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                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               ----------                              

                           FEBRUARY 10, 2011

                               ----------                              

                            Serial No. 112-5


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                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 10, 2011

                               __________

                            Serial No. 112-5


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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky               EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
MARY BONO MACK, California           BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                GENE GREEN, Texas
SUE WILKINS MYRICK, North Carolina   DIANA DeGETTE, Colorado
  Vice Chair                         LOIS CAPPS, California
JOHN SULLIVAN, Oklahoma              MICHAEL F. DOYLE, Pennsylvania
TIM MURPHY, Pennsylvania             JANE HARMAN, California
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio                JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi            JOHN BARROW, Georgia
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky              Islands
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                  (ii)
             Subcommittee on Communications and Technology

                          GREG WALDEN, Oregon
                                  Chair
LEE TERRY,                           ANNA G. ESHOO, California
  Vice Chairman                      EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               MICHAEL F. DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois               DORIS O. MATSUI, California
MARY BONO MACK, California           JANE HARMAN, California
MIKE ROGERS, Michigan                JOHN BARROW, Georgia
BRIAN P. BILBRAY, California         EDOLPHUS TOWNS, New York
CHARLES F. BASS, New Hampshire       FRANK PALLONE, Jr., New Jersey
MARSHA BLACKBURN, Tennessee          BOBBY L. RUSH, Illinois
PHIL GINGREY, Georgia                DIANA DeGETTE, Colorado
STEVE SCALISE, Louisiana             JOHN D. DINGELL, Michigan
ROBERT E. LATTA, Ohio                HENRY A. WAXMAN, California
BRETT GUTHRIE, Kentucky
ADAM KINZINGER, Illinois
JOE BARTON, Texas
FRED UPTON, Michigan
















                             C O N T E N T S


                              ----------                              
                                                                   Page
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     1
    Prepared statement...........................................     3
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................     4
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, opening statement...............................     5
    Prepared statement...........................................     6
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     7
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     8
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................    10
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   125
Hon. Edolphus Towns, a Representative in Congress from the State 
  of New York, prepared statement................................   128

                               Witnesses

Donald J. Welch, President and Chief Executive Officer, Merit 
  Network, Inc...................................................    10
    Prepared statement...........................................    13
Gary Shorman, President and Chief Executive Officer, Eagle 
  Communications.................................................    44
    Prepared statement...........................................    46
    Answers to submitted questions...............................   266
Mark Goldstein, Director, Physical Infrastructure Issues, 
  Government Accountability Office...............................    58
    Prepared statement...........................................    61
    Answers to submitted questions...............................   268
Phyllis K. Fong, Inspector General, U.S. Department of 
  Agriculture....................................................    72
    Prepared statement...........................................    74
    Answers to submitted questions...............................   283
Todd J. Zinser, Inspector General, U.S. Department of Commerce...    82
    Prepared statement...........................................    84
    Answers to submitted questions...............................   289

                           Submitted Material

Letters of support from Members of Congress, submitted by Ms. 
  Eshoo..........................................................   129
Letters of support, submitted by Ms. Matsui......................   247

 
                        ARRA BROADBAND SPENDING

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                      THURSDAY, FEBRUARY 10, 2011

                  House of Representatives,
                  Committee on Energy and Commerce,
             Subcommittee on Communications and Technology,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Greg 
Walden (chairman of the subcommittee) presiding.
    Members present: Representatives Walden, Terry, Stearns, 
Shimkus, Bono Mack, Bass, Blackburn, Gingrey, Scalise, Latta, 
Guthrie, Kinzinger, Barton, Eshoo, Markey, Doyle, Matsui, 
Barrow, Towns, DeGette, Dingell, and Waxman (ex officio).
    Staff present: Ray Baum, Senior Policy Advisor, C&T Mike 
Bloomquist, Deputy General Counsel; Allison Busbee, Legislative 
Clerk; Fred Neil, Chief Counsel, C&T Peter Kielty, Senior 
Legislative Analyst; Brian McCullough, Senior Professional 
Staff Member, CMT; Jeff Mortier, Professional Staff Member; 
Katie Novaria, Legislative Clerk; Lyn Walker, Coordinator, 
Admin./Human Resources; Roger Sherman, Chief Counsel; Shawn 
Chang, Counsel; Jeff Cohen, Counsel; and Sarah Fisher, Policy 
Analyst.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. The subcommittee will come to order. And I 
would like to ask any of our guests we probably have some seats 
there you can take advantage of.
    And I want to recognize myself for an opening statement. I 
want to welcome you all today. With today's hearing we begin 
exercising our important oversight role regarding the 
approximately $7 billion in taxpayer money the ARRA allocated 
to the NTIA and the RUS for broadband grants and loans. We will 
start to examine what the money is being used for and how we 
can minimize waste, fraud, and abuse. We will also consider a 
staff discussion draft intended to improve oversight and return 
unused or reclaimed money to the United States Treasury. I want 
to emphasize that this is a discussion draft. It is only a 
starting point. We hope it will elicit suggestions from our 
colleagues on both side of the aisle, the witnesses, and any 
other interested parties to help accomplish a goal I think we 
all share that is treating taxpayer money with the utmost care 
and insuring that when we do spend it, it gets spent wisely.
    When we originally considered the broadband provisions of 
the ARRA in the Energy and Commerce Committee, my colleagues 
and I suggested some revisions. We were not convinced that this 
much money needed to be spent. Private sector investment has 
resulted in 95 percent of the country having access to 
broadband and two-thirds of the country subscribing. As the 
FCC's national broadband plan pointed out, we have gone from 8 
million broadband subscribers to 200 million in approximately a 
decade. We propose therefore that any subsidies be targeted to 
the five percent of households that are unserved and only if it 
is otherwise uneconomic for the private sector to deploy there. 
And we thought it would be a good idea to finish the nationwide 
broadband map before the government started to spend the 
taxpayer's money. Our suggestions were not adopted. We will be 
interested to see the results and hopefully to learn from the 
things that work and the things that don't. Measuring 
performance I think is crucial. Otherwise we won't know what is 
worth repeating and what we should avoid.
    A cost benefit analysis is also important. With a $1.48 
trillion deficit this year and enormous deficits predicted for 
the rest of the decade we have a responsibility to cut costs. I 
would suggest for example we determine how much we end up 
spending for each additional broadband subscriber. We ought to 
know that. All of this is important not just to evaluate the 
programs at hand. We are, after all, soon to embark on a 
discussion of how to reform the Universal Service Fund and the 
President has also recently announced a goal of reaching 98 
percent of the country with wireless broadband. I love the 
goal, but believe we must be cost efficient about how we go 
about it and be realistic in our expectations of what taxpayers 
can afford. In pursuit of this goal, increasing the deployment 
of wireless broadband to the unserved areas of rural American, 
it will be important to remember the colloquial definition of 
insanity; and that is repeating the same actions but expecting 
a different outcome.
    While there has been disagreement over provisions in the 
ARRA, everyone agrees on the importance of oversight. My 
concerns about possible waste, fraud, and abuse are heightened 
by the fact that the only funding currently available to the 
NTIA for oversight expires March 4 with the continuing 
resolution. My hope is that we can discuss with the Government 
Accountability Office and the inspectors general what we should 
be keeping an eye out for what they ordinarily do in their 
oversight roles and what we can do help them in that task. The 
draft legislation is offered in that vein. It would ensure that 
the NTIA and the RUS report to Congress on any red flags the 
inspectors general find as well on what they propose to do 
about it. It would also help ensure that any money that is 
returned, reclaimed, or goes unused is put back in the U.S. 
Treasury. One would think that is the ordinary course but there 
is some ambiguity in the law about whether and when the program 
administrators must de-obligate funding and whether it comes 
back to the Treasury when they do.
    So I look forward to hearing from our witnesses about the 
language in the draft bill and where there are things that they 
suggest we should change.
    [The prepared statement of Mr. Walden follows:]

                 Prepared Statement of Hon. Greg Walden

    Welcome. With today's hearing we begin exercising our 
important oversight role regarding the approximately $7 billion 
in taxpayer money the ARRA allocated to the NTIA and the RUS 
for broadband grants and loans. We will start to examine what 
the money is being used for and how we can minimize waste, 
fraud, and abuse. We will also consider a staff discussion 
draft intended to improve oversight and return unused or 
reclaimed money to the U.S. Treasury.
    I want to emphasize that this is a discussion draft. It is 
only a starting point. We hope it will elicit suggestions from 
our colleagues, the witnesses, and any other interested parties 
to help accomplish a goal we all share: treating taxpayer money 
with the utmost care and ensuring that when we do spend it, we 
spend it wisely.
    When we originally considered the broadband provisions of 
the ARRA in this committee, my colleagues and I suggested some 
revisions. We were not convinced that this much money needed to 
be spent. Private sector investment has resulted in 95 percent 
of the country having access to broadband and two-thirds of the 
country subscribing, as the FCC's national broadband plan 
pointed out. We have gone from 8 million broadband subscribers 
to 200 million in approximately a decade.
    We proposed, therefore, that any subsidies be targeted to 
the five percent of households that are unserved, and only if 
it is otherwise uneconomic for the private sector to deploy 
there. And we thought it a good idea to finish a nationwide 
broadband map before we started the spending.
    Our suggestions were not adopted. We will be interested to 
see the results, and hopefully to learn from the things that 
work, and the things that don't. Measuring performance will be 
crucial. Otherwise we won't know what is worth repeating and 
what we should avoid. A cost benefit analysis is also 
important. With a $1.48 trillion deficit this year and enormous 
deficits predicted for the rest of the decade, we have a 
responsibility to cut costs. I would suggest, for example, we 
determine how much we end up spending for each additional 
broadband subscriber.
    All of this is important not just to evaluate the programs 
at hand. We are, after all, soon to embark on a discussion of 
how to reform of the Universal Service Fund. And the President 
has also recently announced a goal of reaching 98 percent of 
the country with wireless broadband. I laud the goal but 
believe we must be cost-efficient about how we go about it and 
be realistic in our expectations of what taxpayers can afford. 
In pursuit of the goal of increasing the deployment of wireless 
broadband to the unserved areas of rural America, it will be 
important to remember the colloquial definition of 
``insanity'': repeating the same actions and expecting 
different results.
    While there has been disagreement over provisions in the 
ARRA, everyone agrees on the importance of oversight. My 
concerns about possible waste fraud and abuse are heightened by 
the fact that the only funding currently available to the NTIA 
for oversight expires March 4 with the Continuing Resolution. 
My hope is that we can discuss with the Government 
Accountability Office and the inspectors general what we should 
be keeping an eye out for, what they ordinarily do in their 
oversight roles, and what we can be doing to help them in that 
task.
    The draft legislation is offered in that vein. It would 
ensure that the NTIA and the RUS report to Congress on any red 
flags the inspectors general find, as well as on what they 
propose to do about it. It would also help ensure that any 
money that is returned, reclaimed, or goes unused is put back 
in the U.S. Treasury. One would think that is the ordinary 
course, but there is some ambiguity in the law about whether 
and when the program administrators must ``de-obligate'' 
funding, and whether it comes back to the treasury when they 
do.
    I look forward to hearing from our witnesses about the 
language in the draft bill and whether there are other things 
they suggest we add.

    Mr. Walden. With the minute-and-a-half left I would like to 
defer now to the gentleman from Texas, Mr. Barton, and yield 
the remainder of my time.
    Mr. Barton. Well, thank you, Chairman Walden. It is good to 
see you in the Chair. I am sure we are going to have a very 
productive subcommittee and I look forward to working with you 
and Ms. Eshoo on a wide range of telecommunications issues.
    This issue is something that shows the subcommittee in its 
oversight role. We have had a number of concerns about the 
broadband plan as it was rolled out several years ago. And my 
position as ranking member and Mr. Stearns who was the ranking 
member of this subcommittee in the last Congress, we wrote 
several letters to some of you that are sitting at the table 
asking about how the funds were being spent and where the 
grants were going. Some of the answers we got back to those 
letters were to say the least unsatisfactory. So, today in the 
Majority with Mr. Walden as Chairman, we are going to ask some 
of those same questions. We certainly support broadband. We 
support broadband in rural America, but we also think the money 
should be spent wisely, effectively, and transparently.
    So I look forward to the testimony, and Mr. Chairman, again 
I look forward to working with you. This is an important 
subcommittee. The economy of the United States can be very 
positively impacted by what we do in this subcommittee. So with 
that let us have a good hearing and let us get to work.
    [The prepared statement of Mr. Barton follows:]

                 Prepared Statement of Hon. Joe Barton

    Thank you Mr. Chairman for holding this important hearing. 
As Chairman Emeritus, I firmly stand with Chairman Upton and 
Subcommittee Chairman Walden in further investigating the 
broadband spending in the American Recovery and Reinvestment 
Act (ARRA).
    The Recovery Act provided $4.7 billion to the National 
Technology and Information Administration (NTIA) to create the 
Broadband Technology Opportunities Program (BTOP) and $2.5 
billion to the Rural Utilities Service (RUS) to create the 
Broadband Incentive Program (BIP). These programs were created 
to extend broadband service to those rural areas that were 
without service. Unfortunately, it has been brought to the 
attention of Congress that both programs have not been 
administered as efficiently as possible and both have either 
awarded rural areas with grants that already have access to 
broadband or have completely eliminated their requirement to 
only target areas without broadband service.
    I believe that broadband technology has the potential to 
create jobs, fundamentally alter our economy, and improve the 
quality of life for many Americans. While I was in support of 
the President's efforts to focus on expanding broadband 
technology, this is an issue that deserves great oversight and 
accountability to ensure that taxpayer dollars are being spent 
efficiently. As Ranking Member of this committee, I was intent 
on questioning both the RUS and the NTIA in their handling of 
the $7.2 billion allocated to them for implementing the 
broadband award programs established by the Recovery Act. In 
March of 2009, I sent a letter to both RUS and NTIA to 
recommend that we prioritize funds towards projects in States 
where broadband mapping was complete; towards unserved areas 
before underserved areas; towards projects that were 
sustainable without additional government funding; and toward 
projects that were most cost-effective. Because of my steadily 
increasing concern, I sent another letter in December of 2009 
to encourage both organizations to use greater oversight when 
awarding grants and use more efficient metrics to decide on 
awardees.
    We owe it to the American people to ensure that their hard-
earned dollars are being used as efficiently as possible. If 
the law mandates that a program has a specific purpose, I 
believe that we must honor the law and have integrity in our 
implementation of the law. I look forward to hearing from our 
witnesses and working to create greater oversight of the 
broadband spending in the Recovery Act.

    Mr. Walden. Thank you, Mr. Chairman. I now am delighted to 
yield the--for opening statement purposes to my ranking member 
on the subcommittee, Anna Eshoo from California. We have 
already met and talked and I look forward to a very productive 
relationship on this subcommittee as we work to improve 
telecommunications in our country and so delighted to work with 
you and I yield the 5 minutes to you.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman very much for your 
generous comments. I want to return them by wishing you well 
and congratulating you on being the Chairman of this 
subcommittee which is really so important, I agree, to our 
national economy.
    There are a number of issues that we are going to be 
working on and today's hearing I think is an important one to 
examine the dollars that were appropriated, oversight of the 
Congress is one of the most important things that we do. So I 
know that the members on this side of the aisle look forward to 
working with you. Many of these issues are really nonpartisan 
so I hope that we can come together for the good of the country 
and produce products that the American people will be proud of 
and that will benefit the Nation. Again, I welcome the 
oversight of these two programs of the BTOP and the BIP because 
it is important to root out problems. It is also instructive 
because we then can find solutions to the problems. We need a 
thorough understanding if in fact there are obstacles that 
applicants and awardees face in gaining access to and utilizing 
the dollars that Congress appropriated. We have to ensure that 
the programs are efficient and effective because we all know 
what the consequences are in an era where every dollar is just 
so precious. We want these dollars to dance. We want them to 
count.
    The United States of America invented the Internet, but 
today we are falling behind in broadband deployment and by some 
measure we are now ranked 15th in the world. There are 
different measurements but the one that eludes us is number 
one. And I think if we do anything together that we raise that 
up and that the United States really take over and be number 
one in the world. We need significant investment from both the 
public and the private sectors to close the gaps and increase 
broadband affordability and ensure that Americans have access 
to the highest speeds and the latest technology. And I wanted 
to repeat that--the highest speeds and the latest technology. 
That is why I strongly advocated more than 2 years ago for 
recovery act funding to expand broadband deployment in our 
country. And that is what I--why I raise it. Again, because I 
think that America should be number one, not 15th, or 24th, or 
17th. If we could build the transcontinental railroad in the 
1800s, I think that we can certainly do this. So, 2 years ago a 
study predicted that adding 30 million new broadband lines 
would raise USGDP by over $110 billion. Others have 
specifically examined the benefits of broadband stimulus 
concluding that a $10 billion investment in broadband networks 
could support an estimated 498,000 new or retained U.S. jobs 
per year. And Mr. Chairman, at this point I would like to ask 
that the following be placed in the committee's record today. 
These are all comments from letters of Members relative to the 
program and their support of it.
    Mr. Walden. Without objection.
    [The information appears at the conclusion of the hearing.]
    Ms. Eshoo. Thank you. So, like the building of our Nation's 
interstate highway system, this transformation won't happen 
overnight. Recovery Act dollars have begun making their way 
into communities across the nation and when completed, these 
projects will have a critical impact especially on community 
anchor institutions, an issue that Congresswoman Matsui and 
others worked very hard on the committee. Public safety, first 
responders, schools, libraries, public health facilities, these 
are all areas that affect every single one of our congressional 
Districts. NTIA and RUS have undertaken major task in 
administrating their respective programs. Along the way, there 
have been some bumps in the road. Some of which I, myself have 
raised in past hearings and in letters to the NTIA 
administrator. And these challenges are to be expected I think 
with a multiyear program. So we have an opportunity to 
strengthen these programs. I am committed to ensuring that 
there is success because the country needs this and I think in 
fact demands it. I think it is clear that our future depends 
upon the ubiquitous and rapid deployment of broadband and the 
Recovery Act is but a first step in this process and there is 
much more work to do.
    So thank you, Mr. Chairman, congratulations to you again. I 
don't know how much time I have left, but----
    Mr. Walden. None. You are out.
    Ms. Eshoo. None. OK. All right, I am out of time.
    Mr. Walden. You were perfectly timed to that one.
    Ms. Eshoo. All right, all right, perfectly timed to use all 
the time. Again, my congratulations to you and to all of the 
members. We look forward to working together with you.
    [The prepared statement of Ms. Eshoo follows:]

                Prepared Statement of Hon. Anna G. Eshoo

    Thank you Mr. Chairman. I welcome our witnesses and thank 
them for appearing before our panel today. I welcome oversight 
of BTOP and BIP because it's always important to root out 
problems and find solutions. We need a thorough understanding 
of the obstacles that the applicants and awardees face in 
gaining access to and utilizing the money. We have to ensure 
the program is efficient and effective because the consequences 
for our nation, our economy, and our future are critical.
    The U.S. invented the Internet, but today we are falling 
behind in broadband deployment, and by some measure, we're now 
ranked 15th in the world. We'll need significant investment 
from both the public and private sectors to close the gaps, 
increase broadband affordability and ensure Americans have 
access to the highest speeds and latest technology. That's why 
I strongly advocated more than two years ago, for Recovery Act 
funding to expand broadband deployment, because I believe 
America should be number one in technology and we need to make 
the investment to do so. If the U.S. could build the 
transcontinental railroad in the 1800s, we can certainly do 
this.
    Two years ago, a study predicted that adding 30 million new 
broadband lines would raise U.S. GDP by over $110 billion. 
Others have specifically examined the benefits of broadband 
stimulus, concluding that a $10 billion investment in broadband 
networks could support an estimated 498,000 new or retained 
U.S. jobs for a year.
    Like the building of our nation's interstate highway 
system, this transformation will not come overnight. Recovery 
Act dollars have begun making their way into communities across 
the nation. When completed, these projects will have a critical 
impact on community anchor institutions such as public safety 
first responders, schools, libraries and public health 
facilities, as well as small businesses and directly into homes 
around the country. We need to ensure we're doing everything we 
can to quickly get these funds out to the communities that so 
desperately need them.
    NTIA and RUS have undertaken a major task in administering 
their respective programs. Along the way, there have been some 
bumps in the road, some of which I've raised in past hearings, 
and in letters to the NTIA Administrator. These challenges are 
to be expected with a multi-year program supporting the build-
out of large, complex infrastructure projects. But we must meet 
these challenges head-on, and not take them as a sign that the 
overall program is flawed.
    We have an opportunity to strengthen these programs and I'm 
committed to ensuring the continued success of BTOP and BIP. 
Proper oversight of BTOP and BIP will ensure federal money is 
used towards its intended purpose: expanding broadband 
deployment. When problems are identified, let's find solutions, 
not point blame.
    It's clear our future depends upon the ubiquitous and rapid 
deployment of broadband. The Recovery Act funding is the first 
step in this process, but there's much more work to be done to 
ensure America's leadership on broadband. Thank you for being 
here today and I look forward to your testimony.

    Mr. Walden. Thank you very much. Now we will yield for 5 
minutes to the Vice Chairman of the committee, a gentleman who 
has put a lot of time and effort into telecommunications issues 
especially a Universal Service Fund over the years, Mr. Lee 
Terry of Omaha.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Thank you, Mr. Chairman. I am pleased that we 
are exercising our oversight over the broadband provisions of 
the stimulus bill. While some of may have wished that the $7 
billion allocated for broadband would have been designated for 
only unserved households or that we would have waited until the 
broadband mapping project was completed, was all should agree 
that it is important for this committee to be involved in 
oversight now that all the funds have been obligated. We must 
analyze risks associated with the program and help facilitate 
proper oversight by the administrating agencies including our 
witnesses here today and thank you all for being here today.
    Given the current state of our economy and the absolute 
necessity to cut federal spending now it is imperative that we 
do our due diligence in making sure that proper oversight of 
both BTOP and BIP is conducted in that any waste, fraud, or 
abuse is eliminated and that any unused or misused money is 
returned to the Treasury. I realize the fine on unserved v. 
unserved is well, some people think it is over, but I do look 
forward to hearing from our witness Gary Shorman today on his 
concerns about an overbill that is taking place in rural Kansas 
due to BIP award. We have received further complaints from 
Montana, from Maine, from Washington State, from Illinois, so 
you are not alone. Overbuilding in my opinion should be 
considered as waste and abuse as we are subsidizing competition 
in areas that are already being served by broadband providers. 
Many rural telecommunication companies have raised this issue 
with me since the stimulus was enacted and it would seem to me 
that this would be something the inspector general would like 
to examine when conducting oversight. It is my understanding 
that although awards were obligated by September 30, 2010, only 
300 million on that has been spent to date under BTOP and less 
than 100 million has been dispersed under BIP. I look forward 
to hearing from our witnesses today on how disbursements will 
be handled from here on and what kind of performance milestones 
must be met as to avoid any rescission of funds. I am worried 
that oversight could be needed for years to come on a program 
that was initially intended to be an immediate job creator and 
needed stimulus in our economy now. I understand that both RUS 
and NTIA will be challenged by the oversight, a dramatically 
larger and more diverse portfolio of projects while also facing 
impact of a lack of sufficient oversight, staff, and resources. 
We must make sure they have both their ability to monitor and 
ensure compliance with the terms of the awards. I welcome a 
discussion on legislation that will ensure that any unused or 
reclaimed funds are returned to the federal Treasury and hope 
that we can act quickly but prudently in providing NTIA and RUS 
the appropriate resources to find these unused and reclaimed 
funds. And thank you for holding this hearing and I yield back.
    Mr. Walden. Thank the gentleman. Now I would like to 
recognize the ranking member of the Full Committee, the 
distinguished gentleman from California, Mr. Waxman for 5 
minutes for an opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman. Chairman 
Walden, I thank you for scheduling this important hearing and 
congratulations on your new role as chairman of the 
Subcommittee on Communications and Technology. And I want to 
work with you and Ranking Member Eshoo and our members to 
accomplish important bipartisan objectives. Despite some policy 
differences we can accomplish a great deal together. I hope we 
get started by addressing spectrum availability and reform, 
universal service, and the construction of a nationwide 
interoperable broadband public safety network. We also need to 
conduct appropriate oversight of ongoing programs and the 
agencies under our jurisdiction. And I am pleased that our 
first subcommittee meeting is an oversight hearing of two 
important Recovery Act programs, the Broadband Technology 
Opportunies Program and the Broadband Initiatives Program.
    When Congress passed the landmark Recovery Act, we built 
oversight into the very structure of these programs. We knew it 
was imperative to provide the Departments of Commerce and 
Agriculture with the tools necessary to conduct vigorous 
oversight of approximately $7 billion in broadband spending. 
The Commerce Department Inspector General was allocated $16 
million and the Agriculture Department Inspector General $22.5 
million to oversee and audit programs, grants, and activities 
funded by the Recovery Act. We need to ensure that the IGs and 
Agency program managers have enough resources for this 
significant task.
    With billions of dollars invested in hundreds of broadband 
projects throughout the Nation it would be irresponsible for 
Congress to skimp on oversight funding. We had a vigorous 
debate about the merits of the Recovery Act and the broadband 
programs at the start of the last Congress and it is clear that 
Republicans and Democrats did not agree on the merits, but we 
should all be able to agree that the agencies and their 
independent inspectors general should have adequate resources 
to oversee these projects.
    I am encouraged that we are going to hear today from the 
IGs at the Department of Commerce and Agriculture as well as 
the GAO. The Department of Commerce IG and GAO have been 
warning Congress for months that adequate funding must be 
assured for these activities. We should heed their advice. In 
our zeal for budget cutting we must not trade a temporary 
savings in the area of oversight for significantly larger 
future losses due to waste, fraud, or abuse.
    We will also hear from Eagle Communications, a company that 
has concerns about the BIP program and how RUS allegedly funded 
competitors in its service area to the detriment of Eagle's 
business. We should listen carefully to these concerns but it 
is unfortunate the subcommittee did not invite the RUS 
administrator to testify today so we could be further 
enlightened.
    I am also pleased that we will hear from the CEO of the 
nonprofit MERIT network, a Michigan based research and 
education network provider that is constructing more than 2,000 
miles of ``middle mile'' shared infrastructure to address 
Michigan's backhauled needs. Dr. Welch, a former Army Colonel 
who served as the Dean for Information Technology at WestPoint 
and the Chief of Software Engineering for Delta Force is also a 
constituent of Mr. Dingell's and his project has bipartisan 
support from the Michigan delegation including Chairman Upton 
who has previously noted ``this funding provides a tremendous 
boost to our region helping a home grown business expand and 
create jobs in an effort to deliver broadband to countless 
families, businesses, schools, libraries, and health centers 
across the state.''
    Finally, we have before us a Republican legislative 
proposal to capture de-obligated Recovery funds. None of us 
should oppose the prompt return of unused Recovery Act funds to 
the U.S. Treasury and I believe that is what current law 
requires. We should discuss how this new law--this new 
legislation differs from existing statutory requirements. We 
also should be careful not to establish a process to defund 
projects without cause especially now that obligated money has 
been translated into real projects with real jobs in every 
state. I would like to thank our witnesses for their 
participation at this hearing and I look forward to their 
testimony. Thank you, Mr. Chairman.
    Mr. Walden. And I thank the gentleman from California. I 
just note for the record note that we have met with the RUS 
administrator. We will have additional hearings. The RUS 
administrator actually is out of the country right now, and so 
we are going to go ahead with this part and then we hope to 
have another hearing where they are available. Now I would like 
to recognize the Chairman Emeritus of the Committee, Mr. 
Dingell, who would like to welcome our witness, Dr. Donald 
Welch who is President and CEO of Merit Network. So with this I 
would yield to the distinguished gentleman from Michigan, Mr. 
Dingell.
    Mr. Dingell. Mr. Chairman, you are most courteous. I thank 
you for your graceful treatment of me and my constituent and I 
congratulate you on your first hearing which is an important 
one.
    I want to welcome our witnesses today particularly Dr. 
Donald Welch, the President, and the CEO of Merit Network 
Incorporated which is based in my District in Michigan. Merit 
is the recipient of over $100 million in grants from the 
National Telecommunications and Information Administrations 
Broadband Technology Opportunities Program (BTOP) to extend the 
broadband Internet infrastructure to anchor institutions and 
underserved areas in Michigan, Wisconsin, and Minnesota. So 
welcome, Dr. Welch, and we wish you great success in Merit's 
very valuable project. Federal support for infrastructure 
projects such as yours support economic growth will help our 
country to recover from current recession and also are going to 
be very useful in moving this country forward in terms of 
technology which is so important. Again, Mr. Chairman, I thank 
you for your courtesy to me and yield back the balance of my 
time.
    [The prepared statement of Mr. Dingell follows:]

               Prepared Statement of Hon. John D. Dingell

    Thank you, Chairman Walden, for holding today's oversight 
hearing about projects sponsored under the American Recovery 
and Reinvestment Act (ARRA). As you know, the Committee on 
Energy and Commerce has a proud history of using fair and 
measured oversight to inform its legislative work. I am 
confident you will carry on in this tradition.
    Before making my remarks, I would like to welcome our 
witnesses today, particularly Dr. Donald Welch, the President 
and CEO of Merit Network, Inc., which is based in my district 
in Michigan. Merit is the recipient of over $100 million in 
grants from the National Telecommunications and Information 
Administration's (NTIA) Broadband Technology Opportunities 
Program (BTOP) to extend broadband Internet infrastructure to 
anchor institutions and underserved areas in Michigan, 
Wisconsin, and Minnesota. Welcome, Dr. Welch, and best of luck 
with your company's valuable project. Federal support for 
infrastructure projects such as Merit's support economic growth 
and will help our country recover from the current recession. 
All the same, such support must be subject to reasonable 
scrutiny in order to mitigate waste, fraud, and abuse.
    I note that my Republican colleagues have circulated a 
draft bill to require NTIA and RUS to return to the U.S. 
Treasury any BTOP or Broadband Initiatives Program (BIP) funds 
either agency finds to have been involved in fraudulent, 
wasteful, or mismanaged projects, as well as funds that are 
otherwise unobligated. I find this curious in view of the fact 
that ARRA, as amended by Dodd-Frank, already requires this. 
Nevertheless, I hope our witnesses, especially the Commerce and 
Agriculture Departments' respective Inspectors General and Mr. 
Goldstein of the GAO, will help me understand the necessity, 
implications, and feasibility of such legislation for NTIA and 
RUS, all while bearing in mind that the draft bill authorizes 
no spending whatsoever for the additional oversight burdens it 
imposes.
    Thank you for your courtesy, Mr. Chairman, and I yield the 
balance of my time.

    Mr. Walden. And I thank the gentleman and with that, Dr. 
Welch, if you would like to be our lead-off witness just go 
ahead and make sure your microphone is turned on and we look 
forward to your testimony. We appreciate your being here, sir.

    STATEMENTS OF DONALD J. WELCH, PRESIDENT AND CEO, MERIT 
     NETWORK, INC; GARY SHORMAN, PRESIDENT AND CEO, EAGLE 
      COMMUNICATIONS; MARK GOLDSTEIN, DIRECTOR, PHYSICAL 
   INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE; 
    PHYLLIS K. FONG, INSPECTOR GENERAL, U.S. DEPARTMENT OF 
   AGRICULTURE; AND TODD J. ZINSER, INSPECTOR GENERAL, U.S. 
                     DEPARTMENT OF COMMERCE

                  STATEMENT OF DONALD J. WELCH

    Mr. Welch. Thank you. Good morning, my name is Don Welch. I 
am the President and CEO of Merit Network and I am very proud 
to be here on behalf of Merit Network and its community in 
Michigan.
    Merit Network, as you have heard, is an independent non for 
profit that is governed by the public universities. Merit 
receives no subsidies from the State. Our mission is to provide 
community anchor institutions with advanced IT and network 
services to foster collaboration and community and to 
facilitate knowledge transfer with and between community 
anchors. Merit is guided by a vision of equal access to 
information for all Michigan citizens regardless of geographic 
location.
    For almost a decade, Merit has had a plan to build fiber to 
serve community anchor institutions in rural and remote regions 
of Michigan where an absence of viable backhaul has left entire 
communities underserved but we have lacked the funds to do so. 
Through BTOP and with the support of the Michigan public 
universities, Merit's vision is within reach to the benefit of 
all sectors of society and the entire State. Merit's project is 
2,287 miles of fiber optic cable lit at 10 Gbps that provides 
both ``middle mile'' or backhaul infrastructure in underserved 
areas and redundant paths out of poorly connected areas that 
will improve service for the entire region. Merit and its 
commercial sub recipients will each own infrastructure. Merit 
serving the community anchors the sub recipients focusing on 
homes, businesses, and local internet service providers. Our 
project will directly connect over 100 community anchor 
institutions and has the ability to serve an additional 900 
community anchors. The network will also have access points in 
51 central offices and create 12 new colocation spaces making 
it easy for existing providers to leverage the project. Thus 
the network can indirectly serve over 55,000 businesses and 1 
million homes.
    The majority of the cost for many local ISPs in the service 
area are for backhaul to internet exchange points like that are 
in places like Chicago. Our project provides cost effective 
backhaul to areas where it is lacking. In some instances 
customers could see over 10 times the bandwidth for less than 
half of what they are currently paying. Merit is a member of 
the Schools, Health Care and Libraries Broadband Coalition 
because we share their belief that high capacity broadband is 
the key infrastructure that K-12 schools, universities, 
colleges, libraries, health care providers, and other community 
anchors need to provide 21st century education, information, 
and public services. Community anchor institutions also need 
access to a private network of peer organizations for the 
exchange of information, consolidation, and sharing of 
services.
    The Merit Network is the platform our members use to 
collaborate, cut costs, and provide better service to their 
constituents and patrons. Our project will eliminate geographic 
barriers for Michigan community anchor institutions. Merit has 
members in the Upper Peninsula that are further away from 
Merit's offices in Ann Arbor than we are right now from--in 
D.C. from Ann Arbor. This project will enable them to 
collaborate with members across the State as if they were 
across town.
    The project is not without risk. The BTOP grants provide 80 
percent of the estimated capital costs of the project. Merit 
and the sub recipients are responsible for 20 percent and the 
maintenance of the complete work. Merit is responsible for cost 
overruns and operational costs during construction. We have 
drawn out our existing staff to support the project before we 
can reduce cost or generate any revenue. Even exceeding the 
budget by one penny per foot in construction and materials 
means an additional cost of 120,000 for us--a substantial 
amount. We have every incentive to spend the money wisely.
    Merit controls the project and mitigates its risk in 
several ways. A competitive RFP process is used to select 
vendors. Merit has established a process for handling all 
federal funding. We have vetted the process with a red team 
exercise in which we try to anticipate every way someone could 
get improper access to the funds. Merit has hired four BTOP 
funded staff to support our reporting and compliance team. That 
team includes the librarian as we expect to have over 100,000 
auditable documents by the project's completion.
    The impact of our project's success will be profound and 
long lasting for Michigan which is working hard to revitalize 
its economy. We believe that education and economic development 
are inseparable. The two key components necessary for economic 
development are an educated work force of life-long learners 
and unfettered access to the global information grid. Our 
project targets both, creating knowledge infrastructure upon 
which Michigan will compete and grow in the 21st century. Thank 
you very much.
    [The prepared statement of Mr. Welch follows:]



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    Mr. Walden. Dr. Welch, thank you and I would be remiss not 
to also thank you for your many years of service it the U.S. 
Army and your teaching at West Point. We appreciate that.
    Mr. Welch. Thank you.
    Mr. Walden. Now I would like to move on to Mr. Gary 
Shorman, President and CEO of Eagle Communications. Mr. 
Shorman, you have 5 minutes for your opening statement. We 
thank you for participating in our hearing today.

                   STATEMENT OF GARY SHORMAN

    Mr. Shorman. And thank you for being here. My name is Gary 
Shorman. I am President and Chief Executive Officer of Eagle 
Communications, a small business that is based in Hays, Kansas. 
And I appreciate being invited today to talk about my 
experience on the impact of how the Recovery Act's Broadband 
Initiative Program or BIP has had on our company.
    Eagle offers high speed internet, high definition cable 
television, and digital telephone service to our communities 
throughout central and northwestern Kansas. In the last five 
years alone we have invested over $20 million to make sure our 
customers have cutting edge technology for broadband and 
broadband speeds. Our company has 277 employees of which 212 
are employee owners through our employee stock ownership plan. 
That means that our employee owners live, work, and volunteer 
their time in the communities that we serve. We like what we do 
and we like where we do it. Eagle strongly supports the primary 
goals of the BIP program. Broadband is a critical driver in the 
economic recovery and global competitiveness especially in 
rural Kansas and rural America because it provides and creates 
jobs and provides for a better educational opportunity. Our 
concern with the program, however, is that how it has been 
implemented and certain funded projects may actually frustrate 
the goals of BIP. My testimony today will explain part of my 
concerns.
    In January of 2010, the RUS announced a $101 million BIP 
award, nearly one-third of the money awarded in round one, to 
one of our competitors, Rural Telephone Service Company--that 
is RTS. We were stunned that while the award's announcement 
stated that is would be used to provide ``service in an area 
that was 99.5 percent underserved or unserved'' RTS announced 
that money would be used to build part of their plant and 
upgrade their network in Hays. Hays is one of the best served 
for technology in western Kansas. Eagle, AT&T, and RTS's own 
affiliate Nex-Tech all provide high speed broadband service 
there. A report last month on the availability of broadband in 
Kansas showed that 99.99 percent of the customers in Ellis 
County where Hays is the home--it is the county seat--already 
have access to broadband and high speed broadband.
    The fact that Hays was one of the communities covered by 
this award was particularly surprising. One, because we had 
done our best to determine whether Hays was even included in 
the RTS application and secondly, we tried to inform the RUS of 
the extensive broadband service already available there. A RUS 
field representative actually made a stop and a visit in Hays. 
The fact is that while the RUS argues that this project meets 
the technical requirements for BIP funding, it certainly 
violates the spirit and the intent of the Recovery Act and 
BIP's own rules. It also demonstrates a serious flaw in the 
award process.
    While much of the geographic area covered by the award may 
be technically unserved, almost half of the 23,000 homes in 
this project, homes and businesses within this project are 
actually in Hays. This means that millions of federal dollars 
will go toward overbuilding Eagle and other service providers 
in this non-rural area. With this award, the government is 
effectively penalizing small companies like ours that has 
invested its own risk capital in this network. Companies that 
have taken financial risk of servicing rural markets and 
serving them well it is unrealistic to expect us to continue to 
do so if we have to face large government competition; 
moreover, wasting valuable time and dollars to overbuild a 
community that is well served at the expense of unserved 
Kansans and unserved others? That just doesn't make sense. 
Eagle is happy to face competition from other providers, but we 
cannot effectively compete with a government backed favorite. 
RTS has already gained millions from government supported 
program. Even prior to the $101 million BIP award, RTS received 
millions of dollars in assistance from the RUS on 32 other 
projects in the same area and they have received millions of 
dollars from federal and state Universal Service Fund program. 
It is clear to us that the BIP award to RTS will have a serious 
impact on our business. RTS has approached every Hays resident 
and asked for permission to install for free network boxes on 
their home. And they are offering to those who grant permission 
a chance to win a free 50-inch HD TV, maybe a laptop computer, 
even an Ipad. It is unreasonable to expect a privately funded 
company to match these free offers and expect to compete 
against this kind of funding.
    I am here to ask that this committee consider legislation 
that would require wasteful funding to be returned to the 
Treasury so that it can be used for other more pressing and 
more needed services, and they assume a more oversight role 
over funding of awards to ensure that our Eagle experience is 
not unnecessarily repeated. RUS should also be required to 
defund RTS's project in the Hays non-rural area and other 
places where BIP funds were spent in manners contrary to the 
goals of the program. Taxpayer dollars should not be wasted in 
an area that is already being well served at the potential cost 
of jobs, lost competition, and loss of additional investment by 
private companies. Again, thank you for inviting me to be here 
and I look forward to your question.
    [The prepared statement of Mr. Shorman follows:]


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    Mr. Walden. Mr. Shorman, thank you for your testimony 
today. It is most helpful in our look at this issue. I would 
now like to recognize Mr. Mark Goldstein, Director of Physical 
Infrastructure Issues from the Government Accountability 
Office. Mr. Goldstein, you have 5 minutes. We appreciate the 
good work your agency does and we look forward to your comments 
and testimony.

                  STATEMENT OF MARK GOLDSTEIN

    Mr. Goldstein. Thank you, Mr. Chairman and members of the 
subcommittee. We appreciate the opportunity to participate in 
this hearing to discuss oversight of the broadband programs 
funded through the Recovery Act.
    As you know, access to broadband services seem as vital to 
economic, social, and educational development, yet many areas 
of the country lack access to or the residents do not use 
broadband. To expand broadband deployment adoption, the 
Recovery Act provided $7.2 billion to the National 
Telecommunications and Information Administration and the Rural 
Utilities Service for grants or loans to a variety of program 
applicants. The Congress subsequently rescinded the $300 
million of this funding. The Recovery Act required that 
agencies awarded all funds by September 30, 2010.
    This testimony summarizes an update to two prior GAO 
reports including one, NTIA and RUS's efforts to award Recovery 
Act broadband funds and two, remaining risks that NTIA and RUS 
face in providing oversight for funded projects.
    NTIA and RUS awarded grants and loans for several hundred 
broadband projects in two funded rounds. By the end of fiscal 
year 2010 NTIA and RUS awarded grants and loans to 553 
broadband projects across the country. These awards represent 
almost $7.5 billion in obligated funds which exceed the 7.2 
billion provided by the Recovery Act because an agency such as 
RUS that awards loans can obligate funds in excess of its 
budget authority.
    In our review of the first funding round, we found that 
NTIA and RUS with the help of agency's contractors consistently 
substantiated information provided by awarded--by award 
recipients applications. We have not evaluated the thoroughness 
of the process used by agencies in the second round. Because of 
the challenges the programs face and what we have previously 
reported, we recommended that NTIA and RUS take several actions 
to ensure the funded projects receive sufficient oversight. 
These recommendations included the following. One, that NTIA 
and RUS develop contingency plans to ensure sufficient 
resources for oversight of funded projects beyond fiscal year 
2010 and that the agencies incorporate into their monitoring 
plans steps to address the variability and funding levels for 
program oversight beyond 2010. Two, that NTIA and RUS should 
use information provided by applicants to establish 
quantifiable outcome base performance goals by which to measure 
program effectiveness. Three, that NTIA should determine 
whether commercial entities receiving BTOP grants should be 
subject to an annual audit requirement.
    We can report that NTIA and RUS have taken several actions 
to address these recommendations and improve oversight. These 
actions include that NTIA has developed and is beginning to 
implement a post-award framework to ensure the successful 
execution of BTOP. This framework includes three main elements: 
monitoring and reporting, compliance and technical assistance. 
As part of its oversight plans, NTIA intends to use desk 
reviews and on-site visits to monitor the implementation of 
BTOP awards and ensure compliance with award conditions by 
recipients, and intends to provide technical assistance in the 
form of training: Webinars, conference calls, workshops, and 
outreach for all recipients of BTOP funding. RUS is also 
putting into place a multifaceted oversight framework to 
monitor compliance and progress of recipients of BIP funding.
    Unlike NTIA, which is developing a new oversight framework, 
RUS plans to replicate the oversight framework it uses for 
existing grants and loan programs. The main components of RUS's 
oversight framework are financial and program reporting, and 
desk and field monitoring. According to RUS officials, no later 
than 30 days after the end of each calendar-year quarter, BIP 
recipients will be required to submit several types of 
information to RUS, including balance sheets, income 
statements, statements of cash flow, summary of rate packages, 
and the number of broadband subscribers in each community. In 
addition, RUS intends to conduct desk and site reviews.
    RUS extended its contract with ICF International to provide 
BIP program support through 2013. According to RUS, the agency 
fully funded the contract extension using Recovery Act funds 
and no appropriations are required to continue the contract 
until fiscal year 2013. In addition, RUS extended the term of 
employment through fiscal year 2011 for 25 temporary employees 
assigned to assist with the oversight of BIP projects. Last 
spring, NTIA reported that for-profit awardees will be required 
to comply with program-specific audit requirements set forth by 
the Office of Management and Budget under the Single Audit Act. 
This audit and reporting requirement will give NTIA the 
oversight tool it needs to help ensure that projects meet the 
objectives of the Recovery Act and guard against waste, fraud, 
and abuse.
    Finally, despite these actions, NTIA and RUS have not fully 
addressed all our recommendations and we therefore remain 
concerned about the oversight of broadband programs. First, 
NTIA's oversight plan assumes the Agency will receipt 
additional funding for oversight. For fiscal year 2011, the 
President's budget requested included nearly $24 million to 
continue oversight activities and funds as they are expire 
shortly. NTIA reported that it is imperative that it receive 
sufficient funding to ensure effective oversight. RUS's 
oversight activities which the agency in part addressed through 
the extension of this contract with ICF International, however, 
should there be a reduction in RUS's fiscal year 2011 budget 
and beyond, the agency will need to assess the fiscal impacts 
and the temporary employment of these staff members. Therefore, 
we believe the agencies and especially NTIA need to do more to 
ensure their oversight reflects current fiscal realities. 
Second, we continue to keep our recommendations open regarding 
performance goals. NITA has taken some steps on this 
recommendation such as creating new goals related to new 
network miles and workstations deployed, but the Agency 
continues to establish additional goals and network is not yet 
complete.
    Mr. Chairman and members of the subcommittee, this 
concludes my prepared remarks. I would be happy to answer any 
questions you may have.
    [The prepared statement of Mr. Goldstein follows:]


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    Mr. Walden. Thank you, Mr. Goldstein. Thank you. Thanks 
again for your work on this issue and for your advice and 
counsel. I would now like to recognize the Honorable Phyllis K. 
Fong, Inspector General, U.S. Department of Agriculture. Ms. 
Fong, we appreciate your input today and the work that you and 
your folks do and we look forward to you testimony.

                  STATEMENT OF PHYLLIS K. FONG

    Ms. Fong. Thank you, Mr. Chairman, Ranking Member Eshoo, 
and members of the subcommittee. We appreciate the opportunity 
to testify this morning about our work in this broadband 
program.
    As you may know, over the last 10 years, RUS has 
administered programs intended to provide broadband service to 
rural areas that lack these services. We did audits of these 
programs in 2005 and 2009, and our most significant findings 
were that RUS was funding projects in communities close to 
major metropolitan areas rather than in more rural areas, and 
that RUS's funding projects in areas that had pre-existing 
broadband service. We made a number of recommendations to RUS 
to help RUS improve the management of its programs and to focus 
funding on rural communities. RUS agreed with many of our 
recommendations but it has not yet fully implemented its 
corrective actions. We recognize in the OIG's office that 
recent legislation such as the 2008 Farm bill and the Recovery 
Act has actually partially addressed some of the concerns that 
we raised, but we also believe that the basic policy goals and 
management challenges still exist with respect to delivery in 
these programs and so we will continue our work with RUS to 
address these issues.
    Let me briefly talk about fraud in the program. One of the 
things that our investigations have revealed that in some 
instances broadband providers receiving RUS funds have engaged 
in fraud and other criminal conduct. We have had some 
successful prosecutions where broadband companies have been 
convicted of submitting fraudulent invoices and claims. And as 
a result, those companies and some of those individuals have 
had to make restitution to the government and have received 
prison terms and other probationary terms. One company has in 
fact been debarred from doing business with the government for 
five years as a result of our investigative work.
    With respect to oversight of the Recovery Broadband 
Program, as you all know the Recovery Act provided $28 billion 
to USDA across nine major mission areas. Of this amount, 2.5 
billion was allocated for broadband. When we started to assess 
the--was going to perform multi-agency review of these programs 
and so we decided to hold in abeyance our own oversight until 
GAO had finished its work which it appears now an appropriate 
time. And so at this time we are planning to initiate audit 
work within UDSA OIG on RUS's broadband program to determine 
how effectively it is running. We have not finalized our audit 
program, but the kinds of issues that we are considering 
include the adequacy of RUS's oversight functions, RUS's use of 
a contractor, eligibility of borrowers and grantees, assessment 
of any delinquent or defaulted loans, and basically the use of 
program funds for authorized purposes. While we develop our 
program we will be working very closely with Commerce, GAO, and 
FCC to make sure that we don't duplicate efforts and we expect 
to roll our initiative in the spring of this year. So that 
concludes my statement and I welcome any questions.
    [The prepared statement of Ms. Fong follows:]

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    Mr. Walden. Ms. Fong, thank you for your participation in 
our hearing and for the work that you do. I would now like to 
recognize the Honorable Todd J. Zinser, Inspector General U.S. 
Department of Commerce. Mr. Zinser, we appreciate your work and 
that of the folks who work with you on these efforts, and we 
look forward to your testimony. Sir, please go ahead.

                  STATEMENT OF TODD J. ZINSER

    Mr. Zinser. Mr. Chairman, Ranking Member Ms. Eshoo, and 
members of the subcommittee, thank you for inviting me to 
testify today about our oversight of the Recovery Act Broadband 
spending at the Department of Commerce. My testimony this 
morning can be summarized in three points.
    First, the Broadband Technologies Opportunities Program was 
a high-risk program from the outset. And now that the grants 
have been awarded and federal funds obligated, the risk is 
elevated because the grantees are now beginning to spend the 
money that they have received through their grants. Only about 
five percent of the broadband funds have been spent so far. The 
Recovery Act established $4.7 billion Broadband Technology 
Opportunities Program or BTOP 2 years ago. The National 
Telecommunications and Information Administration was given 
responsibility for the program. The agency in its very 
dedicated work force have made a herculean effort in 
implementing the program so far. Nonetheless, it remains a 
high-risk program. The agency successfully awarded and 
obligated $3.9 billion to 232 grantees by last year's deadline. 
Approximately $3.4 billion is funding 123 infrastructure 
projects including seven public safety broadband networks. $200 
million is funding 65 public computer centers, and $251 million 
is funding 44 projects for what is called sustainable broadband 
adoption.
    In addition to these broadband grants NTIA has also awarded 
nearly $300 million to 56 States, territories, and the District 
of Columbia to develop digital maps of broadband coverage for 
their jurisdictions. The large dollar amounts involved, the 
number of grants, the mix of grant recipients which include 
government, not for profit, for-profit entities, higher 
education, and Native American tribes, all with different 
levels of experience with federal grants, the technical nature 
of many of the grants, and the relative inexperience of the 
agency and its staff in administering such a large grant 
program all contribute to making this the most complex grant 
program NTIA has ever administered and the highest risk 
Recovery Act program for the Department of Commerce.
    Second, the NTIA staff must now shift its attention and 
efforts from awarding the grants to managing the grants and 
conducting oversight making sure the recipients are properly 
spending the money and delivering on their broadband projects. 
For example, the program requires the grantees--the program 
requires and the grantees have agreed to match the federal 
funds with funds of their own. In addition to the $3.9 billion 
in federal funds, the grantees themselves have agreed to apply 
another $1.4 billion to these projects. NTIA has to make sure 
that the matching funds committed by the grantees are real 
funds and not funds that exist only on paper or as a result of 
creative accounting treatments we have seen sometimes in our 
audits of other grant programs at the department. I am 
concerned that without real matching funds, these projects 
could wind up underfunded and result in incomplete projects or 
lower quality projects. There are many other aspects of 
oversight that NTIA must carry out. They have a sound approach 
and oversight but the agency must embrace their oversight role 
and must have the resource to do so.
    Finally it is important that we all remain vigilant in 
preventing and detecting fraud. Transparency and accountability 
was made a key element of the Recovery Act. The reporting 
requirements and visibility of the spending for these projects 
is unprecedented. It is ultimately intended to keep the 
recipients of Recovery Act funds honest so that the taxpayers 
get what they paid for. Over the past two years members of OIG 
staff have delivered fraud awareness and grant compliance 
briefings to almost 3400 NTIA and Commerce employees and BTOP 
applicants and recipients. These briefings not only provided 
technical assistance on grant compliance issues, but were also 
intended to let employees and grantees know how to recognize 
and report suspected fraud. Our focus will continue to be on 
compliance and fraud prevention and detection as the projects 
are carried out over the next few years. We especially 
appreciate the subcommittee's oversight and the invitation to 
testify this morning and look forward to working with the 
subcommittee on this important program. Thank you, sir.
    [The prepared statement of Mr. Zinser follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Walden. Mr. Zinser, thank you, and I want to thank all 
of your witnesses for your terrific testimony today. It is most 
helpful in the work in we are doing here. I will start with 
questions. Ms. Fong, and Mr. Zinser, while I recognize the 
staff discussion draft of our legislation may not have all the 
right language yet, do you think it would be helpful if the 
standards and processes for de-obligating funds were less 
ambiguous? I will start with that. In the kind of work that you 
do and what we are trying to do I guess the question is, is do 
you think it would be helpful to have a clearer standard?
    Ms. Fong. I will just take a crack at that. I don't believe 
in any of our audit work that we have identified difficulties 
in the past. We did make a number of recommendations in one of 
our audit reports that RUS go back and get money back from 
grants that had not been well performed. And we understand that 
RUS is still working through that process. Now, it has taken 
some time to do that so perhaps a recognition of the time 
involved would be helpful.
    One of the things that we did notice in terms of the draft 
legislation is that it talks in terms of awards, grants and 
awards. And given the nature of the broadband program at USDA, 
which is usually a funding package of 75 percent grant/25 
percent loan, which can vary of course, we weren't sure whether 
the legislation addresses the issue of what happens to the loan 
piece of the package. The legislation seems to be clear about 
what happens with respect to the grant side. But then the 
accompanying loan that a recipient may have: is that considered 
part of an award or do we need to be more clear about that? So 
that as recipients go through the process they understand 
exactly what is on the table. So we would suggest a look at 
that language.
    Mr. Walden. Excellent. Thank you. That is most helpful. Mr. 
Zinser?
    Mr. Zinser. I do think it would be helpful to eliminate any 
ambiguity. I know for example there is provisions in the Dodd-
Frank Wall Street Reform Bill that talks about unobligated 
money and the Recovery Act going back to the Treasury. And so--
and we are also aware of various amendments to piece of 
legislation about rescinding or taking back Recovery Act money, 
so I think it would be a good idea for the subcommittee to kind 
of make its mark on what they want to happen with Recovery Act 
money.
    That being said, our experience with grant--with the grant 
programs in the department is that it is a long drawn out 
process. Once the IG's office identifies a cost on a grant 
project that we don't think should be paid out or unallowable, 
it is a long process, a long due process in getting the 
agencies to actually make a decision, give the grantee an 
opportunity to make its case, and actually decide that certain 
costs are unallowable. I think that whatever legislation comes 
about needs to make sure that that due process isn't--that that 
due process stays in place.
    Mr. Walden. So let me ask you a couple other questions 
then. Under current laws, the decision to de-obligate funds by 
the RUS and NTIA Administrator is discretionary. Is there a 
clear standard and could a reward recipient continue to spend 
money even if you found waste, fraud, and abuse, and even if 
you recommended remedial action? So the first part of that, is 
there a clear standard--well, actually is the decision to de-
obligate discretionary? We believe it is.
    Ms. Fong. That is my understanding as well.
    Mr. Zinser. Yes, I believe it is discretionary, sir.
    Mr. Walden. That is one of the issues that we have with 
this legislation then. Is there a clear standard to de-
obligate?
    Mr. Zinser. I know that in the case where we will conduct 
an audit and recommend that certain costs be unallowed that 
ultimately the decision is left up to the agency and it is an 
interpretation of accounting rules in a lot of cases, sir.
    Ms. Fong. Exactly.
    Mr. Walden. Is that the same, Ms. Fong?
    Ms. Fong. Exactly.
    Mr. Walden. And could award--could an award recipient 
continue to spend money even if you found waste, fraud, and 
abuse and even if you have recommended remedial action?
    Mr. Zinser. If the agency does not take proper action, I 
would say yes, the grantee could continue to spend money. We 
find, for example, that even agencies that have been convicted 
of fraud if the agency doesn't check the excluded list before 
they made the grant award, that entity can get that grant and 
spend that money.
    Mr. Walden. Ms. Fong.
    Ms. Fong. Given the nature of the process, the process is 
that we as IG's will go in and do an audit and we will make a 
recommendation to the administrator, say. The administrator 
then has certain due process procedures that they follow with 
respect to the recipient. And as Mr. Zinser alluded to, that 
process can take some time. So while that process is ongoing 
the recipient still has the responsibility to perform on the 
grant or loan. And so one would expect that that performance 
would continue. And so depending on the length of time that the 
due process takes, you know, things could be unresolved for 
awhile.
    Mr. Walden. My time has run out. I appreciate your 
comments. I would recognize now the Ranking Member, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, and thank you to all of 
the witnesses. Ms. Fong, when you spoke in your testimony, I 
think it is important to state for the record where there was a 
clear misuse or fraud--I don't remember exactly which word you 
used.
    Ms. Fong. Fraud.
    Mr. Eshoo. Those were not Recovery Act funds. Correct?
    Ms. Fong. Correct. We do not have any investigations of 
Recovery Act cases.
    Ms. Eshoo. I just wanted to make sure that that is clear 
for the record, because----
    Ms. Fong. That is right.
    Ms. Eshoo. The hearing is about the Recovery Act, what it 
established, does it have shortcomings, if there are what are 
they, and what can we do about it. So I think that that is very 
important. Oh Mr. Shorman, you are not happy. And essentially I 
think what I heard you say your beef is that essentially the 
government is competing with you and that an award was made for 
an area that is what--heavily populated and that there is 
overlap. In your view is there anything built into this that 
would create competition in any of these areas? Or is it in 
your view that they only be awarded and that there be a sole 
operator for the build out of broadband funds--of the build out 
of broadband?
    Mr. Shorman. Well, I can report from out on the frontline 
where I am. When in----
    Ms. Eshoo. No, just answer my question. I don't have a lot 
of time.
    Mr. Shorman. Well, in the process of doing this if you are 
looking at the legislation and asking how that would work 
obviously I think this is a good first step. But it seems to be 
there is a lot of discretion put into how these agencies 
actually award this and the ability for Ms. Fong and others to 
go in and say something is wrong. Call time out and say 
something is wrong with this process to make it work.
    Ms. Eshoo. Well, we will deal with the government agencies 
and their overview and we--we are going to have to make sure 
that you have money to do oversight and all of that. Otherwise 
we are all in trouble. But I want to get to your beef. What 
brought you here? What is your problem?
    Mr. Shorman. Our community----
    Ms. Eshoo. What is it that you think needs to be fixed?
    Mr. Shorman. We had an award grant to a competitor of ours 
that actually overbuilds our community. Our community is a non-
rural community of 20,000 plus people. Their award, which I 
understand over half of the money in this total award is being 
used to overbuild our community and provide a competitive 
service to us and others in our community.
    Ms. Eshoo. Now did Eagle ever apply for BIP funds?
    Mr. Shorman. Eagle did apply.
    Ms. Eshoo. Areas that were already----
    Mr. Shorman. Eagle did. We were naive in that process.
    Ms. Eshoo. [continuing]. They had providers?
    Mr. Shorman. We were naive in that process. We applied for 
funds in areas we felt were unserved. We applied for that. We 
didn't apply to overbuild other people or do that and in the 
process we were rejected.
    Ms. Eshoo. And what happened with that?
    Mr. Shorman. I think the actual quote was in one area that 
actually had another loan applied we failed to demonstrate that 
we met the criteria for being unserved in that area.
    Ms. Eshoo. Was that the only reason that you withdrew 
your----
    Mr. Shorman. That was the only reason that we received and 
that was one of the applications that happened to get funded in 
the same project by Rural Telephone Service.
    Ms. Eshoo. So you were rejected?
    Mr. Shorman. We were rejected.
    Ms. Eshoo. You are saying that you were rejected and 
someone else wasn't? Is that your beef?
    Mr. Shorman. Well, it doesn't say this in the application. 
It says that we failed to meet the criteria.
    Ms. Eshoo. I just want you to tell me what--I am trying to 
get to the heart of what brings you here today. So unhappy.
    Mr. Shorman. The heart of it is that we are wasting 
government dollars, taxpayer dollars, my dollars to provide a 
competitive service in the markets that serve, markets that 
have multiple broadband providers.
    Ms. Eshoo. And my point is, is that in going into 
underserved areas I don't know of an application that doesn't 
have some overlap. You even acknowledged that your own 
application had overlap. So are you saying that overlap in this 
should be totally eliminated or is not fair or tell me what it 
is?
    Mr. Shorman. Our application votes on unserved areas that 
did not have broadband providers. This application over--or 
nearly half of the application overlaps a community that has 
multiple broadband providers.
    Ms. Eshoo. Well, do you think that there is a multiplicity 
of broadband providers that that isn't good for the consumer?
    Mr. Shorman. If it is a fair playing field where 
everybody--I have a chance to get government grants, everybody 
gets government grants--there has to be a fair playing field 
for being able to provide service. If one provider has a 
boatload of government taxpayer money it just makes it very 
hard for a private, small company like ours to compete.
    Ms. Eshoo. Part of what I am struggling with is the 
following. And that is that you are saying essentially the 
government is too hard to compete with and I understand that it 
is much larger than Eagle and a lot of other companies put 
together, but they are--in going into underserved areas that 
there is a spillover and you are not acknowledging that.
    Mr. Shorman. I grew up on the farm. I understand unserved 
areas. If you are unserved that is what the program is for. It 
is not for overbuilding major non-rural communities.
    Ms. Eshoo. OK. Thank you.
    Mr. Walden. Gentlelady's time has expired. I would now like 
to recognize the gentleman from Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman, and no one--well, a 
lot of people have a great respect for Anna Eshoo and I am one 
of her biggest fans on stuff we do on--but I want to follow up 
on this line because it really tells the same story that 
happened in my congressional district. Mr. Shorman, I think 
what helps answer this question is if you were to build in a 
community of like size, what would be your cost to capital?
    Mr. Shorman. One, it would be a tremendous cost because you 
have to go through and----
    Mr. Shimkus. Well, what about what are you talking about? 
What would you have to borrow?
    Mr. Shorman. My guess is in our case we would do it 
differently. We are a private company. We fund things 
differently. We do things differently than what----
    Mr. Shimkus. Well, what would it cost?
    Mr. Shorman. We haven't shown in Hays, but say $30, $40 
million for a company----
    Mr. Shimkus. So when the government gives a grant to a 
competitor, what is your cost to capital?
    Mr. Shorman. Well, in this particular case their cost is 
going to the government. It is a whole different process in 
going to a private institution to do that.
    Mr. Shimkus. I mean, the grant is a grant. That is free 
money.
    Mr. Shorman. The grant is--it is 50 million and the----
    Mr. Shimkus. Free money. Our taxpayer's money overbuilding 
a competitor who pays taxes. That is why we messed up royally 
when we did not go by the broadband map. When we don't develop 
a map and you don't know the direction in which you are heading 
then you subsidize competing entities. You give taxpayer money 
to companies to compete against people who are providing the 
level of service that we want across the country. I have what 
we think is now a recent one. Just got it today. The light area 
zero to 2,000. Darker areas--these are areas that are unserved 
or underserved and we still don't have good maps. So we gave 
money to a competitor of yours, a grant. They didn't have to 
borrow it. They didn't have to pay interest on it and they are 
competing with you. Is that correct?
    Mr. Shorman. That is correct.
    Mr. Shimkus. Isn't that the beef?
    Mr. Shorman. It is a beef that it makes it really tough for 
a private employee owned company to compete against the 
government with taxpayer dollars that I pay a part of. Correct.
    Mr. Shimkus. And that is why when we had the mark up of the 
bill why we tried to on our side say let us have this debate of 
underserved and unserved. And if we are going to spend taxpayer 
dollars let us have taxpayers go to unserved areas. Would you 
have had a beef if this company came in and said we want a 
grant and we are going to an area that is not served?
    Mr. Shorman. I think that is the perfect part of this 
program to reach unserved Kansans, unserved Americans with the 
program.
    Mr. Shimkus. Would that have met the goals of the 
Administration on the broadband plan?
    Mr. Shorman. From my standpoint it would have been exactly 
what they were looking for.
    Mr. Shimkus. When we give taxpayers money to overbuilding 
an area doesn't that delay our ability to read our broadband 
plan for the country?
    Mr. Shorman. It certainly refocuses money to people who 
already have multiple providers and then at the result of 
people on that map you have shown, there are those areas that 
don't have broadband. And so those people don't have the 
resources that they need.
    Mr. Shimkus. And there are stories like this all over the 
country and there is one in my District, too. And so I am going 
to turn to Mr. Zinser and Ms. Fong. In my District I have an 
incumbent provider who currently exceeds the broadband 
guidelines being published and considered by the FCC in the 
development of a National Broadband Plan they are providing 
speeds of 10 megabytes down and one megabytes up in all 
communities they serve. They also continue to invest private 
capital, private capital lots of business capital formation to 
surpass the FCC broadband deployment speeds. You can imagine 
that they were shocked to hear that another provider would be 
moving into their service area who had committed to providing 
wireless service at 3 megabytes. Now this entry came how? How 
did this new entry come into the market? The Federal 
government--a grant overbuilding, competing services that meet 
the National Broadband Plan. This story gets worse because this 
company then immediately sells to a business. So they get the 
government money; they then sell out to a larger company. Was 
that your plan, Ms. Fong?
    Ms. Fong. Well, just to be clear----
    Mr. Shimkus. I mean, is that what we wanted to do? Is that 
what we really--was that our plan?
    Ms. Fong. I don't know.
    Mr. Shimkus. You, OK.
    Ms. Fong. I am the inspector general and not responsible 
for delivering the program.
    Mr. Shimkus. All right, then let us go to Mr. Zinser. Is 
that--was that the plan?
    Mr. Zinser. Well, we are responsible for overseeing the 
program. We are not responsible for running the program, but 
I--it doesn't really sound like that should be part of the 
plan, sir.
    Mr. Shimkus. I agree. Thank you. I yield back my time.
    Mr. Walden. Gentleman yields back his time. Now according 
to my list here we go to Mr. Barrow--has departed. And then we 
will go to Mr. Markey who is not here. So then next on the list 
is the distinguished chairman emeritus, Mr. Dingell for 5 
minutes.
    Mr. Dingell. Thank you, Mr. Chairman. Now, this question to 
Dr. Welch. Doctor, to what extent does Merit rely on NTIA's 
staff with respect to technical assistance, guidance and the 
prevention of waste, fraud, and abuse?
    Mr. Welch. Sir, we rely extensively on our federal program 
officer and the rest of the NTIA staff. The program that we are 
under is a complex program and our federal program officer is 
our single point of contact. He knows our program as well as 
people in our organization do. He knows us. When we come to him 
with a problem he helps us solve it. He keeps us out of trouble 
as we try to understand the rules and regulations that can 
sometime seem conflicting to make sure that we are not 
inadvertently breaking any of the rules. He serves as an 
advocate. He serves as an overseer. He serves so many roles. I 
do not think we could successfully complete the project if we 
did not have a dedicated federal program officer.
    Mr. Dingell. Thank you. Now Doctor, as you may well be 
aware, NTIA stands to lose funding for oversight of BTOP. If 
NTIA no longer had the resources with which to provide BTOP 
grant recipients, what effect would that have on Merit's 
ability to implement its project and to comply with federal 
requirements pursuant to ARRA?
    Mr. Welch. I think that would have a severe impact.
    Mr. Dingell. Which way? Good or bad?
    Mr. Welch. In that it would hurt us and our ability to 
comply with the oversight requirements. We would have to 
dedicate more staff time to talk to more--different people to 
try and make the decisions on our own. And some of the 
decisions that we would make would in fact be incorrect because 
we just don't have the experience and the access that the staff 
of the NTIA has.
    Mr. Dingell. So you are telling us you need him.
    Mr. Welch. Yes, very much.
    Mr. Dingell. Very well. Now this question to Mr. Zinser, 
Ms. Fong, and Mr. Goldstein. Will--and this is a yes or no 
question. Will a future lack of dedicated oversight funding for 
NTIA and RUS reduce these agencies' ability to mitigate waste, 
fraud, and abuse in BTOP and BIP projects? Yes or no?
    Mr. Goldstein. Yes, sir it would.
    Mr. Dingell. Ms. Fong?
    Ms. Fong. Yes.
    Mr. Dingell. If you please?
    Mr. Zinser. Yes, sir.
    Mr. Dingell. Very good. Now, again to Mr. Zinser, Ms. Fong, 
and Mr. Goldstein, again, a yes or no question. Will future 
lack of dedicated oversight funding for NTIA and RUS diminish 
these agencies' ability to ensure BTOP and BIP projects 
successfully meet respective program objectives? Yes or no?
    Mr. Goldstein. Yes, sir, it would.
    Ms. Fong. Yes.
    Mr. Zinser. Yes, sir.
    Mr. Dingell. Now, again to Mr. Zinser, Ms. Fong, and Mr. 
Goldstein and this is a yes or no question again. Do you 
believe NTIA and RUS require additional appropriations through 
2013 dedicated to oversight of BTOP and BIP projects? Yes or 
no?
    Mr. Goldstein. I don't know, sir.
    Mr. Dingell. Ms. Fong?
    Ms. Fong. I am not sure. I don't know.
    Mr. Dingell. OK. Mr. Zinser.
    Mr. Zinser. I would say yes depending on the amount, sir.
    Mr. Dingell. OK. But if they don't have the money to do 
this oversight there is great opportunity for fraud, waste, 
abuse, and also misdirection of the efforts of the grant 
recipients. Am I correct?
    Mr. Goldstein. Yes, sir.
    Ms. Fong. Yes.
    Mr. Zinser. Yes.
    Mr. Dingell. I notice you are nodding yes, Mr. Shorman, 
too.
    Mr. Shorman. I agree.
    Mr. Dingell. Thank you, sir. Thank you. Ladies and 
gentlemen, you have answered my questions. I express to you my 
thanks. Mr. Chairman, you will note I am under time.
    Mr. Walden. We appreciate that, Mr. Chairman. We would 
now--next on our list is Ms. Bono Mack who is not here. Mr. 
Gingrey recognized for 5 minutes.
    Dr. Gingrey. Mr. Chairman, thanks and first of all thank 
all the witnesses for testifying on the four issues of 
oversight and recovery funds spent by NTIA and RUS--as we have 
seen with the $7 billion dedicated in--across the country, it 
proves that we are good stewards of taxpayer dollars and that 
we are more on task and moving forward. And I certainly it 
sounds like from Mr. Shorman's testimony as a glaring example 
of a mistake at a time when already 95 percent of the country 
has access to broadband how do we ensure that the remaining 5 
percent of the country has exception to one of the economic 
catalysts we have at our disposal? I am also glad that we are 
using this hearing as a way to open up a discussion on what to 
do with returned funds from NTIA and RUS.
    At a time when we are facing almost a $14 trillion debt, I 
believe that it is actually necessary that we return any 
unspent funds to the Treasury. And I look forward to working 
with members of the subcommittee in a bipartisan way on the 
discussion draft legislation that we have before us. To that 
end, there are several items I would like to ask of our panel. 
I realize my time is limited, but let me begin with the 
inspector general. Both Mr. Zinser and Ms. Fong, how will the 
release of the National Broadband Map next Thursday, February 
17 impact your ability to determine where there is either 
waste, fraud, and abuse in BTOP and BIP or overbuild in areas 
that are already connected?
    Mr. Zinser. Sir, I think that one thing that the Agency did 
to try to compensate for not having that map is they did reach 
out to the State governments when the application for broadband 
grants were received and asked the governors of each State 
whether these applications were consistent with the broadband 
goals of the State. So I think one thing that you would want to 
look at with the new map is whether the governor's offices were 
on target with respect to their vetting of those applications.
    Dr. Gingrey. Ms. Fong?
    Ms. Fong. I think the map will be very helpful to us as we 
do an assessment to see whether the awards that were made were 
made in the appropriate way, taking into account already 
existing service in areas.
    Dr. Gingrey. Yes. Well, thank both of you for that response 
and I think you gather from the testimony at least on this side 
of the aisle that we think that the map is absolutely essential 
and to go forward before having a map certainly seems to be 
putting the proverbial cart before the horse. Ms. Fong, in your 
testimony you discussed in length the 2005 audit of RUS. And 
that ought to be in question the practice of devotion 
significant portions of its resources to funding competitive 
service in areas where pre-existing providers. Somewhere like 
Mr. Shorman was describing. You found that 66 percent of the 
products were in areas that had pre-existing broadband access 
despite the fact that the law established in the broadband 
program, made it clear that these funds were intended to be 
used first for ``eligible rural communities in which broadband 
service is not available to residential customers''. Your 2009 
audit found that 34 of the 37 applications approved were in 
areas with at least one broadband provider. Is there a culture 
of overbuilding? Do you think that anything has changed? What 
are you concerns with the Broadband--program going wrong?
    Ms. Fong. We think this is a very difficult policy issue 
and that is represented by the fact that over the last few 
years there have been several different legislative provisions 
that address the issue of underserved, unserved, and what is 
the appropriate level of service. And going forward we are 
committed to working with RUS to make sure that they abide by 
the terms of the law. I understand that the Recovery Act 
provisions differ from the Farm Bill provisions which differ 
from the provisions that existed in 2005. So it is a very 
complex area for RUS to administer, but we are focused on that 
and we think it is an issue that needs constant oversight.
    Dr. Gingrey. I don't mean to interrupt you, but I realize 
it is a difficult but you know it is time for the Federal 
government to quit pouring taxpayer dollars down a proverbial 
sinkhole and that is what this is all about if I completely 
understand. I guess I am about out of time, but quickly, Mr. 
Shorman, you testified and you have stated that there is 
already a significant market for broadband in Hays, Kansas yet 
you have raised concerns regarding why $101 million dollars 
awarded to one of your competitors. Would you please discuss 
with subcommittee what impact that will have on competition in 
that area and how do you think will negatively impact your 
ability to run your own business and to continue to employ the 
number of people that you employ?
    Mr. Shorman. That is a challenge when you have those kinds 
of dollars in that size of community it is a massive amount of 
money that is there. When you have 99.9 percent, as reported by 
the Kansas Corporation Commission, of customers in our county 
in the county seat already served by multiple broadband 
providers it then becomes a very competitive process and 
frankly it just makes it just more difficult to do business. If 
that company takes a chunk of our business those are private 
investment dollars in our employees that somewhere along the 
line we are going to have to figure out how to operate our 
company differently to compete. There is going to be more 
dollars spent on marketing. For example, you drive down Main 
Street they talk about television as their new product that 
they are offering--not broadband. And so the whole process is 
just dollars going to compete with a private industry and it is 
our tax dollars that are going there.
    Dr. Gingrey. Thank the witness, thank the chairman for his 
indulgence and I will yield back.
    Mr. Walden. And I will just--for the other members, too, if 
you can kind of get your question in in time for the witness to 
respond on your time that would be a good thing.
    Mr. Terry. Well, the gentleman talks slow. He is from 
Georgia.
    Mr. Walden. Well, we have interpreters.
    Dr. Gingrey. I am out of breath.
    Mr. Walden. Regular order. We are going to go--I believe 
Mr. Waxman has stepped out. We go to Mr. Doyle for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman, and thanks for holding 
this hearing. I think it is regrettable that we don't have the 
NTIA and U.S. Administrators here. I know there was reasons we 
don't but I am saying it would have really helped to give us 
some perspective.
    Mr. Walden. And we will have another hearing where they are 
here. They are out of the country at a conference and unable to 
attend. So we wanted to get this panel in before.
    Mr. Doyle. Yes, I understand. It is not a criticism of you, 
Mr. Chairman, I am just saying I think we would have better 
perspective to hear Ms. Fong talk about things that are pre-
stimulus funds, pre-Farm bill and if she's going to make 
allegations of this management of RUS it would be nice to have 
the administrator to at least respond to that. I would be 
interested in what he had to say. And Mr. Shorman, I certainly 
have sympathy for what you are saying, but it also would have 
been interesting to have the administrator here to hear their 
side of the story. We are being told that during the public 
comment period that you made comment and they actually sent 
field staff, boots on the ground to review the coverage area 
and the proposed application--found it to be valid. We are 
being told that the area in dispute is 7.6 square miles of an 
application that covers 4,600 square miles. Ninety-nine percent 
of the proposed territory is vast rural area. This received 
letters of support from Congressman Jerry Moran and 
Congresswoman Lynn Jenkins in addition to 118 other area 
letters of support and the estimated expenditure in Hays where 
you are claiming to have competition we are being told by the 
administrator is $18 million. Not half, $18 million of the $101 
million awarded. Now I don't know if your figure is correct or 
their figure is correct and unfortunately we don't have both of 
them here. I would love to have you both here and maybe at a 
future hearing we will do that.
    But since this overbuilding seems to be such an issue, Mr. 
Goldstein, I want to get some perspective from you on this 
overbuilding issue. In your testimony, you noted the GAO 
reviewed 32 award recipient applications from round one of the 
funding process and found that the agencies consistently 
reviewed the application and substantiated information 
submitted by the applicants. As you know there are a number of 
providers that have alleged that Recovery Act dollars are going 
into projects that compete unfairly with incumbent networks. So 
I want to ask you a couple questions about that. In the cases 
that you observed, did you find that the agencies engaged in 
overbuild analysis? Did they do analysis on whether there was 
overbuilding?
    Mr. Goldstein. Yes, sir, in all cases where that occurred 
they did do an analysis.
    Mr. Doyle. OK. And so in the cases you observed that the 
agencies or their contractors researched the companies' claims 
of overbuilding, people who claimed there was overbuilding 
going on did they actually go out and research this?
    Mr. Goldstein. The files we looked at showed some 
substantiation. I don't know if in every single case they went 
out. I could certainly get back to you on that.
    Mr. Doyle. How did they go about this research? What did 
NTIA do? What did RUS do to do this research?
    Mr. Goldstein. They reviewed materials that were submitted. 
They interviewed people. They looked at various available maps 
that were from the States. They looked at any public comments 
that had been made. As you know there was a 30 day public 
comment period with respect to these issues. And they did the 
due diligence, that the criteria that were established required 
them to do.
    Mr. Doyle. In the cases that you reviewed were any of the 
claims of overbuilding substantiated?
    Mr. Goldstein. In the cases we looked at there was some 
overbuilding. But as you know ARRA and the NOFA both allow for 
it and so they made a decision to go forward nonetheless in 
those cases.
    Mr. Doyle. And did you interview the industry regarding the 
process created by NTIA and RUS?
    Mr. Goldstein. We did do some interviews with industry and 
industry associations at that time. We reviewed all the 
criteria that were in place. We felt for the most part that the 
criteria that had been developed were sufficient, but as you 
look back at the reports we did we were concerned with whether 
or not there would be sufficient resources to implement it. 
Now, you will recall from my testimony we only reviewed the 
first round. We did not look at the second round. There wasn't 
enough time.
    Mr. Doyle. Right.
    Mr. Goldstein. And so obviously during the second round 
there was more money that was spent. There were fewer criteria 
and it was at a faster pace. So you know it remains to be seen 
whether or not that same level of due diligence occurred. We 
don't know the answer to that.
    Mr. Doyle. Did the industry representatives or trade 
associations confirm that their constituents who had applied 
for and received broadband funding had undergone their due 
diligence reviews?
    Mr. Goldstein. We talked to many people and they had--they 
told us that they were being interviewed, that a lot of 
information was passing back and forth, and that the agencies 
were absolutely in contact with them as needed.
    Mr. Doyle. Did you interview any company that received 
funding?
    Mr. Goldstein. That received funding? We talked to a number 
of companies regarding the process at that point in time. 
Funding had really not occurred.
    Mr. Doyle. Is it your opinion that the agency's review 
processes were thorough and rigorous?
    Mr. Goldstein. Based on what we looked at in the first 
round, yes, sir, they were.
    Mr. Doyle. Thank you. I think that is my time. Thank you, 
Mr. Chairman.
    Mr. Walden. I thank the gentleman for his questions and the 
panel for their answers and now I go to the gentleman from 
Kentucky, Mr. Guthrie.
    Mr. Guthrie. Thank you, Mr. Chairman. Thank the witnesses 
for being here today. And Mr. Shorman, is RTS--is that a 
private company? I don't know the answer is. Is that private or 
is that like a cooperative type?
    Mr. Shorman. It is a cooperative telephone company that 
started in Lenora, Kansas, I believe.
    Mr. Guthrie. OK. And so Hays is only 7 miles and then there 
is 400 square miles are 400? Was the remainder of their 
territory underserved?
    Mr. Shorman. The way they set it out is that the Hays area 
is actually about 8 square miles. If we are service with this 
broadband plan square miles, that is one thing. But if we are 
serving customers that are actually getting broadband----
    Mr. Guthrie. Well, that is what I am----
    Mr. Shorman. [continuing]. Nearly half of the customers----
    Mr. Guthrie. Why are there more incumbents in Hays then 
there are in the rest of the district.
    Mr. Shorman. That is correct.
    Mr. Guthrie. That is where the money is.
    Mr. Shorman. However, there are incumbents in other parts 
of the area for our wireless. There are other providers in 
other parts of that area also.
    Mr. Guthrie. But outside of Hays is it an underserved--you 
would say it is an underserved area they are serving?
    Mr. Shorman. In some areas yes, some areas no. And I am not 
arguing about the unserved areas.
    Mr. Guthrie. Right.
    Mr. Shorman. Where I am talking about is where over almost 
half of the people are in that one 8 mile area.
    Mr. Guthrie. At least you that I see would overbuild just 
from my West Point economics background is forgetting 
subsidized, go to the underserved, but you are also getting to 
the served. Then you really don't want to go into the 
underserved unless you can get into the served because that is 
where you are going to make money. Your subsidy you are going 
to make money because you are getting subsidized to go into the 
underserved, but you are going to make your profits--the money 
is in Hays it appears. And that is why--would you want to build 
out in the other areas even though you are subsidized? And that 
is the question I mean you go to get into that so when people 
look at overbuilds it is really an incentive to get in and 
compete with what you are trying to do. And it puts you at a 
disadvantage. I mean, there is no other way to--I know that is 
what your beef for coming here as we talked earlier is that you 
can't compete with that.
    Mr. Shorman. Well, if the overbuilds and take money away 
from private industry so they can----
    Mr. Guthrie. Well, that is what is happening.
    Mr. Shorman. [continuing]. So they can move out there it 
seems like the wrong way to go.
    Mr. Guthrie. Yes, I thought that.
    Mr. Shorman. Use the funds to reach the unserved areas and 
reach those people that really need it, not to compete.
    Mr. Guthrie. Well, my--it is coming up with one player.
    Mr. Shorman. Yes, eventually.
    Mr. Guthrie. It is going to end up with one player in that 
area.
    Mr. Shorman. And that has happened in that region in some 
other areas.
    Mr. Guthrie. OK. My understanding in your testimony, I 
think your written indicated there was a map that you were--you 
looked at of the application for the person who has received 
their award that didn't have Hays in the map?
    Mr. Shorman. The initial map that came out had--and I will 
call them donut holes around Hays and some of the other areas 
and when we looked at that map we really had trouble. We tried 
to ask the RUS about this and even though we had a donut hole 
that looked like Hays was not included, we contacted them, told 
them what we were doing. We also told them that there were 
other competitors, AT&T and RTS's own affiliate Nex-Tech that 
were also providing services in that little area. So we tried 
to do that and frankly when the word came out we were really 
surprised that it even covered that because of that donut hole. 
We went back and after a lot of work and a lot of time, the 
next map that we finally got out of the RUS showed Hays was all 
included.
    Mr. Guthrie. But the map that was submitted with the 
application did not have----
    Mr. Shorman. The first map that came out on the Web site 
showing where the application, where it was attended to to be 
had a donut hole----
    Mr. Guthrie. Had Hays----
    Mr. Shorman. [continuing]. Over the Hays area.
    Mr. Guthrie. OK. And then Ms. Fong, you said earlier, well 
in your testimony and actually Mr. Gingrey asked the question 
that said in the 2005 audit. I know that was not Recovery Act. 
You had 60 percent of the projects were in pre-existing access 
even though the law requires funds not to do that? And you said 
that you have different language between Recovery Act and the 
agriculture. Is the Recovery Act more restrictive or more or 
less restrictive on overbuild--the language in the Recovery 
Act?
    Ms. Fong. It is less restrictive. It allows Recovery Act 
projects to be funded where there are providers already. It 
just--and I think the way RUS has implemented this is in its 
application process to give credit for certain kinds of 
factors. But yes, the Recovery Act is a little more flexible 
than the law that was in effect.
    Mr. Walden. We would now go to the gentlelady from 
California, Ms. Matsui.
    Ms. Matsui. Thank you, Mr. Chairman, and thank the 
witnesses for being here today. While no program of this 
magnitude can be perfect, the broadband recovery program, 
particularly the BTOP program will expand broadband access to 
more and more Americans. Like many of my colleagues on both 
sides of the aisle a few projects in my home District of 
Sacramento were awarded to improve broadband adoption 
capabilities. Anchor institutions like community colleges such 
as the Las Rios Community College District is my district were 
awarded grants to provide trading and digital literacy skills 
for local residents in my district. Last September, I, along 
with Ranking Member Eshoo and Congressman Markey, sent a letter 
to NTIA urging them to prioritize anchor institutions during 
the second round of funding and I applaud the administration 
for doing just that. I have heard from the Sacramento Public 
Library and the number one issue they face is a lack of 
capacity in suitable bandwidth or speeds to serve their 
customers in this time of economic stress. I have a question 
for Dr. Welch. Will Merit networks be providing direct fiber 
connections to schools, libraries, health care providers, or 
will it be providing ``middle mile'' capacity or both?
    Mr. Welch. Yes, ma'am, both.
    Ms. Matsui. Both, OK.
    Mr. Welch. And we are also linked in with the public 
computing center award for Michigan State. We will be directly 
connecting many of those sites that were funded by the BTOP 
program.
    Ms. Matsui. OK. If it wasn't for the ARRA grants would the 
localities have the resources to connect anchor institutions?
    Mr. Welch. No, ma'am. Well, so definition of connecting 
being dark fiber, and no ma'am they would not.
    Ms. Matsui. OK. Mr. Zinser, do you believe that the BTOP 
program has adequately served the anchor institution community?
    Mr. Zinser. I--Congresswoman, I know that the second round 
did put emphasis on connecting to anchor institutions and I 
would agree that I think that the second round did accomplish 
that.
    Ms. Matsui. OK. Dr. Welch again. One of the requirements of 
the goals at BTOP was to encourage collaborative projects in a 
wide range--array of participants that might benefit from the 
effort. So cooperation with State and local officials as well 
as local institutions was highly encouraged. I know that the 
State of California was very active on this because we heard 
from them a lot during the grant process. What kind of 
collaboration did you engage in for your project?
    Mr. Welch. Ma'am, we collaborated both at the state level 
with state agencies. We collaborated with other people who were 
applying so that we would interlink our projects and make sure 
that they were synergistic. We collaborated with commercial 
providers who are sub recipients and then of course we 
collaborated with all the local governments, the community 
anchor institutions, the state 911 agency to try and make sure 
that we could meet everybody's needs. And as you know it is an 
optimization problem so you try and move a little bit here and 
there but get the best result for the region.
    Ms. Matsui. Did you actually do outreach to do that?
    Mr. Welch. Yes, ma'am.
    Ms. Matsui. OK. So do you think that your project is 
stronger because of this?
    Mr. Welch. Yes, ma'am.
    Ms. Matsui. OK. And you are willing to go on record saying 
that this is something should have happened all over the 
country in essence in order to extend the reach particularly 
for anchor institutions?
    Mr. Welch. Yes, ma'am. I am extremely proud of what we are 
doing in Michigan and I think it is going to be a great thing 
for Michigan.
    Ms. Matsui. OK. Thank you. Mr. Chairman, I yield back.
    Mr. Walden. Thank you gentlelady and now we will go to the 
Vice Chair of the Committee, Mr. Terry.
    Mr. Terry. Who will be on time next time. I want to follow 
up a little bit on what Mr. Doyle was talking about and Mr. 
Shorman, as you may know we have worked on USF a little bit, a 
few draft bills. The last couple draft bills has focused on 
more of a micro look at rural companies and excluding from USF 
places like Hays that has competition from being able to 
receive USF funds. So while one area of government is trying to 
make sure that areas, those pockets of 20,000 and Nebraska's in 
the same way, most rural will have pockets of 15-20,000 that 
are well served. What we are trying to find is though are those 
towns of 200, 300 that are not. Maybe no access or they called 
broadband 250 kilobytes and don't have the infrastructure to 
get to 10 or even in today's world 30 maybe, what is needed. So 
the point that I want to bring up, my kid on this is I 
understand from you opponents in this they said well you only 
have 3 percent of the project area, therefore, it is all rural. 
You would disagree I assume with that assessment that you 
should just if the project area is large enough that a town of 
20,000 is only three percent of the geographical area we 
shouldn't worry about it.
    Mr. Shorman. Well, I am only a farm boy, but it seems silly 
to me that we are not serving square miles. We are serving 
customers in these areas outside of here and to take and grow a 
map big enough--I assume at some point you get a bit enough map 
you could make LA a rural town. That doesn't make sense.
    Mr. Terry. So I want to go then to Mr. Goldstein, Ms. Fong, 
in--well first of all is GAO or inspector general then offer 
reports back to RUS and NTIA that says you should have a deeper 
level, a more of a granule definition of unserved where larger 
communities that have two or three providers should be 
excluded? Do you make those type of recommendations?
    Mr. Goldstein. No, sir, we don't. We make recommendations 
related specifically to audit findings based on criteria that 
an agency has established or that were in law.
    Mr. Terry. All right. Ms. Fong, how about with the 
inspector general's report?
    Ms. Fong. We would go in and look at the language of the 
Recovery Act that authorizes this program and attempt to assess 
how RUS implemented that and whether the criteria they applied 
made sense and comply with the statute. And I think what I am 
hearing today is a very interesting discussion about how you 
define rural area. Is it square feet? Is it number of users? It 
is a very interesting issue that I have not focused on, but I 
appreciate you raising that.
    Mr. Terry. And we are doing it in the drafting of the USF 
bill, so I know it can be done. But anyway, just--Ms. Fong and 
Mr. Goldstein on rescissions of contracts or loans, pools of 
money out there, have any been rescinded do you know of from 
our US under the Stimulus act?
    Ms. Fong. I don't know. The awards were all made by 
September 30 of 2010, so it is unlikely that anything has been 
rescinded. It is now February. But I don't know that for sure.
    Ms. Eshoo. Would the gentleman yield?
    Mr. Terry. Sure.
    Ms. Eshoo. I think there is one under BTOP.
    Mr. Terry. OK.
    Ms. Fong. OK.
    Mr. Terry. Would that be your understanding, too, Mr. 
Zinser?
    Mr. Zinser. Yes, sir, about $300 million I think was 
rescinded at one point.
    Mr. Terry. All right and I think during the first line of 
questioning or opening with Mr. Walden, you meant--Ms. Fong, 
you said that when it is rescinded that 300 million goes back 
to the agency and then it is used in at their discretion. Is 
that a fair statement?
    Ms. Fong. I am going to defer to my colleague.
    Mr. Zinser. In the case of the BTOP program the Congress 
directed that it be used for a different program. They took it 
away from BTOP and used it for a different program. That was an 
act of Congress.
    Mr. Terry. OK.
    Mr. Zinser. I think the way the Recovery Act is set up for 
BTOP if for whatever reason grant money does get returned to 
the agency, the Recovery Act I think at this point does provide 
the administrator with the discretion of reissuing that money 
to another grantee.
    Mr. Terry. So it doesn't go back to the Treasury. So we----
    Mr. Zinser. Well, it is complicated. As I mentioned the 
Dodd-Frank legislation about de-obligated money and what 
happens to that. And there are provisions for the administrator 
to actually transfer the grants to another grantee before they 
would become de-obligated, so you really have to drill down 
into those issues.
    Mr. Walden. Thank you.
    Mr. Terry. Thank you.
    Mr. Walden. Now we go to Mr. Towns of New York.
    Mr. Towns. Thank you very much, Mr. Chairman, and of course 
Ranking Member for having this hearing and of course let me 
indicate to you I am happy to be back as well. Mr. Zinser, 
perhaps you can help us figure out what an appropriate level of 
funding might be for such oversight going forward. I don't 
expect you to provide us with a dollar amount, but give us some 
general views and feelings in terms of what a model should be 
in terms of oversight. And I am going to ask you too, Ms. Fong.
    Mr. Zinser. Well, the budget request for NTIA for fiscal 
year 2011 was about $24 million at the end. I think they had 
originally asked for more than that and eventually the request 
from the President for fiscal year 2011 was about $25 million. 
And that would have funded a number of staff at NTIA to 
actually be charged with overseeing specific grants. For our 
work, the Recovery Act appropriated about $10 million for my 
staff. If you look at my overall budget compared to the 
department it is a little less than that proportion, but my 
view is that I am going to deliver the best oversight I can 
with whatever resources I get.
    Mr. Towns. In other words you are sort of saying that might 
not be enough?
    Mr. Zinser. It might not be enough, sir. If we start 
getting a lot of complaints and a lot of allegations of fraud 
for example it could get very expensive to go out and actually 
investigate each one of those with 230 plus grants out there.
    Mr. Towns. Ms. Fong?
    Ms. Fong. The RUS has an oversight program in place 
because, as you may know, the broadband program has pre-existed 
the Recovery Act for about 10 years. And we understand that 
they have a system whereby they have contracted out with an 
external contractor to help them for the next two years. They 
also have in place employees who are onsite across the nation 
to look at auditing the receipts that come in against the 
grants and also to do compliance reviews of recipients. It is 
our understanding that RUS believes that this framework will 
work well for them. I do not have a sense of whether they 
believe that they need more resources or not. Their request for 
fiscal year 2011 is about $300 million to run the whole program 
and that would include both grant and loan authority as well as 
oversight. At this point I would suggest that perhaps someone 
ask the RUS administrator their view on that in terms of 
oversight funding.
    Mr. Towns. My concern is that you know we talk about waste, 
fraud, and abuse, and even stupidity. You know we even add 
that, but the point is that many times though we are not 
prepared to fund you know and be able to go and to look and to 
see and that is really my concern. And that is really why I 
raise this question. Because I think that we make a mistake 
when we don't have the resources to go out and do it because 
that is waste and I don't think that--we cannot afford the 
luxury of waste in any kind of way today. So on that note, Mr. 
Chairman, and again, I am delighted to be back and I yield 
back.
    Mr. Walden. We are delighted to have you back and we will 
take back the time and give it to Mr. Latta. Mr. Latta, you are 
recognized for 5 minutes.
    Mr. Latta. Thank you, Mr. Chairman, and I want to thank all 
the folks who are here today. It has been very, very 
enlightening today on your testimony. Boy, I have a lot of 
questions I would like in such a short period of time, but if I 
could, Mr. Shorman, let me just go back to what Mr. Shimkus was 
saying a little bit earlier. I just want to make sure that we 
are clear for the record that your application was to serve 
those in unserved areas and that the award that was given was 
given to RTS and that was going to serve about--at least 50 
percent of an area that has already been served. Is that 
correct?
    Mr. Shorman. That is close to correct, yes.
    Mr. Latta. OK. And something else in your testimony I 
thought that it was also interesting that--unfortunately we 
don't have time to have you give the entire testimony but you 
have 277 employees?
    Mr. Shorman. Yes.
    Mr. Latta. And you have 212 which are employee owners 
through your employee stock ownership plan, but I also found it 
interesting in your testimony on page two. And this really goes 
to a crux of a lot of things that happen with a lot of 
companies in our areas. And what happens sometimes when 
government puts people out of business sometimes, it says here 
in your paragraph that your Eagle Cares program that you have a 
partnership with the Salvation Army that you help needy 
individuals with their telephone, Internet, and cable payments. 
You have helped deliver meals on wheels to retirees when there 
is bad weather that has kept their drivers off the road. You 
donated an emergency heart defibrillator units to the community 
schools. You raised hundreds of thousands of dollars for 
children by sponsoring an annual telethon. What happens when 
government puts you to a point that you can't compete and what 
happens to your employees and what happens to all of your 
community work?
    Mr. Shorman. I am so proud of our employees. We are 
employee owned. Our 277 employees of which 212 are employee 
owners, they participate in the upside and the downside of the 
company. When we have a competitive overbuild like what has 
happened and happened in other communities it affects each one 
of their-our employees and their ability to go out and do these 
types of things. And I am proud of what they do.
    Mr. Latta. Let me just follow up real quick on that. Do you 
foresee that you might with the competition you know that is 
coming through this grant that you might end up having to lose 
employees?
    Mr. Shorman. We have to survive as a company and when 
customers go away or are taken away by a government overbuild 
then we have to make adjustments there and that would cost us 
employees and would cost our company and the shareholders which 
are once again the employee owner.
    Mr. Latta. OK. Thank you very much. If Ms. Fong, if I could 
ask you. I also found your written testimony very interesting. 
You report, you say on page three of your testimony that in 
2005 you made the report that there are 14 recommendations and 
in the response RUS did not agree with how the OIG portrayed 
the broadband grant and loan params and for the next several 
years the OIG worked with RUS to resolve those recommendations. 
And then in 2009, you revisited broadband programs and you saw 
that eight of the 14 recommendations had not been taken--had 
not had corrective adequate, or should say adequate corrective 
action at that time. You go on to state in your testimony that 
from '05 through '09, RUS continued providing questionable 
loans to providers near very large cities or in areas of pre-
existing service. And that you go on to state that they had--
RUS delayed in responding because of the '08 Farm bill. But you 
also state that as January of 2011 the office of the Chief 
Financial Officer has not accepted RUS as actions as adequate 
to close 10 of those four recommendations from '05. I guess it 
really comes down to my question is this. You know when all 
these things are going on and all these years are passing what 
is your--what action can you be taking especially based on your 
experience of what percentage of the grants, of these grant 
awards can be expected to have problems with waste, fraud, and 
abuse and how much--how many of those might go--be unused and 
be reclaimed?
    Ms. Fong. Well, that would be the focus of our planned 
audit work for later this spring. What we plan to do is to go 
back and take a look at how RUS is implementing the Recovery 
Act in the context of the recommendations that we had made in 
the previous audits. And we recognize that some of those 
recommendations have been overtaken by events, but we are also 
very concerned about a number of them that go to the management 
of the program. In a nutshell, we are concerned that it appears 
RUS does not yet have final regulations to implement its 
broadband program. It lacks written staff guidance to help the 
staff make decisions on how to award service and deal with 
loans and de-obligate and cancel loans. And so we are very 
interested in going in and looking at the management controls 
of that program to see if that program could really run a lot 
more effectively. While we do that we will be looking at 
individual grants and loans to see if there are instances where 
some of those funds could be gotten back. And we will let RUS 
know about that.
    Mr. Latta. Thank you. Mr. Chairman, I yield back.
    Mr. Walden. Thank the gentleman. We now recognize the 
gentleman from Massachusetts, Mr. Markey. Yes, I believe I will 
go to the gentlelady from California for a unanimous consent 
request.
    Ms. Matsui. Thank you. I do have a unanimous consent 
request, Mr. Chairman, to place some things in the record. 
There are two letters in support of the Rural Telephone and 
Nex-Techs broadband expansion proposals from Lynn Jenkins and 
from Jerry Morand, Congressman Morand. These were referenced 
earlier. And then these are letters of support for the RTS 
project from the First National Bank of Hays, Kansas, the Ellis 
County Commission of Hays, Kansas, the Ellis County Coalition 
for Economic Development, the Hays Medical Center, the Hays 
Public Library, the North Central Kansas Technical College of 
Hays, Kansas, and the Fort Hays State University of Hays, 
Kansas. So I appreciate this and I would like to place these in 
the record.
    Mr. Walden. Without objection.
    [The information appears at the conclusion of the hearing.]
    Mr. Walden. And now I would like to recognize the gentleman 
from Massachusetts, Mr. Markey. You are the last one so it is 
hard to pass at this point.
    Mr. Markey. Thank you very much. Thank you. If there is a 
proxy for economic development in a country it is the 
deployment of broadband. And 2 days ago we celebrated the 15th 
anniversary of the signing of the Telecommunications Act of 
1996. February 8, 1996. Fifteen years ago today, not one home 
in America had broadband. Fifteen years ago today, not one home 
in America had broadband. Fifteen years later, Google, eBay, 
Amazon, Hulu, YouTube, on and on and on. Two million jobs, 
branded, made in America. We won. We are not doing that in 
clean energy yet. China is trying to do that. We don't have a 
plan, but that is a great economic opportunity for us. That is 
another committee right now that is even not here. In the 
Stimulus bill I was able to add language which required that 
each of these grants got open access as a part of the 
condition. Mr. Shorman, is that important to have open access 
as a part of insuring--as a part of the deployment of broadband 
in our country?
    Mr. Shorman. If open access is available and is easily 
usable that can be important.
    Mr. Markey. So what challenges would your business face if 
we had to--if open access was a part of receiving funds into 
the Recovery Act?
    Mr. Shorman. You have to be able to work--have a workable 
plan with the company that you would be getting access from and 
what we have found in some other experiences is that has been 
difficult to make happen.
    Mr. Markey. And why is it difficult?
    Mr. Shorman. It appears there is a boatload of rules that 
you have to go through to make things happen which is a great 
barrier.
    Mr. Markey. A boatload of rules that the other companies 
have?
    Mr. Shorman. That is correct.
    Mr. Markey. The companies, sir, a lot of companies that 
don't really believe in open access.
    Mr. Shorman. That is exactly right.
    Mr. Markey. You create those rules as the obstacles.
    Mr. Shorman. And so in the pure sense having open access is 
very important.
    Mr. Markey. Oh, it is so----
    Mr. Shorman. In reality it becomes a lot more difficult to 
make happen.
    Mr. Markey. It is so important. You know because as you 
know Verizon and AT&T turned down the contract to build the 
Internet and then they--at each juncture they have turned the 
opportunity to go into the Internet until we did the '96 Act, 
you know and then they sued. They called it a Bill of Attainder 
in the Supreme Court and they tried to stop it, you know, after 
we passed the '96 Act--Verizon and PacBell. So there are 
problems without question. Could you--can you provide, Mr. 
Goldstein, a specific example where the Recovery Act does not 
provide the authority for the return to the Treasury of unused 
or reclaimed broadband funding with this draft bill would?
    Mr. Goldstein. We haven't looked at that specifically, sir. 
I will take a look and get back to your office. I would be 
happy to.
    Mr. Markey. Yes, please, thank you. And on the issue of 
total percent of Americans which now do not have broadband. I 
know that those numbers came up earlier. Could you tell me what 
those numbers are? Ms. Fong, do you know the answer to that?
    Ms. Fong. I do not know.
    Mr. Markey. Does anyone out there know the answer to that 
question?
    Mr. Goldstein. We can get back to you, sir. We will take a 
look.
    Mr. Markey. OK. I think that is important. We need a--this 
is all part of a plan for the future for our country so that we 
are capturing all of the opportunities which broadband presents 
for economic development in rural America and inner city 
America so that everyone is participating. The E rate, which I 
was able to include in the 1996 Act and it ensured that all 
schools, the poorest schools all have access to it so that the 
kids get the skill set. It really doesn't divide along regional 
lines. It is for every kid in America so that they have it in 
their schools. But this broadband plan actually helps them to 
get it in their homes as well and I just can't think of a more 
important thing that we could be doing to ensure that our 
economic growth continues unabated without this kind of a 
program in place. It ensures that it is uniform and that it 
captures the future. It captures what our country has to be all 
about in the 21st century. And on a bipartisan basis I think we 
should all work towards that goal of empowering every human 
being, children especially to be able to maximize their God-
given abilities by having access to broadband. Because it is 
the indispensible skill set that will make them competitive 
with a portable skill set that they can use anywhere in our 
country or the world in their lives here in the 21st century on 
this planet. And that is really what that provision was all 
about in the Stimulus bill and I thank you, Mr. Chairman, for 
holding this important hearing.
    Mr. Walden. Thank you, Mr. Markey. We appreciate it. We now 
go to Mr. Scalise for 5 minutes.
    Mr. Scalise. Thank you, Mr. Chairman. Mr. Shorman, does 
your company use your private investment to make the 
investments that you have made to build out the network in 
rural communities?
    Mr. Shorman. Yes, in a sense we have a traditional banking 
relationship where we go and put our plan together and they in 
turn fund our projects.
    Mr. Scalise. So you are risking your private capital to go 
build up a network and then of course as you risk that it is--
the business model is that you are investing that capital so 
that you can ultimately create this infrastructure that 
ultimately people would be able to use and then you can get 
that money back instead of having taxpayer money go to build it 
out.
    Mr. Shorman. It is kind of the American way to be able to 
take money, build something, build a product, sell it, and then 
get the money back and pay off your loan. Correct.
    Mr. Scalise. Seems like a--for too long that model has 
worked so well and you know in the last few years it seems like 
government wants to come along and take the place of what the 
private sector did and of course from all the results the 
government's not doing a real good job of it and we are 
drowning in a sea of red ink in the process. When you look at 
what happened with, you know, with these RUS grants does 
taxpayer money being used to in essence fund your competitor 
serve as an incentive or disincentive to you--for you to make 
future investments?
    Mr. Shorman. Well, it certainly disincentive in our areas 
where that--where there is an over builder that is using--
again, it is my tax dollars also that are being used to compete 
against me along with our other employee owners. So exactly to 
that point it does cause us to have to look at where we spend 
our money and what we can do with that money.
    Mr. Scalise. What kind of jobs are related to the 
investments you have made so far? How many jobs have you 
created along the way with this private investment, the risk 
that you have taken as a company? What kind of jobs has that 
equated to?
    Mr. Shorman. Well, our company has not quite doubled in 
size with some of the acquisitions that we have had. We also do 
our own fiber install. We do our own technology training. We do 
things throughout our company that continues to grow. And 
because of our employee owners live in those same communities 
it is not like we are a big cooperation. We are a small company 
based in Hays, Kansas that covers that area in North central 
and Northwest Kansas.
    Mr. Scalise. How many people work for your company?
    Mr. Shorman. Two hundred seventy-seven give or take you 
know a few along the line and we have 212 of those are employee 
owners that own stock in the company and the employees own 63 
percent of our company.
    Mr. Scalise. And what is the average pay for these jobs?
    Mr. Shorman. It can vary. It can vary from 20-30,000 a year 
to higher than that in certain areas.
    Mr. Scalise. Again, sounds like the American dream creating 
a lot of jobs and a lot of opportunities for people. When the 
Stimulus bill was going through one of the claims that was 
going to be made was that this would increase broadband 
deployment especially in rural areas and create jobs. From your 
experience is the program reaching the unserved or is it just 
jeopardizing some of the things that have already been done by 
the private sectors.
    Mr. Shorman. I think in some of the letters that were 
presented earlier this process was proposed to reach unserved 
rural Northwest Kansas people. That is a great project. If it 
reaches unserved customers that is a terrific way for this 
money to be spent. However, in reality the biggest part of that 
or a major part of that is overbuilding existing operations and 
existing broadband providers.
    Mr. Scalise. And that kind of duplication just wasn't what 
was promised to the American people.
    Mr. Shorman. That is not what we understood it to be.
    Mr. Scalise. Appreciate that. Mr. Goldstein, you state that 
the RUS plans to use its existing oversight framework that it 
uses for grant and loan program. Given the problems the 
Inspector General Fong has reported on about RUS is this an 
effective oversight plan to prevent the defaults and the 
obligations RUS has experienced in the past?
    Mr. Goldstein. I think we would have to wait and see, sir. 
We don't know yet.
    Mr. Scalise. All right, Mr. Fong, do you want to--I am 
sorry, Ms. Fong, do you want to comment on that?
    Ms. Fong. That will be one of the things that we will be 
looking at most likely in our audit. I will say that in the 
past RUS, in its oversight capacity, when it has identified 
instances of wrongdoing in the program they have come to us and 
made referrals to us and those have resulted in successful 
prosecutions. So we do know that at least on some level their 
oversight program has been effective.
    Mr. Scalise. All right, thank you. And Mr. Zinser, I 
understand that auditing grants at this time is very difficult 
because even though the money has been awarded the grantees 
have not done much yet. What are planning to do to ensure that 
the taxpayer money is not misspent?
    Mr. Zinser. We have got a number of steps we have to take. 
Number one, we are going to see how well NTIA is overseeing 
their portfolio of grants. We have got to make sure that the 
program office is doing its job. We are going to go through a 
process of identifying the grants into a risk assessment and 
identify the riskiest grants. NTIA is doing a similar process.
    Mr. Scalise. Do you know how long it will take to really 
get a formula in place to know how well this taxpayer money is 
being spent?
    Mr. Zinser. We are going to initiating grants. Very soon, I 
don't know that a complete formula will be developed, but one 
of the things we are going to do for example is the Recovery 
Board, the Recovery and Accountability Transparency Board has 
set up a capacity of checking grantees across a number of 
public source databases for risk indicators. We are going to 
use that capacity to identify potential audit targets.
    Mr. Scalise. Thank you, Mr. Chairman. I yield back.
    Mr. Walden. Thank you and I want to thank our panelists for 
your participation in the hearing today. I think it has helped 
us think about this program and look at the legislation that 
has been drafted. If you have comments and suggestions about 
how you--how we can improve the draft legislation we would 
welcome those not only from our panelists but others who are 
observing these proceedings and certainly from my colleagues on 
both sides of the aisle. I would like to thank our witnesses 
and members that participated in today's hearing. I would 
remind members that they have 10 business days to submit 
questions for the record and I would ask that the witnesses all 
agree to respond promptly to those questions. I will note for 
the record your head nods in favor of that. And with that the 
subcommittee is adjourned.
    [Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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               Prepared Statement of Hon. Edolphus Towns

    Thank you, Chairman Walden and Ranking Member Eshoo. I am 
very pleased that the Sub Committee is holding this hearing. 
Our constituents need to know that we are keeping an eye on how 
well the Recovery Act funding for broadband programs is being 
used in communities all over this country.
    As a long time member of this Committee I have seen how 
broadband has transformed our economy. Recovery Act funding 
will accelerate this trend and I truly believe that the 
benefits will be keeping America strong and competitive well 
into the 21st Century.
    As Chairman of the Committee on Oversight and Government 
Reform last congress when the Recovery Act was enacted, I and 
my colleagues worked tirelessly to incorporate the processes 
that made this spending the most transparent and accountable in 
history. I pledge to work with the other side in the new 
congress to continue making sure taxpayer money is efficiently 
spent. However, I have looked at the proposed legislation that 
is being discussed at this hearing and I believe that it is 
unnecessary and duplicative of oversight efforts already 
mandated in the last congress.
    I am pleased that the GAO and the Inspector Generals in 
charge of preventing waste fraud and abuse in these broadband 
programs are here today to share their perspective. I look 
forward to hearing their findings and recommendations. I 
strongly believe we should make a bipartisan commitment to give 
them the resources they need to conduct vigorous oversight of 
the funds going forward.
    In New York City, these projects are already underway and 
having a major impact. As an example, The NYC Connected 
Learning program is designed to effectively link the home and 
school learning environments. It will provide more than 18,000 
sixth grade students in 72 low-income schools with home 
computers, discounted broadband service, educational software, 
digital literacy training and an array of resources. School 
populations are approximately 40 percent Latino, 31 percent 
African-American, 15 percent Asian-American, and one percent 
Native American. The program is underway citywide. Nearly 5,000 
families in about half of the schools (nine from Brooklyn) have 
participated to date and the program is on track to ultimately 
serve the targeted number of 18,000 students.
    We embarked on an effort to prepare America for a 21st 
Century economy when we appropriated money towards broadband 
technology. We must take advantage of the opportunity these 
funds provide because, while recovery does not happen in the 
blink of an eye, innovation can. Readiness requires quality 
internet access for all Americans. It requires tough oversight 
and continuing our investment in broadband.
    Thank you and I yield back the balance of my time.

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