Broadband Loan and Grant Programs in the USDA's Rural Utilities Service

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

Given the large potential impact broadband access may have on the economic development of
rural America, concern has been raised over a “digital divide” between rural and urban or
suburban areas with respect to broadband deployment. While there are many examples of rural
communities with state of the art telecommunications facilities, recent surveys and studies have
indicated that, in general, rural areas tend to lag behind urban and suburban areas in broadband
deployment.
Citing the lagging deployment of broadband in many rural areas, Congress and the
Administration acted in 2001 and 2002 to initiate pilot broadband loan and grant programs within
the Rural Utilities Service (RUS) at the U.S. Department of Agriculture (USDA). Subsequently,
Section 6103 of the Farm Security and Rural Investment Act of 2002 (P.L. 107-171) amended the
Rural Electrification Act of 1936 to authorize a loan and loan guarantee program to provide funds
for the costs of the construction, improvement, and acquisition of facilities and equipment for
broadband service in eligible rural communities. Currently, RUS/USDA houses the only two
federal assistance programs exclusively dedicated to financing broadband deployment: the Rural
Broadband Access Loan and Loan Guarantee Program and the Community Connect Grant
Program.
The 110^th Congress considered reauthorization and modification of the program as part of the
farm bill. The Food, Conservation, and Energy Act of 2008 became law on June 18, 2008 (P.L.
110-246). Title VI (Rural Development) contains authorizing language for the broadband loan
program.
Meanwhile, on May 11, 2007, RUS released a Proposed Rule seeking to revise the broadband
loan program rules and regulations. Some key issues pertinent to a consideration of the RUS
broadband programs include restrictions on applicant eligibility, how “rural” is defined with
respect to eligible rural communities, how to address assistance to areas with preexisting
broadband service, technological neutrality, funding levels and mechanisms, and the
appropriateness of federal assistance. The final rule will reflect language in the enacted farm bill
statute (P.L. 110-246). Ultimately, modification of rules, regulations, or criteria associated with
the RUS broadband program will likely result in “winners and losers” in terms of which
companies, communities, regions of the country, and technologies are eligible or more likely to
receive broadband loans and grants.
On January 21, 2009, the House Appropriations Committee approved legislative language for the
spending portion of the economic stimulus package (American Recovery and Reinvestment Bill
of 2009). The legislation would provide $6 billion to support deployment of broadband and
wireless services in rural, unserved, and underserved areas of the nation. Of the total, $2.825
billion would be provided to RUS as additional funding for its existing loan, loan guarantee, and
grant programs.
This report will be updated as events warrant.

Background: Broadband and Rural America...................................................................................1
Pilot Broadband Loan and Grant Programs.....................................................................................3
Rural Broadband Access Loan and Loan Guarantee Program........................................................4
Community Connect Broadband Grants.........................................................................................7
Other Broadband Programs.............................................................................................................8
Criticisms of RUS Broadband Programs.......................................................................................10
Loan Approval and Application Process.................................................................................10
Eligibility Criteria....................................................................................................................11
Loans to Communities With Existing Providers.....................................................................12
Issues for Reauthorization.............................................................................................................13
Restricting Applicant Eligibility.............................................................................................13
Definition of “Rural Community”...........................................................................................14
Preexisting Broadband Service...............................................................................................15
Technological Neutrality.........................................................................................................16
Funding ........................................................................................................................ ........... 17
Activities in the 110^th Congress.....................................................................................................17
House Farm Bill......................................................................................................................17
Senate Farm Bill......................................................................................................................19
Conference Agreement and Public Law (P.L. 110-246)..........................................................21
Appropriations......................................................................................................................... 23
FY2008 ............................................................................................................................. 23
FY2009 ............................................................................................................................. 24
Activities in the 111^th Congress.....................................................................................................25
Table 1. Funding for the Rural Broadband Access Loan and Loan Guarantee Program................5
Table 2. Appropriations for the Community Connect Broadband Grants......................................7
Table 3. Number of Customers Receiving New or Improved Telecommunication Services
(Broadband) Through USDA Financing of Telecommunications Facilities................................9
Author Contact Information..........................................................................................................25

The broadband loan and grant programs at RUS are intended to accelerate the deployment of
broadband services in rural America. “Broadband” refers to high-speed Internet access for private
homes, commercial establishments, schools, and public institutions. Currently in the United
States, broadband is primarily provided via cable modem (from the local provider of cable
television service) or over the telephone line (digital subscriber line or “DSL”). Other broadband
technologies include fiber optic cable, fixed wireless, satellite, and broadband over power lines
(BPL).
Broadband access enables a number of beneficial applications to individual users and to
communities. These include e-commerce, telecommuting, voice service (voice over the Internet
protocol or “VOIP”), distance learning, telemedicine, public safety, and others. It is becoming
generally accepted that broadband access in a community can play an important role in economic
development. A February 2006 study by the Massachusetts Institute of Technology for the
Department of Commerce’s Economic Development Administration marked the first attempt to
measure the impact of broadband on economic growth. The study found that “between 1998 and
2002, communities in which mass-market broadband was available by December 1999
experienced more rapid growth in employment, the number of businesses overall, and businesses ¹
in IT-intensive sectors, relative to comparable communities without broadband at that time.”
Subsequently, a June 2007 report from the Brookings Institution found that for every one
percentage point increase in broadband penetration in a state, employment is projected to increase
by 0.2 to 0.3% per year. For the entire U.S. private non-farm economy, the study projected an ²
increase of about 300,000 jobs, assuming the economy is not already at full employment.
Access to affordable broadband is viewed as particularly important for the economic development
of rural areas because it enables individuals and businesses to participate fully in the online
economy regardless of geographical location. For example, aside from enabling existing
businesses to remain in their rural locations, broadband access could attract new business
enterprises drawn by lower costs and a more desirable lifestyle. Essentially, broadband potentially
allows businesses and individuals in rural America to live locally while competing globally in an
online environment.
Given the large potential impact broadband may have on the economic development of rural
America, concern has been raised over a “digital divide” between rural and urban or suburban
areas with respect to broadband deployment. While there are many examples of rural

¹^G^ille^{tt, Sha}^r^oⁿ^E.^{, Ma}^s^s^a^c^hus^e^tts^Ins^tit^ute^of^T^e^c^hnolog^y^,^M^e^as^ur^{ing Br}^oa^db^an^d’^s^Ec^o^nom^ic^I^m^p^a^c^t^{, r}^e^por^{t pr}^e^p^a^r^e^d
^f^o^r^the^Ec^on^om^ic^D^e^ve^lopm^eⁿ^{t A}^d^mⁱ^nis^t^r^a^{tion, U}^.^{S. D}^e^pa^r^t^m^e^{nt o}^f^C^o^m^m^e^r^c^e^,^Fe^br^ua^r^y^{28, 2}⁰⁰⁶^,^{p. 4}^.^A^v^a^ila^ble^a^t
^http:^//w^w^w^.e^da^.g^ov^/^I^m^a^g^e^C^a^c^h^e^/^ED^A^P^ublic^/^doc^um^eⁿ^ts^/pdf^doc^s²⁰⁰⁶^/^m^itcm^ubbim^p^a^c^t^r^e^por^t_2e^p^d^f^/^v^1/
^m^itcm^ubbim^p^a^c^t^r^e^por^t.p^d^f^.
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^{A Cross-se}^c^tiona^{l An}^aly^s^{is o}^f^U.S^.^Data^{, Ju}^ne²⁰⁰⁷^,²⁰^pp^{. A}^v^a^ila^ble^a^t^htt^p^://w^ww^3.brook^ing^s^.e^du/^vⁱ^e^w^s/^pa^pe^rs/
^c^r^a^nda^ll/²⁰⁰⁷⁰^6litaⁿ^.^p^d^f^.

communities with state of the art telecommunications facilities,³ recent surveys and studies have
indicated that, in general, rural areas tend to lag behind urban and suburban areas in broadband
deployment. For example:
• A September 2004 Department of Commerce report, A Nation Online: Entering
the Broadband Age, found that a lower percentage of Internet households have
broadband in rural areas (24.7%) than in urban areas (40.4%), and that “while
broadband usage has grown significantly in all areas since the previous survey, ⁴
the rural-urban differential continues.” The report also found that broadband
penetration rates are higher in the West and Northeast than in the South and ⁵
Midwest.
• A May 2006 report released by the Government Accountability Office (GAO)
found that 17% of rural households subscribe to broadband, as opposed to 28% ⁶
of suburban and 29% of urban households. GAO also found that lower
broadband subscription rates in rural areas are related to availability, not to a ⁷
lesser tendency of rural households to purchase broadband service.
• 2008 data from the Pew Internet & American Life Project indicate that while
broadband adoption is growing in urban, suburban, and rural areas, broadband
users make up larger percentages of urban and suburban users than rural users.
Pew found that the percentage of all U.S. adults with broadband at home is 60% ⁸
for suburban areas, 57% for urban areas, and 38% for rural areas.
• According to the latest FCC data on the deployment of high-speed Internet
connections (released January 2009), as of December 31, 2007, high-speed
subscribers were reported in 99% of the most densely populated zip codes, as ⁹
opposed to 90% of zip codes with the lowest population densities.
The comparatively lower population density of rural areas is likely the major reason why
broadband is less deployed than in more highly populated suburban and urban areas. Particularly
for wireline broadband technologies—such as cable modem and DSL—the greater the
geographical distances among customers, the larger the cost to serve those customers. For
example, in providing telecommunications services, investment per subscriber in rural systems ¹⁰
averages $2,921 compared to $1,920 for urban. Thus, there is often less incentive for companies

³^S^{ee f}^o^{r exa}^m^p^l^e:^Natⁱ^oⁿ^a^l^E^x^ch^an^{ge Carri}^{er Asso}^ci^atⁱ^oⁿ^(NE^C^A⁾^,^Tr^e^nds²⁰⁰⁶^:^M^a^kⁱ^{ng Pr}^ogr^e^s^s^W^{ith Br}^oa^db^an^d^,
²⁰⁰⁶^,²⁶^p^.^A^v^ailab^l^{e at h}^ttp^://w^ww^.n^eca.^o^r^g^/^medⁱ^a/tren^d^s^_^b^ro^ch^u^r^e_^w^e^b^s^ite.p^d^f^.
⁴^U^.^{S. D}^e^pa^r^t^m^e^{nt of}^C^o^m^m^e^r^c^e^,^Ec^onom^ic^s^a^{nd Sta}^tis^tⁱ^c^s^A^d^mⁱ^nis^t^r^a^tion,^N^a^tiona^{l T}^e^le^c^o^m^m^unic^a^tions^a^nd
^Iⁿ^f^o^r^m^a^{tion A}^d^mⁱ^nis^t^r^a^tion,^A^N^a^tion^Oⁿ^li^ne^:^En^te^rⁱ^ng^the^Br^oa^db^and^Age^,^Se^pte^m^be^r²⁰^04,^p^p^.¹²^-^13.
⁵^I^b^id^{., p. 12.}
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^Diffic^{ult t}^o^Asse^{ss the}^Ex^teⁿ^t^of^D^e^ploy^me^{nt Ga}^{ps i}ⁿ^Rur^a^{l Are}^a^s^,^GAO-06-4^26,^Ma^y²⁰⁰⁶^{, p}^.¹²^{. A}^v^a^ila^ble^a^t
^http:^//w^w^w^.g^a^o^.g^ov^/ⁿ^e^w^.item^s^/^d⁰⁶⁴²^6.^pdf^.
⁷^Ibid^{., p. 5.}
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^A^s^s^e^s^s^m^e^nts^,^a^s^s^e^s^s^m^e^{nt y}^e^a^r^2005,^p.²⁶^{2, a}^v^a^ila^ble^a^t^http^://w^w^w^.^w^hite^hous^e^.^g^o^v^/^om^b/bu^dg^e^t/fy²⁰⁰^5/^pm^a^/
^agri^cu^l^t^u^re.^p^d^f^.

to invest in broadband in rural areas than, for example, in an urban area where there is more
demand (more customers with perhaps higher incomes) and less cost to wire the market area.
The terrain of rural areas can also be a hindrance, in that it is more expensive to deploy
broadband technologies in a mountainous or heavily forested area. An additional added cost
factor for remote areas can be the expense of “backhaul” (e.g., the “middle mile”) which refers to
the installation of a dedicated line which transmits a signal to and from an Internet backbone
which is typically located in or near an urban area.
Cable modem and DSL currently comprise about 84% of residential broadband deployment ¹¹
nationwide. However, because of the challenges of deploying these technologies in low
population density areas, other broadband technologies have been identified as perhaps offering
potential in rural areas. These include mobile wireless (cellular), fixed wireless (WIMAX, wi-fi),
satellite, and broadband over powerlines (BPL).

Given the lagging deployment of broadband in rural areas, Congress and the Administration acted
to initiate pilot broadband loan and grant programs within the Rural Utilities Service of the U.S.
Department of Agriculture. While RUS had long maintained telecommunications loan and grant
programs (Rural Telephone Loans and Loan Guarantees, Rural Telephone Bank, and more
recently, the Distance Learning and Telemedicine Loans and Grants) none were exclusively
dedicated to financing rural broadband deployment. Title III of the FY2001 agriculture
appropriations bill (P.L. 106-387) directed USDA/RUS to conduct a “pilot program to finance
broadband transmission and local dial-up Internet service in areas that meet the definition of
‘rural area’ used for the Distance Learning and Telemedicine Program.”
Subsequently, on December 5, 2000, RUS announced the availability of $100 million in loan
funding through a one-year pilot program “to finance the construction and installation of ¹²
broadband telecommunications services in rural America.” The broadband pilot loan program
was authorized under the authority of the Distance Learning and Telemedicine Program (7 U.S.C.
950aaa), and was available to “legally organized entities” not located within the boundaries of a
city or town having a population in excess of 20,000.
The FY2001 pilot broadband loan program received applications requesting a total of $350
million. RUS approved funding for 12 applications totaling $100 million. The FY2002 agriculture
appropriations bill (P.L. 107-76) designated a loan level of $80 million for broadband loans, and
on January 23, 2002, RUS announced that the pilot program would be extended into FY2002,
with $80 million in loans made available to fund many of the applications that did not receive ¹³
funding during the previous year.

¹¹^Hi^g^h^-^S^p^eed^S^e^rvi^{ces f}^o^{r In}^t^e^rn^et^A^{ccess: S}^t^a^t^u^s^a^s^o^f^Decemb^e^{r 3}¹^,²⁰⁰⁷^,^Ch^art⁶^.
¹²^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^USDA^{, “}^C^onstruc^ti^on^aⁿ^d^Insta^lla^ti^on^of^Broa^dbaⁿ^d^T^e^le^c^o^m^m^unic^a^{tions Se}^rv^ic^e^s^{in Rura}^l
^Am^e^r^ic^a^;^A^v^a^ila^bility^of^L^o^aⁿ^Fu^nds,”^Fe^de^ra^{l Re}^giste^r^{, V}^o^{l. 65}^{, N}^o^.²³⁴^,^D^e^c^e^m^b^e^r^5,²⁰⁰⁰^{, p. 75}⁹²⁰^.
¹³^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^USDA^{, “}^B^roa^dbaⁿ^d^Pilot^L^o^aⁿ^P^r^og^ra^m^,^”^Fe^de^{ral Re}^giste^r^,^V^o^l.⁶⁷^{, N}^o^.¹⁵^,^J^a^nua^r^y^23,
²⁰⁰^{2, p. 31}⁴⁰^.

Meanwhile, the FY2002 agriculture appropriations bill (P.L. 107-76) allocated $20 million for a
pilot broadband grant program, also authorized under the Distance Learning and Telemedicine
Program. On July 8, 2002, RUS announced the availability of $20 million for a pilot grant
program for the provision of broadband service in rural America. The program was specifically
targeted to economically challenged rural communities with no existing broadband service.
Grants were made available to entities providing “community-oriented connectivity” which the
RUS defined as those entities “who will connect the critical community facilities including the
local schools, libraries, hospitals, police, fire and rescue services and who will operate a ¹⁴
community center that provides free and open access to residents.”
In response to the July 8, 2002, Notice of Funds Availability, RUS received more than 300
applications totaling more than $185 million in requested grant funding. RUS approved 40 grants
totaling $20 million. The pilot program was extended into FY2003, as the Consolidated
Appropriations Resolution of 2003 (P.L. 108-7) allocated $10 million for broadband grants. On
September 24, 2003, 34 grants were awarded to eligible applicants who did not receive funding
during the previous year.

Building on the pilot broadband loan program at RUS, Section 6103 of the Farm Security and
Rural Investment Act of 2002 (P.L. 107-171) amended the Rural Electrification Act of 1936 to
authorize a loan and loan guarantee program to provide funds for the costs of the construction,
improvement, and acquisition of facilities and equipment for broadband service in eligible rural ¹⁵
communities. Section 6103 made available, from the funds of the Commodity Credit
Corporation (CCC), a total of $100 million through FY2007 ($20 million for each of fiscal years
2002 through 2005, and $10 million for each of fiscal years 2006 and 2007). P.L. 107-171 also
authorized any other funds appropriated for the broadband loan program.
Beginning in FY2004, Congress annually blocked mandatory funding from the CCC. Thus—
starting in FY2004—the program was funded as part of annual appropriations in the Distance
Learning and Telemedicine account within the Department of Agriculture appropriations bill.
Every fiscal year, Congress has approved an appropriation for the loan program which is used to
subsidize a specific loan level (the total amount of lending authority). Table 1 shows—for the life
of the program to date—loan subsidies, loan levels (lending authority), and actual funds
announced by RUS yearly for loan applications. Announced available funding typically exceeds
yearly loan levels because large balances of unobligated money have been carried over from year
to year.

¹⁴^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^USDA^{, “}^B^roa^dbaⁿ^d^Pilot^G^r^aⁿ^{t P}^r^og^ra^m^,^”^Fe^de^{ral Re}^gⁱ^ste^r^{, V}^o^l.⁶⁷^{, N}^o^{. 1}^{30, J}^u^ly^{8, 2}⁰⁰²^,
^p^.⁴⁵⁰⁸^0.
¹⁵^T^itle^V^I^of^the^R^u^ra^{l Ele}^c^t^rifⁱ^c^a^{tion A}^c^{t of}¹⁹³^{6 (}⁷^U.S^.^C.⁹⁵^0b^b).

Table 1. Funding for the Rural Broadband Access Loan
and Loan Guarantee Program
^Anno^{unced Available}
^{Budget Authority}^{(subsidy level)}^{Loan Level (lending}^authority)^{Funding f}^{or L}^{oans a}^nd
^{Loan Gua}^rantees^a
^FY2003^$40^million^b^$1.45^{5 billi}^on^$1.45^{5 billi}^on^c
^FY2004^$13.1^million^$60^{2 million}^$2.21¹^billi^on^d
^FY2005^$11.7¹⁵^million^$55^{0 million}^$2.15⁷^billi^on^e
^FY2006^$10.7^{5 million}^$50^{0 million}^$1.08⁵^billi^on^f
^FY2007^$10.7^{5 million}^$50^{0 million}^$0.99⁸^billi^on^g
^FY2008^$6.45^million^$30^{0 million}^$0.79²⁹^billion^h
^FY2009^$6.45^million^$30^{0 million}^$0.5⁹⁴^billion^h
^a.^{Because all available funds were}ⁿ^{ot awarded, unobligated balances}^{were car}^{ried over from year}^{to year.}
^b.^{Composed of $20}^milli^{on from FY200}^{2 plu}^{s $}^{20 million for FY200}^{3 of mandatory}^fu^{nding from t}^he
^{Commodity Credit C}^orporation,^{as directed by P.L. 10}^7-1^{71. I}ⁿ^th^{e FY200}^{4, FY200}^{5, and FY2}⁰⁰^{6 a}^pprop^riations
^{bills, mandatory funding from t}^h^e^{CCC was canceled.}
^c.^{Rural Utilit}^{ies Service, USDA}^{, “R}^{ural Broadband Access}^{Loans a}ⁿ^d^{Loan G}^uarant^{ees Program,”}^Fede^ral
^Register^{, Vol}^{. 68, No. 20, Ja}^nuary^{30, 2}⁰⁰^{3, pp.}⁴⁷^53-4⁷⁵^5.
^d.^{Rural Utilit}^{ies Service, USDA}^{, “R}^{ural Broadband Access}^{Loans a}ⁿ^d^{Loan G}^uarant^{ees Program,”}^Fede^ral
^Register^{, Vol}^{. 69, No. 60, Ma}^rch²^{9, 20}^{04, p}^{p. 1}⁶²^31-1⁶²^32.
^e.^{Rural Utilit}^{ies Service, USDA}^{, “R}^{ural Broadband Access}^{Loans a}ⁿ^d^{Loan G}^uarant^{ees Program,”}^Fede^ral
^Register^{, Vol}^{. 70, No. 42, Ma}^rch⁴^,²⁰⁰^{5, pp.}¹⁰⁵⁹^5-10⁵⁹^6.
^f.^{USDA, Rural Uti}^lit^{ies Service, “R}^{ural Development Utilities Programs,” power point}^prese^{ntation, April 25,}
²⁰⁰^{6. Available at http://www.usd}^a.gov/^rus/^{pasd/NARUC-20}^06A^pril.ppt#32^2,1.
^g.^{USDA, Rural Uti}^lit^{ies Service, “R}^{ural Development Telecommu}^{nications Program Overview,” powe}^{r point}
^prese^{ntation, October}^{1, 20}^{07. A}^{vailable at http://www.usda.gov/rus/}^telecom/^broadband/^workshop^s/
^{J.PontiMichiganPresentationOct1}²⁰⁰^7.p^pt..
^h.^{USDA, Rural Uti}^lit^{ies Service, “F}^{CC/USDA Rural Broadband Educ}^{ational Workshop,” power point}
^prese^{ntation, November}^20,²⁰⁰^{8. Available at http://www.usda.gov/rus/}^telecom/^broadband/^workshops/
^FCC_US^{DABroadbandWorkshopNov2}^0.pdf.
The Rural Broadband Access Loan and Loan Guarantee Program is codified as 7 U.S.C. 950bb.
Specifically, Treasury rate loans, 4% loans, and loan guarantees are authorized for entities
providing broadband service for “eligible rural communities,” defined as any area of the United
States that is not contained in an incorporated city or town with a population in excess of 20,000 ¹⁶
inhabitants. RUS is required to be technologically neutral in determining whether or not to make

¹⁶^Se^c^tion⁷⁷²^of^the^FY2⁰⁰⁴^Co^ns^olida^t^e^d^A^pprop^ria^tio^ns^A^c^{t (P}^.L^.¹⁰^8-1⁹⁹⁾^c^h^aⁿ^g^e^{d t}^h^e^de^fⁱ^nitioⁿ^of^aⁿ^“^e^lig^ible
^ru^ral^co^mm^uⁿⁱ^t^y^{” t}^o^b^e^d^e^fⁱⁿ^e^d^{as “an}^y^{area o}^f^t^h^{e Un}ⁱ^t^e^d^S^t^at^{es t}^h^atⁱ^sⁿ^o^t^co^nt^aiⁿ^e^dⁱⁿ^aⁿⁱⁿ^c^o^rpo^r^at^ed^ci^t^y^o^r^t^o^wⁿ
^w^{ith a}^pop^ula^tⁱ^{on i}ⁿ^e^x^c^e^{ss of}^20,⁰⁰⁰ⁱⁿ^ha^bita^nts.”^A^c^c^o^rding^l^y^,^the^Ma^rc^{h 29}^{, 2}⁰⁰⁴^N^o^tic^e^of^Fu^nd^{s Av}^a^ila^bility^f^o^r
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^T^h^e^de^fⁱ^nition^of^e^lig^ible^rura^{l c}^o^m^m^unit^y^{in Se}^c^tion⁶⁰¹⁽^b)(2)^of^the^Rura^{l Ele}^c^t^rifⁱ^c^a^{tion A}^c^{t (7}
^U^.^S.C^.⁹⁵^0b^b)⁽^b⁾⁽²⁾^,^qua^lif^yⁱ^ng^f^o^r^fⁱ^na^nc^ia^{l a}^s^sⁱ^s^t^aⁿ^c^e^unde^r^the^R^u^r^a^{l B}^r^oa^d^b^aⁿ^{d A}^cces^{s L}^o^an
^a^{nd L}^o^aⁿ^G^u^a^r^aⁿ^ty^P^r^og^r^a^m^,^ha^s^be^eⁿ^a^m^e^nde^{d by}^pr^ov^is^ionsⁱⁿ^t^h^e^C^ons^ol^ida^t^e^d^A^ppr^opr^ia^ti^ons
^A^c^{t, 2004,}^to^m^e^aⁿ^aⁿ^y^a^r^e^a^o^f^the^Uⁿ^ite^{d S}^t^a^t^e^s^tha^t^is^not^c^ontaⁱⁿ^e^{d in a}ⁿ^inc^o^r^p^or^a^t^e^d^c^ity^or
^towⁿ^w^{ith a}^po^pula^tⁱ^oⁿ^{in e}^x^c^e^s^s^of^20,⁰⁰^{0 in}^ha^bita^nts^.^T^h^e^r^e^f^or^e^,^aⁿ^a^pplic^aⁿ^{t n}^o^l^ong^e^r^m^u^s^t
⁽^c^onti^nue^d.^..)

a loan, and is instructed to give priority to rural communities with no existing residential
broadband service. Loans are used for financing new or improved existing broadband provider
facilities. Loans cannot be used to finance installations or equipment at customers’ premises.
On January 30, 2003, the RUS published in the Federal Register the regulation (7 C.F.R. part

1738) establishing the Rural Broadband Access Loan and Loan Guarantee Program, as authorized ¹⁷

by P.L. 107-171. According to the regulation, entities eligible to receive loans include
corporations, limited liability companies, cooperative or mutual organizations, Indian tribes, and
public bodies. Specifically not eligible are individuals, partnerships, and any entity serving 2% or
more of the telephone subscriber lines in the United States. All applicants are required to
demonstrate adequate credit support—a minimum of 20% of requested loan amount, including ¹⁸
cash on hand equivalent to one full year of operating expense.
To be eligible for 4% loans, applicants must be proposing to serve a community with no existing
broadband service, a population of 2,500 or less, and a service area with population density of no
more than 20 persons per square mile. Additionally, the community must be located in a county
with a per capita income of less than or equal to 65% of the national per capita income.
As of November 20, 2008, the broadband loan program received 218 applications, requesting a
total of $4.5 billion in loans. Of these, 92 applications were approved (totaling $1.8 billion) and

117 were returned (totaling $2.7 billion). Of loans approved, 53% were made to corporations, ¹⁹

37% to LLCs, 6% to cooperatives, 3% to municipalities, and 1% to a tribal authority.

On March 25, 2008, RUS announced its largest loan ever, $267 million to Open Range
Communications. The $267 million loan, accompanied by an over $100 million investment from
the private sector, will enable Open Range to provide wireless broadband (Wi-Max technology) ²⁰
and satellite connectivity to 518 rural communities in 17 states.
Applications for the Rural Broadband Access Loan and Loan Guarantee program are accepted at
any time. The maximum loan amount for 4% loans is $7.5 million. There is no maximum for
treasury rate loans, and the minimum level for all loans is $100 thousand. In 2003, the average ²¹
loan was $11.2 million, while in 2006, the average loan was $44 million. Loans are made for the
term equal to the expected service life of financed facilities. Further information, including

^(...c^on^tin^ue^d)
^de^m^onstra^t^e^tha^t^{it is}^not^loc^a^t^e^dⁱⁿ^aⁿ^a^r^e^a^de^si^gⁿ^a^t^e^d^a^s^a^sta^nda^r^d^m^e^tropolita^{n sta}^tistic^a^l^a^r^e^a^.
^T^h^is^c^h^aⁿ^g^e^s^upe^r^s^e^d^e^s^a^nd^nullⁱ^fⁱ^e^s^c^ontr^a^r^y^pr^ov^is^ionsⁱⁿ^r^e^g^u^la^ti^ons^im^ple^m^eⁿ^ting^the
^br^oa^d^b^aⁿ^d^pr^og^r^a^m^f^{ound a}^t^{7 C}^F^R^pa^r^t¹⁷³⁸^.
¹⁷^Ru^{ral Utilit}^{ies Serv}^{ice, USDA}^{, “}^R^u^r^{al Bro}^a^d^b^an^d^A^cces^{s L}^o^an^{s a}ⁿ^d^L^o^an^G^u^aran^tees,”^Fe^de^{ral Re}^giste^r^{, V}^o^l.⁶⁸^,
^No^.²⁰^,^Janu^ar^y³⁰^,²⁰⁰³^,^p^p^.⁴⁶⁸⁴^-⁴⁶⁹²^.
¹⁸^T^h^e^c^a^s^h-on-haⁿ^d^re^q^u^ire^m^eⁿ^{t is w}^aⁱ^v^e^d^f^o^{r c}^o^m^p^aⁿ^ie^s^w^{ith tw}^{o pre}^v^{ious y}^e^a^r^{s of}^positiv^e^c^a^s^{h f}^l^ow^.
¹⁹ USDA, Rural Utilities Service, “FCC/USDA Rural Broadband Educational Workshop,”
power point presentation, November 20, 2008. Available at http://www.usda.gov/rus/
telecom/broadband/ work shops/FCC_USDABroad bandWorkshopNov20.pdf.
²⁰
^US^DA^,^{News Relea}^s^e^{, “}^U^SD^A^Anno^unc^e^s^$²⁶⁷^Milli^{on R}^u^ra^{l Bro}^a^dba^nd^L^o^aⁿ^,”^Ma^rc^h^25,²⁰⁰⁸^.^Av^a^ila^ble^a^t
^http:^//w^w^w^.r^ur^de^v^.^us^da^.g^ov^/r^d/^ne^w^s^r^o^o^m^/²⁰⁰⁸^/^R^D^_B^r^o^a^dbaⁿ^d_L^oa^ns^_³^-²^5-²⁰⁰⁸^.p^df^.
²¹^Ru^{ral Utilit}^{ies Serv}^{ice, Dep}^a^rtmeⁿ^t^o^f^A^g^ricu^ltu^{re, “Ru}^r^{al Bro}^a^d^b^aⁿ^d^A^ccess^L^o^an^{s an}^d^L^o^an^G^u^aran^tees,”
^P^r^op^os^e^d^R^u^le^,^Fe^de^ral^Re^giste^r^,^Vol^.⁷²^{, N}^o^.⁹¹^{, Ma}^y^11,²⁰^07,^p.²⁶⁷⁴^4.

application materials and guidelines, is available at http://www.usda.gov/rus/telecom/
broadband.htm.

The Consolidated Appropriations Act of 2004 (P.L. 108-199) appropriated $9 million “for a grant
program to finance broadband transmission in rural areas eligible for Distance Learning and
Telemedicine Program benefits authorized by 7 U.S.C. 950aaa.” On July 28, 2004, RUS
published its final rule on the broadband grant program, called the Community Connect Grant ²²
Program (7 C.F.R. part 1739, subpart A). Essentially operating the same as the pilot broadband
grants, the program provides grant money to applicants proposing to provide broadband on a
“community-oriented connectivity” basis to currently unserved rural areas for the purpose of
fostering economic growth and delivering enhanced health care, education, and public safety
services.
Funding for the broadband grant program is provided through annual appropriations in the
Distance Learning and Telemedicine account within the Department of Agriculture appropriations
bill. Table 2 shows a history of appropriations for the Community Connect Broadband Grants
(including the pilot grants of FY2002 and FY2003).
Table 2. Appropriations for the Community Connect
Broadband Grants
^{Fiscal Year}^Appr^opriation
^{FY2002 $20}^million
^{FY2003 $10}^million
^{FY2004 $9}^million
^{FY2005 $9}^million
^{FY2006 $9}^million
^{FY2007 $9}^million
^{FY2008 $13.4}^million
^{FY2009 $13.4}^million
^Source:^{Compiled by CRS from}^approp^{riations bills.}
Eligible applicants for broadband grants include incorporated organizations, Indian tribes or tribal
organizations, state or local units of government, cooperatives, private corporations, and limited
liability companies organized on a for profit or not-for-profit basis. Individuals or partnerships are
not eligible.
Funded projects must: serve a rural area of 20,000 population or less²³ where broadband service
does not exist, serve one and only one single community, deploy free basic broadband service

²²^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^USDA^{, “}^B^roa^dbaⁿ^d^G^r^aⁿ^t^P^r^og^ra^m^,^”^{7 C.F.R. pa}^rt¹⁷³⁹^,^Fe^de^{ral Re}^giste^r^,^V^o^l^.⁶⁹^{, N}^o^.¹⁴^4,
^J^u^ly^{28, 2}⁰⁰⁴^,^pp.⁴⁴⁸^96-⁴⁴⁹⁰^3.
²³^A^ru^ral^{area i}^s^d^e^fⁱⁿ^e^d^{as “an}^y^ar^{ea o}^f^t^h^{e Un}ⁱ^t^e^d^S^t^at^{es n}^o^tⁱⁿ^cl^u^d^ed^wⁱ^t^hⁱⁿ^t^h^{e bo}^un^d^a^ri^{es o}^f^an^yⁱⁿ^co^rpo^r^at^ed^o^r
⁽^c^onti^nue^d.^..)

(defined as 200 kbps in both directions) for at least two years to all community facilities, offer
basic broadband to residential and business customers, and provide a community center with at
least ten computer access points within the proposed service area while making broadband
available for two years at no charge to users within that community center.
Since the inception of the RUS broadband grant program, $83.7 million in grant money has been
awarded to 173 communities. Awardees must contribute a matching contribution equal to 15% of
the requested grant amount.
RUS typically publishes an annual Notice of Funding Availability (NOFA) in the Federal
Register, which specifies the deadline for applications, the total amount of funding available, and
the maximum and minimum amount of funding available for each grant. Further information,
including application materials and guidelines, is available at http://www.usda.gov/rus/telecom/
commconnect.htm.

The Rural Broadband Access Loan and Loan Guarantee Program and the Community Connect
Broadband Grants are currently the only federal programs exclusively dedicated to deploying
broadband infrastructure. However, there exist other federal programs that provide financial ²⁴
assistance for various aspects of telecommunications development. Though not explicitly or
exclusively devoted to broadband, many of those programs are used to help deploy broadband
technologies in rural areas. For example, since 1995, the RUS Rural Telephone Loan and Loan
Guarantee program—which has traditionally financed telephone voice service in rural areas under

5,000 inhabitants—has required that all telephone facilities receiving financing must be capable ²⁵

of providing DSL broadband service at a rate of at least 1 megabyte per second. An October
2006 survey of RUS traditional telephone loan program borrowers found that 92% of those
borrowers were providing broadband to all of the telephone exchanges in their service ²⁶
territories. The RUS Distance Learning and Telemedicine grants program is used to support
deployment of broadband technologies specifically for telemedicine and distance learning
applications. Table 3 shows the number of customers receiving broadband due to USDA
financing of telecommunications facilities.

^(...c^on^tin^ue^d)
^uni^nc^orp^o^ra^te^{d c}^ity^{, v}^illa^g^e^{, or bo}^roug^h^ha^vⁱ^ng^a^po^pula^t^ionⁱⁿ^e^x^c^e^{ss of}^20,0⁰⁰ⁱⁿ^ha^bita^nts.”^{(7 C}^.^F.^{R. 17}³⁹^.3)
²⁴^Se^e^C^R^S^R^e^por^{t R}^L³⁰⁷¹⁹^,^Br^o^a^dba^nd^Iⁿ^te^rⁿ^e^t^Ac^c^e^s^s^and^the^Dⁱ^gital^Dⁱ^vⁱ^de^:^Fe^de^r^a^{l As}^sⁱ^s^t^aⁿ^c^e^Pr^ogr^am^s^{, by}
^L^e^nna^r^d^G^.^K^r^ug^e^r^a^{nd A}ⁿ^g^e^le^A^.^G^ilr^oy^.
²⁵^{In t}^h^e^Rura^{l E}^l^e^c^t^rifⁱ^c^a^{tion L}^o^aⁿ^Re^struc^t^uring^A^c^{t (P}^.L^.¹⁰^3-1^29,^the¹⁹⁹³^f^a^r^m^{bill), Co}^ng^re^{ss a}^m^e^nde^{d t}^h^e^Rura^l
^Ele^c^t^rifⁱ^c^a^{tion A}^c^{t to re}^quire^t^h^a^t^f^a^c^ilitie^{s f}ⁱ^na^nc^e^d^un^de^{r this}^prog^ra^m^be^c^a^p^a^b^le^of^prov^idiⁿ^g^br^oa^dbaⁿ^d^se^rv^ic^e^a^t
^th^{e rate o}^f¹^m^e^g^a^b^y^t^e^p^e^{r seco}ⁿ^d⁽⁷^U.S^.^C.⁹³⁵⁽^d⁾⁽³^)(B)(iv^)(I)(cc).
²⁶^USDA^{, Rura}^{l Utilitie}^{s Se}^rv^ic^e^,^Rura^{l De}^v^e^lopm^eⁿ^{t T}^e^le^c^o^m^m^unic^a^tions^hom^e^pa^g^e^{, http://w}^ww^.us^d^a^.^g^o^v^/^rus/
^te^le^c^o^m^/^.

Table 3. Number of Customers Receiving New or Improved Telecommunication
Services (Broadband) Through USDA Financing of Telecommunications Facilities
^(millions)
^FY20^{01 FY20}⁰²^FY20^{03 FY20}^{04 FY20}^{05 FY20}^{06 FY20}^{07 FY20}⁰⁸^FY20⁰⁹
^0.31⁵^0.31^{0.38 0.37 0.23 0.30 0.32 0.39}^0.23
^Sources:^{U.S. Dept. of Agriculture,}^{2006 Performance and Accountability Report}^{, November 2}⁰⁰^{6, p.}^{82; U.S.}
^{Dept. of Agriculture,}^{FY2009 Budget Summary and Performance Plan}^{, p. 39.}
^Note:^{Customers are defined as}^{access lines fina}^{nced by}^the^progr^ams.
The other major vehicle for funding telecommunications development in rural areas is the ²⁷
Universal Service Fund (USF). Subsidies provided by USF’s Schools and Libraries Program
and Rural Health Care Program are used for a variety of telecommunications services, including
broadband access. While the USF’s High Cost Program does not explicitly fund broadband
infrastructure, subsidies are used, in many cases, to upgrade existing telephone networks.
Regarding the USF High Cost Program, the Congressional Budget Office has found that “current
policy implicitly provides funds for broadband in rural areas,” adding that:
^W^h^eth^e^r^su^c^h^u^p^g^r^ad^es^ar^e^m^o^tiv^a^t^ed^b^y^th^eⁱⁿ^ten^t^ioⁿ^to^p^r^o^v^id^{e b}^r^o^a^d^b^aⁿ^d^o^r^b^e^tter
^con^v^eⁿ^tion^a^l^teleph^on^e^s^e^rv^ic^{e is}ⁿ^o^{t i}^m^m^e^diatel^y^{clear. H}^o^w^e^v^e^{r, th}^e^f^{act t}^h^at^wⁱ^reliⁿ^e
^carri^ers^as^{a w}^h^ol^{e h}^a^v^e^been^l^o^sⁱ^ng^s^u^bs^cri^b^ers^an^{d l}^ong-^di^s^t^an^{ce rev}^e^nu^{e o}^v^e^r^t^h^e^p^a^s^t^h^a^l^f
^{decade s}^u^gg^es^t^s^t^h^{at at}^leas^{t p}^a^{rt of}^t^h^{e n}^e^wⁱⁿ^v^e^s^t^m^eⁿ^t^{in local loops}^h^a^s^beeⁿ^m^a^de^wⁱ^t^h²⁸
^t^h^{e ex}^pect^atⁱ^oⁿ^of^g^eⁿ^e^ratⁱ^ng^rev^e^nu^e^f^r^o^m^broadban^d^s^u^bs^cri^p^tⁱ^oⁿ^s^.
In the 110^th Congress, legislation to reform universal service—which could have a significant
impact on the amount of financial assistance available for broadband deployment in rural and
underserved areas—was introduced. For more information on universal service, see CRS Report
RL33979, Universal Service Fund: Background and Options for Reform, by Angele A. Gilroy.
In addition to federal support for broadband deployment, there are programs and activities
ongoing at the state and local level. Surveys, assessments, and reports from the Alliance for ²⁹
Public Technology and the Communications Workers of America, the California Public Utilities ³⁰³¹
Commission, the National Governors Association, and the National Conference of State ³²
Legislatures have explored state and local broadband programs. A related issue is the emergence

²⁷^{For m}^o^re^inf^o^rm^a^{tion o}ⁿ^the^Uⁿⁱ^v^e^r^sa^{l Se}^rv^ic^e^Fund^{, se}^e^{CRS Re}^{port RL}³⁰⁷^19,^Br^o^a^d^b^a^{nd I}ⁿ^te^rⁿ^e^t^Ac^c^e^s^s^{and t}^h^e
^Dⁱ^gital^Dⁱ^vⁱ^de^:^Fe^de^r^a^{l As}^sⁱ^s^t^aⁿ^c^e^Pr^ogr^am^s^,^by^L^e^nna^r^d^G^.^K^r^uge^r^a^{nd A}ⁿ^g^e^le^A^.^G^ilr^o^y^.
²⁸^C^ong^r^e^s^sⁱ^ona^{l B}^udg^e^t^O^f^fⁱ^ce^,^F^a^ct^o^{rs T}^h^a^t^Ma^{y In}^crea^{se F}^u^t^u^re^Sp^en^dⁱⁿ^g^f^r^o^m^t^h^{e Un}ⁱ^versa^l^S^e^rvi^{ce F}^uⁿ^d^{, CBO}
^P^a^pe^r,^J^u^ne²⁰⁰⁶^{, p}^.²⁵^{. A}^v^a^ila^ble^a^t^http^://w^w^w^.^c^bo.g^o^v^/^f^t^pdoc^s^/^72x^x^/^doc⁷²⁹¹^/^06-^16-Uⁿ^iv^e^r^s^a^lServⁱ^c^e^.^pdf^.
²⁹^S^ee^Sta^t^e^Br^oa^db^an^{d I}ⁿ^iti^ativ^e^s^:^{A Sum}^m^a^r^y^of^Sta^t^e^Pr^o^g^r^a^m^s^D^e^sⁱ^gne^d^to^Stim^u^l^ate^Br^oa^db^an^{d D}^e^ploy^m^e^nt^an^d
^Ado^p^tioⁿ^{, A}^J^oⁱⁿ^{t Re}^p^o^rt^of^the^A^llia^nc^e^f^o^{r Pub}^lic^T^e^c^hnolog^y^a^{nd the}^Com^m^unic^a^tions^W^o^rk^e^r^s^of^A^m^e^r^ic^a^,^J^u^l^y
²⁰⁰^8,⁵⁴^pa^g^e^{s. Sta}^t^e^pr^og^ra^m^da^t^a^ba^se^a^v^a^ila^ble^a^t^http://w^ww^.spe^e^d^m^a^tte^r^s^.org^/sta^te^polic^y^.
³⁰^Calⁱ^f^o^rⁿⁱ^{a Bro}^a^db^an^{d T}^a^{sk F}^o^rce,^The^S^t^ate^{of C}^oⁿⁿ^e^c^tiv^ity^:^Buil^din^g^Iⁿ^nov^atio^{n T}^h^r^o^ug^{h Br}^oa^db^and^{, Fi}^na^{l Re}^p^o^rt
^of^the^Ca^lif^ornia^Broa^d^b^aⁿ^d^T^a^{sk Forc}^e^,^Ja^nua^ry²⁰⁰^8,⁸³^p.^A^v^aⁱ^l^a^ble^a^t^htt^p^://w^ww^.c^a^link^.^c^a^.^g^o^v^/^pdf^/
^C^B^T^F_FI^N^A^L^_R^e^por^t.p^d^f^.
³¹^NGA^Cen^t^er^f^o^{r Best}^P^r^actⁱ^ces,^I^ssu^{e Brief}^{, “}^S^ta^te^Ef^f^o^r^t^s^{to Ex}^pa^{nd B}^r^oa^dba^{nd A}^c^c^e^s^s^,^”^May^{20, 200}^8,^p.^1.
^Av^a^ila^ble^a^t^http:/^/www^.ng^a^.org^/^F^ile^s/pdf^/08^05BROA^D^BA^N^D^A^C^C^ESS.^P^D^F^.
³²^{For a}^s^u^m^m^a^r^y^of^se^le^c^t^e^d^sta^t^e^broa^d^b^aⁿ^d^bil^l^{s, se}^e^htt^p^://w^ww^.n^c^s^l.org^/^prog^ra^m^s^/^t^e^l^e^c^o^m^/
²⁰⁰^8Broa^dbaⁿ^d^Bills.^h^tm^.

of municipal broadband networks (primarily wireless and fiber based) and the debate over
whether such networks constitute unfair competition with the private sector.

Broadband loan and grant programs have been awarding funds to entities serving rural
communities since FY2001. Since their inception, a number of criticisms of the RUS broadband
loan and grant programs have emerged.
Perhaps the major criticism of the broadband loan program is that not enough loans are approved,
thereby making it difficult for rural communities to take full advantage of the program. As of
May 1, 2007, the broadband loan program had received 198 applications, requesting a total of
$4.3 billion in loans. Of these, 69 applications were approved (totaling $1.21 billion), 21 were in ³³
review (totaling $950 million), and 108 had been returned (totaling $2.14 billion). According to
RUS officials, 28% of available loan money was awarded in 2004, and only 5% of available loan ³⁴
money was awarded in 2005.
The loan application process has been criticized as being overly complex and burdensome,
requiring applicants to spend months preparing costly market research and engineering
assessments. Many applications are rejected because the applicant’s business plan is deemed
insufficient to support a commercially viable business. The biggest reason for applications being
returned is insufficient credit support, whereby applicants do not have sufficient cash-on-hand
(one year’s worth is required in most cases). The requirement for cash-on-hand is viewed as
particularly onerous for small start up companies, many of whom lack sufficient capital to qualify
for the loan. Such companies, critics assert, may be those entities most in need of financial
assistance.
In report language to the FY2006 Department of Agriculture Appropriations Act (P.L. 109-97),
the Senate Appropriations Committee (S.Rept. 109-92) directed the RUS “to reduce the
burdensome application process and make the program requirements more reasonable,
particularly in regard to cash-on-hand requirements.” The Committee also directed USDA to hire
more full-time employees to remedy delays in application processing times.
At a May 17, 2006 hearing held by the Senate Committee on Agriculture, Nutrition, and Forestry,
the Administrator of the RUS stated that RUS is working to make the program more user friendly,
while at the same time protecting taxpayer investment:
^A^s^g^{ood s}^t^e^w^ards^o^f^t^h^{e t}^a^x^p^a^y^ers’^m^oⁿ^e^y^,^w^e^m^u^s^t^m^a^k^e^l^o^an^{s t}^h^at^{are l}ⁱ^k^e^l^y^t^o^be^repai^d^.
^Oⁿ^{e of}^t^h^{e c}^h^al^l^eⁿ^g^e^sⁱⁿ^det^e^r^mⁱⁿⁱⁿ^g^w^h^et^h^e^{r a propos}^{ed p}^r^o^j^ect^h^a^s^{a reas}^on^abl^e^ch^aⁿ^{ce of}

³³^T^e^sti^m^on^y^of^Ja^m^e^s^A^ndre^w^,^A^d^mⁱ^nistra^{tor, Rura}^{l Utili}^tie^{s Se}^rv^ic^e^,^{U.S. De}^pa^rtm^e^{nt of}^Ag^ric^u^lture^{, be}^f^o^re^the
^Subc^om^m^itte^e^{on Spe}^cⁱ^a^lty^C^r^ops^{, R}^u^r^a^{l D}^e^v^e^lopm^eⁿ^{t, a}^nd^For^e^ig^{n A}^g^rⁱ^c^u^ltur^e^{, H}^ous^e^C^o^m^m^itte^e^{on A}^g^rⁱ^c^u^ltur^e^,
^Ma^y^{1, 200}^{7. A}^v^a^ila^ble^a^t^http^://a^g^r^ic^ulture^.h^ous^e^.^g^o^v^/^te^s^tⁱ^m^ony^/^110/^h7⁰⁵⁰¹^b/^A^ndrew^.doc^{. A}^lis^tin^g^of^a^pprov^e^d^aⁿ^d
^pe^ndi^ng^br^oa^dba^{nd l}^o^aⁿ^a^pplic^a^tⁱ^ons^is^a^v^a^ila^ble^a^t^h^ttp:^//w^w^w^.us^d^a^.^g^o^v^/^r^u^s^/te^le^c^o^m^/^br^oa^d^b^aⁿ^d^.^htm^.
³⁴^GA^O,^Br^oadb^an^{d D}^e^pl^oy^m^e^{nt is}^Ex^te^ns^iv^e^thr^o^ug^ho^{ut t}^h^e^Uⁿ^ite^d^State^s^,^but^I^t^I^s^Dⁱ^f^fic^ult^to^As^s^e^s^s^the^Ex^te^nt^of
^D^e^ploy^m^e^{nt G}^a^psⁱⁿ^Rur^a^{l Ar}^e^a^s^,^p.^33.

^s^u^cce^s^sⁱ^s^v^a^lⁱ^d^atⁱⁿ^g^t^h^e^m^a^rk^e^t^an^al^y^sⁱ^s^of^t^h^{e propos}^ed^s^e^rvⁱ^{ce t}^e^rri^t^o^ry^an^{d en}^su^ri^ng^t^h^at
^s^u^ff^icieⁿ^t^res^o^u^r^ces^{are a}^v^aila^{ble to cov}^e^{r operatin}^{g ex}^peⁿ^s^es^t^h^rou^g^h^{out t}^h^{e cons}^tru^c^tⁱ^on
^p^e^rⁱ^o^d^uⁿ^{til s}^u^ch^a^ti^m^e^th^a^t^cash^f^l^o^w^f^r^o^m^o^p^e^r^a^tioⁿ^s^b^eco^m^e^su^f^f^icieⁿ^t^{. T}^h^{e lo}^an
^applⁱ^catⁱ^oⁿ^proces^s^t^h^at^w^e^h^a^v^e^dev^e^l^{oped en}^s^u^res^th^a^t^th^e^applican^{t addres}^s^e^s^th^e^s^{e areas}³⁵
^an^{d th}^{at appropriate res}^o^u^r^ces^{are av}^{ailable f}^o^r^m^aⁱⁿ^taiⁿⁱⁿ^g^a^vⁱ^{able operation}^.
According to RUS, the loan program was initially overwhelmed by applications (particularly
during a two week period in August 2003), and as the program matures, application review times ³⁶
have dropped. On May 11, 2007, RUS released a Proposed Rule which seeks to revise
regulations for the broadband loan program. In the background material accompanying the
Proposed Rule, RUS stated that the average application processing time in 2006 was almost half ³⁷
of what it was in 2003.
Since the inception of the broadband grant and loan programs, the criteria for applicant eligibility
has been criticized both for being too broad and for being too narrow. An audit report released by
USDA’s Office of Inspector General (IG) found that the “programs’ focus has shifted away from
those rural communities that would not, without Government assistance, have access to ³⁸
broadband technologies.” Specifically the IG report found that the RUS definition of rural area ³⁹
has been “too broad to distinguish usefully between suburban and rural communities,” with the
result that, as of March 10, 2005, $103.4 million in loans and grants (nearly 12% of total funding
awarded) had been awarded to 64 communities located near large cities. The report cited
examples of affluent suburban subdivisions qualifying as rural areas under the program guidelines ⁴⁰
and receiving broadband loans.
On the other hand, eligibility requirements have also been criticized as too narrow. For example,
the limitation of assistance only to communities of 20,000 or less in population excludes small
rural towns that may exceed this limit, and also excludes many municipalities seeking to deploy ⁴¹
their own networks. Similarly, per capita income requirements can preclude higher income
communities with higher costs of living (e.g. rural Alaska), and the limitation of grant programs
only to underserved areas excludes rural communities with existing but very limited broadband ⁴²
access.

³⁵^T^e^sti^m^on^y^of^Ji^m^A^ndre^w^,^A^d^mⁱ^nistra^tor,^Rura^{l Util}^itie^{s Se}^rv^ic^e^,^{U.S. De}^pa^rtm^e^{nt of}^Ag^ric^u^lture^{, “}^B^roa^dbaⁿ^d
^P^r^og^ra^m^A^d^mⁱ^niste^r^e^d^by^USD^A^{’s Rura}^{l Utilitie}^s^Se^rv^ic^e^,^”^f^u^{ll c}^o^m^m^itte^e^he^a^r^ing^be^f^o^re^the^Se^na^te^Com^m^itte^e^on^th
^Ag^ric^u^lture^{, Nutri}^tio^{n, a}ⁿ^{d F}^o^re^st^ry^{, 109}^C^ong^r^e^s^s^,^Ma^y^{17, 20}⁰⁶^.
³⁶^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^priv^a^t^e^c^o^m^m^unic^a^{tion, Ja}ⁿ^u^a^r^y^{18, 2}⁰⁰⁷^.
³⁷^Ru^{ral Utilit}^{ies Serv}^{ice, Dep}^a^rtmeⁿ^t^o^f^A^g^ricu^ltu^{re, “Ru}^r^{al Bro}^a^d^b^aⁿ^d^A^ccess^L^o^an^{s an}^d^L^o^an^G^u^aran^tees,”
^P^r^op^os^e^d^R^u^le^,^Fe^de^ral^Re^giste^r^,^Vol^.⁷²^{, N}^o^.⁹¹^{, Ma}^y^11,²⁰^07,^p.²⁶⁷⁴^4.
³⁸^U^.^{S. D}^e^pa^r^t^m^e^{nt of}^A^g^rⁱ^c^u^ltur^e^,^O^f^fⁱ^ce^of^Iⁿ^s^p^e^c^t^or^G^e^ne^r^a^{l, Sout}^hw^e^s^{t R}^e^gⁱ^on,^A^udi^{t Re}^p^o^{rt: R}^u^{ral Utili}^tie^s
^Se^r^v^ic^e^Br^oad^ba^{nd G}^r^aⁿ^t^an^{d L}^o^{an Pr}^ogr^am^s^{, A}^{udit R}^e^p^o^r^t⁰⁹⁶⁰^1-^4-^T^e^{, Se}^pte^m^be^r²⁰⁰^5,^{p. I}^.^A^v^a^ila^ble^a^t
^http:^//w^w^w^.us^d^a^.^g^o^v^/^oig^/^w^e^bdoc^s^/⁰⁹⁶^01-^04-^T^E^.^pdf^.
³⁹^Ibid^{., p. 6.}
⁴⁰^Ibid^{., p. 8.}
⁴¹^Ma^rtine^z^,^Mic^h^a^e^l^{, “}^B^roa^d^ba^nd^:^L^o^aⁿ^Fun^d^{’s Str}ⁱ^c^t^Rule^{s F}^o^il^Sm^a^{ll Mu}^nicⁱ^pa^litie^s,”^N^a^tio^na^{l J}^o^ur^nal’^s
^Te^c^hnol^ogy^D^a^ily^{, A}^u^g^u^s^t²³^,²⁰^05.
⁴²^GA^O,^Br^oadb^an^{d D}^e^pl^oy^m^e^{nt is}^Ex^te^ns^iv^e^thr^o^ug^ho^{ut t}^h^e^Uⁿ^ite^d^State^s^,^but^I^t^I^s^Dⁱ^f^fic^ult^to^As^s^e^s^s^the^Ex^te^nt^of
^D^e^ploy^m^e^{nt G}^a^psⁱⁿ^Rur^a^{l Ar}^e^a^s^,^p.^33-³⁴^.

The USDA Rural Broadband Access statute (7 U.S.C. 950bb) specifies that the program “shall
give priority to eligible rural communities in which broadband service is not available to
residential customers.” The IG report found that RUS too often has given loans to communities
with existing broadband service. The IG report found that “RUS has not ensured that
communities without broadband service receive first priority for loans,” and that although RUS
has a system in place to prioritize loans to unserved communities, the system “lacks a cutoff date
and functions as a rolling selection process—priorities are decided based on the applicants who ⁴³
happen to be in the pool at any given moment.” The result is that a significant number of
communities with some level of preexisting broadband service have received loans. According to
the IG report, of 11 loans awarded in 2004, 66% of the associated communities served by those
loans had existing service. According to RUS, 31% of communities served by all loans (during
the period 2003 through early 2005) had preexisting competitive service (not including loans used ⁴⁴
to upgrade or expand existing service). In some cases, according to the IG report, “loans were
issued to companies in highly competitive business environments where multiple providers ⁴⁵
competed for relatively few customers.” At the May 1, 2007 hearing before the House
Subcommittee on Specialty Crops, Rural Development, and Foreign Agriculture, RUS
Administrator James Andrews testified that of the 69 broadband loans awarded since the
program’s inception, 40% of the communities approved for funding were unserved at the time of ⁴⁶
loan approval, and an additional 15% had only one broadband provider.
Awarding loans to entities in communities with preexisting competitive service has raised
criticism from competitors who already offer broadband to those communities. According to the
National Cable and Telecommunications Association (NCTA), “RUS loans are being used to
unfairly subsidize second and third broadband providers in communities where private risk ⁴⁷
capital already has been invested to provide broadband service.” Critics argue that providing
loans in areas with preexisting competitive broadband service creates an uneven playing field and ⁴⁸
discourages further private investment in rural broadband. In response, RUS stated in the IG
report that its policies are in accordance with the statute, and that they address “the need for
competition to increase the quality of services and reduce the cost of those services to the ⁴⁹
consumer.” RUS argues that the presence of a competitor does not necessarily mean that an area
is adequately served, and additionally, that in order for some borrowers to maintain a viable
business in an unserved area, it may be necessary for that company to also be serving more ⁵⁰
densely populated rural areas where some level of competition already exists.

⁴³^I^b^id^{., p. 13.}
⁴⁴^I^b^id^{., p. 14.}
⁴⁵^I^b^id^{., p. 15}
⁴⁶^T^e^sti^m^on^y^of^Ja^m^e^s^A^ndre^w^,^A^d^mⁱ^nistra^{tor, Rura}^{l Utili}^tie^{s Se}^rv^ic^e^,^{U.S. De}^pa^rtm^e^{nt of}^Ag^ric^u^lture^{, be}^f^o^re^the
^Subc^om^m^itte^e^{on Spe}^cⁱ^a^lty^C^r^ops^{, R}^u^r^a^{l D}^e^v^e^lopm^eⁿ^{t, a}^nd^For^e^ig^{n A}^g^rⁱ^c^u^ltur^e^{, H}^ous^e^C^o^m^m^itte^e^{on A}^g^rⁱ^c^u^ltur^e^,
^Ma^y^{1, 200}^7.
⁴⁷^L^e^t^t^e^r^f^r^o^m^K^y^l^e^M^c^S^l^arro^w^,^P^r^esi^d^en^t^and^CE^O,^Natⁱ^oⁿ^a^l^Ca^b^l^e^{& T}^e^l^e^co^mm^uⁿⁱ^catⁱ^oⁿ^s^A^sso^ci^atⁱ^oⁿ^t^o^t^h^e
^H^onor^a^b^le^Mik^e^J^oha^nns^,^Se^c^r^e^t^a^r^y^o^f^the^U^.^{S. D}^e^pa^r^t^m^e^{nt of}^A^g^rⁱ^c^u^ltur^e^,^Ma^y^{16, 2}⁰⁰⁶^.
⁴⁸^T^e^s^tⁱ^m^on^y^of^T^o^m^Si^m^m^ons^{, Vi}^c^e^P^r^e^s^ideⁿ^{t f}^o^r^P^u^blic^Polic^y^,^Midc^ont^ineⁿ^t^C^o^m^m^unic^a^tions^,^be^f^o^r^e^Se^na^te
^C^o^m^m^itte^e^{on A}^g^rⁱ^c^u^ltur^e^{, N}^u^tr^it^ion,^aⁿ^d^For^e^s^t^r^y^{, Ma}^y^{17, 20}⁰⁶^.
⁴⁹^Aud^{it Re}^p^o^{rt: R}^u^ral^Utilitie^s^Se^rv^ic^e^Broad^ba^{nd Gra}ⁿ^t^an^{d L}^o^aⁿ^Programs^{, p. 17}^.
⁵⁰^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^priv^a^t^e^c^o^m^m^unic^a^{tion, Ja}ⁿ^u^a^r^y^{18, 2}⁰⁰⁷^.

The previous authorization for the Rural Broadband Access Loan and Loan Guarantee program ^th
expired on September 30, 2007. The 110 Congress considered reauthorization of the program as
part of the farm bill. Any modification of rules, regulations, or criteria associated with the RUS
broadband program will likely result in “winners and losers” in terms of which companies,
communities, regions of the country, and technologies are eligible or more likely to receive
broadband loans and grants.
On May 11, 2007, RUS released a Proposed Rule which seeks to revise regulations for the
broadband loan program and address many of the criticisms of the program. Specifically, the
Proposed Rule addresses: (1) funding in competitive markets and new eligibility requirements;
(2) new equity and market survey requirements; and (3) new legal notice requirements to increase ⁵¹
transparency.
Congress considered approaches in the Proposed Rule as part of formulating the RUS broadband
program reauthorization. The final rule will reflect language in the farm bill statute (P.L. 110-
246). The following are some key issues pertinent to the reauthorization of the RUS broadband
programs.
The RUS broadband program has been criticized for excluding too many applicants due to
stringent financial requirements (e.g. the requirement that an applicant have a year’s worth of
cash-on-hand) and an application process—requiring detailed business plans and market
surveys—that some view as overly expensive and burdensome to complete. During the
reauthorization process, Congress considered whether the criteria for loan eligibility should be
modified, and whether a more appropriate balance can be found between the need to make the
program more accessible to unserved and often lower-income rural areas, and the need to protect
taxpayers against bad loans.
The Proposed Rule issued by RUS on May 11, 2007, would substantially modify applicant
eligibility restrictions. First, the Proposed Rule would eliminate the requirement for a market ⁵²
survey for applicants proposing to serve 15% or less of a community. Second, the existing
“credit support requirement,” would be replaced by an “equity requirement.” Under the Proposed
Rule, the equity requirement would be reduced from 20% to 10% for applicants proposing to
serve areas where at least 40% of households have no broadband access or service from only one
provider. Additionally, the current requirement for a year’s worth of cash-on-hand would be
eliminated. Instead, once RUS has completed its review of the loan application, the applicant
would be notified if additional cash requirements are needed to support the feasibility of the loan.
This would be the case if RUS financial analysis indicates that cash from operations and previous
cash infusions cannot sustain a positive cash position throughout the forecast period. Finally, the
Proposed Rule seeks to give RUS the authority to modify or waive the provisions of the equity
requirement as long as those modifications do not result in a projected negative cash position, and

⁵¹^Ru^{ral Utilit}^{ies Serv}^{ice, Dep}^a^rtmeⁿ^t^o^f^A^g^ricu^ltu^{re, “Ru}^r^{al Bro}^a^d^b^aⁿ^d^A^ccess^L^o^an^{s an}^d^L^o^an^G^u^aran^tees,”
^P^r^op^os^e^d^R^u^le^,^Fe^de^ral^Re^giste^r^,^Vol^.⁷²^{, N}^o^.⁹¹^{, Ma}^y^11,²⁰^07,^p.²⁶⁷⁴^4.
⁵²^I^b^id^{., p. 26}⁷⁵^0.

if those modifications are required to provide broadband in areas with no service or with only one ⁵³
existing broadband provider.
The definition of which communities qualify as “rural” has been changed twice by statute since
the broadband loan program was initiated. Under the pilot program, funds were authorized under
the Distance Learning and Telemedicine Program, which defines “exceptionally rural areas”
(under 5,000 inhabitants), “rural areas” (between 5,000 and 10,000) and “mid-rural areas”
(between 10,000 and 20,000). RUS determined that communities of 20,000 or less would be
eligible for broadband loans in cases where broadband services did not already exist.
In 2002, this definition was made narrower by the Farm Security and Rural Investment Act (P.L.
107-171), which designated eligible communities as any incorporated or unincorporated place
with fewer than 20,000 inhabitants, and which was outside any standard metropolitan statistical
area (MSA). The requirement that communities not be located within MSA’s effectively
prohibited suburban communities from receiving broadband loans. However, in 2004, the
definition was again changed by the FY2004 Consolidated Appropriations Act (P.L. 108-199).
The act broadened the definition, keeping the population limit at 20,000, but eliminating the MSA
prohibition, thereby permitting rural communities near large cities to receive loans. Thus the
current definition used for rural communities is the same as what was used for the broadband
pilot program, except that loans can now be issued to communities with preexisting service.
The definition of what constitutes a “rural” community is always a difficult issue for
Congressional policymakers in determining how to target rural communities for broadband
assistance. On the one hand, the narrower the definition the greater the possibility that deserving
communities may be excluded. On the other hand, the broader the definition used, the greater the
possibility that communities not traditionally considered “rural” or “underserved” may be eligible
for financial assistance.
The Proposed Rule released by RUS on May 11, 2007 would narrow the definition of an Eligible
Rural Community. In addition to excluding cities or towns with populations over 20,000, the
Proposed Rule would exclude communities located within an Urban Area, as defined by the
Bureau of the Census as all territory, population, and housing units located within an urbanized
area or an urban cluster. Also excluded is any area that has four or more existing broadband ⁵⁴
service providers (excluding the applicant).
A related issue is the scope of coverage proposed by individual applications. While many of the
loan applications propose broadband projects offering service to multiple rural communities, RUS
sees a coming trend towards larger regional and national proposals, covering hundreds or even ⁵⁵
more than a thousand communities. The larger the scope of coverage, the greater the complexity
of the loan application and the larger the possible benefits and risks to taxpayers.

⁵³^I^b^id^{., p. 26}⁷⁵^4.
⁵⁴^I^b^id^{., p. 26}⁷⁵^1.
⁵⁵^Rura^{l Utilit}^ie^{s Se}^rv^ic^e^,^priv^a^t^e^c^o^m^m^unic^a^{tion, Ja}ⁿ^u^a^r^y^{18, 2}⁰⁰⁷^.

While the majority of broadband loans (and all broadband grants) are awarded to entities serving
areas without preexisting broadband service, and while RUS is directed by statute to “give
priority to eligible rural communities in which broadband service is not available to residential
customers,” a significant number of Treasury-rate loans have been awarded in areas with
preexisting service. Loans to areas with competitive preexisting service—that is, areas where
existing companies already provide some level of broadband—have sparked controversy because
loan recipients are likely to compete with other companies already providing broadband service.
During reauthorization, Congress was asked to more sharply define whether and/or how loans ⁵⁶
should be given to companies serving rural areas with preexisting competitive service. On the
one hand, one could argue that the federal government should not be subsidizing competitors for
broadband service, particularly in sparsely populated rural markets which may be able only to
support one provider. Furthermore, keeping communities with preexisting broadband service
eligible may divert assistance from unserved areas that are most in need. On other hand, many
suburban and urban areas currently receive the benefits of competition between broadband
providers—competition which can potentially drive down prices while improving service and
performance. It is therefore appropriate, it is argued, that rural areas also receive the benefits of
competition, which in some areas may not be possible without federal financial assistance. It is
also argued that it may not be economically feasible for borrowers to serve sparsely populated
unserved communities unless they are permitted to also serve more lucrative areas which may
already have existing providers.
The Proposed Rule released by RUS on May 11, 2007, would prohibit funding for any
community where there are four or more Existing Broadband Service Providers. To be recognized
as an Existing Broadband Service Provider, an incumbent service provider must provide evidence
and certify to RUS that 10% of the households passed by their facilities are purchasing their ⁵⁷
broadband service. Applicants would be required to prepare a legal notice stating the intent to
offer broadband service in a particular community. The legal notice would be published on the
RUS web page. Incumbent providers would then have 30 days to submit information to RUS
which would be used to determine if the incumbent is classified as an Existing Broadband Service ⁵⁸
Provider.
New market entrants and start-ups, as well as incumbent applicants seeking to expand their
service area, are required to enter areas where at least 40% of households either have no
broadband service or access to only one broadband service provider. According to RUS:
^T^h^is^requ^ire^m^{ent addres}^s^e^s^t^h^{e n}^{eed to reach}^un^s^e^r^v^{ed or}^uⁿ^d^ers^e^rv^{ed areas}^w^h^{ile als}^o
^p^e^r^mⁱ^ttiⁿ^g^ser^v^{ice to}^m^o^r^e^lu^cr^ativ^{e ar}^eas,^w^h^ich^m^a^y^b^e^s^e^r^v^ed^b^y^u^p^to^th^r^{ee E}^x^is^tin^g
^S^e^rvⁱ^{ce Prov}ⁱ^d^ers^,ⁱⁿ^orde^{r t}^o^at^t^r^act^f^easⁱ^b^l^e^l^o^an^prop^os^al^s^w^hⁱ^c^h^{are s}^u^pport^a^bl^{e f}^r^om
^pro^j^{ect rev}^e^nu^es^{. P}^e^r^mⁱ^ttiⁿ^g^s^e^rv^{ice i}ⁿ^area^s^wⁱ^{th u}^p^{to t}^h^{ree Ex}ⁱ^s^tiⁿ^g^Ser^v^{ice P}^r^ov^iders
^ad^d^r^{esses th}^{e n}^eed^f^o^r^ap^p^lican^{ts to}^lev^e^r^a^g^e^r^e^v^eⁿ^u^e^{s f}^r^o^m^lo^w^e^r^-^co^st^u^s^e^r^s⁽^t^y^pⁱ^c^a^l^ly^t^h^o^s^e
ⁱⁿ^m^o^{re dens}^el^y^popu^l^a^t^e^{d areas}^wⁱ^t^hⁱⁿ^{a ci}^t^y^{or t}^o^wⁿ^{) i}ⁿ^or^{der t}^o^pr^ovⁱ^d^{e s}^e^rvⁱ^{ce t}^o^ru^ral

⁵⁶^T^h^e^s^t^a^t^ute⁽⁷^U^.^S^.^C^.⁹⁵^0b^b)^a^llo^w^s^Sta^t^e^s^a^{nd loc}^a^l^g^o^v^e^rⁿ^m^e^nts^{to be}^e^lig^ib^le^f^o^r^loaⁿ^s^only^if^“^no^othe^r^e^lig^ible
^eⁿ^tity^{is a}^l^re^a^d^y^offe^ring^{, or ha}^{s c}^o^m^m^itte^{d to of}^f^e^r,^broa^dbaⁿ^d^se^r^v^ic^e^s^{to the}^e^lig^ible^ru^ra^{l c}^o^m^m^unity^.”
⁵⁷^Ru^{ral Utilit}^{ies Serv}^{ice, Dep}^a^rtmeⁿ^t^o^f^A^g^ricu^ltu^{re, “Ru}^r^{al Bro}^a^d^b^aⁿ^d^A^ccess^L^o^an^{s an}^d^L^o^an^G^u^aran^tees,”
^P^r^op^os^e^d^R^u^le^,^Fe^de^ral^Re^giste^r^,^Vol^.⁷²^{, N}^o^.⁹¹^{, Ma}^y^11,²⁰^07,^p.²⁶⁷⁴^9.
⁵⁸^I^b^id^{., p. 26}⁷⁵^5.

^h^o^u^s^e^h^oldsⁱⁿ^hⁱ^g^h^e^{r cos}^t^are^a^s^,^w^hⁱ^l^{e ex}^cl^u^dⁱⁿ^g^area^s^wⁱ^t^h^high^{er le}^v^e^ls^o^f^co^m^p^etit^ion⁵⁹
^w^h^er^{e lo}^an^f^e^a^s^ib^ilit^y^is^uⁿ^li^k^e^l^y^.
Additionally, the Proposed Rule states that loans to incumbent service providers can be used to
upgrade existing facilities without serving additional customers, as long as the upgrades enhance
existing broadband service, and as long as there are no more than three other Existing Broadband ⁶⁰
Service providers in the area.
The 2002 farm bill (P.L. 107-171) directed RUS to use criteria that are “technologically neutral”
in determining which projects to approve for loans. In other words, RUS is prohibited from
typically valuing one broadband technology over another when assessing loan applications. As of
November 10, 2008, 37% of approved and funded projects employed fiber-to-the-home
technology, 17% employed DSL, 25% fixed wireless, 19% hybrid fiber-coaxial (cable), and 2% ⁶¹
broadband over powerlines (BPL). No funding has been provided for projects utilizing satellite ⁶²
broadband.
While decisions on funded projects are required to be technologically neutral, RUS (through the
Secretary of Agriculture) does have the latitude to determine minimum required data transmission
rates for broadband projects eligible for funding. According to the statute, “the Secretary shall,
from time to time as advances in technology warrant, review and recommend modifications of
rate-of-data transmission criteria for purposes of the identification of broadband service
t e c hnol ogi es .”
Some have argued that the minimum speed thresholds should be raised to ensure that rural areas
receive “next-generation” broadband technologies with faster data rates capable of more varied
and sophisticated applications. On the other hand, significantly raising minimum data rates could
exclude certain technologies—for example typical data transmission rates for fiber and some
wireless technologies exceed what is offered by “current generation” technologies such as DSL
and cable. Proponents of keeping the minimum threshold at a low level could argue that
underserved rural areas are best served by any broadband technology that is economically
feasible to deploy, regardless of whether it is “next” or “current” generation.

⁵⁹^I^b^id^{., p. 26}⁷⁴^9.
⁶⁰^Ibid^.
⁶¹^USDA^{, Rura}^{l Utilitie}^{s Se}^rv^ic^e^,^“^F^CC/USDA^Rura^{l Broa}^dbaⁿ^d^E^d^uc^a^tiona^{l W}^o^rk^sho^p^,”^pow^e^r^poiⁿ^t^pre^s^eⁿ^ta^tio^n,
^N^o^v^e^m^b^e^r^20,²⁰^08.^A^v^a^ila^ble^a^t
^http:^//w^w^w^.us^d^a^.^g^o^v^/^r^u^s^/te^le^c^o^m^/^br^oa^d^b^aⁿ^d^/^w^o^r^k^s^hops^/FC^C^_^U^S^D^A^B^r^oa^dba^ndW^or^k^s^hopN^ov^20.^pdf^.
⁶²
^A^c^c^o^rding^t^o^the^G^A^O^{, sa}^te^llite^c^o^m^p^aⁿ^ie^{s sta}^t^e^tha^t^RU^{S’s broa}^d^b^a^nd^loaⁿ^pr^og^ra^m^re^quire^m^e^nts^“^a^r^e^{not re}^a^d^ily
^co^m^p^atⁱ^b^l^e^wⁱ^t^h^t^h^ei^{r bu}^siⁿ^e^{ss mo}^d^e^l^o^r^t^ech^no^l^o^gy^,^”^an^d^t^h^at^“b^ecau^{se t}^h^{e agen}^c^y^req^uⁱ^{res co}^l^l^a^t^e^ral^f^o^{r l}^o^an^s,^t^h^e
^pr^og^r^a^m^is^m^o^r^e^s^u^ite^{d f}^o^r^s^itua^tⁱ^ons^w^h^e^r^e^the^pr^ov^ide^r^s^,^r^a^the^r^t^h^aⁿⁱⁿ^divⁱ^dua^l^c^ons^um^e^r^s^,^ow^{n the}^e^qui^pm^eⁿ^{t be}^ing
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Under the 2002 farm bill (P.L. 107-171), broadband loan subsidies were funded at a total of $100
million through FY2007 ($20 million for each of fiscal years 2002 through 2005, and $10 million
for each of fiscal years 2006 and 2007). This $100 million was to be transferred from funds of the
Commodity Credit Corporation (CCC). However, beginning in FY2004, Congress has annually
blocked mandatory funding from the CCC, thus ensuring that the program was funded solely
through annual appropriations.
During reauthorization, the 110^th Congress considered whether the mandatory CCC funding
mechanism provided in the 2002 farm bill should be retained, eliminated, or modified. Also at
issue was whether the current funding levels for the RUS broadband programs are optimal. Given
the relatively low utilization of the broadband loan program, should funding remain at current
levels or below, or alternatively, if modifications are made to ensure fuller utilization, and given
the need to bridge the digital divide, should funding be increased? A related issue was whether
more money should be shifted from the broadband loan program to the Community Connect
broadband grant program, in order to better address the need for broadband in lower income rural
communities that may not be able to meet financial criteria necessary to qualify for loans.

On January 31, 2007, Secretary of Agriculture Mike Johanns released the Administration’s 2007
farm bill proposal. The Administration proposal would reauthorize the Rural Broadband Access
Loan and Loan Guarantee program and would allocate $500 million in mandatory spending to
reduce the backlog in a number of Rural Development loan and grant programs, including the
broadband loan program.
Meanwhile, in the May 11, 2007 issue of the Federal Register, RUS released its Proposed Rule
seeking to revise the broadband loan program rules and regulations (7 C.F.R. Part 1738). RUS
accepted public comments on the Proposed Rule through July 10, 2007. The final rule will reflect
language in the enacted farm bill statute (P.L. 110-246).
On May 1, 2007, the House Subcommittee on Specialty Crops, Rural Development and Foreign
Agriculture held a hearing on the RUS broadband programs. Testimony was heard from RUS ⁶³
Administrator James Andrew and public witnesses. On June 6, 2007, the Subcommittee on
Specialty Crops, Rural Development and Foreign Agriculture, chaired by Representative
McIntyre, approved proposals for sections under its jurisdiction of H.R. 2419, the Farm Bill
Extension Act of 2007. Title VII (Rural Development) of the Subcommittee markup included
provisions on the Rural Broadband Access Loan and Loan Guarantee Program and the
Community Connect Grant program. On July 19, 2007, the full committee approved H.R. 2419;
on July 23, 2007, H.R. 2419 (H.Rept. 110-256, Part I) was reported (amended) as the Farm,
Nutrition, and Bioenergy Act of 2007. H.R. 2419 was passed by the House on July 27, 2007. The

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following summarizes the broadband provisions (section 6023, section 6024, and section 6031),
as passed by the House, which would change current law:
• Defines eligible rural community as any area of the United States that is not (1)
included within the boundaries of any city, town, borough, or village, whether
incorporated or unincorporated, with a population of more than 20,000; or (2)
included within the urbanized area contiguous and adjacent to such a city or
town.
• Prohibits loans to any community in which there are three or more incumbent
service providers, unless the loan is to an incumbent service provider of the
community, unless other providers in that community are notified of the
application, and unless the application proposes to substantially increase the
quality of broadband service and the provision of service to underserved
households inside and outside the community. Incumbent service providers are
defined as an entity providing service to at least 5% of the households in the
service area proposed in the application. Also prohibits loans for new
construction to any community in which more than 75% of households may
obtain affordable broadband service, on request, from at least one incumbent
service provider.
• Directs RUS to give priority, in the following order, to applications from eligible
rural communities that have (i) no incumbent service provider; (ii) one
incumbent service provider; or (iii) two incumbent service providers who,
together, serve not more than 25% of the households in the service area proposed
in the application.
• Directs RUS to ensure that the type, amount and method of security used to
secure a loan or loan guarantee is commensurate to the risk involved with the
loan, particularly when the loan is issued to a financially healthy, strong, and
stable entity. The Secretary shall consider reducing the loan security required in
areas that do not have broadband service.
• Directs the Secretary to take steps to reduce the cost and paperwork associated
with applying for a loan or loan guarantee by first-time applicants (particularly
smaller and start-up Internet providers), while maintaining the ability of the
Secretary to make an analysis of the risk associated with the loan.
• Allows loan recipients to decide over how many years to amortize the loan, up to
35 years, provided that the Secretary of Agriculture determines that the loans are
adequately secure. In determining the loan term, the Secretary shall consider
whether the recipient is or would be serving an area that is not receiving
broadband services.
• States that an entity is not eligible for a loan if it serves more than 10% of the
telephone subscriber lines installed in the United States. Not more than 25% of
loans made in a single fiscal year may be approved for entities that serve more
than 2% of the telephone subscriber lines in the United States.
• Authorizes for appropriation such sums as necessary for each of fiscal years 2008
through 2012. For each fiscal year, 10% of funding shall be reserved for entities
serving eligible tribal communities. Amounts unobligated by June 30 of the fiscal
year shall be made available to eligible entities in any state.

• Authorizes the Community Connect Grant Program through FY2012 at $25
million per year. Requires a matching contribution of 15%. Priority is given to
grants that will enhance community access to telemedicine and distance learning
resources.
• Requires detailed program reports from RUS to the House Committee on
Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry.
• Establishes a National Center for Rural Telecommunications Assessment.
• Requires USDA to submit a comprehensive rural broadband strategy to the
House Committee on Agriculture and the Senate Committee on Agriculture,
Nutrition, and Forestry.
On October 25, 2007, the Senate farm bill, the Food and Energy Security Act of 2007, was
approved by the Senate Committee on Agriculture, Nutrition, and Forestry. Title VI, “Rural
Development and Investment” contains provisions (primarily section 6110, “Access to broadband
telecommunications services in rural areas”) which address reauthorization of the Rural
Broadband Access Loan and Loan Guarantee Program. The bill was reported by the Committee
on November 2, 2007 (S. 2302; S.Rept. 110-220). The Food and Energy Security Act of 2007
(H.R. 2419, as amended) was passed by the Senate on December 14, 2007. The following
summarizes broadband-related provisions that would change current law:
• Defines rural area as any area other than (1) a city or town that has a population
of greater than 20,000; (2) an urbanized area contiguous and adjacent to a city or
town with a population greater than 50,000; and (3) any collection of census
blocks contiguous to each other with a housing density of more than 200 housing
units per square mile.
• Prohibits loans or loan guarantees for a project in any specific area in which
broadband service is offered by three or more terrestrial service providers that
offer services comparable to the services proposed by the applicant. Provider is
considered to offer broadband service in a rural area if it offers service at not
more than average prices compared with similar services offered in the nearest
urban area. An eligible entity must offer broadband service to at least 25% of
households not offered broadband service by a terrestrial broadband service
provider and must agree to complete build out of broadband service proposed in
application within three years after the loan is received.
• Directs Secretary to give priority to applicants that offer broadband to the
greatest proportion of households that, prior to the provision of the service, had
no terrestrial broadband service provider.
• Directs the Secretary to ensure that the type, amount, and method of security
used to secure the loan is commensurate to the risk involved, particularly if the
loan is issued to a financially-healthy, strong, and stable entity. Directs the
Secretary to consider the recurring revenues of the entity at the time of
application in determining an adequate level of credit support.

• Requires an eligible entity to provide a cost share not to exceed 10% of the
amount of the loan or loan guarantee requested. Recurring revenues, including
broadband service client revenues, may be credited toward the cost share.
• In case of substantially underserved trust areas (for example, Indian lands),
where more than 20% of residents do not have broadband service, the Secretary
has the authority to provide loans with interest rates as low as 2%, and may
waive nonduplication restrictions, matching fund requirements, credit support
requirements, or other regulations.
• Directs the Secretary to include a notice of application on its website for a period
of not less than ninety days; included on the website will be the name of the
applicant, a description and geographical representation of the proposed area of
broadband service, a map and numerical estimate of the households that have no
terrestrial broadband service in the proposed service area of the project, and any
other relevant information. Prohibits the Secretary from making proprietary
information available.
• Directs the Secretary to establish, by regulation, procedures to ensure prompt
processing of applications. Annual reports describing processing times and
explanations for extensions are required. Time limits for responding to
applications are prescribed, including that the Secretary shall make a decision
whether to approve the loan not later than 180 days after a complete application
is submitted.
• Directs that the Secretary may require an entity projecting a subscriber base of
more than 20% of the service market to submit a market survey; the Secretary
may not require a market survey from an entity proposing to serve less than 20%.
• For direct loans, directs the Secretary to determine interest rates at the lower of
the cost of borrowing to the Department of the Treasury for obligations of
comparable maturity, or 4%.
• Directs that loan or loan guarantee may have a term not to exceed 30 years if the
Secretary determines that the loan security is sufficient.
• Authorizes for appropriation $25 million for each of fiscal years 2008 through

2012.

• Establishes a National Center for Rural Telecommunications Assessment.
• Directs the Chairman of the FCC, in coordination with the Secretary, to submit
an annual report to the House Committee on Energy and Commerce, House
Committee on Agriculture, Senate Committee on Commerce, Science and
Transportation, and Senate Committee on Agriculture, Nutrition, and Forestry
describing a comprehensive rural broadband strategy.
• Directs GAO, not later than 30 months after enactment, to submit a study to the
House Committee on Agriculture and the Senate Committee on Agriculture,
Nutrition, and Forestry which examines how RUS makes decisions in allocating
federal broadband benefits, what economic forces prompt applicants to seek
federal funding rather than relying on the private market, how RUS awards
impact the expansion of broadband infrastructure by the private sector; and to
recommend what changes to federal policy are needed to further encourage
technology expansion by private broadband service providers.

• “Connect the Nation Act.” Directs the Department of Commerce to award grants
encouraging state initiatives to improve broadband service. The grants would go
to nonprofit organizations which would—working with state agencies—develop
and implement statewide initiatives to identify, track, and map the availability
and adoption of broadband services within states. Authorizes $40 million for each
of fiscal years FY2008 through FY2012.
On May 14, 2008, the farm bill conference report (H.Rept. 110-627) was approved by the House.
The conference report was approved by the Senate on May 15, 2008. With respect to the
broadband loan program, the conference agreement adopted much of the Senate amendment with
modifications, while the definition of incumbent service provider was retained from the House
bill. The conference agreement retained the provision establishing a National Center for Rural
Telecommunications Assessment and the provision requiring the FCC and RUS to formulate a
comprehensive rural broadband strategy. The conference agreement did not retain provisions
related to establishing a broadband mapping and state grant program at the Department of
Commerce (“Connect the Nation Act”), the GAO assessment of the RUS broadband programs,
and authorization language for the Community Connect Broadband Grant program. The Food,
Conservation, and Energy Act of 2008 became law on June 18, 2008 (P.L. 110-246). The
following summarizes broadband-related provisions that changes previous law:
• Defines rural area as any area other than (1) a city or town that has a population
of greater than 20,000 and (2) an urbanized area contiguous and adjacent to a city
or town with a population greater than 50,000. The Secretary may, by regulation
only, consider not to be rural an area that consists of any collection of census
blocks contiguous to each other with a housing density of more than 200 housing
units per square mile and that is contiguous with or adjacent to an existing
boundary of a rural area.
• Prohibits the Secretary from making a loan in any area where there are more than
3 incumbent service providers unless the loan meets all of the following
requirements: (1) the loan is to an incumbent service provider that is upgrading
service in that provider’s existing territory; (2) the loan proposes to serve an area
where not less than 25% of the households are offered service by not more than 1
provider; and (3) the applicant is not eligible for funding under another provision
of the Rural Electrification Act. Incumbent service provider is defined as an
entity providing broadband service to not less than 5% of the households in the
service territory proposed in the application. Also prohibits the Secretary from
making a loan in any area where not less than 25% of the households are offered
broadband service by not more than 1 provider unless a prior loan has been made
in the same area.
• Provides that the highest priority is to be given to applicants that offer to provide
broadband service to the greatest proportion of households currently without
broadband service. Eligible entities are required to submit a proposal to the
Secretary that meets the requirements for a project to offer to provide service to a
rural area and agree to complete build out of the broadband service within three
years.

• Prohibits any eligible entity that provides telecommunications or broadband
service to at least 20% of the households in the United States from receiving an
amount of funds under this section for a fiscal year in excess of 15% of the funds
authorized and appropriated for the broadband loan program.
• Allows the Secretary to require an entity to provide a cost-share in an amount not
to exceed 10% of the amount of the loan or loan guarantee.
• In case of substantially underserved trust areas (for example, Indian lands),
where the Secretary determines a high need exists for the benefits of the program,
the Secretary has the authority to provide loans with interest rates as low as 2%
and may waive nonduplication restrictions, matching fund requirements, credit
support requirements, or other regulations.
• Allows the Secretary to require an entity that proposes to have a subscriber
projection of more than 20% of the broadband service market in a rural area to
submit a market survey. However, the Secretary is prohibited from requiring a
market survey from an entity that projects to have less than 20% of the
broadband market.
• Requires public notice of each application submitted, including the identity of the
applicant, the proposed area to be served, and the estimated number of
households in the application without terrestrial-based broadband. Authorizes the
Secretary to take steps to reduce the costs and paperwork associated with
applying for a loan or loan guarantee under this section by first-time applicants,
particularly those who are smaller and start-up Internet providers.
• Allows the Secretary to establish a pre-application process under which a
prospective applicant may seek a determination of area eligibility. Provides that
an application, or a petition for reconsideration of a decision on such an
application, that was pending on the date 45 days before enactment of this act
and that remains pending on the date of enactment of this act is to be considered
under eligibility and feasibility criteria in effect on the original date of
submission of the application.
• Retains the current law rate of interest for direct loans—which is the rate
equivalent to the cost of borrowing to the Department of Treasury for obligations
of comparable maturity or 4%.
• Directs that loan or loan guarantee may have a term not to exceed 35 years if the
Secretary determines that the loan security is sufficient.
• Directs the Secretary to consider existing recurring revenues at the time of
application in determining an adequate level of credit support. Requires the
Secretary to ensure that the type, amount, and method of security used to secure a
loan or loan guarantee is commensurate to the risk involved with the loan or loan
guarantee, particularly when the loan or loan guarantee is issued to a financially
healthy, strong, and stable entity. The Secretary is also required, in determining
the amount and method of security, to consider reducing the security in areas that
do not have broadband service.
• Requires that the Secretary annually report to Congress on the rural broadband
loan and loan guarantee program. The annual report is to include information
pertaining to the loans made, communities served and proposed to be served,

speed of broadband service offered, types of services offered by the applicants
and recipients, length of time to approve applications submitted, and outreach
efforts undertaken by USDA.
• Authorizes the Rural Broadband Access Loan and Loan Guarantee program at
$25,000,000 to be appropriated for each of fiscal years 2008 through 2012.
• Provides for a National Center for Rural Telecommunications Assessment. The
Center is to assess the effectiveness of broadband loan programs, work with
existing rural development centers to identify appropriate policy initiatives, and
provide an annual report that describes the activities of the Center, the results of
research carried out by the Center, and any additional information that the
Secretary may request. An appropriation of $1,000,000 is authorized for each of
the fiscal years 2008 through 2012.
• Directs the Chairman of the FCC, in coordination with the Secretary, to submit to
Congress a report describing a comprehensive rural broadband strategy. Requires
the report to be updated during the third year after enactment.
The President’s FY2008 budget proposal requested a $6.45 million (subsidy) to support a loan
level of $300 million. Noting that this is a $200 million reduction from the FY2007 level, the
budget documents stated that the “funding is sufficient to meet expected demand,” and that
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The FY2008 budget proposal requested no funding for the Community Connect Broadband Grant
program.
On July 19, 2007, the House Appropriations Committee approved the FY2008 Agriculture, Rural
Development, Food and Drug Administration, and Related Agencies appropriations bill (H.R.
3161; H.Rept. 110-258). The Committee approved $6.45 million to support a loan level of $300
million for the broadband loan program, and $17.82 million for broadband community connect
grants (twice the FY2007 level). In report language, the Committee expressed concern over
broadband loans to areas with existing providers, and directed the USDA Office of the Inspector
General to conduct a comprehensive follow-up study reexamining the RUS broadband loan
program. Specifically, the report is directed to detail: how many unserved households were
included in approved RUS Broadband Loan Program applications; how many applications were
granted to applicants proposing to serve areas where one or more private broadband providers
already offered service; how many approved loans (and their total amount) have defaulted since
the program’s inception; and how many applicants who have been approved for loans have

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subsequently withdrawn from the program due to the eventually discovered infeasibility of the
approved project.
In report language, the House Appropriations Committee also expressed concern over the
administration of the broadband loan program, and noted USDA’s failure to obligate available
resources to fund broadband projects. According to the Committee, USDA will carry over
$10.643 million from FY2007 to FY2008, which will support an additional program (loan) level
of $495 million. Regarding the proposed RUS broadband loan program rule, the Committee
“expects the Department to prioritize deployment of broadband service to households with no or
limited broadband access.” Finally, the Committee recommended $250,000 to the USDA
Economic Research Service to research deployment of broadband service to households with no
or limited access to broadband, and to study the economic impact of not having broadband on
rural communities and their growth, community facilities, access to healthcare, and well being.
Also on July 19, 2007, the Senate Appropriations Committee approved its version of the FY2008
agriculture appropriations bill (S. 1859; S.Rept. 110-134). The Committee approved $10.643
million to support a loan level of $495 million for the broadband loan program, and $8.9 million
for broadband grants.
On December 26, 2007, the President signed the Consolidated Appropriations Act, 2008 (P.L.
110-161). The bill provided $6.45 million to support a loan level of $300 million for the
broadband loan program, and $13.4 million for broadband community connect grants. The Joint
Explanatory Statement accompanying P.L. 110-161 directed USDA to evaluate and report on the
potential of a combination loan/grant broadband program to expand the reach and more
effectively utilize broadband resources.
The President’s FY2009 budget proposal requested a $11.619 million (subsidy) to support a loan
level of $297.923 million. The budget justification noted that available funding in recent years
has significantly outpaced demand and that $495 million was carried forward to FY2008, in
addition to the FY2008 funding. The Administration proposed a rescission of the FY2008 subsidy
of $6.45 million, an unobligated balance that would otherwise be carried forward into FY2009.
According to the budget justification, the program “routinely carries over the entire year’s
appropriations, so the funds are not necessary to support the program’s demand.”
As in past budget requests, the Administration proposed no funding for the Community Connect
Broadband Grants (down from $13.5 million in FY2008). According to the budget justification,
“building broadband infrastructure in rural America is expensive and requires extensive amounts
of capital. A loan program is more suited to supporting this kind of activity.”
On July 21, 2008, the Senate Appropriations Committee reported the FY2009 agriculture
appropriations bill (S. 3289; S.Rept. 110-426). The Committee approved $11.618 million to
support a loan level of $297.923 million for the broadband loan program, the same level as
requested by the Administration. Unlike the Administration, the Committee would have provided
$13.406 million for broadband grants.
The Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 (P.L.

110-329) provides the same funding levels through March 6, 2009, as was provided in FY2008:

$6.45 million to support a loan level of $300 million for the broadband loan program, and $13.4
million for broadband community connect grants.

On January 21, 2009, the House Appropriations Committee approved legislative language for the
spending portion of the economic stimulus package (American Recovery and Reinvestment Bill
of 2009). The legislation would provide $6 billion to support deployment of broadband and
wireless services in rural, unserved, and underserved areas of the nation. Of the total, $2.825
billion would be provided to RUS as additional funding for its existing loan, loan guarantee, and
grant programs. The legislation specifies that loans, loan guarantees, or grants can be used to
finance “open access” broadband infrastructure in any area of the United States, provided that at
least 75%of the area to be served by a project is in a rural area without sufficient access to high
speed broadband service to facilitate rural economic development, as determined by the Secretary
of Agriculture. Additionally, priority is to be given to projects that provide service to the most
rural residents that do not have access to broadband service. Priority is also given to borrowers or
former borrowers of RUS telephone loans. The legislation specifies that 50% of the grants, loans,
and loan guarantees made available shall be awarded no later than September 30, 2009, and that
priority will be given to projects that can commence promptly.
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