Local Television Act: Status of Spending for Fiscal Year 2003	 
(15-OCT-04, GAO-05-18R).					 
                                                                 
In December 2000, the Congress passed the Launching Our 	 
Communities' Access to Local Television Act of 2000 (Local TV Act
or act). The act created the Local Television Loan Guarantee	 
Program (Program) and established the Local Television Loan	 
Guarantee Board (Board) to finance projects that will provide	 
access to signals of local television stations to households in  
areas with limited or no access to such signals from a commercial
satellite service or other multichannel video provider. The Board
may approve loan guarantees up to 80 percent of loans totaling no
more than $1.25 billion in aggregate. In November 2001, the	 
Congress appropriated $2 million for administrative expenses to  
implement the Program. Section 1006 of the act requires that we  
perform an annual audit of the (1) administration of the	 
provisions of the act, and (2) financial position of each	 
applicant who receives a loan guarantee under the act, including 
the nature, amount, and purpose of investments made by the	 
applicant. In October 2003, we issued our first annual report as 
required by the act.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-18R 					        
    ACCNO:   A13093						        
  TITLE:     Local Television Act: Status of Spending for Fiscal Year 
2003								 
     DATE:   10/15/2004 
  SUBJECT:   Television and television stations 		 
	     Government guaranteed loans			 
	     Appropriated funds 				 
	     Loans to localities				 
	     Television broadcasting				 
	     Locally administered programs			 
	     Local governments					 
	     Program management 				 
	     Public assistance programs 			 
	     Satellites 					 
	     LOCAL Television Loan Guarantee Program		 

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GAO-05-18R

United States Government Accountability Office Washington, DC 20548

October 15, 2004

The Honorable Richard C. Shelby
Chairman
The Honorable Paul S. Sarbanes
Ranking Minority Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Michael G. Oxley
Chairman
The Honorable Barney Frank
Ranking Minority Member
Committee on Financial Services
House of Representatives

Subject: Local Television Act: Status of Spending for Fiscal Year 2003

In December 2000, the Congress passed the Launching Our Communities'
Access to Local Television Act of 2000 (Local TV Act or act).1 The act
created the Local Television Loan Guarantee Program (Program) and
established the Local Television Loan Guarantee Board (Board) to finance
projects that will provide access to signals of local television stations
to households in areas with limited or no access to such signals from a
commercial satellite service or other multichannel video provider. The
Board may approve loan guarantees up to 80 percent of loans totaling no
more than $1.25 billion in aggregate. In November 2001, the Congress
appropriated $2 million

2

for administrative expenses to implement the Program.

Section 1006 of the act requires that we perform an annual audit of the
(1) administration of the provisions of the act, and (2) financial
position of each applicant who receives a loan guarantee under the act,
including the nature, amount, and purpose of investments made by the
applicant. In October 2003, we issued our first annual report3 as required
by the act. In that report, we addressed program administration and key
activities that occurred during fiscal years 2002 and 2003. We

1 Pub. L. No. 106-553, title X, 114 Stat. 2762A-128 (Dec. 21, 2000)
(codified in part at 47 U.S.C. S:S:1101
1110).
2 Agriculture, Rural Development, Food and Drug Administration and Related
Agencies Appropriations
Act, 2002, Pub. L. No. 107-76, title III, 115 Stat. 704, 725 (Nov. 28,
2001).
3 Local TV Act: Progress Made, but Timeliness and Cost Accounting Issues
Need to be Addressed,
GAO-04-134 (Washington, D.C.: Oct. 31, 2003).

                            GA0-05-18R Local TV Act

reported that the Program had not been established expeditiously as
specified by the act and that the full costs of administering the Program
were not accumulated and charged to the Program as called for by federal
accounting standards. Because the regulations and underwriting criteria
that would have provided the overall framework for the Program had not
been implemented at the time of our initial review, lending activities
were delayed. Therefore, there were no loan guarantee applicants to audit,
which was one of our mandated audit objectives under Section 1006 of the
act. This second report addresses the status of the $2 million
administrative appropriation and the fiscal year 2003 Working Group4
costs.

To determine the status of the $2 million administrative appropriation and
the Working Group costs incurred during fiscal year 2003, we obtained and
evaluated information from the Board, including budget, contract and cost
data, minutes of Board meetings, and other related information. Further,
we reviewed federal accounting standards to determine if Working Group
costs were accounted for properly. We did not independently verify or
audit the Working Group cost data we obtained from the Board. We conducted
our work from March 2004 through September 2004 in accordance with
generally accepted government auditing standards. We requested comments on
a draft of this report from the Chairman of the Board.

During fiscal year 2002, the Department of Agriculture obligated the $2
million in appropriated funds by issuing an order to GovWorks for its
anticipated needs. GovWorks is a franchise fund established within the
Department of the Interior by the Congress and the Office of Management
and Budget to offer administrative services to federal agencies. As of the
end of fiscal year 2003, GovWorks had awarded, on the Board's behalf,
contracts totaling almost $1.2 million, leaving approximately $802,000 of
the $2 million administrative appropriation still available for
contracting with outside consultants or other administrative expenses.
Table 1 summarizes the activity for this appropriation for fiscal years
2003 and 2002.

4 The Working Group, which the Board established based on authority
granted in the act, consists of senior level officials and staff from the
Board members' departments and agencies, including the Departments of
Agriculture, Commerce, Treasury, and the Board of Governors of the Federal
Reserve System.

    Table 1: Status of Administrative Appropriation as of September 30, 2003

Appropriation received by the Department of Agriculture $2,000,000 (USDA)
during fiscal year 2002a,b

Less contracts awarded by GovWorks during:

    Fiscal year 2002 - Ernst & Young, LLP for developing  $ 697,771 
underwriting criteria (includes $20,323 GovWorks fee)            
       Fiscal year 2003 - Arnold and Porter for legal      500,000  1,197,771 
                         servicesc                                  
       Amount available for contracting with outside                          
            consultants as of September 30, 2003                    $ 802,229

Source: GAO analysis based on information obtained from the Board.

aThe Agriculture, Rural Development, Food and Drug Administration, and
Related Agencies Appropriations Act, 2002, appropriated $2 million for
administrative expenses necessary for carrying out the Local Television
Loan Guarantee Program, which it directed to be transferred to and merged
with the appropriation for Rural Development, Salaries and Expenses, Pub
L. No. 107-76, 115 Stat. 704, 725. (Nov. 28, 2001). bThe Consolidated
Appropriations Resolution, 2003, provided that any balances available from
prior years for the Rural Utilities Service, Rural Housing and the Rural
Business-Cooperative Services salaries and expenses account be transferred
and merged with the fiscal year 2003 appropriation, Pub. L. No 108-7, Div.
A, title III, 117 Stat. 26, 28 (Feb. 20, 2003). Pursuant to this
provision, the balance of the $2 million appropriated in fiscal year 2002
was carried forward to fiscal year 2003. cThis contract is an indefinite
quantity, indefinite delivery contract for fixed-price labor services with
a maximum dollar threshold of $500,000. As of May 27, 2004, no services
had been obtained. This contract is subject to an administrative fee based
on services provided in an amount no greater than $15,000.

At the Board's request, GovWorks awarded a $677,448 contract to Ernst and
Young for developing underwriting criteria and a $500,000 contract to
Arnold and Porter for legal services. As of the end of fiscal year 2003,
approximately $598,000, about 88 percent of the contract amount, had been
disbursed to Ernst and Young. Because the Board had not used Arnold and
Porter's services as of the end of fiscal year 2003, the original amount
awarded remained available at fiscal year end.

Separate from the $2 million appropriation for administrative expenses
discussed above, the Board reported that during fiscal years 2002 and
2003, the Working Group incurred approximately $333,742 in administrative
costs for continuing development of the Program regulations and
underwriting criteria. Table 2 summarizes these costs for fiscal years
2002 and 2003.

       Table 2: Summary of Estimated Administrative Costs Incurred by the
                                 Working Group
             For the Fiscal Years Ended September 30, 2002 and 2003

Source: GAO analysis based on information obtained from the Board.
Information is unaudited.

The respective departments and agencies of the Working Group members
absorbed these costs from their own salaries and expense accounts rather
than being paid from the $2 million appropriation. Also, as discussed in
our previous report,5 the total costs of administering the Program were
not accumulated and charged to the Program consistent with federal
accounting standards.6 For example, Working Group costs reported by the
Board did not include fringe benefits and overhead. Again, during fiscal
year 2003, such costs incurred by the Board had not been included in
reported costs. Without accumulating and reporting the costs of
administering the Program, the Board will not be able to satisfy federal
cost accounting requirements or be in a position to determine the portion
of those costs that are statutorily required to be recovered.

The Board provided written comments on a draft of this report. In its
response, the Board commented on the accumulation of Board and Working
Group costs for the purpose of establishing loan guarantee origination
fees and application fees and the delay of lending activities.

The Board stated that we had not made a distinction between the Working
Group's costs to date that have been related to developing regulations and
underwriting criteria and otherwise setting up the Program and those costs
that are eligible for recovery through loan guarantee origination and
application fees. The Board also reiterated a point made in commenting on
our prior report. This is, when the Board accepts applications or extends
offers for loan guarantees, it will ensure that such administrative costs
adhere to managerial cost accounting concepts in accordance with federal
accounting standards and related guidance, provided that those costs prove
to be material. We agree that the Program development costs should not be

5 GAO-04-134, 9.
6 Federal Accounting Standards Advisory Board. Statement of Federal
Financial Accounting Standards
No. 4: Managerial Cost Accounting Standards, July 31, 1995.

considered when establishing the loan application or loan guarantee
origination fees and have never suggested that they should be.7 However,
assuming that the Board will eventually process at least one completed
application or award at least one loan guarantee, we believe that it needs
to establish a methodology to accumulate the costs that the Board and
Working Group will incur before applications are accepted. This
methodology is needed to meet the statutory requirement that loan
application and loan guarantee origination fees be set at a level
reasonably expected to offset, but not in the aggregate exceed, these
costs. Such a methodology need not be elaborate, as long as it satisfies
the basic cost accounting processes prescribed by Statement of Federal
Financial Accounting Standards No. 4 (SFFAS No. 4).

Aside from accumulating costs for the purpose of establishing fees, we
also continue to believe that appropriate cost information should be
available about the Program. As discussed in our previous report, SFFAS
No. 4 requires federal agencies to capture the costs of federal programs
to assist the Congress in authorizing, modifying, and discontinuing
programs and to provide agencies with reliable cost data for making
informed managerial decisions and evaluating performance.8

Consistent with the previous report, the Board stated that lending
activities were delayed because the statute required the Board to procure
the services of an independent public accounting firm to assist with
developing underwriting criteria and such criteria needed to be developed
in accordance with the statute and the regulations. We continue to
believe, as stated in our prior report, that the Program has not been
established in an expeditious fashion as specified by the act. Based on
the criteria stated in the act, the program regulations and the
underwriting criteria, which provide the overall framework for the
Program, should have been ready for implementation no later than March
2002. Since these key documents were not ready until December 2003, the
Board was delayed in initiating the lending activities needed to carry out
the objectives of the program. The Board's written comments are presented
in the enclosure.

We are sending copies of this report to the Secretaries of Agriculture,
Commerce, and Treasury, and the Chairman of the Board of Governors of the
Federal Reserve System, members of the Local Television Loan Guarantee
Board, and the Director, Office of Management and Budget. We will also
make copies available to others upon request. In addition, the report will
be available at no charge on the GAO Web site at http://www.gao.gov.

7 The Local TV Act and implementing regulations require the Board to
charge applicants a loan
application fee and a loan guarantee origination fee. See Pub. L. No.
106-553, title X, S: 1005(n), 114
Stat. 2762A-128-137 (Dec. 21, 2000) (codified at 47 U.S.C. S: 1104(n));
see also 7 C.F.R. S:S: 2201.11(m),
(n), 2201.21. The act established the loan application fee "to cover the
cost of the Board in making
necessary determinations and findings with respect to the loan guarantee
application under this act."
The act established the loan guarantee origination fee to cover the
administrative costs, including the
costs of the Board, associated with the issuance of a loan guarantee.
However, the act limits the Board
to imposing fees that in the aggregate do not exceed the actual amount of
administrative costs under
this act.
8 GAO-04-134, 9.

We look forward to working with you and your staff on the fiscal year 2004
audit required by the Local TV Act. Should you or your staff have any
questions on matters discussed in this report, please contact me at (202)
512-6906 or by e-mail at [email protected], or Alana Stanfield, Assistant
Director, at (202) 512-3197 or at [email protected]. Major contributors
to this report include Lisa Crye, F. Abe Dymond, Lauren S. Fassler, Jeff
Isaacs, and Christina Quattrociocchi.

McCoy Williams
Director
Financial Management and Assurance

Enclosure

                                   Enclosure

Comments from the Local Television Loan Guarantee Board

                                   Enclosure

(195038)
*** End of document. ***