[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
ARRA BROADBAND SPENDING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
----------
FEBRUARY 10, 2011
----------
Serial No. 112-5
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
ARRA BROADBAND SPENDING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 10, 2011
__________
Serial No. 112-5
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
U.S. GOVERNMENT PRINTING OFFICE
65-760 PDF WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
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
----------
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]