GA0-05-18R Local TV Act

United States Government Accountability Office

Washington, DC 20548 

October 15, 2004 

The Honorable Richard C. Shelby 

Chairman 

The Honorable Paul S. Sarbanes 

Ranking Minority Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Michael G. Oxley 

Chairman 

The Honorable Barney Frank 

Ranking Minority Member 

Committee on Financial Services 

House of Representatives 

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

In December 2000, the Congress passed the Launching Our Communities’ Access to 

Local Television Act of 2000 (Local TV Act or act).1

 The act created the Local 

Television Loan Guarantee Program (Program) and established the Local Television 

Loan Guarantee Board (Board) to finance projects that will provide access to signals 

of local television stations to households in areas with limited or no access to such 

signals from a commercial satellite service or other multichannel video provider. The 

Board may approve loan guarantees up to 80 percent of loans totaling no more than 

$1.25 billion in aggregate. In November 2001, the Congress appropriated $2 million 

for administrative expenses to implement the Program.2

Section 1006 of the act requires that we perform an annual audit of the 

(1) administration of the provisions of the act, and (2) financial position of each 

applicant who receives a loan guarantee under the act, including the nature, amount, 

and purpose of investments made by the applicant. In October 2003, we issued our 

first annual report3

 as required by the act. In that report, we addressed program 

administration and key activities that occurred during fiscal years 2002 and 2003. We 

 

1

 Pub. L. No. 106-553, title X, 114 Stat. 2762A-128 (Dec. 21, 2000) (codified in part at 47 U.S.C. §§1101-

1110). 

2

 Agriculture, Rural Development, Food and Drug Administration and Related Agencies Appropriations 

Act, 2002, Pub. L. No. 107-76, title III, 115 Stat. 704, 725 (Nov. 28, 2001). 

3

Local TV Act: Progress Made, but Timeliness and Cost Accounting Issues Need to be Addressed, 

GAO-04-134 (Washington, D.C.: Oct. 31, 2003). 
Page 2 GAO-05-18R Local TV Act 

reported that the Program had not been established expeditiously as specified by the 

act and that the full costs of administering the Program were not accumulated and 

charged to the Program as called for by federal accounting standards. Because the 

regulations and underwriting criteria that would have provided the overall framework 

for the Program had not been implemented at the time of our initial review, lending 

activities were delayed. Therefore, there were no loan guarantee applicants to audit, 

which was one of our mandated audit objectives under Section 1006 of the act. This 

second report addresses the status of the $2 million administrative appropriation and 

the fiscal year 2003 Working Group4 costs. 

To determine the status of the $2 million administrative appropriation and the 

Working Group costs incurred during fiscal year 2003, we obtained and evaluated 

information from the Board, including budget, contract and cost data, minutes of 

Board meetings, and other related information. Further, we reviewed federal 

accounting standards to determine if Working Group costs were accounted for 

properly. We did not independently verify or audit the Working Group cost data we 

obtained from the Board. We conducted our work from March 2004 through 

September 2004 in accordance with generally accepted government auditing 

standards. We requested comments on a draft of this report from the Chairman of the 

Board. 

During fiscal year 2002, the Department of Agriculture obligated the $2 million in 

appropriated funds by issuing an order to GovWorks for its anticipated needs. 

GovWorks is a franchise fund established within the Department of the Interior by 

the Congress and the Office of Management and Budget to offer administrative 

services to federal agencies. As of the end of fiscal year 2003, GovWorks had 

awarded, on the Board’s behalf, contracts totaling almost $1.2 million, leaving 

approximately $802,000 of the $2 million administrative appropriation still available 

for contracting with outside consultants or other administrative expenses. Table 1 

summarizes the activity for this appropriation for fiscal years 2003 and 2002. 

 

4

 The Working Group, which the Board established based on authority granted in the act, consists of 

senior level officials and staff from the Board members’ departments and agencies, including the 

Departments of Agriculture, Commerce, Treasury, and the Board of Governors of the Federal Reserve 

System. 
Page 3 GAO-05-18R Local TV Act 

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

Appropriation received by the Department of Agriculture 

(USDA) during fiscal year 2002a,b 

Less contracts awarded by GovWorks during: 

 Fiscal year 2002 – Ernst & Young, LLP for developing 

underwriting criteria (includes $20,323 GovWorks fee) 

 Fiscal year 2003 - Arnold and Porter for legal servicesc 

Amount available for contracting with outside consultants as of 

September 30, 2003

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

 

 

$ 697,771 

 500,000

$2,000,000

1,197,771

$ 802,229

a

The Agriculture, Rural Development, Food and Drug Administration, and Related Agencies 

Appropriations Act, 2002, appropriated $2 million for administrative expenses necessary for carrying 

out the Local Television Loan Guarantee Program, which it directed to be transferred to and merged 

with the appropriation for Rural Development, Salaries and Expenses, Pub L. No. 107-76, 115 Stat. 704, 

725. (Nov. 28, 2001). 

b

The Consolidated Appropriations Resolution, 2003, provided that any balances available from prior 

years for the Rural Utilities Service, Rural Housing and the Rural Business-Cooperative Services 

salaries and expenses account be transferred and merged with the fiscal year 2003 appropriation, 

Pub. L. No 108-7, Div. A, title III, 117 Stat. 26, 28 (Feb. 20, 2003). Pursuant to this provision, the balance 

of the $2 million appropriated in fiscal year 2002 was carried forward to fiscal year 2003. c

This contract is an indefinite quantity, indefinite delivery contract for fixed-price labor services with a 

maximum dollar threshold of $500,000. As of May 27, 2004, no services had been obtained. This 

contract is subject to an administrative fee based on services provided in an amount no greater than 

$15,000. 

At the Board’s request, GovWorks awarded a $677,448 contract to Ernst and Young 

for developing underwriting criteria and a $500,000 contract to Arnold and Porter for 

legal services. As of the end of fiscal year 2003, approximately $598,000, about 88 

percent of the contract amount, had been disbursed to Ernst and Young. Because 

the Board had not used Arnold and Porter’s services as of the end of fiscal year 2003, 

the original amount awarded remained available at fiscal year end. 

Separate from the $2 million appropriation for administrative expenses discussed 

above, the Board reported that during fiscal years 2002 and 2003, the Working Group 

incurred approximately $333,742 in administrative costs for continuing development 

of the Program regulations and underwriting criteria. Table 2 summarizes these costs 

for fiscal years 2002 and 2003. 
Page 4 GAO-05-18R Local TV Act 

Table 2: Summary of Estimated Administrative Costs Incurred by the 

Working Group 

For the Fiscal Years Ended September 30, 2002 and 2003 

Estimated costs 

Entity representing the Board Fiscal Year 

2002 

Fiscal Year 

2003 

Total 

USDA Rural Utilities Service $53,586 $158,491 $212,077

Department of the Treasury 11,202 50,402 61,604

Department of Commerce 8,506 31,123 39,629

Federal Reserve Board 5,155 15,277 20,432

Total estimated costs $78,449 $255,293 $333,742

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

 

The respective departments and agencies of the Working Group members absorbed 

these costs from their own salaries and expense accounts rather than being paid from 

the $2 million appropriation. Also, as discussed in our previous report,5 the total 

costs of administering the Program were not accumulated and charged to the 

Program consistent with federal accounting standards.6 For example, Working Group 

costs reported by the Board did not include fringe benefits and overhead. Again, 

during fiscal year 2003, such costs incurred by the Board had not been included in 

reported costs. Without accumulating and reporting the costs of administering the 

Program, the Board will not be able to satisfy federal cost accounting requirements or 

be in a position to determine the portion of those costs that are statutorily required to 

be recovered. 

The Board provided written comments on a draft of this report. In its response, the 

Board commented on the accumulation of Board and Working Group costs for the 

purpose of establishing loan guarantee origination fees and application fees and the 

delay of lending activities. 

The Board stated that we had not made a distinction between the Working Group’s 

costs to date that have been related to developing regulations and underwriting 

criteria and otherwise setting up the Program and those costs that are eligible for 

recovery through loan guarantee origination and application fees. The Board also 

reiterated a point made in commenting on our prior report. This is, when the Board 

accepts applications or extends offers for loan guarantees, it will ensure that such 

administrative costs adhere to managerial cost accounting concepts in accordance 

with federal accounting standards and related guidance, provided that those costs 

prove to be material. We agree that the Program development costs should not be 

 

5

 GAO-04-134, 9. 

6

 Federal Accounting Standards Advisory Board. Statement of Federal Financial Accounting Standards 

No. 4: Managerial Cost Accounting Standards, July 31, 1995. 
Page 5 GAO-05-18R Local TV Act 

considered when establishing the loan application or loan guarantee origination fees 

and have never suggested that they should be.7

 However, assuming that the Board 

will eventually process at least one completed application or award at least one loan 

guarantee, we believe that it needs to establish a methodology to accumulate the 

costs that the Board and Working Group will incur before applications are accepted. 

This methodology is needed to meet the statutory requirement that loan application 

and loan guarantee origination fees be set at a level reasonably expected to offset, but 

not in the aggregate exceed, these costs. Such a methodology need not be elaborate, 

as long as it satisfies the basic cost accounting processes prescribed by Statement of 

Federal Financial Accounting Standards No. 4 (SFFAS No. 4). 

Aside from accumulating costs for the purpose of establishing fees, we also continue 

to believe that appropriate cost information should be available about the Program. 

As discussed in our previous report, SFFAS No. 4 requires federal agencies to capture 

the costs of federal programs to assist the Congress in authorizing, modifying, and 

discontinuing programs and to provide agencies with reliable cost data for making 

informed managerial decisions and evaluating performance.8

 

Consistent with the previous report, the Board stated that lending activities were 

delayed because the statute required the Board to procure the services of an 

independent public accounting firm to assist with developing underwriting criteria 

and such criteria needed to be developed in accordance with the statute and the 

regulations. We continue to believe, as stated in our prior report, that the Program 

has not been established in an expeditious fashion as specified by the act. Based on 

the criteria stated in the act, the program regulations and the underwriting criteria, 

which provide the overall framework for the Program, should have been ready for 

implementation no later than March 2002. Since these key documents were not ready 

until December 2003, the Board was delayed in initiating the lending activities needed 

to carry out the objectives of the program. The Board’s written comments are 

presented in the enclosure. 

We are sending copies of this report to the Secretaries of Agriculture, Commerce, and 

Treasury, and the Chairman of the Board of Governors of the Federal Reserve 

System, members of the Local Television Loan Guarantee Board, and the Director, 

Office of Management and Budget. We will also make copies available to others upon 

request. In addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

 

7

 The Local TV Act and implementing regulations require the Board to charge applicants a loan 

application fee and a loan guarantee origination fee. See Pub. L. No. 106-553, title X, § 1005(n), 114 

Stat. 2762A-128-137 (Dec. 21, 2000) (codified at 47 U.S.C. § 1104(n)); see also 7 C.F.R. §§ 2201.11(m), 

(n), 2201.21. The act established the loan application fee “to cover the cost of the Board in making 

necessary determinations and findings with respect to the loan guarantee application under this act.” 

The act established the loan guarantee origination fee to cover the administrative costs, including the 

costs of the Board, associated with the issuance of a loan guarantee. However, the act limits the Board 

to imposing fees that in the aggregate do not exceed the actual amount of administrative costs under 

this act. 

8

 GAO-04-134, 9. 
Page 6 GAO-05-18R Local TV Act 

We look forward to working with you and your staff on the fiscal year 2004 audit 

required by the Local TV Act. Should you or your staff have any questions on matters 

discussed in this report, please contact me at (202) 512-6906 or by e-mail at 

williamsm1@gao.gov, or Alana Stanfield, Assistant Director, at (202) 512-3197 or at 

stanfielda@gao.gov. Major contributors to this report include Lisa Crye, F. Abe 

Dymond, Lauren S. Fassler, Jeff Isaacs, and Christina Quattrociocchi. 

McCoy Williams 

Director 

Financial Management and Assurance 

Enclosure 
Enclosure 

Page 1 GAO-05-18R Local TV Act 

Comments from the Local Television Loan Guarantee Board
Enclosure 

Page 2 GAO-05-18R Local TV Act 

(195038)