    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

    H.R. 1343, A BILL TO CLARIFY NTIA AND RUS AUTHORITY TO RETURN RECLAIMED
                      STIMULUS FUNDS TO THE U.S. TREASURY

    =======================================================================

                                    HEARING

                                   BEFORE THE

                 SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 1, 2011

                                   __________

                               Serial No. 112-30

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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    67-872 PDF                WASHINGTON : 2011
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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman

    JOE BARTON, Texas                    HENRY A. WAXMAN, California
      Chairman Emeritus                    Ranking Member
    CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
    ED WHITFIELD, Kentucky                 Chairman Emeritus
    JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
    JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
    MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
    GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
    LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
    MIKE ROGERS, Michigan                ANNA G. ESHOO, California
    SUE WILKINS MYRICK, North Carolina   ELIOT L. ENGEL, New York
      Vice Chair                         GENE GREEN, Texas
    JOHN SULLIVAN, Oklahoma              DIANA DeGETTE, Colorado
    TIM MURPHY, Pennsylvania             LOIS CAPPS, 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

                                     _____

                 Subcommittee on Communications and Technology

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

                                      (ii)

                                 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...........................................     2
    Hon. Anna G. Eshoo, a Representative in Congress from the State
      of California, prepared statement..............................     5
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................    10
    Hon. Fred Upton a Representative in Congress from the State of
      Michigan, prepared statement...................................    47
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, prepared statement......................................    49

                                   Witnesses

    Lawrence E. Strickling, Assistant Secretary for Communications
      and Information, National Telecommunications and Information
      Administration, Department of Commerce.........................    11
        Prepared statement...........................................    15
        Answers to submitted questions...............................    51
    Jonathan Adelstein, Administrator, Rural Utilities Service.......    29
        Prepared statement...........................................    32
        Answers to submitted questions...............................    54

                               Submitted Material

    Letter, dated March 31, 2011, from Steve Traylor, Executive
      Director/General Counsel, National Association of
      Telecommunications Officers and Advisors, to subcommittee
      leadership.....................................................     8

    H.R. 1343, A BILL TO CLARIFY NTIA AND RUS AUTHORITY TO RETURN RECLAIMED
                      STIMULUS FUNDS TO THE U.S. TREASURY

                                  ----------

                             FRIDAY, APRIL 1, 2011

                      House of Representatives,
         Subcommittee on Communications and Technology,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:32 a.m., in
    room 2322 of the Rayburn House Office Building, Hon. Greg
    Walden (chairman of the subcommittee) presiding.
        Members present: Representatives Walden, Terry, Blackburn,
    Bass, Latta, Guthrie, Eshoo, Doyle, Matsui, Christensen,
    Barrow, Towns and Waxman (ex officio).
        Staff present: Neil Fried, Chief Counsel, Communications
    and Technology; Brian McCullough, Senior Professional Staff
    Member, Commerce, Manufacturing, and Trade; Ray Baum, Senior
    Policy Advisor/Director of Coalitions; Paul Cancienne, Policy
    Coordinator, Commerce, Manufacturing, and Trade; Peter Kielty,
    Senior Legislative Analyst; Debbee Keller, Press Secretary;
    Katie Novaria, Legislative Clerk; David Redl, Counsel,
    Communications and Technology; Jim Barnette, General Counsel;
    Mike Bloomquist, Deputy General Counsel; Phil Barnett, Democrat
    Staff Director; Shawn Chang, Democratic Counsel; Jeff Cohen,
    FCC Detailee; Sarah Fisher, Democratic Policy Analyst; and
    Roger Sherman, Democratic Chief Counsel, Communications and
    Technology.
        Mr. Walden. Good morning. The Subcommittee on
    Communications and Technology will come to order.

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

        Welcome. Today is the subcommittee's second hearing
    concerning the broadband stimulus programs administered by NTIA
    and the Rural Utilities Service. We will be discussing
    oversight of the programs and legislation to address risks and
    ambiguities highlighted by the Inspectors General at our last
    hearing. We are pleased to have Assistant Secretary Strickling
    here and Administrator Adelstein, and I want to thank both of
    you and your staffs for working with us on this legislation,
    and we appreciate your testimony, your comments and your
    counsel.
        The NTIA and RUS have awarded $7 billion covering 553
    awards in a very short period of time as required by the law.
    The dust is still settling, but as we heard during the February
    hearing, it is logical to expect that issues of fraud, waste
    and abuse will start popping up now that the money is beginning
    to flow.
        So far, award recipients have spent nearly 5 percent of the
    funds. Approximately a dozen recipients have decided not to
    pursue their projects and returned their awards worth $70
    million. Some have cited the economy and their inability to
    fulfill their obligations if they moved forward. With 95
    percent of the funding yet to be disbursed, the question is how
    many programs will run into hiccups down the road.
        As stewards of the taxpayers' money, I know we all want to
    prevent misspent funds and fraud. So when the Inspectors
    General, Comptroller General or Administrators identify issues,
    it is important they are able to quickly determine whether
    there is a problem and take appropriate action. It is also
    important that Congress be apprised of such developments in a
    timely fashion and be made aware of the decisions the
    Administrators make.
        While we are not seeking to change the programs, we will
    continue to ask the important questions, including what
    criteria are used to determine when it is time to terminate an
    award. Out of fairness to the applicants who were denied
    stimulus money, the successful applicants that are abiding by
    the terms of their awards, and most importantly, the American
    taxpayers, if an award recipient does not comply with the terms
    of the award, it should be terminated.
        I believe the legislation we are considering accomplishes
    these goals. Working with the minority and stakeholders, we
    have improved the language and addressed a number of concerns.
    I am sure if it needs further refinement, and we are aware of
    some of those suggestions, we plan to work with the minority
    and all of you to get it right and fix those things as we get
    up to the full committee.
        The legislation clarifies the Administrators'
    responsibility to deobligate funds when there is cause to
    terminate the award. Additionally, it institutes a new
    reporting requirement that will keep Congress apprised of
    relevant developments regarding awards.
        I thank Mr. Bass for taking leadership on this effort, of
    this modest but necessary legislation. I know this is not earth
    shattering, OK? We are going to move on to earth shattering in
    the future. This is a housekeeping effort we are trying to get
    done.
        And on that note, I would also like to suggest that given
    the schedule today and a number of votes that are going to
    occur on the floor, we probably only have about 40, 45 minutes
    to work through this. My goal would be, with the support of the
    subcommittee, is to move through the testimony as rapidly as
    possible, and if we can get into the markup on the
    subcommittee, recognizing I think there are only a few minor
    things we need to work out between here and full committee,
    which we could do, so that we pass this on to the full
    committee.
        [The prepared statement of Mr. Walden follows:]

                     Prepared Statement of Hon. Greg Walden

        Welcome. Today is the Subcommittee's second hearing
    concerning the broadband stimulus programs administered by NTIA
    and the Rural Utility Service. We will be discussing oversight
    of the programs and legislation to address risks and
    ambiguities highlighted by the Inspectors General at our last
    hearing. We are pleased to have Assistant Secretary Stickling
    and Administrator Adelstein with us here today, and I want to
    thank them and their staffs for their help with the bill.
        The NTIA and RUS have awarded $7 billion covering 533
    awards in a very short time. The dust is still settling, but as
    we heard during the February hearing, it is logical to expect
    that issues of fraud, waste and abuse will start popping up now
    that the money is beginning to flow.
        So far, award recipients have spent approximately 5 percent
    of the funds. Approximately a dozen recipients have decided not
    to pursue their projects and returned their awards worth
    approximately $70 million. Some have cited the economy and
    their inability to fulfill their obligations if they moved
    forward. With 95 percent of the funding yet to be disbursed,
    the question is how many programs will run into hiccups down
    the road.
        As stewards of the taxpayers' money, I know we all want to
    prevent misspent funds and fraud. So when the Inspectors
    General, Comptroller General, or Administrators identify
    issues, it is important they are able to quickly determine
    whether there is a problem and take appropriate action. It is
    also important Congress be apprised of such developments in a
    timely fashion and be made aware of the decisions the
    Administrators make.
        While we are not seeking to change the programs, we will
    continue to ask the important questions, including what
    criteria is used to determine when it's time to terminate an
    award. Out of fairness to the applicants who were denied
    stimulus money, the successful applicants that are abiding by
    the terms of their awards, and most importantly the taxpayer,
    if an award recipient doesn't comply with the terms of the
    award, it should be terminated.
        I believe the legislation we are considering accomplishes
    these goals. Working with the minority and all stakeholders, we
    have improved the language and addressed a number of concerns.
    I am sure if it needs further refinement we can address any
    remaining concerns before Full Committee consideration.
        The legislation clarifies the Administrators'
    responsibility to deobligate funds when there is cause to
    terminate the award. Additionally, it institutes a new
    reporting requirement that will keep Congress apprised of
    relevant developments regarding awards.
        I thank Mr. Bass for taking leadership of this modest but
    necessary legislation. I hope we can work expeditiously in a
    bipartisan manner to move this out of Committee and turn to a
    number of legislative issues that will consume more of our time
    and resources.

        Mr. Walden. With that, I would recognize my friend, the
    ranking member from California, Ms. Eshoo.
        Ms. Eshoo. Thank you, Mr. Chairman, and good morning to
    you, to all the members of the committee and to our guests. I
    want to extend a warm welcome to Assistant Secretary Strickling
    and to Administrator Adelstein, whom we have the pleasure of
    working together for a number of years where he served with
    distinction at the FCC.
        I am going to ask that my----
        Mr. Walden. Without objection.
        Ms. Eshoo (continuing). Magnificent opening statement be--
    --
        Mr. Walden. Extraordinary.
        Ms. Eshoo (continuing). Inserted into the record in the
    interest of time, and we want to work with you, Mr. Chairman,
    because I think that what I raised earlier about tweaking the
    legislation because there is a sensitivity about the OIG and
    DOJ. We do not want to pour cold water over cases that have the
    potential for being prosecuted relative to fraud or abuse.
        I just want to say that this will be the second time that I
    am voting on the same thing, and so you are right, this is not
    earth-shattering. In fact, I really do with all due respect
    think it is a waste of time. Effective oversight is very
    important in terms of the program and I welcome that.
        So with that, I am going to place my comments in the
    record, and also ask that the letter from the NATOA, the
    National Association of Telecommunications Officers and
    Advisors, be placed in the record. Thank you.
        [The prepared statement of Ms. Eshoo follows:]

        Mr. Walden. Without objection.
        [The information follows:]

        Mr. Walden. Thank you. Does anyone else want to make
    opening comments? Mr. Waxman.

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

        Mr. Waxman. Thank you very much, for holding this hearing.
    It is an important area for us to look at, and I want to
    welcome Assistant Secretary Strickling and Administrator
    Adelstein back to the committee. We appreciate the
    extraordinary efforts that you and your colleagues have put
    into establishing these programs and I look forward to your
    testimony.
        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,
    and the Commerce Department Inspector General was allocated $16
    million and the Agriculture Department Inspector General $22.5
    million to oversee and audit it. With billions of dollars
    invested in hundreds of broadband projects throughout the
    nation, Congress must not skimp on oversight funding.
        The agencies tell us that they have adequate resources to
    conduct effective oversight. However, Congress still needs to
    be vigilant, and if unanticipated oversight challenges emerge,
    we have to be ready to ensure that agencies and their
    independent IGs have adequate resources to oversee these
    projects.
        It is inevitable in a program of this size and scope that
    some of the projects funded will not work out as anticipated.
    In fact, a handful of grant recipients have already withdrawn
    from the programs. This money was promptly deposited in the
    U.S. Treasury, as it should be.
        Today we will consider a legislative proposal that directs
    NTIA and RUS to do what they are already doing: returning these
    deobligated funds to the Treasury. I don't understand why we
    are enacting this duplicative legislation, but I am not opposed
    to the legislation. What I like most about the legislation
    before us today is not the substance, which I think is probably
    unnecessary, but the process. Chairman Walden has reached out
    to the Democrats to reach a bipartisan consensus on the bill.
    Republican staff has included Democratic staff in discussions
    about this measure and has sought our input and suggestions,
    and I appreciate this effort and hope it is a harbinger of how
    we will approach future proposals.
        As we consider this bill, we must be careful not to adopt
    legislation that inadvertently complicates the ability of the
    agencies to oversee these programs effectively and make sure we
    do not encourage defunding projects without good cause,
    especially now that obligated money has been translated into
    real projects with real jobs in every State.
        I want to yield the balance of my time to Mr. Doyle from
    Pennsylvania, and I am looking forward to the testimony.
        Mr. Doyle. Good morning. Thank you, Mr. Chairman, for
    holding this hearing, and thank you, Mr. Waxman for yielding.
    Happy April Fool's Day to you both.
        I agree with the need for today's hearing, and I believe we
    should continue our oversight of the parts of the Recovery Act
    that will help countless people throughout the country get
    online. But that being said, remember the TV show ``Seinfeld''?
    If ``Seinfeld'' was a show about nothing, today's markup is
    about very little.
        While the Senate is about to mark up spectrum legislation,
    we are marking up a bill that is already law. I don't oppose
    the bill, but it seems to me that it is the legislative version
    of the J. Peterman catalog. It is pages of language about
    things we don't really need. After all, the Administration is
    already returning canceled grants to the Treasury for deficit
    reduction. So we really don't need this bill, but as Jerry
    would say, not that there is anything wrong with that.
        I yield back.
        Mr. Waxman. Thank you, Mr. Doyle, and Mr. Chairman, we look
    forward to working with you even though we hear some criticism,
    but I think that is important that we continue to see where we
    can be together.
        Mr. Walden. The gentleman returns the balance of his time,
    and we love you too.
        Ms. Eshoo. Let us not get carried away.
        Mr. Walden. All right. I withdraw that statement.
        Now we would like to turn to Mr. Strickling. Before I do
    that, though, for our members who just came in, just so you
    kind of know the lay of the land here, we probably only have
    until about 11:15 and then we are going to have a series of
    votes. I would prefer to go ahead and see if we can't get in
    and out of the markup before we have to go vote. Otherwise we
    may have to come back after the votes, which could be in the
    afternoon. So with that, Mr. Strickling, thank you for being
    here, thanks for your testimony.

     STATEMENTS OF LAWRENCE E. STRICKLING, ASSISTANT SECRETARY FOR
    COMMUNICATIONS AND INFORMATION, NATIONAL TELECOMMUNICATIONS AND
        INFORMATION ADMINISTRATION, DEPARTMENT OF COMMERCE; AND
       JONATHAN ADELSTEIN, ADMINISTRATOR, RURAL UTILITIES SERVICE

                  STATEMENT OF LAWRENCE E. STRICKLING

        Mr. Strickling. Thank you, Chairman Walden, and Ranking
    Member Eshoo, Vice Chairman Terry, members of the subcommittee,
    thanks to all of you for the opportunity to testify today on
    behalf of NTIA concerning the administration of our grant
    programs.
        I also would like to take this opportunity to acknowledge
    and commend our Secretary, Secretary Locke who, as you know,
    hopefully will be moving on to China but he has played a very
    important role in the oversight of this program, and I want to
    recognize my colleague, Administrator Adelstein. I guess this
    starts our 2011 broadband tour. It was quite a successful tour
    back in 2010 as we went to I think seven different committees
    to testify about this program.
        I welcome the opportunity to comment on the draft
    legislation that is the topic of today's hearing. Before I
    speak to the draft bill, I would like to provide a quick update
    on the status of our programs.
        Since we completed our grant awards on time last September,
    NTIA has been focused on providing vigorous oversight and high-
    quality technical assistance to grantees to ensure that they
    complete their projects on schedule, on budget and that they
    deliver the promised benefits to the communities that they
    serve, and I am pleased to report that our projects have
    already made significant progress in achieving those goals. In
    the last quarter of 2010, our grant recipients reporting
    funding approximately 1,000 jobs. To date, they have installed
    more than 4,000 computers for public use. They have provided
    over 150,000 hours of broadband training to date to over 65,000
    people. In Michigan, North Carolina, Maine and elsewhere, our
    infrastructure projects have broken ground and have begun
    building fiber and wireless facilities.
        Consistent with our philosophy to focus on middle-middle
    projects to prime the pump for private investment to serve
    homes and businesses, I am also quite pleased to report that
    our grantees have already entered into about 90 interconnection
    agreements which will allow the existing incumbents and new
    entrants to serve last-mile customers.
        I would also like to let you know that on February 17th of
    this year, we in collaboration with the FCC unveiled the
    National Broadband Map. This is the first public searchable
    nationwide map of consumer broadband Internet availability in
    the United States. The map is the most granular and transparent
    data set of broadband availability that has ever been
    published, and while we can draw many conclusions from the map,
    there are two I want to emphasize this morning.
        First, that our data shows that 5 to 10 percent of
    Americans do not have access to a level of broadband service
    necessary to perform a basic set of Internet applications as
    defined by the FCC, and second, the map proves what we knew
    during our grant review process, which is that anchor
    institutions are greatly underserved across our country. Two-
    thirds of the schools that were surveyed subscribe to services
    slower than 25 megabits per second and 96 percent of libraries
    that were surveyed subscribe at speeds slower than 25 megabits
    per second.
        Now, protecting the federal funds we are spending is of
    paramount importance to us. As the members of the subcommittee
    are well aware, achieving these objectives is challenging and
    requires us to perform diligent oversight and provide technical
    assistance to our awardees. Our large and complex grant program
    continues to raise novel issues, some of which have potential
    to impact the progress of our projects, and let me just give
    you one example. Before our infrastructure grantees can begin
    construction, most of them have to complete and submit an
    environmental and historic preservation study in compliance
    with the National Environmental Policy Act, the National
    Historic Preservation Act and the Endangered Species Act. These
    processes can take significant time and resources, and we have
    worked very hard to find win-win solutions to enable our
    projects to move forward in full compliance with these
    important laws, and we are committed to working with our
    grantees to complete these environmental requirements as
    rapidly and as thoroughly as possible.
        To solve these and other issues yet maintain the rigorous
    implementation schedule demanded of these projects, we have put
    into action a program-wide oversight strategy to mitigate
    waste, fraud and abuse, to ensure compliance with award
    conditions and to monitor the progress of each project toward
    its timely completion. The technical assistance that we have
    conducted to date includes holding multi-day grantee
    conferences on key implementation topics. We have hosted over
    40 webinars and drop-in conference calls to provide guidance on
    key topics, and by the end of June we will have performed site
    inspections for 72 of our projects, representing about half of
    the total grant pool. The goal of our program is to identify
    issues early in the process and to resolve them as promptly as
    we can.
        Earlier this week, I notified Congress that we have had two
    grantees terminate their awards recently, and while I am
    disappointed that these two projects, one in Indiana, the other
    in Wisconsin, will not be built, I do believe that our diligent
    oversight led to the termination of these projects early on
    with only a minimal expenditure of federal taxpayer dollars. As
    required by law, we have already returned the full $14 million
    of the Indiana grant to the Treasury, and we will promptly
    nearly all of the $23 million Wisconsin grant upon completion
    of an accounting with the State.
        So given that experience, let me turn to the draft
    legislation. We support the ultimate goals of the bill, which
    are to protect against waste, fraud and abuse and to ensure
    that unused or reclaimed funds are promptly returned to the
    Treasury, and while we do not believe that the additional steps
    are needed to ensure adequate protection of taxpayer funds, and
    I think our action in response to the Wisconsin and Indiana
    terminations prove that, we have no objection if Congress
    believes that the reporting requirements contained in the bill,
    in addition to the other mechanisms already in place, would
    further protect taxpayers. We do have some concerns, however,
    about the specific wording of the requirement to deobligate and
    return funds to the Treasury, and we look forward to working
    with the subcommittee to clarify this language.
        And allow me to close with some comments about our
    relationship with the Inspector General. I am extremely
    grateful for the ongoing efforts of the IG in helping to
    oversee our grant programs. Throughout the life of the program,
    the IG has identified additional steps we can take to oversee
    our programs more effectively, and we have worked hard to
    implement their recommendations as thoroughly as possible. Now
    that we are in the oversight phase of our program, we have had
    discussions with our IG as to how we should handle complaints
    we receive about our projects. We haven't received many, and in
    many respects the complaints simply reflect policy
    disagreements and do not raise serious allegations of waste,
    fraud and abuse, but nonetheless, the Inspector General has
    told me we can do better, particularly in developing a more
    structured process to review these complaints, and to that end,
    we will be working with the IG to improve our performance in
    this area just as we have with every other recommendation the
    IG has made to us over the course of the program.
        Thank you again for the opportunity to testify, and I will
    be happy to answer your questions.
        [The prepared statement of Mr. Strickling follows:]

        Mr. Walden. Thank you, Mr. Strickling, and if you can keep
    the committee in the loop, I am sure we all have interest in
    that part of the process too as this rolls out, so your
    suggestions to the IG and back and forth, if you can keep us in
    that loop, that would be helpful as well.
        Mr. Strickling. Absolutely.
        Mr. Walden. Mr. Adelstein, thank you for being here. We are
    delighted to have you here and we look forward to the summary
    of your testimony as well, sir.

                    STATEMENT OF JONATHAN ADELSTEIN

        Mr. Adelstein. Thank you, Chairman Walden, Ranking Member
    Eshoo and members of the subcommittee. It is an honor to be
    here in front of you to talk about the Broadband Initiatives
    Program we call BIP and legislation to amend the Recovery Act.
    I am delighted to be here again with my friend, Larry
    Strickling, which we have done many times before including
    before this subcommittee. Our agencies worked very closely
    together to fulfill the President's vision of getting broadband
    out to every corner of this Nation, and the Assistant Secretary
    has been an invaluable partner throughout the process.
        Our Secretary Tom Vilsack has made broadband a pillar of
    his strategy to revitalize rural economies, and the direct
    benefits of broadband to rural economies are immense. USDA's
    Economy Research Service has studied the effects of broadband
    in rural communities and concluded based on their statistical
    analysis that employment growth was higher and non-farm private
    earnings greater in counties with a longer history of broadband
    availability.
        The Recovery Act provided RUS with the unique opportunity
    to jumpstart the rural economy, investing more than $3.5
    billion in loans and grants to expand broadband networks in the
    hardest to serve rural parts of the United States. Demand for
    broadband financing under the Recovery Act was really
    tremendous. RUS received over 2,000 applications totaling $28
    billion. We were able to make only 320 awards for that $3.5
    billion, only 16 percent of the applications received. This
    amazing response and of course the NTIA's map that the
    Assistant Secretary referred to I think demonstrate the huge
    demand that remains in rural America for improved broadband
    service.
        In September 2010, the RUS completed the awards phase of
    this program. Our selection process was extremely rigorous. Of
    the $3.5 billion in loans and grants, $3.25 billion went to 285
    last-mile projects, $173 million was for middle-mile projects.
    We did $3.4 million for 19 regional technical assistance
    projects, and finally, $100 million went to satellite service
    to premises that were otherwise unserved by any of the other
    grants under this program.
        Now, these investments are going to make a big difference.
    They connect nearly 7 million Americans, 360,000 businesses and
    more than 30,000 critical community institutions to new or
    improved broadband service. They span over 300,000 square
    miles, touch 31 tribal lands, serve 125 persistent poverty
    counties, about a third of the persistent poverty counties in
    the United States, and will create more than 25,000 immediate
    and direct jobs for workers. Once built, though, these networks
    will provide the platform for economic growth and job creation
    for years to come. These projects are really extraordinary. I
    know in the interests of time, I had a lot of great examples
    here. I will just one example that is particularly important
    because it is in an important district in Oregon, the
    Confederated Tribes of Warm Springs Reservation in Oregon
    scheduled to break ground this month just in a couple of weeks.
    It will bring broadband to the entire 1,000-square-mile
    reservation, connecting 223 community institutions including
    government agencies, emergency facilities, 775 households and
    22 businesses. It will be transformative for the Warm Springs
    Reservation. Our excitement for these projects is matched by
    our commitment to execute our duties very prudently and to be
    very careful with taxpayer dollars.
        RUS shares the goals of your legislation, Mr. Chairman, to
    return unused or reclaimed funds to the U.S. Treasury and to
    aggressively combat waste, fraud and abuse. The bill's purpose
    is entirely consistent with the standard procedures already in
    place for RUS programs including BIP. The RUS has some concerns
    with the draft and we look forward to working with the
    subcommittee to address them, and we would be happy to provide
    any drafting assistance as needed if you should request it.
        To ensure our continued success and prudent portfolio of
    management with regard to the Recovery Act, RUS has done a lot
    of work. We have held compliance workshops. We visited every
    award recipient and we have required quarterly reports and
    annual CPA audits. We have our own field accountants and we
    have sent our field accountants to each and every one of these
    recipients before any money is spent to ensure that their
    accounting system complies with all of our requirements and
    that it is set up as something we can really audit and be on
    top of.
        Now, the USDA Inspector General, we work closely with them
    and we appreciate their good work. I understand that in the
    last month they were here before this committee raising
    concerns about the broadband loan program administered under a
    previous Administration, under a previous statute and under
    previous regulations, and I share these concerns. To be clear,
    none of the issues raised by the IG pertain to the Recovery Act
    broadband program or the Obama Administration's conduct of the
    RUS broadband loan program. The broadband loan program was
    actually suspended during the Recovery Act to allow the agency
    to address all of the concerns that were raised by the IG and
    to implement statutory changes that were made in 2008 and to
    integrate the lessons of the Recovery Act into these new rules.
        On March 14th, just last month, the RUS issued new
    broadband regulations that open the program for applications
    for the first time under this Administration. The new
    regulation and other actions taken by the RUS have
    satisfactorily addressed all of the issues raised by the IG, so
    I am thrilled to report to the subcommittee that last week the
    Inspector General concluded and closed completely the RUS
    broadband loan audits, so the book is shut on that audit.
        The new broadband loan program increases efficiencies,
    targets limited resources and builds on the momentum created by
    the Recovery Act BIP program to fill the gaps in rural
    broadband access that were identified in NTIA's map.
        So it is an honor to work with you, with our Inspector
    General and with our federal partners including NTIA to make
    affordable broadband service widely available throughout rural
    America. Your continued support and guidance is deeply
    appreciated. I appreciate the opportunity to testify and look
    forward to any questions you may have.
        [The prepared statement of Mr. Adelstein follows:]

        Mr. Walden. I appreciate the testimony of both the
    gentlemen, and I want to congratulate you on fulfilling the
    recommendations of that audit. I don't care who is in charge
    where, I am glad you got it done because that one goes back to
    2005, I think, so thank you for doing that.
        Again, for our committee members, given the schedule we
    face, I am going to try to limit my questions. I think I am
    just going to go with one if we could get into the markup but I
    don't want to rush anybody. If we could get into the markup
    before they call votes on the floor, that would solve having to
    come back after the votes, say, at 2:00 or something, 2:30.
        So Mr. Strickling, doesn't section 6001(i)(4) of the ARRA
    state you may deobligate funds? I can tell you it does.
        Mr. Strickling. You are correct.
        Mr. Walden. Yes, ``may,'' not ``shall,'' and that is really
    the issue. It isn't whether you deposit in the Treasury, and
    not you personally. It could be somebody down the road
    different has the flexibility whether you will or won't
    deobligate. This legislation says you shall, and while you have
    said and I trust that you will deobligate funds in such cases
    as fraud, waste and insufficient performance, doesn't this
    change provide you with that added legal protection in that it
    reduces the ability of a failing awardee to quibble over what
    would otherwise be your discretionary decision?
        Mr. Strickling. I can't debate the change in the words.
    What I can tell you is, under Department of Commerce guidance,
    it is less discretionary in the sense that we are directed
    under DOC provisions that we will take these actions. In any
    case, again, we don't have any issues with your legislating in
    this area but I don't expect it to change our day-to-day to
    practice.
        Mr. Walden. But this does put certainty in the statute
    because the guidance out of the department could change in
    another Administration or even in this one, could it not?
        Mr. Strickling. I would agree with that.
        Mr. Walden. So we are just trying to get some certainty
    there.
        I will yield now to anyone else on our side that may want
    to ask a question. Mr. Bass?
        Mr. Bass. Mr. Chairman, I just have two very quick
    questions.
        Secretary Strickling, what is the current requirement to
    report to Congress regarding awards that show material
    noncompliance, and do you think that the passage of this
    legislation would increase the transparency of the Recovery
    Act?
        Mr. Strickling. I can't speak to there being a--I can't
    identify a particular legislative directive to us to do that,
    but I think as reflected in the letter I sent earlier this
    week, it is certainly our practice to do so.
        Mr. Bass. Both of you mentioned the number of awards that
    you have made, amount of money spent to date. I think you
    identified three that have been discontinued. Have you learned
    anything from these returned awards that would be beneficial to
    you in your oversight on the existing projects?
        Mr. Strickling. We have actually had two projects that went
    to award and we actually went through the process, started the
    process with the applicant and then they have since terminated.
    There is a third award that the applicant never actually
    accepted the award, a small award up in Minnesota to Leach Lake
    for about $1.7 million. But of the two projects, I think each
    of them presented a unique set of circumstances. In Indiana,
    quite frankly, it was a situation where other things were going
    on economically in the State. It was a project designed to
    serve schools. Indiana is going through a school consolidation,
    and our grantee along with our folks at NTIA realized that
    their business case was deteriorating as a result of this other
    set of governmental actions and the project just didn't seem
    viable any longer and so the applicant decided to withdraw
    because they couldn't see that they would have an ongoing
    project after the completion of the grant period.
        We have been very focused on giving awards to projects that
    we think are sustainable and will continue on even after the
    grant period. In the Indiana case, I think again through our
    oversight and discussions with the applicant, we learned early
    on that the project really wasn't viable in the way we thought
    it was when we had reviewed it during the review process.
    Wisconsin again, totally separate set of facts there that I
    would be happy to discuss with you separately.
        Mr. Bass. Administrator Adelstein, do you have any comments
    on that?
        Mr. Adelstein. If there is anything we draw from that, it
    is that we need to very aggressively work with and oversee
    every aspect of each one of our awardees' programs and the
    progress they are making on the projects. With each of those 10
    that we decided mutually not to move forward on, there were a
    lot of issues that we worked hand in hand with them. We sent
    our field accountants to visit them. We sent our general field
    representatives to visit them. I personally worked with a
    number of them. We met with them. We determined whether or not
    changes they were proposing were consistent with their original
    application. In some cases, they weren't and we weren't able to
    work it out and so we went our separate ways. Not one dime of
    taxpayer money was spent in any of those projects so we were
    able to save the taxpayer by up front making sure that they
    understood what we expected and that they were meeting all of
    the concerns that we had, and if they weren't, we didn't
    hesitate to rescind the projects.
        Mr. Bass. Thank you very much, Mr. Chairman.
        Mr. Walden. Do any other members on our side have questions
    they feel compelled to ask? If not, I will yield 5 minutes to
    the gentlewoman from California.
        Ms. Eshoo. Thank you, Mr. Chairman. And again, thank you to
    both of you for not only being here today but for the work that
    you have done, which really speaks for itself.
        I am going to go as quickly as possible because we are
    under time constraints here. My question is, how does the bill
    that is going to be marked up that you have obviously reviewed,
    how does it differ in any way from your existing mandate or
    practice to terminate grant or loan awards for cause? Is the
    legislative language different from current practices relative
    to the deobligations of funds? When an award is deobligated,
    how does your agency work with the awardee to account for the
    funds? I think that you have touched on that. And how long does
    it take on average for a deobligated fund to be returned to the
    U.S. Treasury, which you already have a responsibility to do.
    And the last thing I want to touch on, which is what both the
    majority and the minority need to work through is this issue of
    the IG, the OIG and where they may identify potential fraud and
    the language of the bill--I mean, we don't want to throw ice
    water on a case that has real potential to it. That is not the
    intent of any member on the committee. So if you want to
    comment on that, it is something that we need to work out, and
    I think that is the intention from both sides of the aisle.
        Mr. Strickling. Yes.
        Ms. Eshoo. In other words, what we are taking up today, how
    different is it from what we have already passed?
        Mr. Strickling. I think on the first part of your question
    related to our practices with respect to deobligating dollars
    and what happens to the dollars and that, I don't think it
    really changes the existing law. In terms of how long that
    takes, in the case of the Indiana project, since there had been
    no expenditures of federal dollars, we were able to very
    quickly return that full amount. In the case of Wisconsin, we
    will do an accounting with the State because we think they have
    spent a nominal amount of dollars. We think it is less than
    $100,000 of allowable costs, which would they be allowed to
    recover, and then the remainder will go to the Treasury, but we
    do have to carry out that accounting.
        Ms. Eshoo. But the legislation doesn't change any of that?
        Mr. Strickling. Fundamentally, no. On the issue of--I mean,
    the second part of the legislation does impose some time limits
    on us in terms of taking actions and reporting to Congress, and
    I think Administrator Adelstein----
        Ms. Eshoo. From what to what?
        Mr. Strickling (continuing). May have had a little more
    experience with the implications of that.
        Ms. Eshoo. From what to what? What is the time frame on it?
        Mr. Adelstein. The time frame is, as the chairman knows, 30
    days we have after we are given any information that pertains
    to potential misuse of funds to make a determination as to
    whether to terminate the project or not, and then we are given
    3 days subsequent to report to Congress what our determination
    was, which is a new requirement. As the Secretary said, all the
    other requirements are basically consistent with existing law.
        Ms. Eshoo. And what is the nexus between that and this
    issue of a possible fraud and the effect that it would have on
    that potential case? Is there a nexus between the two?
        Mr. Adelstein. There could be in some cases. In the case of
    serious fraud, which of course this legislation is designed to
    combat, RUS is generally given an indication by OIG. We get a
    confidential little folder that says confidential, do not
    report, and generally the OIG requests us not to take action to
    rescind a loan or grant if they refer it to the Department of
    Justice for criminal prosecution. So we are asked basically to
    stay out of the way of a criminal prosecution. Under this
    requirement, however, we would be required--we would be at a
    loss, because on the one hand, we are being told not to do it,
    and there is potential obstruction of justice----
        Ms. Eshoo. Mr. Chairman, I think this is the area we need
    to work on.
        Mr. Walden. That is the part we are going to work on. Would
    the gentlewoman yield to me?
        Ms. Eshoo. I would be glad to.
        Mr. Walden. Because I want to just clarify something Mr.
    Adelstein said. You said if you got any information you would
    have to notify us, and actually I think if you look at the
    language in the bill, such information that pertains to
    material noncompliance. That is different than just saying any
    information. We tried to set a fairly high standard.
        Mr. Adelstein. I did say information pertaining to misuse
    of funds, but you are exactly right. That is what the
    legislation says, and it would have to be significant
    information.
        Mr. Walden. Yes, it is not just information.
        Mr. Adelstein. So to your question, I mean, if there was a
    serious one, these are the most serious cases where they
    actually would be referred to DOJ for prosecution. We would be
    sort of in a conflict between the requirement of this law----
        Ms. Eshoo. Well, we need to repair that.
        Mr. Walden. We will work that out.
        Ms. Eshoo. We are going to work that out, but I appreciate
    this being raised because I think it is important, and I think
    that my time is up, Mr. Chairman.
        Thank you again, gentlemen. I think that you have confirmed
    what we already know and have voted on. But thank you. I do
    think that the oversight of the committee is what is really key
    here. Thank you.
        Mr. Walden. I thank the gentlewoman, and I would just say
    that is why we are doing the hearing today is to flesh out
    these sorts of issues and get it right.
        Mr. Doyle.
        Mr. Doyle. Thank you, Mr. Chairman.
        Mr. Strickling, Mr. Adelstein, welcome. Thanks for your
    good work.
        As our last hearing, many of my Republican colleagues
    expressed a belief that overbuilding is a persistent and
    ongoing problem with these BTOP and BIP awards, and now that
    you are finally both here to represent your respective
    agencies, would you once and for all dispel these concerns?
        Mr. Strickling. Sure. I do think it is a misconception with
    our program in particular since we focused on middle-mile
    projects, which are open network projects and available to
    anybody to take advantage of, including the incumbents as well
    as new entrants, and as I pointed out in my opening remarks, we
    have already seen 90 interconnection agreements that have been
    executed between our infrastructure grant recipients and
    carriers who want to take advantage of these facilities to
    improve the level of service that they are offering to their
    end-user customers. So in that light, what we see our role is
    doing is priming the pump. We are putting these middle-mile
    facilities out there through these organizations like Merit in
    Michigan and MCNC in North Carolina that are going to be able
    to provide much middle-mile capacity throughout their States of
    Michigan and North Carolina, just to give two examples, and
    then other parties including incumbents like AT&T in Michigan
    and North Carolina can actually lease capacity on those systems
    to improve the service that they offer to their end-user
    customers.
        So what we did in evaluating our projects was to ensure
    that we would be bringing substantial benefits to the area in
    which the projects would be built, and we think our projects
    pass that test.
        Mr. Doyle. Thank you.
        Mr. Adelstein?
        Mr. Adelstein. Yes, we made a major effort in both rounds
    of funding to prioritize the most remote rural areas. In fact,
    we gave extra points priority for going to rural areas. We gave
    extra points for the number of customers that were totally
    unserved, extra points for being the most remote in eligibility
    standards and trying to get people 50 miles away from an urban
    area, which was actually too extreme for some, so we ended up
    really making every effort I think we could to avoid overlap,
    to make sure that there was service to those who didn't have
    it, and in fact we did get service out to the most rural areas,
    and we are going to serve many, many millions of customers that
    don't have access to broadband today.
        Mr. Doyle. Thank you. Mr. Chairman, I will yield back.
        Mr. Walden. I recognize the gentlewoman from California.
    Just know we have about 5 minutes before we go vote. Otherwise
    we will have to come back after votes.
        Ms. Matsui. I will keep that in mind.
        I want to thank both of you for being here, and I applaud
    your efforts in administering the BTOP and the process. I
    believe Americans will have greater access to broadband because
    of these programs, particularly in my home State of California.
        With that said, the GAO report noted that the uncertainty
    of continued funding for oversight presents a risk that both
    NTIA and RUS will have insufficient staff and resources to
    actively monitor BTOP and BIP projects. I have a question for
    both of you. Do both of you believe you have sufficient funding
    to devote the resources necessary to oversee compliance?
        Mr. Strickling. As of now, yes, and I want to thank the
    leadership of this committee for its help on a bipartisan basis
    to ensuring that we got the resources we needed in this fiscal
    year to provide appropriate oversight, but at the level we are
    currently funded at in the existing C.R., assuming that
    continues through the rest of this fiscal year, we are in fine
    shape, and again, it is through the efforts of the leadership
    of this committee that we got to that point, and I want to
    thank everyone for that.
        Mr. Adelstein. RUS requested no additional funds in order
    to oversee this program so we are basically dealing with it out
    of our existing budget, which was already very tight. So the
    President's full budget really is required in order for us to
    do, I think, the level of oversight that we need to do.
        Ms. Matsui. So what you are saying is that the budget
    currently is fine with you if you don't anticipate any cuts in
    the budget moving forward?
        Mr. Strickling. That is right.
        Ms. Matsui. OK. Fine. And that is all my questions. Thank
    you.
        Mr. Walden. Thank you. I recognize the gentlewoman from
    Tennessee.
        Mrs. Blackburn. Thank you, Mr. Chairman.
        I have a question for Mr. Adelstein, and I will be happy to
    submit it, but I want to refer to the letter that you wrote the
    chairman regarding the recipients of RUS loans using USF money
    to make payments on those loans. And Mr. Chairman, I would love
    for us to have a copy of that letter for the record, the letter
    you sent to the FCC chairman.
        And then my question to you specifically about this, some
    of these loans are for 30 years, and does that mean that we
    shouldn't reform USF until that point in time and are we really
    advocating the use of a ratepayer subsidy to pay off a
    government subsidy? And in light of your letter and your
    conversation in that letter, those would be the two questions.
    We will submit these, and then I would ask for it to be
    included in the record. Yield back.
        Mr. Walden. Without objection.
        Anyone else seeking recognition? If not--if you want to,
    yes.
        Mrs. Christensen. I will just ask one.
        Mr. Walden. The gentlelady from the Virgin Islands is
    recognized.
        Mrs. Christensen. Thank you.
        The bill calls for termination for insufficient
    performance, and while I am sure some fall in that category may
    need termination, we are trying to expand to places that are
    rural and don't have a lot of experience, and don't you think
    that maybe some of those should get technical assistance and
    support rather than just be terminated? That is my question.
    And I just wanted to say I have evidence of really tight
    oversight in a letter to my government that I received a copy
    of. Thanks.
        Mr. Strickling. Just very, very briefly, I think in terms
    of insufficient performance from our perspective, we do intend
    to provide technical assistance where we can to work with our
    grantees to help them over the bumps that they may run to. I
    think an example of insufficient performance could be where the
    entire project management staff resigns and leave a program and
    there doesn't seem to be a plan in place to bring leadership to
    the project. In that kind of situation, we take a hard look at
    it and wonder whether it is worth continuing on.
        Mr. Adelstein. And we perform similarly. We make every
    effort to work with our rural awardees because some of them are
    really struggling sometimes, and each one of the 10, we tried
    to work to save the ones we could. Sometimes they couldn't be
    done. But we will give them every opportunity to comply and to
    make it work.
        Mr. Towns. I recognize time constraints, so I have some
    questions and I would like to place in the record.
        Mr. Walden. Absolutely. Yes, all members have that
    privilege to submit questions for the record. Thank you, and I
    appreciate your courtesy in trying to help us move this along.
        With that, the hearing is adjourned.
        [Whereupon, at 11:12 a.m., the subcommittee proceeded to
    other business.]
        [Material submitted for inclusion in the record follows:]