Democracy & Technology Blog Federal broadband loan program hopelessly duplicative

A hearing tomorrow in the House Subcommittee on Rural Development, Research, Biotechnology, and Foreign Agriculture will examine duplicative rural development programs. The subcommittee should pay particular attention to the Broadband Loan Program administered by the Rural Utilities Service of the Department of Agriculture.
Audits have uncovered serious shortcomings and the agency has resisted needed reforms for years. The time has come for lawmakers to brush aside rosy assurances from agency officials and wind the program down.
Testifying in February of last year, the Department of Agriculture’s Inspector General briefly summarized a shocking set of audit findings from 2005 that included waste, fraud and abuse, and noted that most of the issues had still not been resolved satisfactorily .

Of the $895 million in grants and loans RUS issued from 2001 to 2005, we reviewed $599 million and questioned the expenditure of $340 million for reasons including loans that were approved despite incomplete applications, loans that defaulted, and grant funds used for inappropriate purposes. We further found that RUS had not maintained its focus on rural communities lacking preexisting broadband service. ****
We also questioned RUS’ practice of devoting significant portions of its resources to funding competitive service in areas with preexisting broadband access rather than expanding service to communities without existing access. In 2004, we found that 159 of the 240 communities associated with the loans (66 percent) already had preexisting broadband service, despite the fact that the law establishing the broadband program made it clear that these funds were intended to be used first for “eligible rural communities in which broadband service is not available to residential customers.”

It is likely impossible for this program to fulfill its intended purpose.
The Broadband Loan Program was conceptually flawed at its inception. Broadband is not available in remote areas when the cost of building a broadband network is so high that the broadband provider does not expect to recover the investment. If it is uneconomic to provide service to a particular locale, how can a loan recipient repay the loan? This is why most of the loans are used to build redundant facilities in areas that are already served. As a general matter, a grant not a loan would be required to finance the construction of facilities in an area that is uneconomic to serve.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.