Another Failing Federal Loan Program | Citizens Against Government Waste

Another Failing Federal Loan Program

The WasteWatcher

The U.S. Department of Agriculture’s (USDA) Rural Electrification Administration (REA) program began during the New Deal Era of the 1930’s. The program’s primary goal was to promote rural electrification to farmers and residents in out of the way communities where, due to the high cost borne by utility providers, such investments were not considered feasible. By 1981, 98.7 percent of these homes and businesses received electricity and 95 percent received telephone service. Rather than declaring victory and closing its doors, REA was transformed into the Rural Utilities Service (RUS), which expanded to provide loans for broadband communications to underserved areas of the country. Through the RUS program, the USDA acts as a credit agency that assists rural electric and telecommunications utilities obtaining financing, as well as administers nationwide water and waste loan and grant programs that are intended to improve the quality of life and promote economic development in rural America.

The RUS’ Telecommunications Infrastructure Loan Program provides loans to be used as investment capital for the deployment of rural telecommunications infrastructure. In an effort to further expand a national broadband network into under-served rural areas, the RUS developed the USDA’s Rural Broadband Loan Program. This program funds the costs of construction, improvement, and acquisition of facilities and equipment to provide broadband service to eligible rural areas on a technology-neutral basis. Direct loans are in the form of cost-of-money loans, a 4 percent loan, or a combination of the two. Under the American Recovery and Reinvestment Act (stimulus), USDA has obligated $3.53 billion for the Rural Development program’s Broadband Initiatives Loan and Grants Program (BIP).

Federal loan and loan guarantee programs as well as federal grant programs have recently come under fire. The U.S. Department of Energy’s loan program includes the bankrupt Solyndra, LLC whose energy loans amounted to nearly $535 million, and the Department of Housing and Urban Development has been unable to track grant funds. It is clearly time to review the symptomatic underlying problems with these programs. On November 9, 2011, the House Energy and Commerce Committee called for an investigation into the RUS program, and its loan to Open Range Communications, which filed for bankruptcy protection on October 6, 2011.

From the initial $264 million loan, Open Range Communications still has an outstanding debt to taxpayers of $73 million. A September 14, 2011 study by Navigant Economics, commissioned by the National Cable and Telecommunications Association (NCTA), found that USDA’s RUS program is providing loans to companies in areas already being served. The report stated that the RUS broadband loan program “has been troubled throughout its history, with independent auditors repeatedly criticizing the agency’s failure to target funding to areas without pre-existing broadband services.” Those independent auditors cited in the report include the Government Accountability Office and the USDA Office of Inspector General. According to a November 17, 2011 article in Politico, an unnamed source from the FCC made the point even clearer, stating “Providing service in rural America has always been hard and even harder when there is a provider already serving in the area.”

CAGW’s Prime Cuts report recommended that the RUS broadband program be eliminated. The estimated savings from eliminating this program would be $1.8 billion in the first year and $44 billion over five years. According to a February 12, 2009, Washington Post article, of the 68 projects funded since USDA’s RUS broadband expansion into rural communities began in 2002, only 21 projects were nearing completion and about half were not even started. While the congressional investigation will reveal problems with the RUS program in more detail, considering the debate surrounding the loan to Open Range Communications, perhaps it finally is time for the RUS broadband program to be eliminated so that taxpayer dollars will not be further jeopardized.

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