[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
BROADBAND LOANS AND GRANTS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MAY 16, 2012
__________
Serial No. 112-143
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
U.S. GOVERNMENT PRINTING OFFICE
79-965 WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky 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 ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina GENE GREEN, Texas
Vice Chairman DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma LOIS CAPPS, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire MIKE ROSS, Arkansas
PHIL GINGREY, Georgia JIM MATHESON, Utah
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington DORIS O. MATSUI, California
GREGG HARPER, Mississippi DONNA M. CHRISTENSEN, Virgin
LEONARD LANCE, New Jersey Islands
BILL CASSIDY, Louisiana KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia
7_____
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
MARSHA BLACKBURN, Tennessee DONNA M. CHRISTENSEN, Virgin
BRIAN P. BILBRAY, California Islands
CHARLES F. BASS, New Hampshire 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 (ex
ADAM KINZINGER, Illinois officio)
JOE BARTON, Texas HENRY A. WAXMAN, California (ex
FRED UPTON, Michigan (ex officio) 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........................................... 4
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 6
Hon. Lee Terry, a Representative in Congress from the State of
Nebraska, opening statement.................................... 7
Hon. Charles F. Bass, a Representative in Congress from the State
of New Hampshire, opening statement............................ 7
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 8
Witnesses
Larry E. Strickling, Assistant Secretary for Communications and
Information, National Telecommunications and Information
Administration, Department of Commerce......................... 9
Prepared statement........................................... 12
Answers to submitted questions............................... 114
Jonathan Adelstein, Administrator, Rural Utility Service,
Department of Agriculture...................................... 26
Prepared statement........................................... 29
Answers to submitted questions............................... 128
Todd J. Zinser, Inspector General, Department of Commerce........ 37
Prepared statement........................................... 39
Answers to submitted questions............................... 134
David R. Gray, Deputy Inspector General, Department of
Agriculture.................................................... 57
Prepared statement........................................... 58
Answers to submitted questions............................... 136
Submitted Material
Article, dated May 7, 2012, ``Firm to audit W.Va. broadband
stimulus spending,'' by Eric Eyre, The Charleston Gazette,
submitted by Mr. Walden........................................ 65
Article, dated May 5, 2012, ``State paid $22K each for Internet
routers,'' by Eric Eyre, Saturday Gazette-Mail, submitted by
Mr. Walden..................................................... 67
Article, dated May 6, 2012, ``Internet routers have sat unused
for nearly two years,'' by Eric Eyre, The Charleston Gazette,
submitted by Mr. Shimkus....................................... 86
Letter, dated November 9, 2011, from committee and subcommittee
leadership to Mr. Adelstein, submitted by Mr. Stearns.......... 97
Letter, dated Dec. 16, 2011, from Mr. Adelstein to Mr. Upton,
submitted by Mr. Stearns....................................... 101
Article, dated May 7, 2012, ``Congress Investigating Cable
Operator Allegations Around Minnesota Fiber Network Funded by
BIP Loan,'' Communications Daily, submitted by Mr. Stearns..... 104
BROADBAND LOANS AND GRANTS
----------
WEDNESDAY, MAY 16, 2012
House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2123, Rayburn House Office Building, Hon. Greg Walden
(chairman of the subcommittee) presiding.
Members present: Representatives Walden, Terry, Stearns,
Shimkus, Bilbray, Bass, Gingrey, Scalise, Latta, Guthrie,
Kinzinger, Barton, Eshoo, Matsui, Barrow, Christensen, Pallone,
and Waxman (ex officio).
Staff present: Carl Anderson, Counsel, Oversight and
Investigations; Ray Baum, Senior Policy Advisor/Director of
Coalitions; Michael Beckerman, Deputy Staff Director; Nicholas
Degani, FCC Detailee; Andy Duberstein, Deputy Press Secretary;
Neil Fried, Chief Counsel, Communications and Technology;
Debbee Keller, Press Secretary; Brian McCullough, Senior
Professional Staff Member, Commerce, Manufacturing, and Trade;
Katie Novaria, Legislative Clerk; David Redl, Counsel,
Communications and Technology; Charlotte Savercool, Executive
Assistant; Daniel Tyrrell, Counsel, Oversight and
Investigations; Phil Barnett, Democratic Staff Director; Shawn
Chang, Democratic Senior Counsel ; Elizabeth Letter, Democratic
Assistant Press Secretary; Karen Lightfoot, Democratic
Communications Director and Senior Policy Advisor; Margaret
McCarthy, Democratic Professional Staff Member; Roger Sherman,
Democratic Chief Counsel; David Strickling, Democratic FCC
Detailee; and Kara Van Stralen, Democratic Special Assistant.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. We will call to order the Subcommittee on
Communications and Technology for our hearing on broadband
loans and grants, and certainly welcome our witnesses, the
audience and our members.
Today marks the third oversight hearing of our subcommittee
to examine whether taxpayers are getting their money's worth
from the broadband loan and grant programs of the National
Telecommunications and Information Administration and the Rural
Utilities Service.
Our past hearings have focused on the Broadband Technology
Opportunities Program and the Broadband Initiative Program and
rightly so. The Recovery Act allocated $7.2 billion--billion--
to these programs, dwarfing previous broadband loan and grant
programs in size. And even though these agencies did not have
grant-making experience or operations scaled to such a large
project, the Recovery Act required that all awards be doled out
within 18 months.
We were told such haste was necessary to get the economy
going and the money would go to ``shovel-ready projects.'' It
has now been 3 years since the Recovery Act created BTOP and
BIP, and more than 18 months since the last broadband loans and
grants were awarded.
The fiber is beginning to fill the trenches. While all the
money has been awarded, however, only about a third of it has
been spent. And what have we gotten in return for that $2.5
billion? Well the National Broadband Map is one thing; I think
that was about $300 million for the map. And it tells us that
98.3 percent of Americans had access to high-speed broadband
service in mid-2011. That is up from the 95 percent estimate in
the 2010 National Broadband Plan.
That apparent 3.3 percent jump, however, cannot be
attributable to the broadband funding, since the money is only
now working its way through the system. And I know that we have
a lot of impressive statistics.
Administrator Strickling notes in his written testimony
that 56,000 miles of broadband infrastructure have already been
built or improved upon using BTOP funds. Administrator
Adelstein notes that more than 100 colleges and technical
schools and 600 rural health care facilities are in areas
served by BIP grantees and loan recipients. Indeed, I have seen
evidence of this buildout in my own rural district.
But these statistics do raise some questions. How many of
those miles already had broadband infrastructure, because we
are concerned about overbuilding? How many of those colleges
and technical schools and rural health care facilities already
had access to high speed broadband? Overbuilding has been a
perennial concern when government gets involved. So I would
like to hear how the agencies are taking into account existing
deployments when they provide us these numbers.
And even if these were new deployments, might the private
sector have met these needs more efficiently in the absence of
this cumbersome subsidy program?
So I would like to know how all of those miles translate
into additional access. And I would like to know how much that
additional access is costing us all.
And before turning away from the stimulus funded broadband
grants and loans, I wanted to thank Mr. Bass again, who is on
the committee, who took the lead in our committee on the House
floor last year on making sure that NTIA and RUS were properly
looking into allegations of waste, fraud and abuse and
returning those unused dollars or reclaimed money to the United
States Treasury.
So, Charlie, thank you for your work and leadership on
that.
Although our focus has been on BTOP and BIP, our
responsibility to treat taxpayer money with utmost care extends
even to the smaller broadband loans and grants programs of RUS.
I have two primary concerns about these programs. First, many
of them appear to fund the same names as the Universal Service
Fund, rather than dividing management between two agencies and
oversight between two sets of inspectors general, consolidating
the administration of these programs might save the taxpayer
administration costs while reducing inefficient spending.
Second, I am concerned about the performance of these RUS
programs. The Open Range loan alone may cost taxpayers millions
of dollars, and other loans may fall through because RUS
assumed that the Universal Service Fund subsidies would
reimburse the subsidies it was providing but apparently did not
anticipate the FCC would reform the Universal Service Fund's
high-cost program, a scenario we have talked about in private
and public and one that we remain concerned about just the
funding scheme behind these loans and whether they stay
current.
I look forward to hearing from Administrators Strickling
and Adelstein to explain to us the performance of their
broadband loan and grant programs, to guide us through the
statistics to the facts on the ground.
And I look forward to hearing from the Inspectors General
Zinser and Deputy Inspector General Gray on their ongoing
oversight and how well NTIA and RUS have incorporated past
recommendations into their work.
So, gentlemen, thank you very much for being here today.
And with that, I would yield back the balance of my time
and recognize the ranking member from California, Ms. Eshoo.
[The prepared statement of Mr. Walden follows:]
[GRAPHIC] [TIFF OMITTED] 79965.001
[GRAPHIC] [TIFF OMITTED] 79965.002
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman.
I am pleased to welcome back to the committee Assistant
Secretary Larry Strickling and RUS Administrator Jonathan
Adelstein, who also served with distinction as a commissioner
at the FCC.
Your work to advance our Nation's broadband infrastructure
has and will continue to bring broadband to more American
homes, anchor institutions and public computer facilities. And
I thank you for your work. This is a big lift, and it is
important for us to examine all parts of it, but I want you to
know that I appreciate and respect your work.
Since our hearing last year, NTIA and RUS have continued to
make progress to achieve the Recovery Act's stated goals for
expanding broadband deployment and adoption. Notably, NTIA has
reached 90 percent of its fiscal year 2012 goal by supporting
the deployment of 56,000 new or upgraded network miles across
our country. And through RUS funding, 625,000 households, about
1.5 million people, have access to new or improved broadband
service. So I think that this is real progress.
These programs are creating jobs and are fueling new
economic opportunities that would not be possible without
broadband. For example, using NTIA funds, the Foundation For
California Community Colleges has launched a program to
increase digital literacy skills and broadband adoption among
low-income residents in 18 counties in California.
Today, the program has enrolled more than 5,800 students,
distributed 4,400 laptops and recorded 5,305 new broadband
subscribers. But the short- and long-term success of these and
other projects will depend on continued oversight from the
Inspector General's Office. I have great respect and admiration
for the IG's work, and I am pleased that we will hear from them
today. The important work of the IG's office, including
investigations to determine if there is any waste or fraud,
will ensure that the taxpayers' investment is protected.
I recognize there will be challenges along the way. Last
Friday's decision to partially suspend the seven regional
public safety projects is one I know NTIA weighed very
carefully. I think it is the correct action to protect taxpayer
dollars and ensure that these projects are deployed consistent
with the recently enacted legislation that we worked so hard on
to construct a nationwide, interoperable broadband network for
our first responders.
So thank you to each one of you for being here and for your
work, and I look forward to your important testimony that is
going to guide our subcommittee's ongoing oversight of the
Recovery Act broadband grants and loans.
And with that, I will yield back the balance of my time.
Mr. Walden. The gentlelady yields back the balance of her
time.
The chairman recognizes the gentleman from Nebraska, Mr.
Terry, for 5 minutes.
OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEBRASKA
Mr. Terry. Thank you, Mr. Chairman, for holding this
hearing so we can continue our oversight on the ARRA, dollars
being spent on behalf of making sure that all citizens in
unsupported areas have connectivity, have access to the
broadband backbone.
Now, I think some of the key areas you have already stated,
Mr. Chairman, but I want to reiterate that ARRA funds were
supposed to help fund shovel-ready projects that would be
completed within 2 years, but here we are 3 and a half years
later, and the fact is that recipients of $4 billion in NTIA
awards have spent just $1.6 billion and less than a dozen
projects have been completed; recipients of $2.4 billion in RUS
awards have spent only $968 million, and only five projects
have been completed. Maybe this is because too many have been
found to be unwarranted or redundant and the money is pulled
back or the project, so I want to hear why more haven't been
completed.
But also, the stimulus funds combined with BTOP and BIP
grant loans, the issue of subsidizing or subsidizing overbuilds
has been a question we have had since day one. And we have
already received complaints in the State of Nebraska about an
entity that was all privately funded, business, now has
competition laid over it with government subsidized broadband.
So those are the type of things I want to hear about as well.
And then, Mr. Adelstein, if you reviewed and seen if any
RUS loans have been put in jeopardy because of new projects; do
you think there has been an impact on their ability to repay?
Those are the questions I am listening for answers to.
And at this point, I will yield to my friend, Charlie Bass.
OPENING STATEMENT OF HON. CHARLES F. BASS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW HAMPSHIRE
Mr. Bass. I thank my friend from Nebraska for yielding to
me.
And I would like to associate myself with not only his
remarks but also the remarks of the subcommittee chairman and
have my regular statement, without objection, be made part of
the record.
Mr. Walden. Without objection.
Mr. Bass. Mr. Chairman, thank you for having this hearing.
And as was mentioned, we are interested in making sure that
these funds are spent where they are supposed to be, that there
are no, that we know a process of oversight occurs and that we
don't have any embarrassing hearings at a later date about
either the abuse or misuse of funding in this very large
program.
It is also important to focus on whether or not this
buildout is going where it is really needed, and it is not
paralleling any existing capacity and competing directly with
incumbent carriers or anybody else who is trying to provide, as
my friend from Nebraska said, competing services.
I do have a constituent in New Hampshire who has raised
significant capital to build out areas that are now, because of
this program, putting this company's business plan in real
doubt because they are going to have to compete with a vendor
that is subsidized by the stimulus grant.
That doesn't create jobs. For every job that is created, we
may lose jobs on the other side, and that is not how I define
stimulus. So I hope that this program can be implemented with a
sensitivity to the fact that it needs to go where it is really
needed and not parallel existing capacity and not be set up in
direct competition with private entities that are trying to do
it the way, the old-fashioned way, which is to build it on the
basis of a sound, profitable business plan.
And so, with that, Mr. Chairman, I will yield back.
Mr. Walden. The gentleman yields back to the gentleman from
Nebraska.
Do you yield back your time, Mr. Terry?
Mr. Terry. Yield back.
Mr. Walden. Yields back.
The chair recognizes Mr. Waxman for 5 minutes.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Chairman Walden, for scheduling this
hearing.
This is our third oversight hearing regarding the broadband
programs created by the Recovery Act, and I support the
chairman's ongoing effort to exercise our committees's
oversight of these programs and ensure they are being managed
wisely and responsibly.
I would like to welcome Assistant Secretary Strickling,
Administrator Adelstein, back to the Energy and Commerce
Committee.
Your efforts to set up the broadband programs are paying
off. Broadband will soon be available in places where this
essential communication service has never been available
before.
In particular, I want to commend Assistant Secretary
Strickling for NTIA's transparency and accountability measures.
These show that the vast majority of broadband grants awarded
by NTIA are meeting or exceeding project benchmarks and are
well on the way to becoming completed by the end of next year.
Administrator Adelstein, I would encourage you to follow
NTIA's model. It has been harder for us to get information
about the status of your grants than NTIA's. More regular
tracking and reporting of all RUS projects would improve
confidence in your programs.
We had a vigorous debate about the merits of the Recovery
Act and the broadband programs it funded in the last Congress.
Our role today should not be to relitigate those issues.
Instead, our focus should be on our joint interest in ensuring
the funds are being well managed and the taxpayers' interests
are being protected.
We also have new issues to consider in light of the
February enactment of the spectrum and public safety provisions
in the bipartisan Middle Class Tax Relief and Job Creation Act.
The law created a First Responder Network Authority, or
FirstNet, to oversee the design and construction of a new
broadband public safety network. It is essential that the
projects funded by public safety grants awarded under the 2009
Recovery Act be harmonized with the FirstNet network.
And I want to commend NTIA's difficult but necessary
decision last week to partially suspend these public safety
awards. We all want these public safety projects to be
completed on a timely basis, but the ultimate success of these
projects will depend on how well they fit into the rest of the
nationwide network.
By going a little slower now, NTIA is helping to ensure
that we achieve the nationwide interoperable network we should
all want.
This short delay is prudent because it will help achieve
the long-term goals of these grants, but it should not become a
prolonged slowdown. We need to do everything possible to help
public safety grant recipients move forward as expeditiously as
possible.
I thank all of today's panelists for your participation. I
look forward to your testimony, and unless any of my colleagues
on the Democratic side wish any time--I will yield my time
back.
Mr. Walden. I thank the gentleman.
The gentleman yields back his time.
And we will now proceed with our witnesses.
STATEMENTS OF LARRY E. STRICKLING, ASSISTANT SECRETARY FOR
COMMUNICATIONS AND INFORMATION, NATIONAL TELECOMMUNICATIONS AND
INFORMATION ADMINISTRATION, DEPARTMENT OF COMMERCE; JONATHAN
ADELSTEIN, ADMINISTRATOR, RURAL UTILITY SERVICE, DEPARTMENT OF
AGRICULTURE; TODD J. ZINSER, INSPECTOR GENERAL, DEPARTMENT OF
COMMERCE; AND DAVID R. GRAY, DEPUTY INSPECTOR GENERAL,
DEPARTMENT OF AGRICULTURE
Mr. Walden. And we will start with Mr. Strickling. Thank
you for being here, sir, and we look forward to your testimony.
STATEMENT OF LARRY E. STRICKLING
Mr. Strickling. Thank you, Chairman Walden, and I would
also like to acknowledge Ranking Member Eshoo, Vice Chair
Terry, and Mr. Waxman.
I want to thank you all for the opportunity to testify this
morning regarding the status of NTIA's broadband programs. I am
also pleased to appear here today with our Inspector General,
Todd Zinser, who has helped us improve our oversight of these
programs, as well as RUS Administrator Jonathan Adelstein,
whose agency the Department of Agriculture is celebrating its
150th anniversary this week.
Today I am proud to report that our broadband grant
recipients are making significant progress and delivering
meaningful benefits to their communities. Taken as a group, our
projects are exceeding their performance goals in deploying new
infrastructure, constructing new public computer centers and
encouraging greater Internet adoption.
As of March 31, our grantees have deployed more than 56,000
miles of broadband infrastructure. They have connected more
than 8,000 community anchor institutions to high-speed
broadband service. They have installed more than 30,000 work
stations in public computer centers where they have provided
more than 7 million hours of technology training to
approximately 2 million users. We have generated approximately
350,000 new broadband subscribers, and our grantees have funded
more than 4,000 jobs in the second quarter of the fiscal year.
As impressive as these numbers are, they only tell part of
the story. We hear from people across the country validating
the need for these projects and the benefits they bring. Our
investments are helping fiberoptic cable manufacturers and
other businesses to create jobs. We are stimulating demand for
broadband services, such as smart grid, telehealth and remote
learning, and we are retraining workers to give them the skills
they need to compete in the 21st century economy.
One of our California grantees, the California Emerging
Technology Fund, has helped over 1,000 people find jobs through
its training program.
These broadband investments are also priming the pump for
additional investment by public and private entities. Our
philosophy to focus on middle mile projects combined with our
open access and interconnection requirements are making it
easier for incumbents and other last mile providers to expand
their broadband services and speeds for American consumers and
businesses. To date, our grantees have entered into 400
interconnection agreements with last mile and other providers.
As you are aware, protecting these Federal funds is of
paramount importance to NTIA, and we have been providing
diligent oversight and technical assistance to our recipients.
To do so requires adequate resources, and we appreciate the
bipartisan support you have provided to ensure that we have the
resources we need for these tasks. Our focus, as it has always
been, is to ensure that our grantees complete their projects on
schedule and on budget and provide the benefits they promised
to their communities.
We designed our oversight program to mitigate waste, fraud
and abuse, to ensure compliance with award conditions and to
monitor each project's progress. Our staff is in frequent
contact with recipients and requires them to report regularly
on key financial and programmatic activities. To date, we have
also conducted more than 130 site visits to projects
representing 80 percent of the grant dollars, we have held
three grantee workshops, hosted over 50 Webinars and conducted
more than 3,000 check-in and conference calls. These activities
help us to identify and resolve issues as soon as possible. We
have been able to provide technical assistance that has helped
some projects get back on track.
In a few cases, however, our oversight has led to the
cancellation of projects, and to date, eight projects, totaling
$125 million in Federal funds, have been canceled. And while I
am disappointed that these projects will not deliver their
intended benefits to their communities, I am pleased that our
diligence and oversight and our early intervention will result
in 99 percent of the Federal dollars being returned to the
Treasury.
We intend to apply many of the lessons learned from our
broadband grants to the new public safety broadband network
called for in the Middle Class Tax Relief and Job Creation Act
of 2012. Thanks to your work, Congress created FirstNet as an
independent authority within NTIA and has allocated $7 billion
of spectrum auction proceeds to build, deploy and operate a
nationwide interoperable public safety broadband network. We
are many committed to the success of this network because of
what it promises in improved safety and better communications
for first responders.
Consistent with this goal, we recently took the difficult
but necessary step of partially suspending the projects of our
seven public safety broadband recipients. The new law
dramatically changed the assumptions on which we awarded these
grants in 2010 and allowing these seven projects to continue
unchecked before the FirstNet board has even met, much less
made the basic technical decisions about the new network could
have put at risk millions of taxpayer dollars and negatively
impacted the success of first net.
In the coming weeks, we will work closely with each
recipient to find the best path forward with the dual goals of
keeping their grant dollars in their communities and ensuring
that this equipment can ultimately be incorporated into
FirstNet.
Going forward, NTIA is focused on maintaining rigorous
oversight for its broadband grants as they cross the finish
line while working to ensure their sustainability and leverage
the projects to the fullest extent possible. We are also
ramping up to meet our next broadband challenge with first net,
and I look forward to working with you as we achieve these
goals. Thank you.
Mr. Walden. Thank you Mr. Strickling.
[The prepared statement of Mr. Strickling follows:]
[GRAPHIC] [TIFF OMITTED] 79965.003
[GRAPHIC] [TIFF OMITTED] 79965.004
[GRAPHIC] [TIFF OMITTED] 79965.005
[GRAPHIC] [TIFF OMITTED] 79965.006
[GRAPHIC] [TIFF OMITTED] 79965.007
[GRAPHIC] [TIFF OMITTED] 79965.008
[GRAPHIC] [TIFF OMITTED] 79965.009
[GRAPHIC] [TIFF OMITTED] 79965.010
[GRAPHIC] [TIFF OMITTED] 79965.011
[GRAPHIC] [TIFF OMITTED] 79965.012
[GRAPHIC] [TIFF OMITTED] 79965.013
[GRAPHIC] [TIFF OMITTED] 79965.014
[GRAPHIC] [TIFF OMITTED] 79965.015
[GRAPHIC] [TIFF OMITTED] 79965.016
Mr. Walden. Mr. Adelstein, we are delighted to have you
back before the committee. We look forward to your testimony as
well. Please proceed.
STATEMENT OF JONATHAN ADELSTEIN
Mr. Adelstein. Thank you, Mr. Chairman, Ranking Member
Eshoo, it is great to be back and thanks for the opportunity to
testify on the progress of our broadband investments.
It is also good to be back together with Larry Strickling,
who has been my partner, such a wonderful partner in all this.
You mentioned this is our third time together, so let's hope
the third time is the charm. And it is great to be here with
our inspector general as well.
I appreciate your help in getting this program running as
well as it can be.
I am pleased to report to you that the broadband initiative
program is right on track. It is creating thousands of jobs. It
is providing new and improved broadband service, and it is
proceeding as the administration and Congress expected.
The Recovery Act will pay dividends to rural communities
and the entire country for years to come. These projects are
creating high-wage high-skill jobs right now as they are being
built. As they were being planned they were creating jobs. They
will create more jobs as they become operational, and they will
provide the foundation for even more jobs and economic growth
as broadband is used by communities to spur innovation, new
business and employment opportunities.
RUS broadband investments will connect nearly 7 million
rural Americans, including 360,000 businesses in more than
30,000 critical community institutions, like schools, health
care facilities and rural public safety agencies. They will
bring broadband to 45 States and one U.S. territory. Grant
dollars were targeted to those areas that were in the greatest
need of service and to those that were the most rural. They
overlap with 31 tribal lands, including Warm Springs, which we
provided a grant to in your district and 125 persistent poverty
counties, which is most of the persistent poverty counties in
the United States. They are projected to create more than
25,000 immediate and direct jobs for rural workers in a variety
of industries and countless more as the communities benefit
from the broadband once it is deployed.
Data provided by the U.S. Department of Education show that
more than 1 million K-12 students attend schools within areas
served by BIP awards. More than 100 colleges and technical
schools are located in those same areas, as you indicated. HHS
data shows that nearly 600 rural health care facilities are
located in areas served by BIP awardees. All of these health
care facilities can expand use of telemedicine, electronic
medical records initiatives and improve the quality of health
care for citizens in those areas.
Now the Recovery Act funded two types projects; those that
were immediate and those that were transformative. Big
infrastructure projects, like the ones RUS has been financing
now for 60 years, whether done by telecommunications, water or
electric facilities, are transformative, and they do take time
to build out. Projects have to be carefully planned constructed
and operated. All awardees must comply with Federal, State,
environmental, historic preservation and, in some cases, tribal
or intergovernmental reviews that often require significant
consultation with the public. Based on our experience, these
projects are on track with what we have seen historically in
terms of the time it takes to build out these large broadband
projects.
But RUS is working hard to accelerate the spending of
remaining funding. We have repeatedly urged awardees to move
quickly. Our field employees are vigorously monitoring and
working with our awardees to get construction underway.
Compliance is being carefully monitored by our field staff as
well as our staff in D.C. We are actively working with
awardees, Federal partners and government entities to address
issues impacting the completion of the projects. We are
vigilant to ensure that the projects remain viable. Our goal is
to make sure that each one of these succeeds.
We also want to build businesses on top of these networks.
RUS's traditional broadband programs serve as a strong
foundation for an initiative we launched called Build Out and
Build on. It encourages continued expansion of broadband
economic growth impact using all of our programs, including the
rural business services so that we can build businesses on top
of the new broadband networks we are creating.
One of the ongoing challenges in building out broadband in
rural areas is ensuring the financial feasibility and
sustainability of the proposed service providers. Strong rural
economies buttress the availability of sufficient revenue
sources to make these projects succeed.
RUS appreciates our partnership with the USDA OIG to ensure
that our programs meet their statutory objectives. All OIG
concerns and recommendations raised with regard to the previous
Farm Bill Broadband Loan Program have been addressed. That
audit, which is the central topic of today's OIG testimony, was
closed over a year ago.
I compliment OIG for raising concerns with the statutory
definition of rural in the 2002 Farm Bill. RUS could not, of
course, change that definition on its own. Only Congress can do
that, and Congress itself did act in the 2008 Farm Bill to
revise the definition of ``rural,'' and that definition has
been completely implemented by RUS.
I am pleased to report that this administration made no
loans under the broadband program until all OIG concerns and
recommendations were addressed and RUS final actions were
accepted.
We look forward to continuing to work with OIG on the
Recovery Act and look forward to any recommendations we may
receive in the future regarding the program.
There are a lot of challenges that remain in terms of
getting broadband out to rural communities. These places have,
as you know, coming from Oregon, and as many you know from
rural parts of the country, maybe not so much our ranking
member, there is a little bit of a rollback on the hills, but
there is a lot of difficult terrain out there. There are high
costs associated with distance and topography. Access to a
skilled workforce is sometimes lacking, as long-term financial
feasibility is more difficult when you are trying to build out
over large areas, but we are continuing to see an explosion of
new technology that can increase access to health care, expand
education opportunities and facilitate all kinds of new
business activity. But their success will rely on having
broadband in those areas so it is an honor with your support to
make that possible.
I thank the committee and its members for the opportunity
to testify and look forward to any questions you may have much.
Mr. Walden. We appreciate your testimony. Thank you again
for being here.
[The prepared statement of Mr. Adelstein follows:]
[GRAPHIC] [TIFF OMITTED] 79965.017
[GRAPHIC] [TIFF OMITTED] 79965.018
[GRAPHIC] [TIFF OMITTED] 79965.019
[GRAPHIC] [TIFF OMITTED] 79965.020
[GRAPHIC] [TIFF OMITTED] 79965.021
[GRAPHIC] [TIFF OMITTED] 79965.022
[GRAPHIC] [TIFF OMITTED] 79965.023
[GRAPHIC] [TIFF OMITTED] 79965.024
Mr. Walden. Now we are going to hear from the inspector
general from the Department of Commerce, the honorable Todd
Zinser.
Mr. Zinser, thank you for being here as well. We appreciate
your work and we look forward to your testimony.
STATEMENT OF TODD J. ZINSER
Mr. Zinser. Thank you, Mr. Chairman, Ranking Member Eshoo,
members of the subcommittee, and thank you for the opportunity
to testify today about the Broadband Technologies Opportunities
Program and the challenges facing the program moving forward.
The BTOP program is currently funding 228 grants, totaling
$3.8 billion. The grants were awarded in three categories.
There are 120 infrastructure grants, which total more than $3.3
billion. This is a approximately 88 percent of the program's
funding. Seven of these grants, totaling more than $380
million, were awarded to fund interoperable public safety
network projects.
There are 65 public computer center grants, which total
just about $200 million, around 5 percent of the program's
funding, and 43 grants for sustainable broadband adoption,
which total $250 million or around 6 percent of the program's
funding.
Since our testimony before the subcommittee last year, we
have examined NTIA's program for monitoring its BTOP grants,
looked into one of the public safety grants and recently
completed an audit of how well NTIA is managing the matching
share requirements under the program.
This morning, we would like to highlight five issues
concerning the BTOP program. First is the rate of spending.
BTOP spending has improved since the end of the last fiscal
year, from 20 percent at the end of September 2011 to 42
percent as of the end of last month. However, the disbursement
rate of infrastructure grants, including the public safety
awards, remain critical watch items. Many of these
infrastructure projects, around 41 percent of them, have spent
40 percent or less of their grant moneys and are at some risk
of not meeting spending deadlines.
One common problem causing project delays, outstanding
environmental assessments have been largely resolved.
Nevertheless these initial delays and other reasons, such as
local permitting and predeployment activities, still affect the
likelihood of BTOP project's timely completion.
Second, while NTIA is addressing our recommendations to
strengthen its oversight, equipment procurement needs to become
more of a focus. We think that NTIA has been successful in
establishing a BTOP program office and addressing the
challenges such a diverse program encounters. This past fall,
we reviewed the agency's award monitoring program and
recommended ways NTIA can improve the tools it uses to oversee
the grants, including the need to verify data provided by the
grantee and closer tracking of those projects that have
schedule risks.
NTIA has responded with a number of corrective actions. As
BTOP continues, NTIA's next focus should be whether or not the
equipment for these projects can be procured and deployed on
schedule and meet the specifications necessary to achieve
intended BTOP objections.
Third, our issues concerning grant match documentation.
Grant match is an important Federal requirement. While Federal
funding for BTOP is $3.8 billion, the grantees have committed
to providing more than $1.4 billion in matching funds. We have
issued a draft report to NTIA. For the most part, we did not
find significant problems with grantees' matching shares, but
we will be making recommendations to strengthen NTIA's
oversight of this area, especially with respect to how grantees
account for and document their matching shares and their
financial records.
Fourth, NTIA has a new program called FirstNet which will
impact the seven public safety projects funded by BTOP.
FirstNet is the name given to the recently authorized first
responder network authority, which NTIA is charged with
establishing. Presumably, the seven BTOP public safety projects
will need to transition to FirstNet if they are deemed
compatible. In doing so, those projects will need to address
issues with FCC spectrum waiver transfers, long-term evolution
technology purchases and extensions to project deadlines
associated with the BTOP grants.
Finally, Mr. Chairman, we wanted to inform the subcommittee
that we have requested a waiver from the provisions of the
Dodd-Frank legislation that requires Recovery Act funds be
returned to the Treasury if they are not obligated by December
31, 2012. We requested a waiver because the Recovery Act funds
transferred to us to oversee the BTOP program are being used to
pay the salaries of investigators and auditors. Unlike grants
or contracts, we cannot obligate funds for salaries in advance.
So we have requested a waiver. Without the waiver, we will lose
our dedicated funding 9 months before many of the projects
funded by the BTOP grants are even required to be finished.
As you know, Mr. Chairman, audit and investigative
activities can extend long after the completion of a project.
While our communications with the department and OMB have been
positive, we do not yet have a waiver, causing a great deal of
uncertainty about our future oversight efforts for BTOP. We
also note in our testimony that NTIA is facing funding issues
for its oversight of the program as well.
This concludes my statement Mr. Chairman.
I would be happy to answer any questions you or other
members of the subcommittee may have.
Mr. Walden. Mr. Zinser, thank you. Thanks for the work you
do and your colleagues.
[The prepared statement of Mr. Zinser follows:]
[GRAPHIC] [TIFF OMITTED] 79965.025
[GRAPHIC] [TIFF OMITTED] 79965.026
[GRAPHIC] [TIFF OMITTED] 79965.027
[GRAPHIC] [TIFF OMITTED] 79965.028
[GRAPHIC] [TIFF OMITTED] 79965.029
[GRAPHIC] [TIFF OMITTED] 79965.030
[GRAPHIC] [TIFF OMITTED] 79965.031
[GRAPHIC] [TIFF OMITTED] 79965.032
[GRAPHIC] [TIFF OMITTED] 79965.033
[GRAPHIC] [TIFF OMITTED] 79965.034
[GRAPHIC] [TIFF OMITTED] 79965.035
[GRAPHIC] [TIFF OMITTED] 79965.036
[GRAPHIC] [TIFF OMITTED] 79965.037
[GRAPHIC] [TIFF OMITTED] 79965.038
[GRAPHIC] [TIFF OMITTED] 79965.039
[GRAPHIC] [TIFF OMITTED] 79965.040
[GRAPHIC] [TIFF OMITTED] 79965.041
[GRAPHIC] [TIFF OMITTED] 79965.042
Mr. Walden. Mr. David Gray is up next. He is the deputy OIG
for the U.S. Department of Agriculture, and happy 150th
birthday to the Department.
STATEMENT OF DAVID R. GRAY
Mr. Gray. Thank you. Good morning, Chairman Walden and
Ranking Member Eshoo, and other members of the subcommittee. I
appreciate the opportunity to appear before you today and talk
about our oversight work of the Department of Agriculture and
RUS's broadband grant and loan programs.
Our inspector general appeared before you last February of
2011 and spoke about the audits that we had performed in 2005
and 2009 of the RUS's administration of its regular broadband
loan programs.
In those audits, we found that RUS was funding projects and
communities that were close to major metropolitan areas. We
also had concerns over the funding of projects in areas with
preexisting broadband service.
At the time of our second audit, RUS was soon to receive
the $2.5 million under the Recovery Act to implement BIP.
Following our meeting with the subcommittee, we began a two-
phased audit work. The first phase focuses on the controls that
RUS had in place pre-award, and our second phase audit focuses
on its post-award controls.
Our first phase audit should be complete this September,
and the second phase audit should be completed by the end of
December or hopefully before then the end of December.
We expect that our current work will identify some of the
same issues as our prior audits as they relate to BIP
specifically. However BIP differs from the existing and prior
broadband programs significantly. For one thing, they received
significantly more money than any previous RUS broadband
program.
Also, because BIP was a new program, it was necessary for
RUS to define and interpret key statutory criteria including,
to what extent served areas should be rural and which areas
should receive priority? For our audits, we selected a
statistical sample that allows us to provide a broad
perspective and to provide nationwide analysis.
Our sampling for both phases include a selection from all
three of the projects that BIP funds, interest, infrastructure,
satellite and technical assistance programs projects. Because
RUS's interpretation of the Recovery Act policies will shape
how it administers BIP, we will be looking to make sure that
these definitions, terms and usages meet the purpose of the
Recovery Act and the Recovery Act funds are used as intended to
benefit rural areas and communities.
We are committed to working with RUS to ensure that these
broadband programs and operations fulfill their important
missions as intended.
This concludes my written statement. Thank you, again, for
inviting me, and we are happy to answer any questions.
Mr. Walden. Mr. Gray thank you for your testimony and for
the work that you and your colleagues do.
[The prepared statement of Mr. Gray follows:]
[GRAPHIC] [TIFF OMITTED] 79965.043
[GRAPHIC] [TIFF OMITTED] 79965.044
[GRAPHIC] [TIFF OMITTED] 79965.045
[GRAPHIC] [TIFF OMITTED] 79965.046
[GRAPHIC] [TIFF OMITTED] 79965.047
[GRAPHIC] [TIFF OMITTED] 79965.048
Mr. Walden. I will start out with some questions I have.
First, without objection, I would like to submit for the
record this article from the West Virginia Gazette regarding
some spending under the BTOP grant.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 79965.049
[GRAPHIC] [TIFF OMITTED] 79965.050
[GRAPHIC] [TIFF OMITTED] 79965.051
[GRAPHIC] [TIFF OMITTED] 79965.052
[GRAPHIC] [TIFF OMITTED] 79965.053
[GRAPHIC] [TIFF OMITTED] 79965.054
Mr. Walden. And Assistant Secretary Strickling, I don't
know if you are familiar with the situation in West Virginia.
Mr. Strickling. I am, sir.
Mr. Walden. It seems pretty disturbing that they would
spend $126 million, receive $126 million BTOP grant. It says
the State then bought more than 1,000 Cisco 3945 series
routers, enterprise grade routers, designed to serve a college
campus and then installed them in local libraries with only one
to two dozen computers. Each router costs about $22,600, or
about $22,000 more than a smaller router that would have worked
just as well.
My understanding is that these routers are designed to
handle a minimum of 500 computers, and yet, in some of these
little libraries in West Virginia, they are handling maybe one
public work station.
Can you tell me what NTIA is doing about this and the $22
million of taxpayer money that seems to be wasted here?
Mr. Strickling. Yes, sir. First off, I would warn everyone,
don't believe everything you read in the newspaper.
But the facts of the situation are not exactly as described
in the newspaper article. In West Virginia, they have bought
routers. They chose early on, because of the deal they could
get, to buy the same router to install in all of the anchor
institutions that were going to be served. The average cost of
those routers is not $22,000; it is about $12,000. And some of
those are going into very large facilities, like universities
and hospitals and such.
But overall, had they tried to determine the individual
router capacity needed for every of these anchor institutions,
they felt they would end up spending more money, as opposed to
being able to take advantage of the package discount Cisco
offered them on buying all of the same gear.
This gear is scaleable, it will be allowed to be expanded,
and while I think you are right to be skeptical as to whether
some of these very remote and rural locations will ever need
the full capability of the particular router that was
purchased, many of these anchor institutions will benefit from
this. And overall, our sense is that this was the most
economical way forward.
Certainly in terms of maintaining this gear, there will be
efficiencies gained by the State by having trained their
technicians to only deal with one particular box as opposed to
a variety of different pieces of equipment that might have been
involved had they chosen a different course.
So, overall, it appears to us, based on our review of the
situation, that the State made an economical decision that is
well-justified by the facts here.
Mr. Walden. So a router that can handle 500 is, was a
better buy for a library with half a dozen computers.
Mr. Strickling. Now the issue here is what was the best buy
to serve the 1,000 institutions that were being served by this
project. And on average, West Virginia believes that they have
found the most economic solution by buying a single product,
getting a substantially discounted per router rate from Cisco,
which again is a router that is necessary to meet the needs of
many of the anchors they are connected to, but just by
selecting out some of the specific small locations is giving a
very, I think, distorted picture of what is actually happening
in the State.
Mr. Walden. So Cisco wouldn't have given them a discount
for the big ones and also a price discounts for small ones?
Really?
Mr. Strickling. What West Virginia told us was this led to
the least amount of dollars being spent on the routers on
average.
Mr. Walden. So they did submit then an alternative? Did
they do any kind of deep analysis? I was a small business owner
for 20 years--22 years--and it just seems to me that I would
have said I have got X number of libraries out here in the
rural areas; it would be real easy to have an intern call and
say, how many computers do you have, and determine I only need
a router that costs 100 bucks or 200 bucks or whatever, and
then I have got bigger ones out there.
I mean, I am giving them money here, right? They can't--I
can't collect that basic information? Did they competitively
bid this?
Mr. Strickling. Yes, they did, and Cisco provided the
lowest price of the bidders who responded to their competitive
bidding process.
Mr. Walden. So I understand there was a quarterly report on
this project that noted that it had dramatically decreased its
plan for fiberoptic buildout, cutting almost 40 percent of the
community institutions on its list. One reason was that the
grantee discovered that 88 of these community institutions on
its buildout list already had fiber. So is that accurate?
Mr. Strickling. I can't dispute the numbers. I don't have
the report in front of me.
Mr. Walden. But you are familiar with the report?
Mr. Strickling. In general, I am aware that, yes, through
their diligence upon receiving the grant, they have found it
not necessary to overbuild into areas that already had fiber,
and I think we should applaud their action in that regard.
Mr. Walden. I do, too. I guess what I am trying to figure
out here is the independent analysis NTIA might be doing.
It sounds like your agency takes the word of whoever is
asking for the grant there, in both of these cases, and then
hands out the money before verifying the project costs wouldn't
duplicate existing infrastructure.
Let me put it more clearly, you are relying on whatever you
are told is going on then.
Mr. Strickling. If we are going back to the application
period, you will recall that we received 10 times the
applications than we had dollars to spend. We were under very
tight time frames. We did, I think, an incredible amount of due
diligence on the applications we received.
But did we go out and check every anchor institution in all
of these projects to determine what existing services they
received? No. We relied instead on letters from these anchor
institutions indicating this they were not being well-served
and that they needed upgrades or needed broadband brought into
them that where it didn't already exist.
Mr. Walden. And I know the pressure you were under and I
know I am over my time here. But when they come back and say,
we were 40 percent off, that just raises flags for me.
Mr. Strickling. It is not 40 percent off in terms of the
total number of anchors that they are serving and we will be
able to take the opportunity----
Mr. Walden. That is in the report that they----
Mr. Strickling. I thought you said 80 anchors.
Mr. Walden. No, they cut almost 40 percent of the community
institutions on their list.
Mr. Strickling. I would want to go back and check that. I
am not sure of the accuracy of that. But in any event, I think
again that shows good project management and good oversight.
And the important thing is we will now be able to use those
dollars to reach anchors that perhaps weren't in the original
project that now can be reached based on the additional
information that we all have today.
Mr. Walden. My time is more than expired.
Thanks for the answers.
And I will turn now to the gentlewoman from California, Mr.
Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman.
To Mr. Zinser, earlier this year, your office completed its
examination of Bay Web, a public safety project covering a good
part of Bay area. Did you find any evidence of fraud?
Mr. Zinser. Thank you, Ms. Eshoo.
We did not find evidence of fraud. We issued a report in
January that detailed our findings. Our findings went more
toward issues concerning governance and some of the information
included in the application wasn't completely accurate, and we
have sent our report to NTIA.
Ms. Eshoo. Thank you.
As a follow up to Assistant Secretary Strickling, has NTIA
addressed the recommendations outlined in the, I mean this is
going back because now these are suspended, but I still would
like to know, since it is a Bay Area effort, have you addressed
any of the recommendations outlined in the IG's Bay Web report?
Mr. Strickling. The IG issued two reports. One was an
audit, and one was a supplemental report. In the audit, they
recommended that we needed a more robust complaint resolution
process. As we received complaints from third parties about
projects, we did institute a much more process-rich approach to
dealing with complaints as a result of that recommendation.
With respect to the January report that the inspector just
mentioned, we reviewed the report. The concern that was raised
there was whether or not any of the--what the IG had felt were
misstatements in the application rose to the level of material
misrepresentations that might have changed the outcome of the
grant award.
We had already done a thorough analysis of the application
and all of the supporting materials we received, and we felt
that, notwithstanding the issues that the inspector general
raised about the application and some statements that were in
the application, we did not feel that in any way we had been
overall misled and that we had a full appreciation of the
challenges of that project at the time we made the award.
Ms. Eshoo. Thank you.
To Administrator Adelstein, transparency and accountability
are the essential bookends in terms of the work that is done.
They are essential ingredients for any program involving a
substantial taxpayer investment.
Do you support a requirement that RUS broadband loan
recipients file regular publicly accessible reports documenting
their progress toward completing their project?
Mr. Adelstein. Yes, that would be helpful I think. We get
regular reports, and we are monitoring them on a biweekly
basis. I have my field staff going out every 2 weeks and making
sure they touch each one of these projects. And it has been an
extensive effort. I just want to make sure that any
requirements didn't release proprietary information.
Ms. Eshoo. As I understand it, approximately 11 percent of
the projects that RUS initially agreed to support have been
terminated. How does this figure compare to other RUS loan
programs? And can you help us understand the nature of these
terminations?
Were there any common themes, such as noncompliance or
fraud?
Mr. Adelstein. Not noncompliance or fraud. We find fairly
typical when we make loans that a number of them never do
follow through, they are drawn down. A similar percentage in
our experience, this may be a little bit ahead----
Ms. Eshoo. Excuse me. They applied for the loan, but they
don't follow through with the application and therefore nothing
comes of it?
Mr. Adelstein. Exactly. That does happen to 5 to 10 percent
of our loans. These projects that were rescinded, as I
indicated, 99.9 percent of the funds were returned to Treasury.
There was a number of reasons for it. Sometimes awardees were
unable to produce promised funds that they said they would
have. We make sure that every dime they say they have is there.
Sometimes they couldn't comply with the terms as we worked with
them on that. In some cases, competition moved closer to where
they were, and they no longer had the business case for it.
One case, a buyer sold the operation, and the new buyer
didn't want to follow through with it. Another case major
restructuring caused significant material changes. One awardee
refused to show the necessary documents for the closing
requirements. There are inter-creditor issues. We put a fairly
aggressive mortgage on them to make sure we get taxpayer money
back and other lenders----
Ms. Eshoo. I am almost out of time. But I appreciate your
answer because I think kind of tucked in there is something
that we need to appreciate, and that is that there was a great
deal of scrutiny that went on in that process, and that is why
they did not come to fruition, which is probably the best
outcome in terms of some of these circumstances that you just
described.
Between the two projects, the BTOP and the BIP, there are
many that are far from completion. Would these be completed by
the deadline? I think someone touched on that in their opening
statement, but----
Mr. Strickling. I will speak with respect to the BTOP
program. All of our projects are on schedule to be completed
within 3 years, with the exception now of the seven public
safety projects, for which we will seek an extension from OMB
given the reality we are facing with FirstNet. But the other
ones are all on schedule. We have not granted anyone any
extensions. I won't even entertain extensions or requests for
extensions for these projects at this time.
We are pushing everyone to stay on schedule, and that is
our hope and our plan.
Ms. Eshoo. Thank you very much.
I am out of time, Mr. Chairman. Thank you.
Mr. Walden. The chair recognizes the gentleman from
Nebraska, Mr. Terry, the vice chair of the subcommittee for 5
minutes.
Mr. Terry. Thank you, Mr. Chairman.
Mr. Zinser, did I say that correctly?
Mr. Zinser. Close enough.
Mr. Terry. I want to follow up on part your testimony, and
we understand that the oversight components, funding oversight
comes out of the actual funding for the program; it is not a
separate fund. But I am curious, in your testimony, what is the
totality of the amounts spent in oversight preventing waste,
fraud and abuse?
Mr. Zinser. The totality that my office has spent?
Mr. Terry. Yes.
Mr. Zinser. The act required that NTIA transfer $10 million
to my office for BTOP oversight. We have spent about $6 million
of that fund, and right now, we have about $4 million. And the
plan was to spread it out throughout the length or life of the
project and then a little bit beyond, and now we have, that is
going to be abbreviated.
Mr. Terry. It is obvious, but I want to point out for the
record, you just, that oversight is not for RUS but just NTIA.
Mr. Zinser. Yes, sir just NTIA.
Mr. Terry. And Mr. Adelstein, who does the oversight for
RUS to make sure that the RUS projects are free of waste,
fraud, and abuse?
Mr. Adelstein. Mr. Gray and his team.
Mr. Terry. Mr. Gray, how much has been spent on oversight,
fighting waste, fraud, and abuse in the allocations by the RUS?
Mr. Gray. I am not sure that I know the specific numbers.
Overall, we received $22.5 million under the Recovery Act to
perform oversight of all USDA programs. I can find out the
specific amount for RUS.
Mr. Terry. Would you?
And then, both for Mr. Zinser and you, Mr. Gray, the same,
and I will ask if you are OK with this, but can you break that
down into the number of projects that you have actually
reviewed for waste, fraud and abuse?
Mr. Gray. Yes, sir.
Mr. Terry. Mr. Zinser?
Mr. Zinser. Yes, we can itemize the kind of activities that
we use the money for.
Mr. Terry. That would be helpful.
Mr. Adelstein, we go way back. I think you do good work.
Recently, and this is probably going to be a hearing some time
in the future on USF reform that the FCC has taken up. But I
worry that as the RUS issues grants, that the yin and then the
yang. And the yang is, if there is competing grants or that
rules proposed by the FCC are making it difficult for the RUS
loans to be paid back; have you engaged, RUSengaged in any
review of the RUS loans to determine if any are in jeopardy
from ARRA grants and/or other rules proposed by the FCC?
Mr. Adelstein. Yes, Congressman Terry, we certainly have.
We are doing an ongoing risk assessment and stress testing of
our entire portfolio. We are going forward using sensitivity
analysis about what would be the impact of loans that we make
in the future. So we are very carefully monitoring the impact
on our existing portfolio.
Mr. Terry. Any findings from your investigations?
Mr. Adelstein. Well, we are still determining; it is a work
in progress. The FCC order, as you know, part of it took place
immediately, other parts are moving targets. They are going to
do more I think very soon. We just changed their regression
analysis a couple weeks ago, and we are looking at the impact
of the new regression. So we are overall looking at it on a
company-by-company basis, and it is going to be a while before
the FCC has completed its activity.
Mr. Terry. True. But has RUS, at this time, found any of
the recipients of RUS loans in the broadband telecom area to be
stressed or kind of borderline stressed?
Mr. Adelstein. Some of our borrowers have indicated to the
FCC in waiver requests that they face bankruptcy if waivers are
not allowed by the FCC, so we have had direct communication
from a number of our borrowers who have come to us indicating
that they are under severe stress as a result of the changes.
Now some of that might have changed as a result of the new
regression analysis that the FCC recently published.
Mr. Terry. My time is nearly up. So I will yield my last 5
seconds back.
Mr. Walden. The gentleman yields back the reminder of his
time.
The chair recognizes now the gentlelady from Virgin
Islands, Dr. Christensen.
Mrs. Christensen. Thank you, Mr. Chairman, and welcome to
the panel this morning. Before I ask a question, I just want to
say to Mr. Strickling, that, you know, I really had an
opportunity to see almost firsthand how NTIA is protecting the
taxpayer's money, but at the same time, aggressively pursuing
the expansion of broadband, in the unserved and underserved
areas. So I want to thank you for working with the Virgin
Islands project. We have had a CAP, but in coming out of it, I
think we came out stronger with better control for our
accountability. But it does slow down the project somewhat, and
I was wondering, and Mr. Adelstein can also answer, did the
collective action plans and suspensions affect meeting
deadlines and is there any built-in consideration given for
those kinds of delays?
Mr. Strickling. As of now, no, we do not see them affecting
any of the completion dates of any of the projects that are
currently underway.
Mrs. Christensen. OK, great. And Mr. Adelstein, we have not
in the Virgin Islands been as successful in the BIP loan
program, and I would like to just get a better understanding of
how you look at the applications. So how does RUS analyze the
financial feasibility and sustainability of BIP applications?
Do you examine the extent to which competing broadband
providers were present in all or part of the proposed service
areas for BIP awardees, and did RUS consider whether and to
what extent BIP awardees rely on other Federal funds such as
subsidies from the Universal Service Fund?
Mr. Adelstein. Yes, we do very carefully analyze financial
feasibility. As a matter of fact, the main reason that we
turned down the bulk of the nine out of ten applicants that
applied was for either financial or technical infeasibility.
These are very difficult projects to prove out feasibility.
Obviously, it is difficult in rural areas to make these
businesses work, and businesses need to come with substantial
equity in order to be able to do the working capital because we
don't provide for operations funding. Competition is an issue.
Sometimes if there is not an area, if it is an area that has
too much competition, there is not going to be a business case
that works. If there is--if there is competitors that are about
to build, that is an issue that we also look at, so we are
looking at the entire market. And we ask all of our borrowers
to do a market analysis. We also ask incumbents in the area to
report to us whether or not there are competitors in the area,
and then we send our field staff into verify it, so that we
know whether or not they are not going to be able to make the
anticipated take rates that they use as a justification for the
revenues that they expect in their application. So we do a very
rigorous financial analysis.
Mrs. Christensen. Thank you. Mr. Gray, how does OIG
determine whether or not to investigate a complaint? For
example, could you discuss why your office declined to
investigate allegations of fraud in the BIP award to Lake
County, Minnesota, and did the OIG refer that complaint to RUS
for any further action? And if you did, are you aware of any
action taken by RUS?
Mr. Gray. When we receive complaints, we review them.
Usually our criminal investigators review them for potential
allegations of crime. We review whatever evidence is submitted
with the allegations. We do a certain amount of preliminary
inquiry, and then determine how much further to take it.
In the case--if it becomes apparent to us that there is no
criminal criminality involved, usually we will let our auditors
review it as well, but if it appears to be an administrative
matter, perhaps policy dispute, we refer it to the program
agency, in this case, RUS. In the case of the Lake County, we
did that similar analysis. I think the allegations were that
there was misrepresentations in the applications. We did not
find that to be the case in our preliminary inquiry, and we did
refer it to RUS.
I believe RUS got back to us in January of this year, and
they, in turn, found no substance to the allegations and found
that the application was appropriate and proper.
Mrs. Christensen. OK, thank you. I guess I will yield back
my 5 seconds. I don't have time for other questions.
Mr. Walden. The gentlelady yields back, and just for the
record, we are talking about the Rural Utility Service. There
is really not a person named Russ, not Russ Adelstein. We turn
now to the gentleman from New Hampshire, Mr. Bass, who has
played an important role in this effort and recognize you for 5
minutes.
Mr. Bass. Thank you, Mr. Chairman, and I have two questions
for our distinguished panel today, and I want to thank you for
being here. It is important. Under the stimulus bill, the
purpose of the BTOP infrastructure grants was to, and I quote,
``provide access to broadband services to consumers residing in
underserved areas,'' and to ``provide improved access to
broadband services to consumers residing in underserved
areas.''
Assistant Secretary Strickling, NTIA recently unveiled an
online map that shows where and how BTOP grants are being
spent. It would be more helpful, however, if the map were
integrated with the National broadband map so that we could see
whether the BTOP project is really going to underserved
communities, instead of overbuilding. When can we expect to see
that integration?
Mr. Strickling. You are making a very good point,
Congressman. I don't have a time frame as to when we will
actually have them on the same platform, but I do think it is
possible to make some comparisons, even now. But more
importantly, I think you have to keep in mind the difference in
the data that the two maps reflect. Our projects, for the most
part, are middle-mile projects. They don't serve end users
other than anchor institutions. So that what we are really
doing is building a robust infrastructure that can be utilized
by those last-mile providers in those communities to improve
the speed of service they offer, and perhaps to reach, make it
more economical for them to reach communities that they don't
currently reach.
So we are comparing apples and oranges a little bit when
you look to see where the middle-mile circuits are going
compared to where end users are being served.
Mr. Bass. So I guess what you are may be warning us
perhaps, is that when this does get integrated, it is not going
to really show that you are reaching underserved areas
directly, but that you are providing the potential to reach
underserved areas directly, but there is no guarantee that it
will actually happen?
Mr. Strickling. Well, I wouldn't agree with that statement
as made. Certainly, we are able to reach anchor institutions,
and one of the things we find early on in this program is that
there is really a separate market for broadband for anchor
institutions than there is for the typical residential
consumer. The types of speeds at 1-1/2 or 4 megabits per second
might be adequate for consumers, although even today, that is
increasingly coming into question. But it absolutely doesn't
meet the needs of anchor institutions such as hospitals and
schools and libraries, where we need to be looking at minimum
speeds, 25 megabits per second, 50 megabits per second.
So our projects are definitely meeting the needs of anchor
institutions in these areas who are able to get connected to
these facilities. But you are right, in terms of the mass
market, the residential consumers, we are depending on these
investments, as I said earlier, priming the pump for private
investment by last-mile providers.
Mr. Bass. OK, thanks. Administrator Adelstein, the FCC has
been looking into reform of the USF, Universal Service Fund for
a decade with serious efforts in 2008 and another call for
reform in 2010's National broadband plan. How did RUS account
for potential reforms in the USF in reviewing BIP applications?
Can you address that?
Mr. Adelstein. Yes, in fiscal year 2011, we analyzed
infrastructure loans losing as much as 10 percent of their USF
support to determine if they were feasible despite that loss.
And we, of course, know that the FCC has been doing Universal
Service Reform and was considering changes since 1997 since the
very first order. So if we were waiting for each time the FCC
was about to act, and I was on the FCC when we almost acted in
2008----
Mr. Bass. Right.
Mr. Adelstein. --we wouldn't have been able to do any loans
if we were assuming that they were going to change it. So given
the statute requires that the funding be predictable and
sufficient, we moved forward based on what we anticipated with
some stress testing done in more recent years as the indication
became clearer, that the FCC was, in fact, about to act.
Mr. Bass. OK, very well. Thank you, Mr. Chairman.
Mr. Walden. The chair now recognizes the gentleman from
California, Mr. Waxman for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman. Assistant Secretary
Strickling, we all agree it is critical that the administration
implement the provisions of the Middle Class Tax Relief and Job
Creation Act effectively. As the agency tasked with hosting
FirstNet, the First Responders Network Authority, NTIA has a
critical role in ensuring the success of this network. Since
the passage of the Act, there have been concerns how the seven
public safety recipients of Recovery Act dollars will be
integrated into the new nationwide network. I was encouraged
that NTIA took the difficult but necessary step of temporarily
suspending the public safety awards until decisions are made
about FirstNet's technical requirements. I think your action
was prudent, but I would appreciate some clarification of a few
points.
Can you first explain, what do you mean by a partial
suspension? What types of suspending are now prohibited? What
types of suspending will be now allowed to continue?
Mr. Strickling. Yes, sir, with respect to the partial
suspension, all we suspended is the expenditure of dollars on
the 4G LTE equipment, but at the same time, we have asked all
of the recipients to come back to us within the next 45 days,
hopefully sooner, but we put a 45-day limit on it, with how
they would propose to move forward with their spending for all
of the projects.
We certainly think that things like site preparation, site
acquisition, backhaul networks all are assets that ought to be
able to be used in the FirstNet network, or ought to have a
useful application in other networks or other applications for
the community. That work we would like to see continue. And
even with the 4G LTE gear, it is not lost upon us that we could
learn something by allowing some percentage of these projects
to proceed, perhaps on a scaled-down basis, even using the 4G
LTE equipment. What I want to avoid is a situation where
choices are being made now by individual communities that could
actually upset our ability, FirstNet's ability to create a
viable business model for the public-private partnership that
the legislation envisions. And so we have to be very careful
about that.
So my immediate goal is to keep the dollars in the
community. We will do that by getting an extension from OMB to
allow those dollars to be spent past 2013. And then secondly,
to ensure that we reduce the risk to the taxpayers by whatever
spending goes forward, and in that regard, that is also a
conversation that we can have with the manufacturers in terms
of are there things they could do now to help reduce the risk
that this equipment, if installed, becomes stranded at some
point down the road so that we end up having wasted the
taxpayer dollars.
Mr. Waxman. What steps will you take to ensure that the
Broadband Technology Opportunities Program dollars stay with
the public safety awardees and that these project will be fully
funded, what can we tell cities like Los Angeles, San Francisco
and Charlotte, as well as States like New Jersey about the
likelihood of retaining their BTOP grants?
Mr. Strickling. I am confident that we will be able to do
that. What has to happen is that the Office of Management &
Budget will need to provide an extension to these projects
beyond the September 2013 date. There is currently an order in
place from OMB that requires all spending on Recovery Act
projects to be completed by September of 2013, and if you can't
make that date, you can petition OMB for an extension.
I think it helps in this case that one of the members of
the FirstNet board is the director of OMB, and I think they
will work with us to secure that extension, but I obviously
can't speak for them. But this is, I think, the paradigm case
of where an extension would be justified.
Mr. Waxman. Thank you very much. I yield back my time.
Mr. Walden. The gentleman yields back the balance of his
time. The chair now recognizes the gentleman from Illinois, Mr.
Kinzinger, for 5 minutes.
Mr. Kinzinger. Thank you, Mr. Chairman, and thank you,
gentlemen, for your time today. I can tell you, one of the
things I am not a big fan of is just too much bureaucracy. I
mean, it seems like the bureaucracy out in Washington, D.C. in
the limited time I have been here just grows and grows and
grows. So my concerns deal with the duplicative nature of what
we are talking about today. It seems as though we keep making
more and more government bureaucracy in order to accomplish the
same thing, which is getting broadband access out to places
that are unserved or underserved.
Along with the BTOP and the BIP programs that have been
discussed at this hearing, the FCC, as was mentioned a few
minutes ago, is transitioning to the Universal Service Fund in
order to expand the deployment of broadband. With this many
programs being run by different government agencies at the same
time all with similar goals, it is pretty obvious to me that
some overbuilding of current networks is going to take place.
At some point I think it would be beneficial for our
committee to take a serious look at consolidating some of these
programs to ensure taxpayer funds are being used efficiently.
To Administrator Adelstein, and thanks for coming in, given the
focus of RUS, which is serving broadband in unserved areas,
bringing broadband to unserved areas, I am sure you would share
my concern about overbuilding. It would be something that you
wouldn't want to see. But an additional concern that I have
about overbuilding is it threatens the viability of a loan. So
if an area is so rural that one broadband provider can't exist,
it is uneconomical for them, then I think it is doubtful that a
federally funded competitor can survive for long at all. So how
does the RUS address overbuilding concerns when specifically
addressing the viability of a loan?
Mr. Adelstein. That is a great question, something we think
a lot about. We are a financial institution, essentially, with
a very low default rate. Our default rate in telecommunications
programs is about 6.2 percent, so we are very careful about not
building broadband in places where competition is going to make
it impossible for our loan to be paid back. We do a careful
market analysis. As a matter of fact, in the BIP program we
required each of our awardees to do a market analysis of where
broadband was. We open it up for public comment from incumbents
to say where are you serving in that territory? But we didn't
take their word for it or the market analysis' word for it. In
the application where there was about to be a successful award,
before we finalize that, we send our field staff in to verify
both the market analysis and the incumbent reports to determine
what the level of competition was.
And if we determined there was too much competition, that
there wouldn't be a sustainable business as a result, we denied
the award as not being financially----
Mr. Kinzinger. So you don't think that there has been any
overbuilding really anywhere at this point?
Mr. Adelstein. Well, you know, broadband doesn't follow
neat lines, and sometimes there are places where there is
competition, other times there is none. For example, there
might be a small town where the cable company might have built,
but it is surrounded by hundreds of square miles of rural area
and the builder that--the applicant might say I am going to
serve my entire area which might include the town, and often
this can be very much be upsetting to the cable company that
has made its own private investment there, but without them
building their entire network, it wouldn't be financially
feasible for them to serve only the rural areas that are very
dispersed.
Mr. Kinzinger. Another question I have for you, there is 22
BIP products have yet to receive disbursement, I believe. The
purpose of the Recovery Act was to stimulate the rural economy
with shovel-ready projects, which has become so popular lately.
Are these projects, these 22 projects, that may be slightly
different now, but are these 22 projects in compliance with
their awards?
Mr. Adelstein. Well, they are so far. We would have
rescinded them. As I indicated, we rescinded a number of
projects. Some of those projects have begun but haven't done
draws. Others haven't begun yet for a number of reasons.
Mr. Kinzinger. What are some of those reasons they haven't
begun?
Mr. Adelstein. Well, some of the reasons include that they
are just cleared the environmental or historic review. It has
taken a long time. Some of them are on tribal lands.
Mr. Kinzinger. They weren't pretty shovel ready. They were
just kind of--it just took a number of years to get to this
point is, in essence, where we are at?
Mr. Adelstein. It has been a learning experience for me how
difficult it is sometimes, particularly on tribal lands to get
all the clearances. They might have 220 different owners of one
little parcel that they need to get clearance from before they
can get a right-of-way. And we have been working with DIA on
that. So there is interagency reviews, there is historic
reviews, environmental reviews that have slowed some down. We
do a very careful legal.
Mr. Kinzinger. At what point when you say, OK, they are in
compliance versus, OK, now, this has been too long, there is
too much stuff. There is something wrong. They are not in
compliance. We are giving the money back to the taxpayers?
Mr. Adelstein. Well, we have done that in a number of
cases. We have returned over $200 million to the Treasury for
projects that can't do that. And I anticipate some of these 22
projects will end up being rescinded. If they don't get going
pretty soon, some of them, we are not going to be able to
finish by the deadline, and if they can't finish by the
deadline, we are not going to be able to disburse funds after
that, and therefore, the project would be no longer financially
feasible. So if they don't get going pretty soon--we worked
really hard on these 22 to try to get them off the ground. But
if they don't get going soon, we are not going to be able to do
them.
Mr. Kinzinger. OK, thank you. I yield back.
Mr. Walden. If I could just intercede for a second. I
represent a district that is 70,000 square miles, 55 percent of
which is Federal land. At some point it would be interesting to
know, of those projects that are taking so long, how many of
those are in these very rural districts where the Federal
Government footprint is so large, and I would hate to see them
get disenfranchised once again by their own government because
of the delays required by NEPA, and all these other things. So
I am sort of off my clock, but maybe we can follow-up on that.
I will recognize the gentleman from New Jersey, Mr. Pallone for
5 minutes.
Mr. Pallone. Thank you, Mr. Chairman. I wanted to direct my
comments and questions to Mr. Strickling, and thank you for
your hard work and efforts at the agency.
As you know, my home State of New Jersey was one of seven
regions to receive funding to early deploy a public safety LTE
network, and now, in light of the passage of the Middle Class
Tax Relief and Job Creation Act, which included provisions to
create a nationwide interoperable public safety broadband
network, it sent New Jersey a letter withholding funding out of
concerns that their project might conflict with the forthcoming
network. And I know this may have been a tough decision for
you, but obviously, passage of this law was always our policy
goal, but not a reality when these grants were first awarded.
But as you can imagine, I am concerned that New Jersey may lose
its critical funding and its potential for early deployment.
So I just wanted to ask you first, are you willing to
commit to working with me to ensure that New Jersey can still
deploy its project, as long as they are able to ensure that
they will not interfere with the new law?
Mr. Strickling. Sir, we will want to work with you. We want
to work with the grantee in New Jersey, and we want to work
with all seven of our grantees to chart the best path forward
given the reality of the new law. You know, your comment about
what we knew in 2010, though, I guess I would take a little
issue with in the sense that as partly from the grants we did,
it helped the administration, I think, come around to the view
that what we need here to be successful is a single, national,
interoperable network.
The philosophy before that time was much more one of
cobbling together a network of networks. And on that basis, we
provided funding back in 2010 to allow individual communities
and States to see what they could do with this new technology.
But we certainly learned from our projects, particularly ones
that involved more than one community that governance
challenges that exist when you are trying to bring together a
large number of parties to agree on how to build these
networks. We have talked already about the BAYWEB project in
San Francisco, which clearly was challenged because of the need
to bring together a number of counties and cities in the Bay
Area into an appropriate governance structure. So I think out
of that emerged the new philosophy that Congress adopted in the
act in February, and it is on that basis on which we have to
determine how best to go forward with these projects and how do
we create that pathway that ensures that that equipment is
going to be compatible with whatever FirstNet comes up with,
and also provides a pathway to make that equipment available to
the public-private partnership that has now been envisioned in
the new legislation. But the answer to your question is yes, we
want to work with you and the grantee to find a way forward
here.
Mr. Pallone. In light of what you just said, New Jersey has
asked for an extension of time for its project which is pending
before you. In light of what has happened, would you grant our
extensions so we can ensure that the project would be
interoperable with the forthcoming network? I mean, part of the
reason why they put this request for the extension in, is to
make sure that it is interoperable with the new network.
Mr. Strickling. So as I indicated in responding to the
questions from Congressman Waxman----
Mr. Pallone. I know that mine are similar, but I am asking
them for my State.
Mr. Strickling. Well, we are going to seek from OMB. It
will be OMB that will have to grant us the ability to allow
these projects to extend beyond September of 2013. We will put
that request to them and I am optimistic that they will grant
that, but I don't control that. But I would hope and expect
they will do that.
Mr. Pallone. I appreciate that. Thank you very much. Thank
you, Mr. Chairman.
Mr. Walden. The gentleman yields back the balance of his
time, the chair now recognizes the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman, and welcome. It is
good to see you all again. And let me start with Mr. Adelstein,
welcome. If you don't know what is going on on USF, based upon
your past life, and being inside the room, then no one does. So
I hesitate to fully accept your answer to the question that was
posed to you.
Let me ask about carryover funds in the RUS, which the
carryover stimulus and any other aspects that that might have.
What do you plan to do it with, and obviously, with deficits
and debts, if they haven't been spent, the Treasury might be a
good place for it to go.
Mr. Adelstein. That's right. All unobligated balances that
we have go back to Treasury. We rescinded a number of projects;
99.9 percent of the funds have gone back to Treasury, $267
million. If any other projects are rescinded rather than carry
them over, they will be returned to Treasury.
Mr. Shimkus. We would love to see it out in rural America,
and we do question some of this debate. I understand a cable
company providing to local community, and then so you are
trying to help get to the rest of the area. I would argue that
maybe working with the cable company to deploy, versus, I mean,
there is an issue about even though you build it, whether they
come. Secondly, will they be able to still be able to afford
it? Because you create, as we talked about numerous times, a
competing system that may not have the base to fully survive.
So in your example of overbuilding, I think better planning
with the incumbents who are providing in a community might help
strengthen the base and the portfolio of the servicer.
Mr. Adelstein. We do work with cable companies and we are
open to doing--lending to them. I actually recently visited the
American Cable Association to encourage them to come in and
borrow. We love lending to them.
Mr. Shimkus. Why do you think they are reticent? It is
because it is too difficult, bureaucratic, time-consuming, not
worth their time?
Mr. Adelstein. Some of them do borrow from us. Sometimes
their financial structure is not one that lends itself to our
mortgage, which can be very aggressive. Other times, frankly,
they tend not to build outside of the town, and this is a
business decision. I am not criticizing it. But the way cable
has built out traditionally, it has kind of ended at the town
line and hasn't been cost-effective for them to go outside of
it. And that is where some of this issue comes up.
Mr. Shimkus. Right, but if we are giving grants and low-
interest loans and stuff, and overbuilding a competitor, don't
you think that might be incentive enough? I mean, there is a
reason they are not. Just, I mean, they don't want a competitor
in their backyard subsidized by the government.
Mr. Adelstein. That is why I went to them and I suggested
that the best defense is to be their borrower. We want them to
borrow from us. We would love to work with them.
Mr. Shimkus. I need to go pretty quick, so I hate to cut
you off. Mr. Strickling, your answer to this West Virginia
stuff is just really bad.
And let me, if I may, Mr. Chairman, submit another story
from the West Virginia Gazette, addresses this same issue.
Mr. Walden. Without objection.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 79965.055
[GRAPHIC] [TIFF OMITTED] 79965.056
Mr. Shimkus. And it basically says, when people, when
people spend other people's money, I don't care if it is you, I
don't care--we spend it poorly. This story, there are 366
routers sitting in storage.
Mr. Strickling. There is a reason for that, sir. The
project is not built.
Mr. Shimkus. And we're already 2 years into the--why
couldn't you, even if they are going to sit in storage, and the
question is whether they will ever get out of storage, why
would you have a 5-year maintenance agreement that 2 years have
already ticked off the 5-year maintenance agreement?
Mr. Strickling. Well, sir, because they could get the 5-
year maintenance agreement for the same cost as the 3-year
maintenance agreement. Had they purchased a 3-year maintenance
agreement they wouldn't have been----
Mr. Shimkus. This is great and I hope people continue to
dig into the story because you are very eloquent. But the
bottom line is, I would like to see the bids, and I would like
to see what West Virginia and those folks put out on the bid
application because your premise is, they just bid out for all
of these routers at this size, and so they got the best product
based upon a bulk purchase.
I would like to expect if someone did some due diligence,
if it was my money, or if it was someone who had some fiduciary
responsibility, they would identify the bid based upon the
need. So Mr. Chairman, I would hope there is a way to find out
and analyze the bid for the State of West Virginia, and whether
the bid was so cavalier that they asked for routers that would
serve 500 when the need was 3, and I bet if you produced a bid
based upon the need of the State of West Virginia, and the
locations, it would be a much competitive and a lower cost than
this bulk purchase of tremendous routers. I don't know how we
would do that.
Mr. Walden. Well, let me ask----
Mr. Strickling. Congressman, we would be happy to work with
your office to supply any other documents from West Virginia.
Mr. Shimkus. Yes, because I mean, as much as you try, you
just can't defend what is going on in West Virginia, and I
yield back my time.
Mr. Walden. I, and so Mr. Strickling, maybe you can provide
for the committee. I don't know in terms of the bids if there
is confidential information we are not allowed to have.
Mr. Strickling. Well, this is all within the confines of
the grantee, West Virginia, but I think in our role as
overseeing these projects we will get to the bottom of this,
and provide any other information you all would like to have
about it.
Mr. Walden. Yes, we are just after the facts, as they say.
So that would be helpful. So you can provide us with the
various bids and all on these routers.
Mr. Strickling. I will determine what exactly can be
provided from the grantee, but we will endeavor to provide you
all the information we have on this.
Mr. Walden. And if you can let us know what other
information that you don't have that we should have in our
quest here, we can always, I am sure, contact West Virginia and
get some answers as well. I think our last committee member,
Mr. Bilbray, if you have got questions, you have got 5 minutes
to ask them.
Mr. Bilbray. Thank you, Mr. Chairman. Mr. Chairman, I have
always worried that experts--what is the line they always say,
generals always fight the last war, not the next one. In fact,
I remind all of my colleagues that the experts in the military
never wanted to accept the Predator; thought it was a toy. I
think history has proven that because Congress pushed it, made
them look at new technology, it was aligned. There is this
broadband map that we have been given the coverage of this. You
guys are familiar with it. Does this include, have you
considered satellite technology in the covering of this
broadband? OK, Billy.
Mr. Strickling. I am not sure which map you are holding up,
sir.
Mr. Bilbray. Well, let's just say it shows a lot of areas
in California and east of the Mississippi that is not being
covered today, and it appears to me that it does not reflect
the new satellite technology that is going on line that will
totally cover the areas that you are saying cover. So I am
concerned that you are fighting the last war and not using the
next generation of opportunities. Are you considering an
extensive use of satellite technology to cover these areas that
you say you want to fill in?
Mr. Strickling. You want to take that because you had a
satellite program?
Mr. Adelstein. In terms of our program, we did provide $100
million in grants to make sure that people had access to
affordable new-generation satellite service. So we certainly
took that into account in our bid program.
Mr. Bilbray. And how did you survey what was coming on
line? It reminds me of the fact that those little people movers
over at Dulles. It was a great idea until they hadn't checked
that the 747 was on the drawing board, and as soon as those
super jets showed up, the whole technology was obsolete. Are
you saying that in your grid, you are covering and actually
considering that there is private sector satellites coming on
line that will cover these communities and provide that
coverage?
Mr. Adelstein. We only allowed those grants to go to areas
that had absolutely no broadband service whatsoever. So we
ensured that they didn't have any access to terrestrial or
broadband before we provided an award to allow for a consumer
to get----
Mr. Bilbray. So let's roll back. So in other words, you
were fighting the last war; didn't look at the fact that there
was a new technology coming on that was going to be available.
Basically, you created the same mistake that Dulles did. You
didn't check with the private sector and the technology, what
was in line to be on the service level before you start
engineering your tactical approach to this issue.
Mr. Adelstein. No, we did fund satellite. We funded the
latest generation of satellite service to places that didn't
have access to any other service. So we took into account the
fact that for those areas that didn't get broadband through any
of these other awards, we wanted to make sure----
Mr. Bilbray. Well, did you check to see if there was
private sector that was already doing this without your
subsidies?
Mr. Adelstein. Well, there was. I mean, satellite service
was available. It wasn't available at the same price point.
Wasn't available for the same--we were able to give people
access that they wouldn't have otherwise had because of the----
Mr. Bilbray. Because we have them going on right now where
the whole eastern, east of the Mississippi, if not east of the
Plains, is going to be provided by service three times of what
the minimum that we are requiring here, but I am still seeing
you look like there is big gaps here that somehow you are
trying to fill in, and when the discussion of a National system
is being considered, why would you go with a terrestrial system
if you have got a satellite system coming on board that treats
everybody equally, except for the fact that maybe you don't get
to give one grant here, one grant there. Because the private
sector looks like they see the opportunity to invest in it.
Right now, as far as I know, the systems is moving forward
without your subsidy. Are you saying that you are engaged with
everybody who is involved with that expansion, or you are in
communication with everybody that is doing the private sector
overlay?
Mr. Adelstein. Yes. We actually gave the awards to Hughes
Satellite, as well as EchoStar, and Spacenet, so we were
working with the companies providing the latest and greatest
satellite service to make sure that they could get that to the
most rural----
Mr. Bilbray. So you chose which private sector you wanted
to give the grants to, but did you interview and review
everybody that was in the field?
Mr. Adelstein. Yes, it was a competitive grant process and
they put the best bang for the buck for the taxpayer dollar to
get service out to those rural areas that didn't otherwise have
service.
Mr. Bilbray. The question I have, though, is why would you
be giving a grant out for a service that is coming on line
anyways though? Why was the taxpayer's money put on there if
you have already got companies saying we are going to do this
regardless?
Mr. Adelstein. The purpose of the grants was to reduce the
cost to the end user so that it was affordable for them. So the
initial hookup cost was reduced and the initial subscription
costs were reduced.
Mr. Bilbray. What I don't understand though, is that they
are talking about service that would be the same in New York as
it would be in West Virginia, and that that would be the same
service across the board. I don't understand. Again, did you
get into this that we would use the terrestrial system the way
you have make that extra effort in certain areas, but with this
technology, there is no extra effort needed. It is just like,
you know, the GPS. I mean, the guy in, you know, Cleveland gets
the same service as somebody in Midland, Texas. But the
question is, you picked winners and losers here, and went and
subsidized some when you have private sector people who are
implementing the same service without subsidy.
Mr. Adelstein. Well, it was the same private sector people
that were thrilled that we were doing it.
Mr. Bilbray. Of course they are thrilled. They are getting
fed taxpayers' money to do things that they would be doing
anyway. This is where we got this real problem with, was there
a benefit to the general public for the expenditure of the
general public's money at a time when the public is pretty mad
about how we are doing oversight for that expenditure. Let's
face it, there is a credibility gap here and when you say
excuse me, Congressman, I go back to San Diego, and they say
you wrote checks for these companies and there is other
companies that are doing the same things with no checks. Why in
the heck did you spend my taxpayers' dollars on that? Unless it
was just basically to get money out to our friends and be able
to stimulate their businesses over somebody who is not our
friends.
Mr. Adelstein. The purpose was to get broadband to people
who didn't have broadband through any other means. And these
companies, as you indicated, are doing an excellent job of
getting broadband out----
Mr. Bilbray. My point being, I think that if you go back,
you will see they were going to get this regardless because the
market was being made available through new technology. I yield
back, Mr. Chairman.
Mr. Walden. The gentleman's time is expired. I recognize
the gentleman from Texas, who I believe is going to go ahead
and go with the gentleman from Georgia, Mr. Gingrey.
Mr. Barton. I thought Mr. Gingrey would go and then I would
go.
Mr. Walden. That is very kind. Mr. Gingrey, you are up
next; 5 minutes.
Mr. Gingrey. Mr. Chairman, I thank you and I thank the
chairman emeritus for his courtesy in regard to that.
Administrator Adelstein, the question that I am going to put to
you has actually already been touched on by the gentleman from
Illinois, Mr. Kinzinger, as well as my colleague from New
Hampshire, Mr. Bass.
I am concerned that many of the broadband loan and grant
programs run by RUS duplicate programs within the Universal
Service Fund. Do you agree that duplicative Federal programs
administered by different agencies with different oversight
structures and rules are problematic?
Mr. Adelstein. I don't believe--I think duplicative
programs are problematic. I do not believe these programs
duplicate each other at all.
Mr. Gingrey. Well, would you commit to working with us to
make sure, to eliminate any such programs, and consolidate
Federal spending to get the biggest bang for the taxpayer's
buck. You don't want that to happen, do you? You want to make
sure that these programs are not duplicative. That is your
answer, isn't it?
Mr. Adelstein. Yes.
Mr. Gingrey. Thank you. I understand that RUS will not lend
money. I think you even said this a second ago. The RUS will
not lend money to overbuild an area where there is an existing
RUS borrower because doing so would put the RUS's investment at
risk. You don't want to compete with yourselves. Doesn't that
same logic apply to the use of RUS money to overbuild
potentially an existing broadband provider financed by a local
bank? Should the government really be in the business of
putting another business's privately financed investment at
risk, as an example, a credit union or a community bank? The
reason I ask that question, I am from Georgia, as you probably
know, and community banks are struggling, and we had a lot of
bank failures, and other States as well are struggling with
that.
And so if the local lender, the community bank, the credit
union, whatever, has already financed a small business in that
area, would you want to then create competition for them? Do
you look at things like that?
Mr. Adelstein. Well, we don't want to create competition
where there is adequate service. I mean, the best, I think
defense against that, is if the existing provider is providing
service that is of a level of quality that there is not a
market for another provider to come in and provide service. So
we look at that very carefully in our loan application process
to determine whether or not there is existing competition in a
service area that is being proposed and if there is, we often
will----
Mr. Gingrey. Well, I am glad to hear that answer. I have
got another question that I am going to ask all of the
panelists to respond quickly to. But first, before I do though
that, let me go to Mr. Gray. Mr. Gray, in your testimony you
noted that in past audits, RUS has not always maintained its
focus on providing broadband service to rural communities
without existing access to broadband service.
I think that was your quote. Additionally, in the March
2009 OIG report on RUS, that report stated: A structured RUS
broadband program may not provide service to the most rural
residents.
I understand that another audit is underway, so please
comment to the degree that you can on these two questions. When
looking at the previous audit, would you consider the programs
of RUS broadband program to be similar to what USF, Universal
Service Fund, hopes to accomplish through this new high-cost
fund that the FCC created?
Mr. Gray. Currently, Congressman, we are not looking at the
Universal Service Fund's impact in our current audit work. You
know, we are looking at our previous recommendations as they
relate to BIP. However, definitions did change for BIP, and so
we are looking at that very closely as well.
Mr. Gingrey. Well, let me suggest to you that OIG, I think,
should rethink the need for these programs in light of what FCC
did in creating this high-cost fund. Now, for all of you, and I
will start with you, Mr. Strickling. I would like to ask this
question: Congress and the administration have made it a
National priority to provide affordable broadband services.
However, in many instances these vital services are being taxed
at the State and local level at rates comparable to alcohol and
tobacco. It would seem that these regressive taxes could have a
negative impact on continued broadband development. With this
in mind, and do you have this in mind, do either the RUS or
NTIA factor in what tax rate a State or locality imposes on
broadband services before making a determination of awarding a
grant? Let's start, Mr.----
Mr. Strickling. I don't believe we did, no.
Mr. Adelstein. We do look at all sorts of revenue and what
the cost would be to the end user, and evaluating what the take
rate would be so that would be taken into account in our
financial feasibility analysis.
Mr. Gingrey. Now for the Inspector General. Mr. Zinser.
Mr. Zinser. Well, I think that is one of the issues that
comes up in these projects that involve multiple jurisdictions.
The jurisdictions need to know that they are not buying a pig
in a poke where down the road they are going to be on the hook
to pay these exorbitant fees or raise taxes to afford the
systems, and I think that is a key issue in these
multijurisdiction projects.
Mr. Gingrey. Mr. Gray.
Mr. Gray. I would agree with that. I think keeping the
costs low to the underserved, once there is service provided, I
think as part of that, the cost to the subscriber needs to be--
--
Mr. Gingrey. In closing, because I know I am beyond my
time, and Mr. Barton has already extended the courtesy to me, I
would suggest that the Inspector Generals, you need to talk to
these other two gentlemen and make sure they agree with you,
because I agree with you. But you need to look at these things
very carefully. Thank you, Mr. Chairman, I yield back.
Mr. Walden. The chair actually recognizes the gentleman
from Kentucky, Mr. Guthrie, who was here when the gavel came
down. If he wants to go ahead of Mr. Barton, he should feel
free to do so.
Mr. Guthrie. I will certainly defer to Mr. Barton if he
wants to go first.
Thank you very much. I just have a question for
Administrator Adelstein, and Secretary Strickling. I know when
the NTIA just put out a map that has all of the BTOP programs
where they are moving forward. My understanding is both funded
through the stimulus, that the NTIA has the BTOP program, both
funded through the stimulus, as the RUS has the BIP program,
which are similar programs. And so the question is, that we
look at, we have a map that is now through the Commerce, that
is posted in there. I don't think there are any BIP projects on
the map. Is there any effort to coordinate where this--am I
going down the wrong path? Is there an effort to coordinate
where you can see where they are, the similar programs for
different agencies are being done separately?
Mr. Strickling. It is a very good question, and I don't
know the answer to it, but maybe Jonathan and I should get
together after this hearing and talk about that.
Mr. Guthrie. The question I was--Jack Kingston I just
talked to--Congressman Kingston from Georgia was in Africa, and
he was in a place where they had no running water, no
everything, no running water, no roads, no electricity, and the
lady's cell phone rang that he was talking to, and it dawned on
him that the private industry was putting the cell phones in
place and the government was responsible for everything else.
And then if you went anywhere in the world, you can swipe a
card and get your money from your bank account in your
currency. And so some things that we do with the government
sometimes, we get conflicting patterns, or it is not as smooth
as when the free market or the private sector does it.
These are important programs. I am not saying that, but it
just seems like if there are similar programs through similar
funding sources, we would have some similar administration to
make sure we are not duplicating. Because you can't tell that
from your map because you don't know where your map is.
Mr. Strickling. Well, to that end though, I would say that
during the application process back in 2009 and 2010, our two
agencies collaborated very closely on this program, and indeed,
we had two rounds of funding. In the second round, based on
what we learned in the first round, we each adopted different
funding philosophies so that we could avoid the question of
duplication and overlap. And I think we were very successful in
that regard in both of our rounds. In Round 1, the way we
handled it was to make sure that we both weren't both looking
at the same applications and stayed in close contact on the
projects as we considered whether or not the fund had given
applications or not, because in Round 1, people could actually
apply to both programs.
We actually had duplicate applications, or it was the same
application, but they were being reviewed by both agencies. We
fixed that in Round 2, because each of us adopted our own
separate funding philosophy to deal with the very question you
raise.
Mr. Guthrie. I think that is very good, and it would be
helpful if you all did have it coordinated and one simple place
for us to look to see where they are all on one map. So thanks
for your willingness to check into that. I appreciate that, and
I yield back.
Mr. Walden. The chair now recognizes the gentleman from
Texas, Mr. Barton, for 5 minutes.
Mr. Barton. I thank the chairman, and the Ranking Member,
Ms. Eshoo, for holding this hearing. My questions are going to
be to Mr. Strickling on this BTOP. I have had inquiries in my
office from the State of Texas and the State of Mississippi.
The State of Texas got a waiver to begin to implement its
statewide system, and Mississippi actually got, I think, up to
$70 million, and if I understand correctly, they have almost
completed their system. And now they have gotten these letters
from you, Mr. Strickling, saying to cease and desist.
My understanding is that if a network is meeting its
milestones, that there is not a requirement that work be
stopped. It is only if the work hasn't been done, or if it
looks as if they are doing it wastefully and inefficiently or
outside of the scope of the law. So could you elaborate why you
told Mississippi to stop their network, and why Texas, who has
a waiver, and is not receiving much, if any Federal funds to
build theirs, has been asked to stop also? Because if you stop,
my understanding is, we are basically giving up 18 months to 24
months. And in the case of Mississippi, their network, if I
understand correctly, is going to be operational sometime this
fall.
Mr. Strickling. So, yes, sir. I can respond to all of those
points. First off, we don't have any direct engagement with
Texas. They did not receive any funding from us. You are
correct that they have a--they are one of the FCC's 21 waiver
jurisdictions. We have not filed at the FCC in terms of a
specific recommendation to the FCC as to what they should do
with those jurisdictions, but I think as I explained why we did
what we did with Mississippi, you will see that the same
considerations apply with Texas. What has changed here is that
Congress passed the Middle Class Tax Relief Act in February and
has now directed, through NTIA, the creation of FirstNet to
build a national, single interoperable public safety broadband
network.
Our problem is the FirstNet board won't stand up until
August. I don't know what decisions they are going to make
about how to build this network, but it is clear from the model
Congress has provided us, that you expect this to be a public-
private partnership that will be largely built by private
industry, and it will have to operate as a single interoperable
network.
My concern is, that today, I see no path right now as to
how we take that investment in Mississippi, and whether it will
even be interoperable with the decisions that have yet to be
made by FirstNet, and even if it turns out it is, how that
equipment ever makes it to that public-private partnership that
is now going to be created.
Mr. Barton. Well, isn't better, though, if it is almost
operational to go ahead and let it be built and then integrate
it into the system, as opposed to stopping it and waiting 2
years?
Mr. Strickling. Well, but you have made a big assumption
there in terms of integrating it into the National network. The
question of interoperability of this gear in the public safety
environment is still an open question, and if what you are
suggesting is, I should go ahead and let $380 million of
taxpayer money be spent unchecked in the hope that I couldn't
verify today that this equipment will be interoperable with
decisions that have not yet been made by FirstNet and will
somehow be made available to the private companies that will
eventually bid on this network, I think that is risking
taxpayer money and we would be criticized in 2 or 3 years.
Mr. Barton. I am not a Congressman from Mississippi, but I
have great respect for Mississippi, and when I am told that
their network, which I--don't hold me exactly to these numbers,
but I think I was told that Federal taxpayers have given the
State of Mississippi $70 million, and it has almost all been
spent and it is almost ready to go. Why would we not make that
network operational? I mean, maybe you have to patch, do some
sort of an interstate patch 2 years from now, but if you just
sit on it, it can't be used. You wasted $50- to $70 million.
That, to me, doesn't seem to make sense. The money has been
spent, the equipment has been bought. It is being installed.
How much different is their network going to be than a network
that is still on the drafting board?
Mr. Strickling. Well, sir, the network, they haven't spent
all of the money and the network isn't all installed. They have
been taking delivery of equipment, largely because
manufacturers have been asking and pushing for delivery of
equipment and rendering bills. But as of the last time we
checked, which was a few weeks ago, Mississippi had only spent
$22 million of the $70 million.
Mr. Barton. Well, is it an open question? I mean, if they,
if officials in Mississippi can show due diligence and that
they appear to be doing things that make sense, is it open that
they could go ahead and complete their network, or do you
disagree with my assessment that their network is about to be
operational? Are you saying it is going to take them 2 or 3
years anyway, or----
Mr. Strickling. No, but I think it is somewhere in the
middle between are they ready to go, versus 2 to 3 years. But
here is our point: With respect to every one of these grants,
we are going to work with the grantee over the next 45 days to
determine what part of the project can go forward and on what
basis.
Mr. Barton. So there is some----
Mr. Strickling. If, in fact, Mississippi has spent dollars
that are not retrievable, I think you make a good point, which
is why not go ahead and let them try this out. We will learn
something from it. I don't know today that that is the case. I
don't know to what extent they have the ability to put this
gear back in the box and send it back to the manufacturer and
get a refund. And I think we have to look at all of those
questions now before we allow all of these dollars to be spent
on a network that I can't tell you today will, in any way, end
up in the FirstNet network that Congress has not directed to be
designed.
Mr. Barton. I understand that. The chair has been very
gracious. My time is expired, but let me just give an editorial
comment. If States that have grants are using them properly, I
would hope we have the flexibility to let those continue with
the understanding that they have to meet the standards and
interact and integrate into this new program. I just hope we
don't waste money that has already been spent, and I hope that
you and the FCC have enough flexibility to use common sense to
work with the States to figure out what is the most
commonsense, cost-effective path forward. And with that, Mr.
Chairman, I yield back.
Mr. Walden. I thank the gentleman for his questions and
comments, and I now recognize the gentleman from Florida, Mr.
Stearns, for 5 minutes.
Mr. Stearns. Thank you, Mr. Chairman, and when you look at
this hearing, Mr. Chairman, ``Broadband Loans and Grants,'' it
reminds me of the hearing I have had dealing with loans and
grants from the Department of Energy, as chairman of the
Oversight Investigations Committee, particularly looking at
Solyndra and all of these others, you come away with the
feeling that the government obviously is not equipped to handle
a lot of these grants and loan guarantees without a whole lot
of supervision.
But I would say, Mr. Strickling, that I appreciate your
prompt response to our committee's questions, and documents
that we requested as we investigated LightSquared/GPS interface
interference disputes, so I appreciate your response. On the
other hand, Mr. Adelstein, I sent you a letter on December
16th. Mr. Chairman, if I could, I would like to make this part
of the record in which I requested Mr. Adelstein to provide
information by January 31st, 2012. If I could have this
letter----
Mr. Walden. Absolutely. I believe I was on that, as well.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 79965.057
[GRAPHIC] [TIFF OMITTED] 79965.058
[GRAPHIC] [TIFF OMITTED] 79965.059
Mr. Stearns. So I guess the question, are you familiar with
this letter that I sent to you?
Mr. Adelstein. Yes.
Mr. Stearns. OK, I guess the real question then would be to
you, considering you said in your letter back to me, you said
that ``because files pertaining to the additional material
requested are voluminous and under review, we anticipate that
we can deliver the remaining documents by January 31, 2012.''
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 79965.060
Mr. Stearns. So you have got February, March, April, May,
and so we are moving along here, almost 4 months ago. So I
guess the question is, I guess when can the committee expect to
see the documents that involve our investigation into Open
Range Communications' bankruptcy, and I think we even went back
to November 9th, is when we started the original request, and
so if you could be so kind as to provide when you will comply
with even your own letter.
Mr. Adelstein. We have worked very closely with your staff
on exactly what the timing is on that, and we are going to get
that to you forthwith. We are working now to gather that. We
have already provided, I think, over 10,000 pages of documents
to the committee. We are happy to provide whatever you need in
a time frame that you need it. I mean, what we have available
is----
Mr. Stearns. The time frame from your own letter was
January 31st. So it is not what we requested. You said in your
letter you would comply by January 31st. So I think we are just
puzzled why you are not.
Mr. Adelstein. My understanding is we worked with your
staff to explain exactly what it is that we have and how we can
organize it so it best meets your needs. The scope of what we
are doing has been clarified, and----
Mr. Stearns. So you are saying you don't understand what we
are requesting?
Mr. Adelstein. No, we do. We understand very clearly.
Mr. Stearns. Then why can't you just comply?
Mr. Adelstein. There is a lot of documents.
Mr. Stearns. It takes 4 months? I mean, when you wrote this
letter and said January 31st, you would comply, did you not
realize that you couldn't comply?
Mr. Adelstein. Well, I think it has been more material than
I had anticipated. In fact, this is voluminous.
Mr. Stearns. OK, I accept that. Also you know that the Lake
County Fiber Network Project was awarded almost $67 million
from RUS, and this was despite data that indicated that a
substantial majority of the housing units in that proposed
service area were already served by existing broadband
providers. I mean, that is hard to believe. In questions for
the record, you submitted to Congress, you promised to seek
repayment of all of the outstanding loans. Is that correct?
Just yes or no.
In questions for the record you submitted to Congress, you
promise to seek the repayment of all outstanding loans.
Mr. Adelstein. Well, we do, yes.
Mr. Stearns. However, there have been allegations that the
RUS grantee in Lake County, Minnesota, received assurances from
a high-ranking RUS official that RUS would not seek repayment
of the loan in the event of a default by Lake County.
In the event this project fails, will RUS require Lake
County to completely, completely pay off the $56.4 million
loan, yes or no?
Mr. Adelstein. Yes.
Mr. Stearns. OK, that is good. We are also looking into
Open Range Communications' bankruptcy that left $73.5 million
in taxpayer funding at risk or of default.
Mr. Stearns. Among the reasons for the bankruptcy was Open
Range's reliance on a satellite network that was not fully in
compliance with its license and which the FCC eventually
revoked.
How much did RUS understand about the FCC licensing process
before it even approved the loan to Open Range Communications?
Mr. Adelstein. I wasn't at the RUS when it was approved, so
it was approved by my predecessor in the previous
administration, but I think that to his credit that the RUS and
the administrator at the time took very careful steps to look
into that spectrum issue and to protect the taxpayer in the
event of problems which gave us the ability later to work with
the awardee and try to minimize the exposure to the taxpayers.
So I think they were cognizant of the issues there.
Mr. Stearns. But you weren't.
Mr. Adelstein. Well, I was when I came on board. We looked
at this thing, we worked with the FCC very closely. As a matter
of fact the, documents indicate that we did work with the FCC
to ensure that the operator could continue to operate and there
was no disruption of service because of the spectrum issues,
that was not the issue that resulted in the bankruptcy.
Mr. Stearns. Mr. Chairman, in closing, I would like to put
in the record, the Communications Daily has a paragraph that
Mediacom officials predicted default, and this is going back to
my earlier question with Lake County fiber network. And the RUS
has given assurance to Lake County that it wouldn't be
responsible to repay the debt beyond the proceeds of a
foreclosure auction on a network.
Mr. Adelstein has indicated that they will be forced to
pay, but somebody, some official, has indicated they won't. So
I would like to make this part of the record, so we can better
understand why Lake County fiber network thinks they don't have
to pay, yet Mr. Adelstein said they will.
Without objection.
Mr. Walden. Without objection.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 79965.061
[GRAPHIC] [TIFF OMITTED] 79965.062
[GRAPHIC] [TIFF OMITTED] 79965.063
[GRAPHIC] [TIFF OMITTED] 79965.064
Mr. Walden. Mr. Adelstein.
Mr. Adelstein. To respond to that, I don't know who said
that. I tried to track that down. I don't believe that anyone
at RUS said that. That was not attributed directly to us.
Somebody said that somebody said that. There is no evidence
that it actually happened. And I certainly would reprimand
anybody that would make that.
That would be a violation of Federal law. We have a
requirement under the Credit Reform Act to aggressively seek
collections for any defaults on debts, and we always have.
There has never been any evidence that we have done otherwise.
So I can't imagine that anyone would say such a thing. But
maybe there is a misunderstanding and somebody mischaracterized
what was said.
Mr. Stearns. Well, I can understand being an elected
official and a politician, lots of people attribute things to
what I say to which I didn't say. I think you win your point
overwhelmingly there.
Thank you, Mr. Chairman.
Mr. Walden. With that, we will now turn to our final set of
questions in this hearing to Mr. Scalise for 5 minutes.
Mr. Scalise. Thank you Mr. Chairman. I appreciate you
having this hearing.
We just started the Spectrum Working Group in the House. I
want to commend the chairman for putting that together, and we
are going to be looking at a number of things that we can do to
try to free up spectrum, especially in the government sector.
I want to ask you, Secretary Strickling, NTIA just gave out
with a report that looked at government spectrum, and I think
in the report it said it would take 10 years and $18 billion to
clear Federal users off the 1755 through 1850 megahertz range.
Where did you get those numbers from, especially to take
that long with that amount of money to free it up?
Mr. Strickling. Yes, sir. The individual agencies holding
the spectrum assignments provided the cost information and the
schedule information in terms of how long and how much they
thought it would take for them to totally relocate their
systems out of the 1755 to 1850 band.
Mr. Scalise. Was there any third party validation that was
used to look at those numbers as well? In the past, we have
seen some people try to guard their spectrum and even if they
might not be utilizing it as effectively and efficiently as
they can, and there may be capacity there. You know, you are
asking them to give some up, and oh, by the way, can you tell
me what you don't need? Sometimes you might not get as clear of
an answer as if you maybe had somebody third party looking at
what they really are using and what is available.
Mr. Strickling. Certainly. My understanding is that each
agency would have worked with their OMB examiners as part of
this effort. But I honestly don't know to what extent and how
detailed that review was. But if I could just say that what we
learn from that report was that 10 years and $18 billion, even
if let's assume it is now 8 years and $15 billion, if more
detailed cost reviews had been done, it still doesn't solve our
problem, which is that is too much money and it takes too long
and has led us to recommend, as we did in the report, that we
really need to have a new paradigm for how we find additional
spectrum for commercial use----
Mr. Scalise. Do we know how accurate those numbers are?
Have there been estimates that you all have made in the past
where then you had a track record of actually doing it to
compare and see if the estimate was way off?
Mr. Strickling. The last time this would have been done
would have been the 1710 to 1755 review about 10 years ago, and
there would be a track record on that, and I don't know what it
would be, but it would be possible to look at that.
Mr. Scalise. Can you give that to the committee? Get what
the estimate was and then ultimately----
Mr. Strickling. Sure. One of the things to keep in mind,
too, was that up until now, before the spectrum act
improvements in February, there hasn't been money for Federal
agencies to do the kind of detailed planning for reallocation
that has now been made available in the new law passed in
February. And for that, we absolutely thank the committee for
its efforts to deliver that to us. That is a very important
improvement in the Spectrum Relocation Act and one that will
help us immeasurably and we move forward in terms of giving
agencies the resources they need to do this kind of planning
before an auction.
Mr. Scalise. Chairman Walden worked real hard on that, and
it was something that was a major accomplishment to get
through. And I have some questions about that.
I have one final question on the relocation issue. If you
could go back, I don't know if you have looked at this, if you
would just limit it and instead of looking at the entire range
of spectrums, from 1755 to 1850, if you narrowed that down to
1755 to 1780 because that seems like an area that might be more
realistic to look at instead of looking at an entire swath, if
you could give us some estimates and projections on just that
narrow band from 1755 to 1780 megahertz.
Mr. Strickling. Here is our problem with that. The Federal
agencies going back to 1710 to 1755 moved a lot of systems out
of that band, and at that time, they were told, just move them
up into the 1755 band, and we won't trouble you for that
spectrum ever again.
The problem that we have with the 1755 to 1850 band is that
there are a number of systems in that band, such as the
Department of Defense Air Combat Training System that utilize
all 95 megahertz of that spectrum. Plus the agencies know that
simply to be told, well, squeeze into the 1780 to 1850 band,
and we won't trouble you again for that spectrum----
Mr. Scalise. This isn't, we are not troubling you, this is
the private sector, too, that is being troubled because they
are being held back from their ability to create jobs. And we
need to start creating jobs. And if some Federal agency says,
oh, wait a minute, don't bother me, because I am holding a
bunch of spectrum I am not using, and I just don't want to tell
you about it, that is not their spectrum. This is the public's
spectrum.
And we are trying to see if there are ways to put it into
the public using a much better way that can generate money for
the taxpayers and that can generate a lot of jobs that are high
paying in this country. So if somebody is worried about how
much they are going to be put out because they have got to do a
little bit of extra work because they are sitting on assets
that the taxpayers of this country, because really it is their
spectrum; it is not these Federal agencies' spectrums. So if
they give you pushback, please give me their names, and maybe
we will bring them in here and have a hearing if they don't
want to do something that will comply with something that will
create jobs in this country.
Mr. Strickling. Sir, I agree with you 100 percent. But
could I comment on that? Which is what we need is a new
paradigm that will free up 95 megahertz for this band----
Mr. Scalise. We are working on a new paradigm. We are
working on that together. I am almost out of time.
I want to ask you one final question. On the work that has
been done to manage a fully operable network and a lot of
States have been trying to get this, the Federal Government has
been trying to get interoperable, and again, the chairman
really did a yeoman's work in finally putting a structure in
place. I know a number of States including mine, Louisiana, our
Governor's office, homeland security and in the event of
hurricanes and other disasters, our Governor's office manages
those disasters with local law enforcement. And in cases like
Katrina, we had New York police officers going into the City of
New Orleans. There was no interoperability, not in September
11, not in Katrina. We are trying to solve that, and I know at
the Federal level now, there is a structure being put in place.
Our State, and I am sure others have, has requested a waiver
from the FCC so they don't have to wait a full 3 years; they
can start putting their plan in place now using an
interoperable system.
It is my understanding that your agency has petitioned the
FCC not to issue any waivers, and of course, our State doesn't
want to wait 3 years to start moving forward on building their
interoperable network that would work with an entire system.
Why would you want to hold States back that already have plans
in place like ours and have a need in place to get
interoperability if they want to start moving forward with a
system that is integrated?
Mr. Strickling. Because nobody today can guarantee any of
this will be interoperable in 3 years. The FirstNet board is
based on a new concept from Congress, which is to build a
single national interoperable network. It has commissioned the
creation of a board of directors to figure out how to design
and build that network. The reason we have pulled back on the
$380 million of taxpayer money that was going to be spent in
the seven jurisdictions we gave waivers in is we can't
guarantee today that that money won't be wasted because we
don't know yet. The board hasn't even met.
Mr. Scalise. But if they are using LTE, for example, if
they are using a system that is interoperable----
Mr. Strickling. Sir, we don't know these things. People are
using these terms----
Mr. Scalise. The FCC----
Mr. Strickling. ``Interoperable'' means different things to
different people.
Mr. Scalise. But shouldn't the FCC make that determination?
Mr. Strickling. Well, what we want to have here is a
network that can be built according to a business model that
will allow this service to be provided to public safety
entities at affordable rates. Every decision that an entity
makes today to build their own little piece of this, even
things as innocent as selecting a particular vendor to serve a
particular State, can upset what the model is that Congress has
now given us in the Middle Class Tax Relief Act.
I am trying to preserve the flexibility and freedom and the
prerogative of the FirstNet board to be able to design the
network that our first responders have been asking for since
even before 9/11, and the concern is that we are headed down a
road to repeat all of the same mistakes we made with LMR voice,
where individual systems were built, and then they didn't work
together with each other.
Give FirstNet a chance to come back with a design for a
single interoperable network, and let them get on with the task
of building it, and that way we can deliver the safety and the
modern communications that our first responders need to have.
The concern is----
Mr. Scalise. I hope I am not suggesting that if a State
doesn't want to have that interoperabilty, and clearly
Louisiana does, we have had a need for it and let's let FCC
make that decision. If they have got a good plan that is
already in place and they are going to do all of those things
that you were concerned about, then let FCC move forward.
Mr. Walden. I am going to many exercise prerogative, since
we are 4 minutes over.
Mr. Scalise. I yield the balance of my time that is
expired.
Mr. Strickling. I find it interesting that I am the one
here who wants to save the most money.
Mr. Scalise. I would disagree with that.
Mr. Walden. I think I voted to actually save more money.
But anyway I do appreciate what you are doing here.
I just want to close out the hearing. And I know Anna wants
to make a couple of comments as well. One is FirstNet is
supposed to come forward with their interoperable standards
fairly soon, correct?
Mr. Strickling. The FCC has a charge to come forward with
the minimal interoperability requirements based on the
committee that they were charged with creating.
Mr. Walden. But isn't that supposed to happen?
Mr. Strickling. Soon, yes. I think in a matter of weeks.
Mr. Walden. And so, once that happens, then you will do a
review of these proposals that are, that you have suspended,
correct, to see if they meet that requirement?
Mr. Strickling. We will certainly take that into account
yes, sir.
Mr. Walden. Well, I would hope so because if these ones
that you have suspended, and we have had this discussion, if
they do now meet the, once the interoperable standards are
established, once they--I would think somebody needs then to
go, ``OK that works, go ahead.'' Wouldn't that be the decision,
or am I missing something?
Mr. Strickling. It may not be. We will need to look at what
the FCC comes out with and evaluate it against the projects.
But what we have asked for is a fairly minimal set of
standards. It may not be dispositive in terms of deciding
whether or not to let all of these projects go forward with the
4G aspect of their grants.
Mr. Walden. But we should have that discussion at some
point.
Mr. Strickling. Happy to do so.
Mr. Walden. The other thing I would like to know from each
of the our two, Mr. Strickling and Mr. Adelstein, is the amount
of, if you could provide for the subcommittee the amount of the
unobligated management and oversight funds that you have.
Mr. Strickling. We don't have any at this point because all
of our, other than the IG's dollars that he told you about, we
are operating based on appropriated dollars now in terms of
oversight.
Mr. Walden. All right.
Mr. Adelstein.
Mr. Adelstein. We have no unobligated funds for
administration. As a matter of fact, we haven't gotten one dime
of additional administration for this program. We have had to
basically eat it in our existing budget.
Mr. Walden. No good deed will go unpunished in the future,
either.
I turn now to the gentlelady from California.
Ms. Eshoo. Thank you, Mr. Chairman, and I thank you for
having yet another hearing to track all of this, which is so
important.
I want to conclude the hearing by thanking all of the
witnesses today, and most especially with a renewed
appreciation of what an enormous assignment you were given
through the Recovery Act, some $7.3 billion, $7.5 billion
divided almost equally between two agencies to carry this out
in a relatively short period of time.
Obviously, the work of the IGs has been instructive to you
on where you can improve, and I think that that has come out in
this hearing as well.
But I also want to note something that I couldn't help but
detect because it was so obvious, that there are some members
that really want to relitigate, and it is each member's
prerogative to say and ask for whatever they wish. But my
observation is that there are some that want to relitigate the
Recovery Act. They simply don't like it. They never agreed with
it.
I am one of the members that pushed our leadership very,
very hard to include a significant sum of money to make sure
that we really reach people and build broadband out to them
because the private sector simply was not doing it; it wasn't
profitable to do it, and that is where I think there was a need
for public attention to that because there was private sector
inattention, and that was their prerogative to do whatever they
did.
But there are Americans in different parts of our country
that simply were not getting this service and couldn't hope to,
even in the long term. So I think that this work is really
significant. And there was another generation that made sure
that people had telephone service--had telephone service. We
take that for granted. And that was the lifeline for people in
rural communities. And so, in this generation, we are looking
to make sure that people have broadband. And I want America to
be number one in broadband. That has been a goal of mine from
the very beginning being on this subcommittee.
So I thank the scrutiny of the IGs and what you continue to
bring to it.
And to Mr. Strickling and Mr. Adelstein, I think that you
have to have real broad shoulders in this. This was really a
huge assignment, and I think that today really highlights the
successes of what you have done, and certainly the critique
that the Congress offers is important and that you will follow
up on it.
So thank you, Mr. Chairman, for having this hearing and I
thank the witnesses again.
Mr. Walden. I, too, thank the witnesses and appreciate your
participation, and we look forward to continuing the dialogue.
And we will do our part. I know you are trying to do your part
as well. Thank you very much. With that, the hearing is
adjourned.
[Whereupon, at 12:16 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC] [TIFF OMITTED] 79965.065
[GRAPHIC] [TIFF OMITTED] 79965.066
[GRAPHIC] [TIFF OMITTED] 79965.067
[GRAPHIC] [TIFF OMITTED] 79965.068
[GRAPHIC] [TIFF OMITTED] 79965.069
[GRAPHIC] [TIFF OMITTED] 79965.070
[GRAPHIC] [TIFF OMITTED] 79965.071
[GRAPHIC] [TIFF OMITTED] 79965.072
[GRAPHIC] [TIFF OMITTED] 79965.073
[GRAPHIC] [TIFF OMITTED] 79965.074
[GRAPHIC] [TIFF OMITTED] 79965.075
[GRAPHIC] [TIFF OMITTED] 79965.076
[GRAPHIC] [TIFF OMITTED] 79965.077
[GRAPHIC] [TIFF OMITTED] 79965.078
[GRAPHIC] [TIFF OMITTED] 79965.079
[GRAPHIC] [TIFF OMITTED] 79965.080
[GRAPHIC] [TIFF OMITTED] 79965.081
[GRAPHIC] [TIFF OMITTED] 79965.082
[GRAPHIC] [TIFF OMITTED] 79965.083
[GRAPHIC] [TIFF OMITTED] 79965.084
[GRAPHIC] [TIFF OMITTED] 79965.085
[GRAPHIC] [TIFF OMITTED] 79965.086
[GRAPHIC] [TIFF OMITTED] 79965.087
[GRAPHIC] [TIFF OMITTED] 79965.088
[GRAPHIC] [TIFF OMITTED] 79965.089
[GRAPHIC] [TIFF OMITTED] 79965.090