[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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                    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:]




                                 
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