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SUBCOMMITTEE ON COMMUNICATIONS AND 

TECHNOLOGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

FEBRUARY 10, 2011 

Serial No. 112–5 

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ARRA BROADBAND SPENDING 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS AND 

TECHNOLOGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

FEBRUARY 10, 2011 

Serial No. 112–5 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chair 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANE HARMAN, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

(II) 

(III) 

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

GREG WALDEN, Oregon 

Chair 

LEE TERRY, 

Vice Chairman 

CLIFF STEARNS, Florida 

JOHN SHIMKUS, Illinois 

MARY BONO MACK, California 

MIKE ROGERS, Michigan 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

BRETT GUTHRIE, Kentucky 

ADAM KINZINGER, Illinois 

JOE BARTON, Texas 

FRED UPTON, Michigan 

ANNA G. ESHOO, California 

EDWARD J. MARKEY, Massachusetts 

MICHAEL F. DOYLE, Pennsylvania 

DORIS O. MATSUI, California 

JANE HARMAN, California 

JOHN BARROW, Georgia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., NEW JERSEY

BOBBY L. RUSH, Illinois 

DIANA DEGETTE, Colorado 

JOHN D. DINGELL, Michigan 

HENRY A. WAXMAN, California 

(V) 

C O N T E N T S 

Page 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 3 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 4 

Hon. Anna G. Eshoo, a Representative in Congress from the State of California, opening statement .................................................................................... 5 

Prepared statement .......................................................................................... 6 

Hon. Lee Terry, a Representative in Congress from the State of Nebraska, 

opening statement ................................................................................................ 7 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 8 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, prepared statement ...................................................................................... 10 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

prepared statement .............................................................................................. 125 

Hon. Edolphus Towns, a Representative in Congress from the State of New 

York, prepared statement .................................................................................... 128 

WITNESSES

Donald J. Welch, President and Chief Executive Officer, Merit Network, 

Inc. ......................................................................................................................... 10 

Prepared statement .......................................................................................... 13 

Gary Shorman, President and Chief Executive Officer, Eagle Communications ....................................................................................................................... 44

Prepared statement .......................................................................................... 46 

Answers to submitted questions ...................................................................... 266 

Mark Goldstein, Director, Physical Infrastructure Issues, Government Accountability Office ................................................................................................ 58 

Prepared statement .......................................................................................... 61 

Answers to submitted questions ...................................................................... 268 

Phyllis K. Fong, Inspector General, U.S. Department of Agriculture ................. 72 

Prepared statement .......................................................................................... 74 

Answers to submitted questions ...................................................................... 283 

Todd J. Zinser, Inspector General, U.S. Department of Commerce .................... 82 

Prepared statement .......................................................................................... 84 

Answers to submitted questions ...................................................................... 289 

SUBMITTED MATERIAL

Letters of support from Members of Congress, submitted by Ms. Eshoo ........... 129 

Letters of support, submitted by Ms. Matsui ........................................................ 247 

(1) 

ARRA BROADBAND SPENDING 

THURSDAY, FEBRUARY 10, 2011 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY, Washington, DC. 

The subcommittee met, pursuant to call, at 10:00 a.m., in room 

2322 of the Rayburn House Office Building, Hon. Greg Walden 

(chairman of the subcommittee) presiding. 

Members present: Representatives Walden, Terry, Stearns, 

Shimkus, Bono Mack, Bass, Blackburn, Gingrey, Scalise, Latta, 

Guthrie, Kinzinger, Barton, Eshoo, Markey, Doyle, Matsui, Barrow, 

Towns, DeGette, Dingell, and Waxman (ex officio). 

Staff present: Ray Baum, Senior Policy Advisor, C&T; Mike 

Bloomquist, Deputy General Counsel; Allison Busbee, Legislative 

Clerk; Fred Neil, Chief Counsel, C&T; Peter Kielty, Senior Legislative Analyst; Brian McCullough, Senior Professional Staff Member, 

CMT; Jeff Mortier, Professional Staff Member; Katie Novaria, Legislative Clerk; Lyn Walker, Coordinator, Admin./Human Resources; 

Roger Sherman, Chief Counsel; Shawn Chang, Counsel; Jeff Cohen, 

Counsel; and Sarah Fisher, Policy Analyst. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. The subcommittee will come to order. And I would 

like to ask any of our guests we probably have some seats there 

you can take advantage of. 

And I want to recognize myself for an opening statement. I want 

to welcome you all today. With today’s hearing we begin exercising 

our important oversight role regarding the approximately $7 billion 

in taxpayer money the ARRA allocated to the NTIA and the RUS 

for broadband grants and loans. We will start to examine what the 

money is being used for and how we can minimize waste, fraud, 

and abuse. We will also consider a staff discussion draft intended 

to improve oversight and return unused or reclaimed money to the 

United States Treasury. I want to emphasize that this is a discussion draft. It is only a starting point. We hope it will elicit suggestions from our colleagues on both side of the aisle, the witnesses, 

and any other interested parties to help accomplish a goal I think 

we all share that is treating taxpayer money with the utmost care 

and insuring that when we do spend it, it gets spent wisely. 

When we originally considered the broadband provisions of the 

ARRA in the Energy and Commerce Committee, my colleagues and 

I suggested some revisions. We were not convinced that this much 

2 

money needed to be spent. Private sector investment has resulted 

in 95 percent of the country having access to broadband and twothirds of the country subscribing. As the FCC’s national broadband 

plan pointed out, we have gone from 8 million broadband subscribers to 200 million in approximately a decade. We propose 

therefore that any subsidies be targeted to the five percent of 

households that are unserved and only if it is otherwise uneconomic for the private sector to deploy there. And we thought it 

would be a good idea to finish the nationwide broadband map before the government started to spend the taxpayer’s money. Our 

suggestions were not adopted. We will be interested to see the results and hopefully to learn from the things that work and the 

things that don’t. Measuring performance I think is crucial. Otherwise we won’t know what is worth repeating and what we should 

avoid. 

A cost benefit analysis is also important. With a $1.48 trillion 

deficit this year and enormous deficits predicted for the rest of the 

decade we have a responsibility to cut costs. I would suggest for example we determine how much we end up spending for each additional broadband subscriber. We ought to know that. All of this is 

important not just to evaluate the programs at hand. We are, after 

all, soon to embark on a discussion of how to reform the Universal 

Service Fund and the President has also recently announced a goal 

of reaching 98 percent of the country with wireless broadband. I 

love the goal, but believe we must be cost efficient about how we 

go about it and be realistic in our expectations of what taxpayers 

can afford. In pursuit of this goal, increasing the deployment of 

wireless broadband to the unserved areas of rural American, it will 

be important to remember the colloquial definition of insanity; and 

that is repeating the same actions but expecting a different outcome. 

While there has been disagreement over provisions in the ARRA, 

everyone agrees on the importance of oversight. My concerns about 

possible waste, fraud, and abuse are heightened by the fact that 

the only funding currently available to the NTIA for oversight expires March 4 with the continuing resolution. My hope is that we 

can discuss with the Government Accountability Office and the inspectors general what we should be keeping an eye out for what 

they ordinarily do in their oversight roles and what we can do help 

them in that task. The draft legislation is offered in that vein. It 

would ensure that the NTIA and the RUS report to Congress on 

any red flags the inspectors general find as well on what they propose to do about it. It would also help ensure that any money that 

is returned, reclaimed, or goes unused is put back in the U.S. 

Treasury. One would think that is the ordinary course but there is 

some ambiguity in the law about whether and when the program 

administrators must de-obligate funding and whether it comes back 

to the Treasury when they do. 

So I look forward to hearing from our witnesses about the language in the draft bill and where there are things that they suggest we should change. 

[The prepared statement of Mr. Walden follows:] 

3 

PREPARED STATEMENT OF HON. GREG WALDEN

Welcome. With today’s hearing we begin exercising our important oversight role regarding the approximately $7 billion in taxpayer money the ARRA allocated to the 

NTIA and the RUS for broadband grants and loans. We will start to examine what 

the money is being used for and how we can minimize waste, fraud, and abuse. We 

will also consider a staff discussion draft intended to improve oversight and return 

unused or reclaimed money to the U.S. Treasury. 

I want to emphasize that this is a discussion draft. It is only a starting point. 

We hope it will elicit suggestions from our colleagues, the witnesses, and any other 

interested parties to help accomplish a goal we all share: treating taxpayer money 

with the utmost care and ensuring that when we do spend it, we spend it wisely. 

When we originally considered the broadband provisions of the ARRA in this committee, my colleagues and I suggested some revisions. We were not convinced that 

this much money needed to be spent. Private sector investment has resulted in 95 

percent of the country having access to broadband and two-thirds of the country 

subscribing, as the FCC’s national broadband plan pointed out. We have gone from 

8 million broadband subscribers to 200 million in approximately a decade. 

We proposed, therefore, that any subsidies be targeted to the five percent of 

households that are unserved, and only if it is otherwise uneconomic for the private 

sector to deploy there. And we thought it a good idea to finish a nationwide 

broadband map before we started the spending. 

Our suggestions were not adopted. We will be interested to see the results, and 

hopefully to learn from the things that work, and the things that don’t. Measuring 

performance will be crucial. Otherwise we won’t know what is worth repeating and 

what we should avoid. A cost benefit analysis is also important. With a $1.48 trillion 

deficit this year and enormous deficits predicted for the rest of the decade, we have 

a responsibility to cut costs. I would suggest, for example, we determine how much 

we end up spending for each additional broadband subscriber. 

All of this is important not just to evaluate the programs at hand. We are, after 

all, soon to embark on a discussion of how to reform of the Universal Service Fund. 

And the President has also recently announced a goal of reaching 98 percent of the 

country with wireless broadband. I laud the goal but believe we must be cost-efficient about how we go about it and be realistic in our expectations of what taxpayers can afford. In pursuit of the goal of increasing the deployment of wireless 

broadband to the unserved areas of rural America, it will be important to remember 

the colloquial definition of ‘‘insanity’’: repeating the same actions and expecting different results. 

While there has been disagreement over provisions in the ARRA, everyone agrees 

on the importance of oversight. My concerns about possible waste fraud and abuse 

are heightened by the fact that the only funding currently available to the NTIA 

for oversight expires March 4 with the Continuing Resolution. My hope is that we 

can discuss with the Government Accountability Office and the inspectors general 

what we should be keeping an eye out for, what they ordinarily do in their oversight 

roles, and what we can be doing to help them in that task. 

The draft legislation is offered in that vein. It would ensure that the NTIA and 

the RUS report to Congress on any red flags the inspectors general find, as well 

as on what they propose to do about it. It would also help ensure that any money 

that is returned, reclaimed, or goes unused is put back in the U.S. Treasury. One 

would think that is the ordinary course, but there is some ambiguity in the law 

about whether and when the program administrators must ‘‘de-obligate’’ funding, 

and whether it comes back to the treasury when they do. 

I look forward to hearing from our witnesses about the language in the draft bill 

and whether there are other things they suggest we add. 

Mr. WALDEN. With the minute-and-a-half left I would like to 

defer now to the gentleman from Texas, Mr. Barton, and yield the 

remainder of my time. 

Mr. BARTON. Well, thank you, Chairman Walden. It is good to 

see you in the Chair. I am sure we are going to have a very productive subcommittee and I look forward to working with you and Ms. 

Eshoo on a wide range of telecommunications issues. 

This issue is something that shows the subcommittee in its oversight role. We have had a number of concerns about the broadband 

plan as it was rolled out several years ago. And my position as 

4 

ranking member and Mr. Stearns who was the ranking member of 

this subcommittee in the last Congress, we wrote several letters to 

some of you that are sitting at the table asking about how the 

funds were being spent and where the grants were going. Some of 

the answers we got back to those letters were to say the least unsatisfactory. So, today in the Majority with Mr. Walden as Chairman, we are going to ask some of those same questions. We certainly support broadband. We support broadband in rural America, 

but we also think the money should be spent wisely, effectively, 

and transparently. 

So I look forward to the testimony, and Mr. Chairman, again I 

look forward to working with you. This is an important subcommittee. The economy of the United States can be very positively 

impacted by what we do in this subcommittee. So with that let us 

have a good hearing and let us get to work. 

[The prepared statement of Mr. Barton follows:] 

PREPARED STATEMENT OF HON. JOE BARTON

Thank you Mr. Chairman for holding this important hearing. As Chairman Emeritus, I firmly stand with Chairman Upton and Subcommittee Chairman Walden in 

further investigating the broadband spending in the American Recovery and Reinvestment Act (ARRA). 

The Recovery Act provided $4.7 billion to the National Technology and Information Administration (NTIA) to create the Broadband Technology Opportunities Program (BTOP) and $2.5 billion to the Rural Utilities Service (RUS) to create the 

Broadband Incentive Program (BIP). These programs were created to extend 

broadband service to those rural areas that were without service. Unfortunately, it 

has been brought to the attention of Congress that both programs have not been 

administered as efficiently as possible and both have either awarded rural areas 

with grants that already have access to broadband or have completely eliminated 

their requirement to only target areas without broadband service. 

I believe that broadband technology has the potential to create jobs, fundamentally alter our economy, and improve the quality of life for many Americans. While 

I was in support of the President’s efforts to focus on expanding broadband technology, this is an issue that deserves great oversight and accountability to ensure 

that taxpayer dollars are being spent efficiently. As Ranking Member of this committee, I was intent on questioning both the RUS and the NTIA in their handling 

of the $7.2 billion allocated to them for implementing the broadband award programs established by the Recovery Act. In March of 2009, I sent a letter to both 

RUS and NTIA to recommend that we prioritize funds towards projects in States 

where broadband mapping was complete; towards unserved areas before underserved areas; towards projects that were sustainable without additional government 

funding; and toward projects that were most cost-effective. Because of my steadily 

increasing concern, I sent another letter in December of 2009 to encourage both organizations to use greater oversight when awarding grants and use more efficient 

metrics to decide on awardees. 

We owe it to the American people to ensure that their hard-earned dollars are 

being used as efficiently as possible. If the law mandates that a program has a specific purpose, I believe that we must honor the law and have integrity in our implementation of the law. I look forward to hearing from our witnesses and working to 

create greater oversight of the broadband spending in the Recovery Act. 

Mr. WALDEN. Thank you, Mr. Chairman. I now am delighted to 

yield the—for opening statement purposes to my ranking member 

on the subcommittee, Anna Eshoo from California. We have already met and talked and I look forward to a very productive relationship on this subcommittee as we work to improve telecommunications in our country and so delighted to work with you and I 

yield the 5 minutes to you. 

5 

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. ESHOO. Thank you, Mr. Chairman very much for your generous comments. I want to return them by wishing you well and 

congratulating you on being the Chairman of this subcommittee 

which is really so important, I agree, to our national economy. 

There are a number of issues that we are going to be working 

on and today’s hearing I think is an important one to examine the 

dollars that were appropriated, oversight of the Congress is one of 

the most important things that we do. So I know that the members 

on this side of the aisle look forward to working with you. Many 

of these issues are really nonpartisan so I hope that we can come 

together for the good of the country and produce products that the 

American people will be proud of and that will benefit the Nation. 

Again, I welcome the oversight of these two programs of the BTOP 

and the BIP because it is important to root out problems. It is also 

instructive because we then can find solutions to the problems. We 

need a thorough understanding if in fact there are obstacles that 

applicants and awardees face in gaining access to and utilizing the 

dollars that Congress appropriated. We have to ensure that the 

programs are efficient and effective because we all know what the 

consequences are in an era where every dollar is just so precious. 

We want these dollars to dance. We want them to count. 

The United States of America invented the Internet, but today 

we are falling behind in broadband deployment and by some measure we are now ranked 15th in the world. There are different 

measurements but the one that eludes us is number one. And I 

think if we do anything together that we raise that up and that the 

United States really take over and be number one in the world. We 

need significant investment from both the public and the private 

sectors to close the gaps and increase broadband affordability and 

ensure that Americans have access to the highest speeds and the 

latest technology. And I wanted to repeat that—the highest speeds 

and the latest technology. That is why I strongly advocated more 

than 2 years ago for recovery act funding to expand broadband deployment in our country. And that is what I—why I raise it. Again, 

because I think that America should be number one, not 15th, or 

24th, or 17th. If we could build the transcontinental railroad in the 

1800s, I think that we can certainly do this. So, 2 years ago a study 

predicted that adding 30 million new broadband lines would raise 

USGDP by over $110 billion. Others have specifically examined the 

benefits of broadband stimulus concluding that a $10 billion investment in broadband networks could support an estimated 498,000 

new or retained U.S. jobs per year. And Mr. Chairman, at this 

point I would like to ask that the following be placed in the committee’s record today. These are all comments from letters of Members relative to the program and their support of it. 

Mr. WALDEN. Without objection. 

[The information appears at the conclusion of the hearing.] 

Ms. ESHOO. Thank you. So, like the building of our Nation’s 

interstate highway system, this transformation won’t happen overnight. Recovery Act dollars have begun making their way into communities across the nation and when completed, these projects will 

6 

have a critical impact especially on community anchor institutions, 

an issue that Congresswoman Matsui and others worked very hard 

on the committee. Public safety, first responders, schools, libraries, 

public health facilities, these are all areas that affect every single 

one of our congressional Districts. NTIA and RUS have undertaken 

major task in administrating their respective programs. Along the 

way, there have been some bumps in the road. Some of which I, 

myself have raised in past hearings and in letters to the NTIA administrator. And these challenges are to be expected I think with 

a multiyear program. So we have an opportunity to strengthen 

these programs. I am committed to ensuring that there is success 

because the country needs this and I think in fact demands it. I 

think it is clear that our future depends upon the ubiquitous and 

rapid deployment of broadband and the Recovery Act is but a first 

step in this process and there is much more work to do. 

So thank you, Mr. Chairman, congratulations to you again. I 

don’t know how much time I have left, but—— 

Mr. WALDEN. None. You are out. 

Ms. ESHOO. None. OK. All right, I am out of time. 

Mr. WALDEN. You were perfectly timed to that one. 

Ms. ESHOO. All right, all right, perfectly timed to use all the 

time. Again, my congratulations to you and to all of the members. 

We look forward to working together with you. 

[The prepared statement of Ms. Eshoo follows:] 

PREPARED STATEMENT OF HON. ANNA G. ESHOO

Thank you Mr. Chairman. I welcome our witnesses and thank them for appearing 

before our panel today. I welcome oversight of BTOP and BIP because it’s always 

important to root out problems and find solutions. We need a thorough understanding of the obstacles that the applicants and awardees face in gaining access 

to and utilizing the money. We have to ensure the program is efficient and effective 

because the consequences for our nation, our economy, and our future are critical. 

The U.S. invented the Internet, but today we are falling behind in broadband deployment, and by some measure, we’re now ranked 15th in the world. We’ll need 

significant investment from both the public and private sectors to close the gaps, 

increase broadband affordability and ensure Americans have access to the highest 

speeds and latest technology. That’s why I strongly advocated more than two years 

ago, for Recovery Act funding to expand broadband deployment, because I believe 

America should be number one in technology and we need to make the investment 

to do so. If the U.S. could build the transcontinental railroad in the 1800s, we can 

certainly do this. 

Two years ago, a study predicted that adding 30 million new broadband lines 

would raise U.S. GDP by over $110 billion. Others have specifically examined the 

benefits of broadband stimulus, concluding that a $10 billion investment in 

broadband networks could support an estimated 498,000 new or retained U.S. jobs 

for a year. 

Like the building of our nation’s interstate highway system, this transformation 

will not come overnight. Recovery Act dollars have begun making their way into 

communities across the nation. When completed, these projects will have a critical 

impact on community anchor institutions such as public safety first responders, 

schools, libraries and public health facilities, as well as small businesses and directly into homes around the country. We need to ensure we’re doing everything we 

can to quickly get these funds out to the communities that so desperately need 

them. 

NTIA and RUS have undertaken a major task in administering their respective 

programs. Along the way, there have been some bumps in the road, some of which 

I’ve raised in past hearings, and in letters to the NTIA Administrator. These challenges are to be expected with a multi-year program supporting the build-out of 

large, complex infrastructure projects. But we must meet these challenges head-on, 

and not take them as a sign that the overall program is flawed. 

7 

We have an opportunity to strengthen these programs and I’m committed to ensuring the continued success of BTOP and BIP. Proper oversight of BTOP and BIP 

will ensure federal money is used towards its intended purpose: expanding 

broadband deployment. When problems are identified, let’s find solutions, not point 

blame. 

It’s clear our future depends upon the ubiquitous and rapid deployment of 

broadband. The Recovery Act funding is the first step in this process, but there’s 

much more work to be done to ensure America’s leadership on broadband. Thank 

you for being here today and I look forward to your testimony. 

Mr. WALDEN. Thank you very much. Now we will yield for 5 minutes to the Vice Chairman of the committee, a gentleman who has 

put a lot of time and effort into telecommunications issues especially a Universal Service Fund over the years, Mr. Lee Terry of 

Omaha. 

OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA 

Mr. TERRY. Thank you, Mr. Chairman. I am pleased that we are 

exercising our oversight over the broadband provisions of the stimulus bill. While some of may have wished that the $7 billion allocated for broadband would have been designated for only unserved 

households or that we would have waited until the broadband mapping project was completed, was all should agree that it is important for this committee to be involved in oversight now that all the 

funds have been obligated. We must analyze risks associated with 

the program and help facilitate proper oversight by the administrating agencies including our witnesses here today and thank you 

all for being here today. 

Given the current state of our economy and the absolute necessity to cut federal spending now it is imperative that we do our due 

diligence in making sure that proper oversight of both BTOP and 

BIP is conducted in that any waste, fraud, or abuse is eliminated 

and that any unused or misused money is returned to the Treasury. I realize the fine on unserved v. unserved is well, some people 

think it is over, but I do look forward to hearing from our witness 

Gary Shorman today on his concerns about an overbill that is taking place in rural Kansas due to BIP award. We have received further complaints from Montana, from Maine, from Washington 

State, from Illinois, so you are not alone. Overbuilding in my opinion should be considered as waste and abuse as we are subsidizing 

competition in areas that are already being served by broadband 

providers. Many rural telecommunication companies have raised 

this issue with me since the stimulus was enacted and it would 

seem to me that this would be something the inspector general 

would like to examine when conducting oversight. It is my understanding that although awards were obligated by September 30, 

2010, only 300 million on that has been spent to date under BTOP 

and less than 100 million has been dispersed under BIP. I look forward to hearing from our witnesses today on how disbursements 

will be handled from here on and what kind of performance milestones must be met as to avoid any rescission of funds. I am worried that oversight could be needed for years to come on a program 

that was initially intended to be an immediate job creator and 

needed stimulus in our economy now. I understand that both RUS 

and NTIA will be challenged by the oversight, a dramatically larger 

8 

and more diverse portfolio of projects while also facing impact of 

a lack of sufficient oversight, staff, and resources. We must make 

sure they have both their ability to monitor and ensure compliance 

with the terms of the awards. I welcome a discussion on legislation 

that will ensure that any unused or reclaimed funds are returned 

to the federal Treasury and hope that we can act quickly but prudently in providing NTIA and RUS the appropriate resources to 

find these unused and reclaimed funds. And thank you for holding 

this hearing and I yield back. 

Mr. WALDEN. Thank the gentleman. Now I would like to recognize the ranking member of the Full Committee, the distinguished 

gentleman from California, Mr. Waxman for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you very much, Mr. Chairman. Chairman 

Walden, I thank you for scheduling this important hearing and 

congratulations on your new role as chairman of the Subcommittee 

on Communications and Technology. And I want to work with you 

and Ranking Member Eshoo and our members to accomplish important bipartisan objectives. Despite some policy differences we 

can accomplish a great deal together. I hope we get started by addressing spectrum availability and reform, universal service, and 

the construction of a nationwide interoperable broadband public 

safety network. We also need to conduct appropriate oversight of 

ongoing programs and the agencies under our jurisdiction. And I 

am pleased that our first subcommittee meeting is an oversight 

hearing of two important Recovery Act programs, the Broadband 

Technology Opportunies Program and the Broadband Initiatives 

Program. 

When Congress passed the landmark Recovery Act, we built 

oversight into the very structure of these programs. We knew it 

was imperative to provide the Departments of Commerce and Agriculture with the tools necessary to conduct vigorous oversight of 

approximately $7 billion in broadband spending. The Commerce 

Department Inspector General was allocated $16 million and the 

Agriculture Department Inspector General $22.5 million to oversee 

and audit programs, grants, and activities funded by the Recovery 

Act. We need to ensure that the IGs and Agency program managers have enough resources for this significant task. 

With billions of dollars invested in hundreds of broadband 

projects throughout the Nation it would be irresponsible for Congress to skimp on oversight funding. We had a vigorous debate 

about the merits of the Recovery Act and the broadband programs 

at the start of the last Congress and it is clear that Republicans 

and Democrats did not agree on the merits, but we should all be 

able to agree that the agencies and their independent inspectors 

general should have adequate resources to oversee these projects. 

I am encouraged that we are going to hear today from the IGs 

at the Department of Commerce and Agriculture as well as the 

GAO. The Department of Commerce IG and GAO have been warning Congress for months that adequate funding must be assured 

9 

for these activities. We should heed their advice. In our zeal for 

budget cutting we must not trade a temporary savings in the area 

of oversight for significantly larger future losses due to waste, 

fraud, or abuse. 

We will also hear from Eagle Communications, a company that 

has concerns about the BIP program and how RUS allegedly funded competitors in its service area to the detriment of Eagle’s business. We should listen carefully to these concerns but it is unfortunate the subcommittee did not invite the RUS administrator to testify today so we could be further enlightened. 

I am also pleased that we will hear from the CEO of the nonprofit MERIT network, a Michigan based research and education 

network provider that is constructing more than 2,000 miles of 

‘‘middle mile’’ shared infrastructure to address Michigan’s 

backhauled needs. Dr. Welch, a former Army Colonel who served 

as the Dean for Information Technology at WestPoint and the Chief 

of Software Engineering for Delta Force is also a constituent of Mr. 

Dingell’s and his project has bipartisan support from the Michigan 

delegation including Chairman Upton who has previously noted 

‘‘this funding provides a tremendous boost to our region helping a 

home grown business expand and create jobs in an effort to deliver 

broadband to countless families, businesses, schools, libraries, and 

health centers across the state.’’ 

Finally, we have before us a Republican legislative proposal to 

capture de-obligated Recovery funds. None of us should oppose the 

prompt return of unused Recovery Act funds to the U.S. Treasury 

and I believe that is what current law requires. We should discuss 

how this new law—this new legislation differs from existing statutory requirements. We also should be careful not to establish a 

process to defund projects without cause especially now that obligated money has been translated into real projects with real jobs 

in every state. I would like to thank our witnesses for their participation at this hearing and I look forward to their testimony. Thank 

you, Mr. Chairman. 

Mr. WALDEN. And I thank the gentleman from California. I just 

note for the record note that we have met with the RUS administrator. We will have additional hearings. The RUS administrator 

actually is out of the country right now, and so we are going to go 

ahead with this part and then we hope to have another hearing 

where they are available. Now I would like to recognize the Chairman Emeritus of the Committee, Mr. Dingell, who would like to 

welcome our witness, Dr. Donald Welch who is President and CEO 

of Merit Network. So with this I would yield to the distinguished 

gentleman from Michigan, Mr. Dingell. 

Mr. DINGELL. Mr. Chairman, you are most courteous. I thank 

you for your graceful treatment of me and my constituent and I 

congratulate you on your first hearing which is an important one. 

I want to welcome our witnesses today particularly Dr. Donald 

Welch, the President, and the CEO of Merit Network Incorporated 

which is based in my District in Michigan. Merit is the recipient 

of over $100 million in grants from the National Telecommunications and Information Administrations Broadband Technology 

Opportunities Program (BTOP) to extend the broadband Internet 

infrastructure to anchor institutions and underserved areas in 

10 

Michigan, Wisconsin, and Minnesota. So welcome, Dr. Welch, and 

we wish you great success in Merit’s very valuable project. Federal 

support for infrastructure projects such as yours support economic 

growth will help our country to recover from current recession and 

also are going to be very useful in moving this country forward in 

terms of technology which is so important. Again, Mr. Chairman, 

I thank you for your courtesy to me and yield back the balance of 

my time. 

[The prepared statement of Mr. Dingell follows:] 

PREPARED STATEMENT OF HON. JOHN D. DINGELL

Thank you, Chairman Walden, for holding today’s oversight hearing about 

projects sponsored under the American Recovery and Reinvestment Act (ARRA). As 

you know, the Committee on Energy and Commerce has a proud history of using 

fair and measured oversight to inform its legislative work. I am confident you will 

carry on in this tradition. 

Before making my remarks, I would like to welcome our witnesses today, particularly Dr. Donald Welch, the President and CEO of Merit Network, Inc., which is 

based in my district in Michigan. Merit is the recipient of over $100 million in 

grants from the National Telecommunications and Information Administration’s 

(NTIA) Broadband Technology Opportunities Program (BTOP) to extend broadband 

Internet infrastructure to anchor institutions and underserved areas in Michigan, 

Wisconsin, and Minnesota. Welcome, Dr. Welch, and best of luck with your company’s valuable project. Federal support for infrastructure projects such as Merit’s 

support economic growth and will help our country recover from the current recession. All the same, such support must be subject to reasonable scrutiny in order to 

mitigate waste, fraud, and abuse. 

I note that my Republican colleagues have circulated a draft bill to require NTIA 

and RUS to return to the U.S. Treasury any BTOP or Broadband Initiatives Program (BIP) funds either agency finds to have been involved in fraudulent, wasteful, 

or mismanaged projects, as well as funds that are otherwise unobligated. I find this 

curious in view of the fact that ARRA, as amended by Dodd-Frank, already requires 

this. Nevertheless, I hope our witnesses, especially the Commerce and Agriculture 

Departments’ respective Inspectors General and Mr. Goldstein of the GAO, will help 

me understand the necessity, implications, and feasibility of such legislation for 

NTIA and RUS, all while bearing in mind that the draft bill authorizes no spending 

whatsoever for the additional oversight burdens it imposes. 

Thank you for your courtesy, Mr. Chairman, and I yield the balance of my time. 

Mr. WALDEN. And I thank the gentleman and with that, Dr. 

Welch, if you would like to be our lead-off witness just go ahead 

and make sure your microphone is turned on and we look forward 

to your testimony. We appreciate your being here, sir. 

STATEMENTS OF DONALD J. WELCH, PRESIDENT AND CEO, 

MERIT NETWORK, INC; GARY SHORMAN, PRESIDENT AND 

CEO, EAGLE COMMUNICATIONS; MARK GOLDSTEIN, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, GOVERNMENT 

ACCOUNTABILITY OFFICE; PHYLLIS K. FONG, INSPECTOR 

GENERAL, U.S. DEPARTMENT OF AGRICULTURE; AND TODD 

J. ZINSER, INSPECTOR GENERAL, U.S. DEPARTMENT OF 

COMMERCE 

STATEMENT OF DONALD J. WELCH 

Mr. WELCH. Thank you. Good morning, my name is Don Welch. 

I am the President and CEO of Merit Network and I am very 

proud to be here on behalf of Merit Network and its community in 

Michigan. 

11 

Merit Network, as you have heard, is an independent non for 

profit that is governed by the public universities. Merit receives no 

subsidies from the State. Our mission is to provide community anchor institutions with advanced IT and network services to foster 

collaboration and community and to facilitate knowledge transfer 

with and between community anchors. Merit is guided by a vision 

of equal access to information for all Michigan citizens regardless 

of geographic location. 

For almost a decade, Merit has had a plan to build fiber to serve 

community anchor institutions in rural and remote regions of 

Michigan where an absence of viable backhaul has left entire communities underserved but we have lacked the funds to do so. 

Through BTOP and with the support of the Michigan public universities, Merit’s vision is within reach to the benefit of all sectors 

of society and the entire State. Merit’s project is 2,287 miles of 

fiber optic cable lit at 10 Gbps that provides both ‘‘middle mile’’ or 

backhaul infrastructure in underserved areas and redundant paths 

out of poorly connected areas that will improve service for the entire region. Merit and its commercial sub recipients will each own 

infrastructure. Merit serving the community anchors the sub recipients focusing on homes, businesses, and local internet service 

providers. Our project will directly connect over 100 community anchor institutions and has the ability to serve an additional 900 

community anchors. The network will also have access points in 51 

central offices and create 12 new colocation spaces making it easy 

for existing providers to leverage the project. Thus the network can 

indirectly serve over 55,000 businesses and 1 million homes. 

The majority of the cost for many local ISPs in the service area 

are for backhaul to internet exchange points like that are in places 

like Chicago. Our project provides cost effective backhaul to areas 

where it is lacking. In some instances customers could see over 10 

times the bandwidth for less than half of what they are currently 

paying. Merit is a member of the Schools, Health Care and Libraries Broadband Coalition because we share their belief that high capacity broadband is the key infrastructure that K–12 schools, universities, colleges, libraries, health care providers, and other community anchors need to provide 21st century education, information, and public services. Community anchor institutions also need 

access to a private network of peer organizations for the exchange 

of information, consolidation, and sharing of services. 

The Merit Network is the platform our members use to collaborate, cut costs, and provide better service to their constituents and 

patrons. Our project will eliminate geographic barriers for Michigan community anchor institutions. Merit has members in the 

Upper Peninsula that are further away from Merit’s offices in Ann 

Arbor than we are right now from—in D.C. from Ann Arbor. This 

project will enable them to collaborate with members across the 

State as if they were across town. 

The project is not without risk. The BTOP grants provide 80 percent of the estimated capital costs of the project. Merit and the sub 

recipients are responsible for 20 percent and the maintenance of 

the complete work. Merit is responsible for cost overruns and operational costs during construction. We have drawn out our existing 

staff to support the project before we can reduce cost or generate 

12 

any revenue. Even exceeding the budget by one penny per foot in 

construction and materials means an additional cost of 120,000 for 

us—a substantial amount. We have every incentive to spend the 

money wisely. 

Merit controls the project and mitigates its risk in several ways. 

A competitive RFP process is used to select vendors. Merit has established a process for handling all federal funding. We have vetted 

the process with a red team exercise in which we try to anticipate 

every way someone could get improper access to the funds. Merit 

has hired four BTOP funded staff to support our reporting and 

compliance team. That team includes the librarian as we expect to 

have over 100,000 auditable documents by the project’s completion. 

The impact of our project’s success will be profound and long 

lasting for Michigan which is working hard to revitalize its economy. We believe that education and economic development are inseparable. The two key components necessary for economic development are an educated work force of life-long learners and unfettered access to the global information grid. Our project targets 

both, creating knowledge infrastructure upon which Michigan will 

compete and grow in the 21st century. Thank you very much. 

[The prepared statement of Mr. Welch follows:] 

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Mr. WALDEN. Dr. Welch, thank you and I would be remiss not 

to also thank you for your many years of service it the U.S. Army 

and your teaching at West Point. We appreciate that. 

Mr. WELCH. Thank you. 

Mr. WALDEN. Now I would like to move on to Mr. Gary Shorman, 

President and CEO of Eagle Communications. Mr. Shorman, you 

have 5 minutes for your opening statement. We thank you for participating in our hearing today. 

STATEMENT OF GARY SHORMAN 

Mr. SHORMAN. And thank you for being here. My name is Gary 

Shorman. I am President and Chief Executive Officer of Eagle 

Communications, a small business that is based in Hays, Kansas. 

And I appreciate being invited today to talk about my experience 

on the impact of how the Recovery Act’s Broadband Initiative Program or BIP has had on our company. 

Eagle offers high speed internet, high definition cable television, 

and digital telephone service to our communities throughout central and northwestern Kansas. In the last five years alone we have 

invested over $20 million to make sure our customers have cutting 

edge technology for broadband and broadband speeds. Our company has 277 employees of which 212 are employee owners through 

our employee stock ownership plan. That means that our employee 

owners live, work, and volunteer their time in the communities 

that we serve. We like what we do and we like where we do it. 

Eagle strongly supports the primary goals of the BIP program. 

Broadband is a critical driver in the economic recovery and global 

competitiveness especially in rural Kansas and rural America because it provides and creates jobs and provides for a better educational opportunity. Our concern with the program, however, is 

that how it has been implemented and certain funded projects may 

actually frustrate the goals of BIP. My testimony today will explain 

part of my concerns. In January of 2010, the RUS announced a $101 million BIP 

award, nearly one-third of the money awarded in round one, to one 

of our competitors, Rural Telephone Service Company—that is 

RTS. We were stunned that while the award’s announcement stated that is would be used to provide ‘‘service in an area that was 

99.5 percent underserved or unserved’’ RTS announced that money 

would be used to build part of their plant and upgrade their network in Hays. Hays is one of the best served for technology in 

western Kansas. Eagle, AT&T, and RTS’s own affiliate Nex-Tech 

all provide high speed broadband service there. A report last month 

on the availability of broadband in Kansas showed that 99.99 percent of the customers in Ellis County where Hays is the home— 

it is the county seat—already have access to broadband and high 

speed broadband. 

The fact that Hays was one of the communities covered by this 

award was particularly surprising. One, because we had done our 

best to determine whether Hays was even included in the RTS application and secondly, we tried to inform the RUS of the extensive 

broadband service already available there. A RUS field representative actually made a stop and a visit in Hays. The fact is that while 

the RUS argues that this project meets the technical requirements 

45 

for BIP funding, it certainly violates the spirit and the intent of the 

Recovery Act and BIP’s own rules. It also demonstrates a serious 

flaw in the award process. 

While much of the geographic area covered by the award may be 

technically unserved, almost half of the 23,000 homes in this 

project, homes and businesses within this project are actually in 

Hays. This means that millions of federal dollars will go toward 

overbuilding Eagle and other service providers in this non-rural 

area. With this award, the government is effectively penalizing 

small companies like ours that has invested its own risk capital in 

this network. Companies that have taken financial risk of servicing 

rural markets and serving them well it is unrealistic to expect us 

to continue to do so if we have to face large government competition; moreover, wasting valuable time and dollars to overbuild a 

community that is well served at the expense of unserved Kansans 

and unserved others? That just doesn’t make sense. Eagle is happy 

to face competition from other providers, but we cannot effectively 

compete with a government backed favorite. RTS has already 

gained millions from government supported program. Even prior to 

the $101 million BIP award, RTS received millions of dollars in assistance from the RUS on 32 other projects in the same area and 

they have received millions of dollars from federal and state Universal Service Fund program. It is clear to us that the BIP award 

to RTS will have a serious impact on our business. RTS has approached every Hays resident and asked for permission to install 

for free network boxes on their home. And they are offering to 

those who grant permission a chance to win a free 50-inch HD TV, 

maybe a laptop computer, even an Ipad. It is unreasonable to expect a privately funded company to match these free offers and expect to compete against this kind of funding. 

I am here to ask that this committee consider legislation that 

would require wasteful funding to be returned to the Treasury so 

that it can be used for other more pressing and more needed services, and they assume a more oversight role over funding of awards 

to ensure that our Eagle experience is not unnecessarily repeated. 

RUS should also be required to defund RTS’s project in the Hays 

non-rural area and other places where BIP funds were spent in 

manners contrary to the goals of the program. Taxpayer dollars 

should not be wasted in an area that is already being well served 

at the potential cost of jobs, lost competition, and loss of additional 

investment by private companies. Again, thank you for inviting me 

to be here and I look forward to your question. 

[The prepared statement of Mr. Shorman follows:] 

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Mr. WALDEN. Mr. Shorman, thank you for your testimony today. 

It is most helpful in our look at this issue. I would now like to recognize Mr. Mark Goldstein, Director of Physical Infrastructure 

Issues from the Government Accountability Office. Mr. Goldstein, 

you have 5 minutes. We appreciate the good work your agency does 

and we look forward to your comments and testimony. 

STATEMENT OF MARK GOLDSTEIN 

Mr. GOLDSTEIN. Thank you, Mr. Chairman and members of the 

subcommittee. We appreciate the opportunity to participate in this 

hearing to discuss oversight of the broadband programs funded 

through the Recovery Act. 

As you know, access to broadband services seem as vital to economic, social, and educational development, yet many areas of the 

country lack access to or the residents do not use broadband. To 

expand broadband deployment adoption, the Recovery Act provided 

$7.2 billion to the National Telecommunications and Information 

Administration and the Rural Utilities Service for grants or loans 

to a variety of program applicants. The Congress subsequently rescinded the $300 million of this funding. The Recovery Act required 

that agencies awarded all funds by September 30, 2010. 

This testimony summarizes an update to two prior GAO reports 

including one, NTIA and RUS’s efforts to award Recovery Act 

broadband funds and two, remaining risks that NTIA and RUS 

face in providing oversight for funded projects. 

NTIA and RUS awarded grants and loans for several hundred 

broadband projects in two funded rounds. By the end of fiscal year 

2010 NTIA and RUS awarded grants and loans to 553 broadband 

projects across the country. These awards represent almost $7.5 

billion in obligated funds which exceed the 7.2 billion provided by 

the Recovery Act because an agency such as RUS that awards 

loans can obligate funds in excess of its budget authority. 

In our review of the first funding round, we found that NTIA and 

RUS with the help of agency’s contractors consistently substantiated information provided by awarded—by award recipients applications. We have not evaluated the thoroughness of the process 

used by agencies in the second round. Because of the challenges 

the programs face and what we have previously reported, we recommended that NTIA and RUS take several actions to ensure the 

funded projects receive sufficient oversight. These recommendations included the following. One, that NTIA and RUS develop contingency plans to ensure sufficient resources for oversight of funded 

projects beyond fiscal year 2010 and that the agencies incorporate 

into their monitoring plans steps to address the variability and 

funding levels for program oversight beyond 2010. Two, that NTIA 

and RUS should use information provided by applicants to establish quantifiable outcome base performance goals by which to 

measure program effectiveness. Three, that NTIA should determine 

whether commercial entities receiving BTOP grants should be subject to an annual audit requirement. 

We can report that NTIA and RUS have taken several actions to 

address these recommendations and improve oversight. These actions include that NTIA has developed and is beginning to implement a post-award framework to ensure the successful execution of 

59 

BTOP. This framework includes three main elements: monitoring 

and reporting, compliance and technical assistance. As part of its 

oversight plans, NTIA intends to use desk reviews and on-site visits to monitor the implementation of BTOP awards and ensure 

compliance with award conditions by recipients, and intends to provide technical assistance in the form of training: Webinars, conference calls, workshops, and outreach for all recipients of BTOP 

funding. RUS is also putting into place a multifaceted oversight 

framework to monitor compliance and progress of recipients of BIP 

funding. 

Unlike NTIA, which is developing a new oversight framework, 

RUS plans to replicate the oversight framework it uses for existing 

grants and loan programs. The main components of RUS’s oversight framework are financial and program reporting, and desk and 

field monitoring. According to RUS officials, no later than 30 days 

after the end of each calendar-year quarter, BIP recipients will be 

required to submit several types of information to RUS, including 

balance sheets, income statements, statements of cash flow, summary of rate packages, and the number of broadband subscribers 

in each community. In addition, RUS intends to conduct desk and 

site reviews. 

RUS extended its contract with ICF International to provide BIP 

program support through 2013. According to RUS, the agency fully 

funded the contract extension using Recovery Act funds and no appropriations are required to continue the contract until fiscal year 

2013. In addition, RUS extended the term of employment through 

fiscal year 2011 for 25 temporary employees assigned to assist with 

the oversight of BIP projects. Last spring, NTIA reported that forprofit awardees will be required to comply with program-specific 

audit requirements set forth by the Office of Management and 

Budget under the Single Audit Act. This audit and reporting requirement will give NTIA the oversight tool it needs to help ensure 

that projects meet the objectives of the Recovery Act and guard 

against waste, fraud, and abuse. 

Finally, despite these actions, NTIA and RUS have not fully addressed all our recommendations and we therefore remain concerned about the oversight of broadband programs. First, NTIA’s 

oversight plan assumes the Agency will receipt additional funding 

for oversight. For fiscal year 2011, the President’s budget requested 

included nearly $24 million to continue oversight activities and 

funds as they are expire shortly. NTIA reported that it is imperative that it receive sufficient funding to ensure effective oversight. 

RUS’s oversight activities which the agency in part addressed 

through the extension of this contract with ICF International, however, should there be a reduction in RUS’s fiscal year 2011 budget 

and beyond, the agency will need to assess the fiscal impacts and 

the temporary employment of these staff members. Therefore, we 

believe the agencies and especially NTIA need to do more to ensure 

their oversight reflects current fiscal realities. Second, we continue 

to keep our recommendations open regarding performance goals. 

NITA has taken some steps on this recommendation such as creating new goals related to new network miles and workstations deployed, but the Agency continues to establish additional goals and 

network is not yet complete. 

60 

Mr. Chairman and members of the subcommittee, this concludes 

my prepared remarks. I would be happy to answer any questions 

you may have. 

[The prepared statement of Mr. Goldstein follows:] 

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Mr. WALDEN. Thank you, Mr. Goldstein. Thank you. Thanks 

again for your work on this issue and for your advice and counsel. 

I would now like to recognize the Honorable Phyllis K. Fong, Inspector General, U.S. Department of Agriculture. Ms. Fong, we appreciate your input today and the work that you and your folks do 

and we look forward to you testimony. 

STATEMENT OF PHYLLIS K. FONG 

Ms. FONG. Thank you, Mr. Chairman, Ranking Member Eshoo, 

and members of the subcommittee. We appreciate the opportunity 

to testify this morning about our work in this broadband program. 

As you may know, over the last 10 years, RUS has administered 

programs intended to provide broadband service to rural areas that 

lack these services. We did audits of these programs in 2005 and 

2009, and our most significant findings were that RUS was funding 

projects in communities close to major metropolitan areas rather 

than in more rural areas, and that RUS’s funding projects in areas 

that had pre-existing broadband service. We made a number of recommendations to RUS to help RUS improve the management of its 

programs and to focus funding on rural communities. RUS agreed 

with many of our recommendations but it has not yet fully implemented its corrective actions. We recognize in the OIG’s office that 

recent legislation such as the 2008 Farm bill and the Recovery Act 

has actually partially addressed some of the concerns that we 

raised, but we also believe that the basic policy goals and management challenges still exist with respect to delivery in these programs and so we will continue our work with RUS to address these 

issues. 

Let me briefly talk about fraud in the program. One of the things 

that our investigations have revealed that in some instances 

broadband providers receiving RUS funds have engaged in fraud 

and other criminal conduct. We have had some successful prosecutions where broadband companies have been convicted of submitting fraudulent invoices and claims. And as a result, those companies and some of those individuals have had to make restitution to 

the government and have received prison terms and other probationary terms. One company has in fact been debarred from doing 

business with the government for five years as a result of our investigative work. 

With respect to oversight of the Recovery Broadband Program, as 

you all know the Recovery Act provided $28 billion to USDA across 

nine major mission areas. Of this amount, 2.5 billion was allocated 

for broadband. When we started to assess the—was going to perform multi-agency review of these programs and so we decided to 

hold in abeyance our own oversight until GAO had finished its 

work which it appears now an appropriate time. And so at this 

time we are planning to initiate audit work within UDSA OIG on 

RUS’s broadband program to determine how effectively it is running. We have not finalized our audit program, but the kinds of 

issues that we are considering include the adequacy of RUS’s oversight functions, RUS’s use of a contractor, eligibility of borrowers 

and grantees, assessment of any delinquent or defaulted loans, and 

basically the use of program funds for authorized purposes. While 

we develop our program we will be working very closely with ComVerDate Nov 24 2008 10:40 May 31, 2011 Jkt 037690 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-5 021011\112-5 CHRIS
73 

merce, GAO, and FCC to make sure that we don’t duplicate efforts 

and we expect to roll our initiative in the spring of this year. So 

that concludes my statement and I welcome any questions. 

[The prepared statement of Ms. Fong follows:] 

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Mr. WALDEN. Ms. Fong, thank you for your participation in our 

hearing and for the work that you do. I would now like to recognize 

the Honorable Todd J. Zinser, Inspector General U.S. Department 

of Commerce. Mr. Zinser, we appreciate your work and that of the 

folks who work with you on these efforts, and we look forward to 

your testimony. Sir, please go ahead. 

STATEMENT OF TODD J. ZINSER 

Mr. ZINSER. Mr. Chairman, Ranking Member Ms. Eshoo, and 

members of the subcommittee, thank you for inviting me to testify 

today about our oversight of the Recovery Act Broadband spending 

at the Department of Commerce. My testimony this morning can 

be summarized in three points. 

First, the Broadband Technologies Opportunities Program was a 

high-risk program from the outset. And now that the grants have 

been awarded and federal funds obligated, the risk is elevated because the grantees are now beginning to spend the money that 

they have received through their grants. Only about five percent of 

the broadband funds have been spent so far. The Recovery Act established $4.7 billion Broadband Technology Opportunities Program or BTOP 2 years ago. The National Telecommunications and 

Information Administration was given responsibility for the program. The agency in its very dedicated work force have made a 

herculean effort in implementing the program so far. Nonetheless, 

it remains a high-risk program. The agency successfully awarded 

and obligated $3.9 billion to 232 grantees by last year’s deadline. 

Approximately $3.4 billion is funding 123 infrastructure projects 

including seven public safety broadband networks. $200 million is 

funding 65 public computer centers, and $251 million is funding 44 

projects for what is called sustainable broadband adoption. 

In addition to these broadband grants NTIA has also awarded nearly $300 million to 56 States, territories, and the District of Columbia to develop digital maps of broadband coverage for their jurisdictions. The large dollar amounts involved, the number of 

grants, the mix of grant recipients which include government, not 

for profit, for-profit entities, higher education, and Native American 

tribes, all with different levels of experience with federal grants, 

the technical nature of many of the grants, and the relative inexperience of the agency and its staff in administering such a large 

grant program all contribute to making this the most complex 

grant program NTIA has ever administered and the highest risk 

Recovery Act program for the Department of Commerce. 

Second, the NTIA staff must now shift its attention and efforts 

from awarding the grants to managing the grants and conducting 

oversight making sure the recipients are properly spending the 

money and delivering on their broadband projects. For example, 

the program requires the grantees—the program requires and the 

grantees have agreed to match the federal funds with funds of 

their own. In addition to the $3.9 billion in federal funds, the 

grantees themselves have agreed to apply another $1.4 billion to 

these projects. NTIA has to make sure that the matching funds 

committed by the grantees are real funds and not funds that exist 

only on paper or as a result of creative accounting treatments we 

have seen sometimes in our audits of other grant programs at the 

83 

department. I am concerned that without real matching funds, 

these projects could wind up underfunded and result in incomplete 

projects or lower quality projects. There are many other aspects of 

oversight that NTIA must carry out. They have a sound approach 

and oversight but the agency must embrace their oversight role 

and must have the resource to do so. 

Finally it is important that we all remain vigilant in preventing 

and detecting fraud. Transparency and accountability was made a 

key element of the Recovery Act. The reporting requirements and 

visibility of the spending for these projects is unprecedented. It is 

ultimately intended to keep the recipients of Recovery Act funds 

honest so that the taxpayers get what they paid for. Over the past 

two years members of OIG staff have delivered fraud awareness 

and grant compliance briefings to almost 3400 NTIA and Commerce employees and BTOP applicants and recipients. These briefings not only provided technical assistance on grant compliance 

issues, but were also intended to let employees and grantees know 

how to recognize and report suspected fraud. Our focus will continue to be on compliance and fraud prevention and detection as 

the projects are carried out over the next few years. We especially 

appreciate the subcommittee’s oversight and the invitation to testify this morning and look forward to working with the subcommittee on this important program. Thank you, sir. 

[The prepared statement of Mr. Zinser follows:] 

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Mr. WALDEN. Mr. Zinser, thank you, and I want to thank all of 

your witnesses for your terrific testimony today. It is most helpful 

in the work in we are doing here. I will start with questions. Ms. 

Fong, and Mr. Zinser, while I recognize the staff discussion draft 

of our legislation may not have all the right language yet, do you 

think it would be helpful if the standards and processes for de-obligating funds were less ambiguous? I will start with that. In the 

kind of work that you do and what we are trying to do I guess the 

question is, is do you think it would be helpful to have a clearer 

standard? 

Ms. FONG. I will just take a crack at that. I don’t believe in any 

of our audit work that we have identified difficulties in the past. 

We did make a number of recommendations in one of our audit reports that RUS go back and get money back from grants that had 

not been well performed. And we understand that RUS is still 

working through that process. Now, it has taken some time to do 

that so perhaps a recognition of the time involved would be helpful. 

One of the things that we did notice in terms of the draft legislation is that it talks in terms of awards, grants and awards. And 

given the nature of the broadband program at USDA, which is usually a funding package of 75 percent grant/25 percent loan, which 

can vary of course, we weren’t sure whether the legislation addresses the issue of what happens to the loan piece of the package. 

The legislation seems to be clear about what happens with respect 

to the grant side. But then the accompanying loan that a recipient 

may have: is that considered part of an award or do we need to be 

more clear about that? So that as recipients go through the process 

they understand exactly what is on the table. So we would suggest 

a look at that language. 

Mr. WALDEN. Excellent. Thank you. That is most helpful. Mr. 

Zinser? 

Mr. ZINSER. I do think it would be helpful to eliminate any ambiguity. I know for example there is provisions in the Dodd-Frank 

Wall Street Reform Bill that talks about unobligated money and 

the Recovery Act going back to the Treasury. And so—and we are 

also aware of various amendments to piece of legislation about rescinding or taking back Recovery Act money, so I think it would 

be a good idea for the subcommittee to kind of make its mark on 

what they want to happen with Recovery Act money. 

That being said, our experience with grant—with the grant programs in the department is that it is a long drawn out process. 

Once the IG’s office identifies a cost on a grant project that we 

don’t think should be paid out or unallowable, it is a long process, 

a long due process in getting the agencies to actually make a decision, give the grantee an opportunity to make its case, and actually 

decide that certain costs are unallowable. I think that whatever 

legislation comes about needs to make sure that that due process 

isn’t—that that due process stays in place. 

Mr. WALDEN. So let me ask you a couple other questions then. 

Under current laws, the decision to de-obligate funds by the RUS 

and NTIA Administrator is discretionary. Is there a clear standard 

and could a reward recipient continue to spend money even if you 

found waste, fraud, and abuse, and even if you recommended remedial action? So the first part of that, is there a clear standard— 

104 

well, actually is the decision to de-obligate discretionary? We believe it is. 

Ms. FONG. That is my understanding as well. 

Mr. ZINSER. Yes, I believe it is discretionary, sir. 

Mr. WALDEN. That is one of the issues that we have with this 

legislation then. Is there a clear standard to de-obligate? 

Mr. ZINSER. I know that in the case where we will conduct an 

audit and recommend that certain costs be unallowed that ultimately the decision is left up to the agency and it is an interpretation of accounting rules in a lot of cases, sir. 

Ms. FONG. Exactly. 

Mr. WALDEN. Is that the same, Ms. Fong? 

Ms. FONG. Exactly. 

Mr. WALDEN. And could award—could an award recipient continue to spend money even if you found waste, fraud, and abuse 

and even if you have recommended remedial action? 

Mr. ZINSER. If the agency does not take proper action, I would 

say yes, the grantee could continue to spend money. We find, for 

example, that even agencies that have been convicted of fraud if 

the agency doesn’t check the excluded list before they made the 

grant award, that entity can get that grant and spend that money. 

Mr. WALDEN. Ms. Fong. 

Ms. FONG. Given the nature of the process, the process is that 

we as IG’s will go in and do an audit and we will make a recommendation to the administrator, say. The administrator then 

has certain due process procedures that they follow with respect to 

the recipient. And as Mr. Zinser alluded to, that process can take 

some time. So while that process is ongoing the recipient still has 

the responsibility to perform on the grant or loan. And so one 

would expect that that performance would continue. And so depending on the length of time that the due process takes, you 

know, things could be unresolved for awhile. 

Mr. WALDEN. My time has run out. I appreciate your comments. 

I would recognize now the Ranking Member, Ms. Eshoo. 

Ms. ESHOO. Thank you, Mr. Chairman, and thank you to all of 

the witnesses. Ms. Fong, when you spoke in your testimony, I think 

it is important to state for the record where there was a clear misuse or fraud—I don’t remember exactly which word you used. 

Ms. FONG. Fraud. 

Mr. ESHOO. Those were not Recovery Act funds. Correct? 

Ms. FONG. Correct. We do not have any investigations of Recovery Act cases. 

Ms. ESHOO. I just wanted to make sure that that is clear for the 

record, because—— 

Ms. FONG. That is right. 

Ms. ESHOO. The hearing is about the Recovery Act, what it established, does it have shortcomings, if there are what are they, 

and what can we do about it. So I think that that is very important. Oh Mr. Shorman, you are not happy. And essentially I think 

what I heard you say your beef is that essentially the government 

is competing with you and that an award was made for an area 

that is what—heavily populated and that there is overlap. In your 

view is there anything built into this that would create competition 

in any of these areas? Or is it in your view that they only be 

105 

awarded and that there be a sole operator for the build out of 

broadband funds—of the build out of broadband? 

Mr. SHORMAN. Well, I can report from out on the frontline where 

I am. When in—— 

Ms. ESHOO. No, just answer my question. I don’t have a lot of 

time. 

Mr. SHORMAN. Well, in the process of doing this if you are looking at the legislation and asking how that would work obviously I 

think this is a good first step. But it seems to be there is a lot of 

discretion put into how these agencies actually award this and the 

ability for Ms. Fong and others to go in and say something is 

wrong. Call time out and say something is wrong with this process 

to make it work. 

Ms. ESHOO. Well, we will deal with the government agencies and 

their overview and we—we are going to have to make sure that you 

have money to do oversight and all of that. Otherwise we are all 

in trouble. But I want to get to your beef. What brought you here? 

What is your problem? 

Mr. SHORMAN. Our community—— 

Ms. ESHOO. What is it that you think needs to be fixed? 

Mr. SHORMAN. We had an award grant to a competitor of ours 

that actually overbuilds our community. Our community is a nonrural community of 20,000 plus people. Their award, which I understand over half of the money in this total award is being used 

to overbuild our community and provide a competitive service to us 

and others in our community. 

Ms. ESHOO. Now did Eagle ever apply for BIP funds? 

Mr. SHORMAN. Eagle did apply. 

Ms. ESHOO. Areas that were already—— 

Mr. SHORMAN. Eagle did. We were naı ̈ve in that process. 

Ms. ESHOO. [continuing]. They had providers? 

Mr. SHORMAN. We were naı ̈ve in that process. We applied for 

funds in areas we felt were unserved. We applied for that. We 

didn’t apply to overbuild other people or do that and in the process 

we were rejected. 

Ms. ESHOO. And what happened with that? 

Mr. SHORMAN. I think the actual quote was in one area that actually had another loan applied we failed to demonstrate that we 

met the criteria for being unserved in that area. 

Ms. ESHOO. Was that the only reason that you withdrew 

your—— 

Mr. SHORMAN. That was the only reason that we received and 

that was one of the applications that happened to get funded in the 

same project by Rural Telephone Service. 

Ms. ESHOO. So you were rejected? 

Mr. SHORMAN. We were rejected. 

Ms. ESHOO. You are saying that you were rejected and someone 

else wasn’t? Is that your beef? 

Mr. SHORMAN. Well, it doesn’t say this in the application. It says 

that we failed to meet the criteria. 

Ms. ESHOO. I just want you to tell me what—I am trying to get 

to the heart of what brings you here today. So unhappy. 

Mr. SHORMAN. The heart of it is that we are wasting government 

dollars, taxpayer dollars, my dollars to provide a competitive servVerDate Nov 24 2008 10:40 May 31, 2011 Jkt 037690 PO 00000 Frm 00113 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-5 021011\112-5 CHRIS
106 

ice in the markets that serve, markets that have multiple 

broadband providers. 

Ms. ESHOO. And my point is, is that in going into underserved 

areas I don’t know of an application that doesn’t have some overlap. You even acknowledged that your own application had overlap. 

So are you saying that overlap in this should be totally eliminated 

or is not fair or tell me what it is? 

Mr. SHORMAN. Our application votes on unserved areas that did 

not have broadband providers. This application over—or nearly 

half of the application overlaps a community that has multiple 

broadband providers. 

Ms. ESHOO. Well, do you think that there is a multiplicity of 

broadband providers that that isn’t good for the consumer? 

Mr. SHORMAN. If it is a fair playing field where everybody—I 

have a chance to get government grants, everybody gets government grants—there has to be a fair playing field for being able to 

provide service. If one provider has a boatload of government taxpayer money it just makes it very hard for a private, small company like ours to compete. 

Ms. ESHOO. Part of what I am struggling with is the following. 

And that is that you are saying essentially the government is too 

hard to compete with and I understand that it is much larger than 

Eagle and a lot of other companies put together, but they are—in 

going into underserved areas that there is a spillover and you are 

not acknowledging that. 

Mr. SHORMAN. I grew up on the farm. I understand unserved 

areas. If you are unserved that is what the program is for. It is not 

for overbuilding major non-rural communities. 

Ms. ESHOO. OK. Thank you. 

Mr. WALDEN. Gentlelady’s time has expired. I would now like to 

recognize the gentleman from Illinois, Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman, and no one—well, a lot 

of people have a great respect for Anna Eshoo and I am one of her 

biggest fans on stuff we do on—but I want to follow up on this line 

because it really tells the same story that happened in my congressional district. Mr. Shorman, I think what helps answer this question is if you were to build in a community of like size, what would 

be your cost to capital? 

Mr. SHORMAN. One, it would be a tremendous cost because you 

have to go through and—— 

Mr. SHIMKUS. Well, what about what are you talking about? 

What would you have to borrow? 

Mr. SHORMAN. My guess is in our case we would do it differently. 

We are a private company. We fund things differently. We do 

things differently than what—— 

Mr. SHIMKUS. Well, what would it cost? 

Mr. SHORMAN. We haven’t shown in Hays, but say $30, $40 million for a company—— 

Mr. SHIMKUS. So when the government gives a grant to a competitor, what is your cost to capital? 

Mr. SHORMAN. Well, in this particular case their cost is going to 

the government. It is a whole different process in going to a private 

institution to do that. 

Mr. SHIMKUS. I mean, the grant is a grant. That is free money. 

107 

Mr. SHORMAN. The grant is—it is 50 million and the—— 

Mr. SHIMKUS. Free money. Our taxpayer’s money overbuilding a 

competitor who pays taxes. That is why we messed up royally when 

we did not go by the broadband map. When we don’t develop a map 

and you don’t know the direction in which you are heading then 

you subsidize competing entities. You give taxpayer money to companies to compete against people who are providing the level of 

service that we want across the country. I have what we think is 

now a recent one. Just got it today. The light area zero to 2,000. 

Darker areas—these are areas that are unserved or underserved 

and we still don’t have good maps. So we gave money to a competitor of yours, a grant. They didn’t have to borrow it. They didn’t 

have to pay interest on it and they are competing with you. Is that 

correct? 

Mr. SHORMAN. That is correct. 

Mr. SHIMKUS. Isn’t that the beef? 

Mr. SHORMAN. It is a beef that it makes it really tough for a private employee owned company to compete against the government 

with taxpayer dollars that I pay a part of. Correct. 

Mr. SHIMKUS. And that is why when we had the mark up of the 

bill why we tried to on our side say let us have this debate of underserved and unserved. And if we are going to spend taxpayer dollars let us have taxpayers go to unserved areas. Would you have 

had a beef if this company came in and said we want a grant and 

we are going to an area that is not served? 

Mr. SHORMAN. I think that is the perfect part of this program to 

reach unserved Kansans, unserved Americans with the program. 

Mr. SHIMKUS. Would that have met the goals of the Administration on the broadband plan? 

Mr. SHORMAN. From my standpoint it would have been exactly 

what they were looking for. 

Mr. SHIMKUS. When we give taxpayers money to overbuilding an 

area doesn’t that delay our ability to read our broadband plan for 

the country? 

Mr. SHORMAN. It certainly refocuses money to people who already have multiple providers and then at the result of people on 

that map you have shown, there are those areas that don’t have 

broadband. And so those people don’t have the resources that they 

need. 

Mr. SHIMKUS. And there are stories like this all over the country 

and there is one in my District, too. And so I am going to turn to 

Mr. Zinser and Ms. Fong. In my District I have an incumbent provider who currently exceeds the broadband guidelines being published and considered by the FCC in the development of a National 

Broadband Plan they are providing speeds of 10 megabytes down 

and one megabytes up in all communities they serve. They also 

continue to invest private capital, private capital lots of business 

capital formation to surpass the FCC broadband deployment 

speeds. You can imagine that they were shocked to hear that another provider would be moving into their service area who had 

committed to providing wireless service at 3 megabytes. Now this 

entry came how? How did this new entry come into the market? 

The Federal government—a grant overbuilding, competing services 

that meet the National Broadband Plan. This story gets worse beVerDate Nov 24 2008 10:40 May 31, 2011 Jkt 037690 PO 00000 Frm 00115 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-5 021011\112-5 CHRIS
108 

cause this company then immediately sells to a business. So they 

get the government money; they then sell out to a larger company. 

Was that your plan, Ms. Fong? 

Ms. FONG. Well, just to be clear—— 

Mr. SHIMKUS. I mean, is that what we wanted to do? Is that 

what we really—was that our plan? 

Ms. FONG. I don’t know. 

Mr. SHIMKUS. You, OK. 

Ms. FONG. I am the inspector general and not responsible for delivering the program. 

Mr. SHIMKUS. All right, then let us go to Mr. Zinser. Is that— 

was that the plan? 

Mr. ZINSER. Well, we are responsible for overseeing the program. 

We are not responsible for running the program, but I—it doesn’t 

really sound like that should be part of the plan, sir. 

Mr. SHIMKUS. I agree. Thank you. I yield back my time. 

Mr. WALDEN. Gentleman yields back his time. Now according to 

my list here we go to Mr. Barrow—has departed. And then we will 

go to Mr. Markey who is not here. So then next on the list is the 

distinguished chairman emeritus, Mr. Dingell for 5 minutes. 

Mr. DINGELL. Thank you, Mr. Chairman. Now, this question to 

Dr. Welch. Doctor, to what extent does Merit rely on NTIA’s staff 

with respect to technical assistance, guidance and the prevention 

of waste, fraud, and abuse? 

Mr. WELCH. Sir, we rely extensively on our federal program officer and the rest of the NTIA staff. The program that we are under 

is a complex program and our federal program officer is our single 

point of contact. He knows our program as well as people in our 

organization do. He knows us. When we come to him with a problem he helps us solve it. He keeps us out of trouble as we try to 

understand the rules and regulations that can sometime seem conflicting to make sure that we are not inadvertently breaking any 

of the rules. He serves as an advocate. He serves as an overseer. 

He serves so many roles. I do not think we could successfully complete the project if we did not have a dedicated federal program officer. 

Mr. DINGELL. Thank you. Now Doctor, as you may well be aware, 

NTIA stands to lose funding for oversight of BTOP. If NTIA no 

longer had the resources with which to provide BTOP grant recipients, what effect would that have on Merit’s ability to implement 

its project and to comply with federal requirements pursuant to 

ARRA? 

Mr. WELCH. I think that would have a severe impact. 

Mr. DINGELL. Which way? Good or bad? 

Mr. WELCH. In that it would hurt us and our ability to comply 

with the oversight requirements. We would have to dedicate more 

staff time to talk to more—different people to try and make the decisions on our own. And some of the decisions that we would make 

would in fact be incorrect because we just don’t have the experience 

and the access that the staff of the NTIA has. 

Mr. DINGELL. So you are telling us you need him. 

Mr. WELCH. Yes, very much. 

Mr. DINGELL. Very well. Now this question to Mr. Zinser, Ms. 

Fong, and Mr. Goldstein. Will—and this is a yes or no question. 

109 

Will a future lack of dedicated oversight funding for NTIA and 

RUS reduce these agencies’ ability to mitigate waste, fraud, and 

abuse in BTOP and BIP projects? Yes or no? 

Mr. GOLDSTEIN. Yes, sir it would. 

Mr. DINGELL. Ms. Fong? 

Ms. FONG. Yes. 

Mr. DINGELL. If you please? 

Mr. ZINSER. Yes, sir. 

Mr. DINGELL. Very good. Now, again to Mr. Zinser, Ms. Fong, 

and Mr. Goldstein, again, a yes or no question. Will future lack of 

dedicated oversight funding for NTIA and RUS diminish these 

agencies’ ability to ensure BTOP and BIP projects successfully 

meet respective program objectives? Yes or no? 

Mr. GOLDSTEIN. Yes, sir, it would. 

Ms. FONG. Yes. 

Mr. ZINSER. Yes, sir. 

Mr. DINGELL. Now, again to Mr. Zinser, Ms. Fong, and Mr. Goldstein and this is a yes or no question again. Do you believe NTIA 

and RUS require additional appropriations through 2013 dedicated 

to oversight of BTOP and BIP projects? Yes or no? 

Mr. GOLDSTEIN. I don’t know, sir. 

Mr. DINGELL. Ms. Fong? 

Ms. FONG. I am not sure. I don’t know. 

Mr. DINGELL. OK. Mr. Zinser. 

Mr. ZINSER. I would say yes depending on the amount, sir. 

Mr. DINGELL. OK. But if they don’t have the money to do this 

oversight there is great opportunity for fraud, waste, abuse, and 

also misdirection of the efforts of the grant recipients. Am I correct? 

Mr. GOLDSTEIN. Yes, sir. 

Ms. FONG. Yes. 

Mr. ZINSER. Yes. 

Mr. DINGELL. I notice you are nodding yes, Mr. Shorman, too. 

Mr. SHORMAN. I agree. 

Mr. DINGELL. Thank you, sir. Thank you. Ladies and gentlemen, 

you have answered my questions. I express to you my thanks. Mr. 

Chairman, you will note I am under time. 

Mr. WALDEN. We appreciate that, Mr. Chairman. We would 

now—next on our list is Ms. Bono Mack who is not here. Mr. 

Gingrey recognized for 5 minutes. 

Dr. GINGREY. Mr. Chairman, thanks and first of all thank all the 

witnesses for testifying on the four issues of oversight and recovery 

funds spent by NTIA and RUS—as we have seen with the $7 billion dedicated in—across the country, it proves that we are good 

stewards of taxpayer dollars and that we are more on task and 

moving forward. And I certainly it sounds like from Mr. Shorman’s 

testimony as a glaring example of a mistake at a time when already 95 percent of the country has access to broadband how do we 

ensure that the remaining 5 percent of the country has exception 

to one of the economic catalysts we have at our disposal? I am also 

glad that we are using this hearing as a way to open up a discussion on what to do with returned funds from NTIA and RUS. 

At a time when we are facing almost a $14 trillion debt, I believe 

that it is actually necessary that we return any unspent funds to 

110 

the Treasury. And I look forward to working with members of the 

subcommittee in a bipartisan way on the discussion draft legislation that we have before us. To that end, there are several items 

I would like to ask of our panel. I realize my time is limited, but 

let me begin with the inspector general. Both Mr. Zinser and Ms. 

Fong, how will the release of the National Broadband Map next 

Thursday, February 17 impact your ability to determine where 

there is either waste, fraud, and abuse in BTOP and BIP or overbuild in areas that are already connected? 

Mr. ZINSER. Sir, I think that one thing that the Agency did to 

try to compensate for not having that map is they did reach out 

to the State governments when the application for broadband 

grants were received and asked the governors of each State whether these applications were consistent with the broadband goals of 

the State. So I think one thing that you would want to look at with 

the new map is whether the governor’s offices were on target with 

respect to their vetting of those applications. 

Dr. GINGREY. Ms. Fong? 

Ms. FONG. I think the map will be very helpful to us as we do 

an assessment to see whether the awards that were made were 

made in the appropriate way, taking into account already existing 

service in areas. 

Dr. GINGREY. Yes. Well, thank both of you for that response and 

I think you gather from the testimony at least on this side of the 

aisle that we think that the map is absolutely essential and to go 

forward before having a map certainly seems to be putting the proverbial cart before the horse. Ms. Fong, in your testimony you discussed in length the 2005 audit of RUS. And that ought to be in 

question the practice of devotion significant portions of its resources to funding competitive service in areas where pre-existing 

providers. Somewhere like Mr. Shorman was describing. You found 

that 66 percent of the products were in areas that had pre-existing 

broadband access despite the fact that the law established in the 

broadband program, made it clear that these funds were intended 

to be used first for ‘‘eligible rural communities in which broadband 

service is not available to residential customers’’. Your 2009 audit 

found that 34 of the 37 applications approved were in areas with 

at least one broadband provider. Is there a culture of overbuilding? 

Do you think that anything has changed? What are you concerns 

with the Broadband—program going wrong? 

Ms. FONG. We think this is a very difficult policy issue and that 

is represented by the fact that over the last few years there have 

been several different legislative provisions that address the issue 

of underserved, unserved, and what is the appropriate level of service. And going forward we are committed to working with RUS to 

make sure that they abide by the terms of the law. I understand 

that the Recovery Act provisions differ from the Farm Bill provisions which differ from the provisions that existed in 2005. So it 

is a very complex area for RUS to administer, but we are focused 

on that and we think it is an issue that needs constant oversight. 

Dr. GINGREY. I don’t mean to interrupt you, but I realize it is a 

difficult but you know it is time for the Federal government to quit 

pouring taxpayer dollars down a proverbial sinkhole and that is 

what this is all about if I completely understand. I guess I am 

111 

about out of time, but quickly, Mr. Shorman, you testified and you 

have stated that there is already a significant market for 

broadband in Hays, Kansas yet you have raised concerns regarding 

why $101 million dollars awarded to one of your competitors. 

Would you please discuss with subcommittee what impact that will 

have on competition in that area and how do you think will negatively impact your ability to run your own business and to continue 

to employ the number of people that you employ? 

Mr. SHORMAN. That is a challenge when you have those kinds of 

dollars in that size of community it is a massive amount of money 

that is there. When you have 99.9 percent, as reported by the Kansas Corporation Commission, of customers in our county in the 

county seat already served by multiple broadband providers it then 

becomes a very competitive process and frankly it just makes it 

just more difficult to do business. If that company takes a chunk 

of our business those are private investment dollars in our employees that somewhere along the line we are going to have to figure 

out how to operate our company differently to compete. There is 

going to be more dollars spent on marketing. For example, you 

drive down Main Street they talk about television as their new 

product that they are offering—not broadband. And so the whole 

process is just dollars going to compete with a private industry and 

it is our tax dollars that are going there. 

Dr. GINGREY. Thank the witness, thank the chairman for his indulgence and I will yield back. 

Mr. WALDEN. And I will just—for the other members, too, if you 

can kind of get your question in in time for the witness to respond 

on your time that would be a good thing. 

Mr. TERRY. Well, the gentleman talks slow. He is from Georgia. 

Mr. WALDEN. Well, we have interpreters. 

Dr. GINGREY. I am out of breath. 

Mr. WALDEN. Regular order. We are going to go—I believe Mr. 

Waxman has stepped out. We go to Mr. Doyle for 5 minutes. 

Mr. DOYLE. Thank you, Mr. Chairman, and thanks for holding 

this hearing. I think it is regrettable that we don’t have the NTIA 

and U.S. Administrators here. I know there was reasons we don’t 

but I am saying it would have really helped to give us some perspective. 

Mr. WALDEN. And we will have another hearing where they are 

here. They are out of the country at a conference and unable to attend. So we wanted to get this panel in before. 

Mr. DOYLE. Yes, I understand. It is not a criticism of you, Mr. 

Chairman, I am just saying I think we would have better perspective to hear Ms. Fong talk about things that are pre-stimulus 

funds, pre-Farm bill and if she’s going to make allegations of this 

management of RUS it would be nice to have the administrator to 

at least respond to that. I would be interested in what he had to 

say. And Mr. Shorman, I certainly have sympathy for what you are 

saying, but it also would have been interesting to have the administrator here to hear their side of the story. We are being told that 

during the public comment period that you made comment and 

they actually sent field staff, boots on the ground to review the coverage area and the proposed application—found it to be valid. We 

are being told that the area in dispute is 7.6 square miles of an 

112 

application that covers 4,600 square miles. Ninety-nine percent of 

the proposed territory is vast rural area. This received letters of 

support from Congressman Jerry Moran and Congresswoman Lynn 

Jenkins in addition to 118 other area letters of support and the estimated expenditure in Hays where you are claiming to have competition we are being told by the administrator is $18 million. Not 

half, $18 million of the $101 million awarded. Now I don’t know if 

your figure is correct or their figure is correct and unfortunately we 

don’t have both of them here. I would love to have you both here 

and maybe at a future hearing we will do that. 

But since this overbuilding seems to be such an issue, Mr. Goldstein, I want to get some perspective from you on this overbuilding 

issue. In your testimony, you noted the GAO reviewed 32 award recipient applications from round one of the funding process and 

found that the agencies consistently reviewed the application and 

substantiated information submitted by the applicants. As you 

know there are a number of providers that have alleged that Recovery Act dollars are going into projects that compete unfairly 

with incumbent networks. So I want to ask you a couple questions 

about that. In the cases that you observed, did you find that the 

agencies engaged in overbuild analysis? Did they do analysis on 

whether there was overbuilding? 

Mr. GOLDSTEIN. Yes, sir, in all cases where that occurred they 

did do an analysis. 

Mr. DOYLE. OK. And so in the cases you observed that the agencies or their contractors researched the companies’ claims of overbuilding, people who claimed there was overbuilding going on did 

they actually go out and research this? 

Mr. GOLDSTEIN. The files we looked at showed some substantiation. I don’t know if in every single case they went out. I could 

certainly get back to you on that. 

Mr. DOYLE. How did they go about this research? What did NTIA 

do? What did RUS do to do this research? 

Mr. GOLDSTEIN. They reviewed materials that were submitted. 

They interviewed people. They looked at various available maps 

that were from the States. They looked at any public comments 

that had been made. As you know there was a 30 day public comment period with respect to these issues. And they did the due diligence, that the criteria that were established required them to do. 

Mr. DOYLE. In the cases that you reviewed were any of the 

claims of overbuilding substantiated? 

Mr. GOLDSTEIN. In the cases we looked at there was some overbuilding. But as you know ARRA and the NOFA both allow for it 

and so they made a decision to go forward nonetheless in those 

cases. 

Mr. DOYLE. And did you interview the industry regarding the 

process created by NTIA and RUS? 

Mr. GOLDSTEIN. We did do some interviews with industry and industry associations at that time. We reviewed all the criteria that 

were in place. We felt for the most part that the criteria that had 

been developed were sufficient, but as you look back at the reports 

we did we were concerned with whether or not there would be sufficient resources to implement it. Now, you will recall from my tesVerDate Nov 24 2008 10:40 May 31, 2011 Jkt 037690 PO 00000 Frm 00120 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-5 021011\112-5 CHRIS
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timony we only reviewed the first round. We did not look at the 

second round. There wasn’t enough time. 

Mr. DOYLE. Right. 

Mr. GOLDSTEIN. And so obviously during the second round there 

was more money that was spent. There were fewer criteria and it 

was at a faster pace. So you know it remains to be seen whether 

or not that same level of due diligence occurred. We don’t know the 

answer to that. 

Mr. DOYLE. Did the industry representatives or trade associations confirm that their constituents who had applied for and received broadband funding had undergone their due diligence reviews? 

Mr. GOLDSTEIN. We talked to many people and they had—they 

told us that they were being interviewed, that a lot of information 

was passing back and forth, and that the agencies were absolutely 

in contact with them as needed. 

Mr. DOYLE. Did you interview any company that received funding? 

Mr. GOLDSTEIN. That received funding? We talked to a number 

of companies regarding the process at that point in time. Funding 

had really not occurred. 

Mr. DOYLE. Is it your opinion that the agency’s review processes 

were thorough and rigorous? 

Mr. GOLDSTEIN. Based on what we looked at in the first round, 

yes, sir, they were. 

Mr. DOYLE. Thank you. I think that is my time. Thank you, Mr. 

Chairman. 

Mr. WALDEN. I thank the gentleman for his questions and the 

panel for their answers and now I go to the gentleman from Kentucky, Mr. Guthrie. 

Mr. GUTHRIE. Thank you, Mr. Chairman. Thank the witnesses 

for being here today. And Mr. Shorman, is RTS—is that a private 

company? I don’t know the answer is. Is that private or is that like 

a cooperative type? 

Mr. SHORMAN. It is a cooperative telephone company that started 

in Lenora, Kansas, I believe. 

Mr. GUTHRIE. OK. And so Hays is only 7 miles and then there 

is 400 square miles are 400? Was the remainder of their territory 

underserved? 

Mr. SHORMAN. The way they set it out is that the Hays area is 

actually about 8 square miles. If we are service with this 

broadband plan square miles, that is one thing. But if we are serving customers that are actually getting broadband—— 

Mr. GUTHRIE. Well, that is what I am—— 

Mr. SHORMAN. [continuing]. Nearly half of the customers—— 

Mr. GUTHRIE. Why are there more incumbents in Hays then 

there are in the rest of the district. 

Mr. SHORMAN. That is correct. 

Mr. GUTHRIE. That is where the money is. 

Mr. SHORMAN. However, there are incumbents in other parts of 

the area for our wireless. There are other providers in other parts 

of that area also. 

Mr. GUTHRIE. But outside of Hays is it an underserved—you 

would say it is an underserved area they are serving? 

114 

Mr. SHORMAN. In some areas yes, some areas no. And I am not 

arguing about the unserved areas. 

Mr. GUTHRIE. Right. 

Mr. SHORMAN. Where I am talking about is where over almost 

half of the people are in that one 8 mile area. 

Mr. GUTHRIE. At least you that I see would overbuild just from 

my West Point economics background is forgetting subsidized, go to 

the underserved, but you are also getting to the served. Then you 

really don’t want to go into the underserved unless you can get into 

the served because that is where you are going to make money. 

Your subsidy you are going to make money because you are getting 

subsidized to go into the underserved, but you are going to make 

your profits—the money is in Hays it appears. And that is why— 

would you want to build out in the other areas even though you 

are subsidized? And that is the question I mean you go to get into 

that so when people look at overbuilds it is really an incentive to 

get in and compete with what you are trying to do. And it puts you 

at a disadvantage. I mean, there is no other way to—I know that 

is what your beef for coming here as we talked earlier is that you 

can’t compete with that. 

Mr. SHORMAN. Well, if the overbuilds and take money away from 

private industry so they can—— 

Mr. GUTHRIE. Well, that is what is happening. 

Mr. SHORMAN. [continuing]. So they can move out there it seems 

like the wrong way to go. 

Mr. GUTHRIE. Yes, I thought that. 

Mr. SHORMAN. Use the funds to reach the unserved areas and 

reach those people that really need it, not to compete. 

Mr. GUTHRIE. Well, my—it is coming up with one player. 

Mr. SHORMAN. Yes, eventually. 

Mr. GUTHRIE. It is going to end up with one player in that area. 

Mr. SHORMAN. And that has happened in that region in some 

other areas. 

Mr. GUTHRIE. OK. My understanding in your testimony, I think 

your written indicated there was a map that you were—you looked 

at of the application for the person who has received their award 

that didn’t have Hays in the map? 

Mr. SHORMAN. The initial map that came out had—and I will call 

them donut holes around Hays and some of the other areas and 

when we looked at that map we really had trouble. We tried to ask 

the RUS about this and even though we had a donut hole that 

looked like Hays was not included, we contacted them, told them 

what we were doing. We also told them that there were other competitors, AT&T and RTS’s own affiliate Nex-Tech that were also 

providing services in that little area. So we tried to do that and 

frankly when the word came out we were really surprised that it 

even covered that because of that donut hole. We went back and 

after a lot of work and a lot of time, the next map that we finally 

got out of the RUS showed Hays was all included. 

Mr. GUTHRIE. But the map that was submitted with the application did not have—— 

Mr. SHORMAN. The first map that came out on the Web site 

showing where the application, where it was attended to to be had 

a donut hole—— 

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Mr. GUTHRIE. Had Hays—— 

Mr. SHORMAN. [continuing]. Over the Hays area. 

Mr. GUTHRIE. OK. And then Ms. Fong, you said earlier, well in 

your testimony and actually Mr. Gingrey asked the question that 

said in the 2005 audit. I know that was not Recovery Act. You had 

60 percent of the projects were in pre-existing access even though 

the law requires funds not to do that? And you said that you have 

different language between Recovery Act and the agriculture. Is 

the Recovery Act more restrictive or more or less restrictive on 

overbuild—the language in the Recovery Act? 

Ms. FONG. It is less restrictive. It allows Recovery Act projects 

to be funded where there are providers already. It just—and I 

think the way RUS has implemented this is in its application process to give credit for certain kinds of factors. But yes, the Recovery 

Act is a little more flexible than the law that was in effect. 

Mr. WALDEN. We would now go to the gentlelady from California, 

Ms. Matsui. 

Ms. MATSUI. Thank you, Mr. Chairman, and thank the witnesses 

for being here today. While no program of this magnitude can be 

perfect, the broadband recovery program, particularly the BTOP 

program will expand broadband access to more and more Americans. Like many of my colleagues on both sides of the aisle a few 

projects in my home District of Sacramento were awarded to improve broadband adoption capabilities. Anchor institutions like 

community colleges such as the Las Rios Community College District is my district were awarded grants to provide trading and digital literacy skills for local residents in my district. Last September, 

I, along with Ranking Member Eshoo and Congressman Markey, 

sent a letter to NTIA urging them to prioritize anchor institutions 

during the second round of funding and I applaud the administration for doing just that. I have heard from the Sacramento Public 

Library and the number one issue they face is a lack of capacity 

in suitable bandwidth or speeds to serve their customers in this 

time of economic stress. I have a question for Dr. Welch. Will Merit 

networks be providing direct fiber connections to schools, libraries, 

health care providers, or will it be providing ‘‘middle mile’’ capacity 

or both? 

Mr. WELCH. Yes, ma’am, both. 

Ms. MATSUI. Both, OK. 

Mr. WELCH. And we are also linked in with the public computing 

center award for Michigan State. We will be directly connecting 

many of those sites that were funded by the BTOP program. 

Ms. MATSUI. OK. If it wasn’t for the ARRA grants would the localities have the resources to connect anchor institutions? 

Mr. WELCH. No, ma’am. Well, so definition of connecting being 

dark fiber, and no ma’am they would not. 

Ms. MATSUI. OK. Mr. Zinser, do you believe that the BTOP program has adequately served the anchor institution community? 

Mr. ZINSER. I—Congresswoman, I know that the second round 

did put emphasis on connecting to anchor institutions and I would 

agree that I think that the second round did accomplish that. 

Ms. MATSUI. OK. Dr. Welch again. One of the requirements of 

the goals at BTOP was to encourage collaborative projects in a 

wide range—array of participants that might benefit from the efVerDate Nov 24 2008 10:40 May 31, 2011 Jkt 037690 PO 00000 Frm 00123 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-5 021011\112-5 CHRIS
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fort. So cooperation with State and local officials as well as local 

institutions was highly encouraged. I know that the State of California was very active on this because we heard from them a lot 

during the grant process. What kind of collaboration did you engage in for your project? 

Mr. WELCH. Ma’am, we collaborated both at the state level with 

state agencies. We collaborated with other people who were applying so that we would interlink our projects and make sure that 

they were synergistic. We collaborated with commercial providers 

who are sub recipients and then of course we collaborated with all 

the local governments, the community anchor institutions, the 

state 911 agency to try and make sure that we could meet 

everybody’s needs. And as you know it is an optimization problem 

so you try and move a little bit here and there but get the best result for the region. 

Ms. MATSUI. Did you actually do outreach to do that? 

Mr. WELCH. Yes, ma’am. 

Ms. MATSUI. OK. So do you think that your project is stronger 

because of this? 

Mr. WELCH. Yes, ma’am. 

Ms. MATSUI. OK. And you are willing to go on record saying that 

this is something should have happened all over the country in essence in order to extend the reach particularly for anchor institutions? 

Mr. WELCH. Yes, ma’am. I am extremely proud of what we are 

doing in Michigan and I think it is going to be a great thing for 

Michigan. 

Ms. MATSUI. OK. Thank you. Mr. Chairman, I yield back. 

Mr. WALDEN. Thank you gentlelady and now we will go to the 

Vice Chair of the Committee, Mr. Terry. 

Mr. TERRY. Who will be on time next time. I want to follow up 

a little bit on what Mr. Doyle was talking about and Mr. Shorman, 

as you may know we have worked on USF a little bit, a few draft 

bills. The last couple draft bills has focused on more of a micro look 

at rural companies and excluding from USF places like Hays that 

has competition from being able to receive USF funds. So while one 

area of government is trying to make sure that areas, those pockets 

of 20,000 and Nebraska’s in the same way, most rural will have 

pockets of 15–20,000 that are well served. What we are trying to 

find is though are those towns of 200, 300 that are not. Maybe no 

access or they called broadband 250 kilobytes and don’t have the 

infrastructure to get to 10 or even in today’s world 30 maybe, what 

is needed. So the point that I want to bring up, my kid on this is 

I understand from you opponents in this they said well you only 

have 3 percent of the project area, therefore, it is all rural. You 

would disagree I assume with that assessment that you should just 

if the project area is large enough that a town of 20,000 is only 

three percent of the geographical area we shouldn’t worry about it. 

Mr. SHORMAN. Well, I am only a farm boy, but it seems silly to 

me that we are not serving square miles. We are serving customers 

in these areas outside of here and to take and grow a map big 

enough—I assume at some point you get a bit enough map you 

could make LA a rural town. That doesn’t make sense. 

117 

Mr. TERRY. So I want to go then to Mr. Goldstein, Ms. Fong, in— 

well first of all is GAO or inspector general then offer reports back 

to RUS and NTIA that says you should have a deeper level, a more 

of a granule definition of unserved where larger communities that 

have two or three providers should be excluded? Do you make those 

type of recommendations? 

Mr. GOLDSTEIN. No, sir, we don’t. We make recommendations related specifically to audit findings based on criteria that an agency 

has established or that were in law. 

Mr. TERRY. All right. Ms. Fong, how about with the inspector 

general’s report? 

Ms. FONG. We would go in and look at the language of the Recovery Act that authorizes this program and attempt to assess how 

RUS implemented that and whether the criteria they applied made 

sense and comply with the statute. And I think what I am hearing 

today is a very interesting discussion about how you define rural 

area. Is it square feet? Is it number of users? It is a very interesting issue that I have not focused on, but I appreciate you raising 

that. 

Mr. TERRY. And we are doing it in the drafting of the USF bill, 

so I know it can be done. But anyway, just—Ms. Fong and Mr. 

Goldstein on rescissions of contracts or loans, pools of money out 

there, have any been rescinded do you know of from our US under 

the Stimulus act? 

Ms. FONG. I don’t know. The awards were all made by September 

30 of 2010, so it is unlikely that anything has been rescinded. It 

is now February. But I don’t know that for sure. 

Ms. ESHOO. Would the gentleman yield? 

Mr. TERRY. Sure. 

Ms. ESHOO. I think there is one under BTOP. 

Mr. TERRY. OK. 

Ms. FONG. OK. 

Mr. TERRY. Would that be your understanding, too, Mr. Zinser? 

Mr. ZINSER. Yes, sir, about $300 million I think was rescinded 

at one point. 

Mr. TERRY. All right and I think during the first line of questioning or opening with Mr. Walden, you meant—Ms. Fong, you 

said that when it is rescinded that 300 million goes back to the 

agency and then it is used in at their discretion. Is that a fair 

statement? 

Ms. FONG. I am going to defer to my colleague. 

Mr. ZINSER. In the case of the BTOP program the Congress directed that it be used for a different program. They took it away 

from BTOP and used it for a different program. That was an act 

of Congress. 

Mr. TERRY. OK. 

Mr. ZINSER. I think the way the Recovery Act is set up for BTOP 

if for whatever reason grant money does get returned to the agency, the Recovery Act I think at this point does provide the administrator with the discretion of reissuing that money to another grantee. 

Mr. TERRY. So it doesn’t go back to the Treasury. So we—— 

Mr. ZINSER. Well, it is complicated. As I mentioned the DoddFrank legislation about de-obligated money and what happens to 

118 

that. And there are provisions for the administrator to actually 

transfer the grants to another grantee before they would become 

de-obligated, so you really have to drill down into those issues. 

Mr. WALDEN. Thank you. 

Mr. TERRY. Thank you. 

Mr. WALDEN. Now we go to Mr. Towns of New York. 

Mr. TOWNS. Thank you very much, Mr. Chairman, and of course 

Ranking Member for having this hearing and of course let me indicate to you I am happy to be back as well. Mr. Zinser, perhaps you 

can help us figure out what an appropriate level of funding might 

be for such oversight going forward. I don’t expect you to provide 

us with a dollar amount, but give us some general views and feelings in terms of what a model should be in terms of oversight. And 

I am going to ask you too, Ms. Fong. 

Mr. ZINSER. Well, the budget request for NTIA for fiscal year 

2011 was about $24 million at the end. I think they had originally 

asked for more than that and eventually the request from the 

President for fiscal year 2011 was about $25 million. And that 

would have funded a number of staff at NTIA to actually be 

charged with overseeing specific grants. For our work, the Recovery 

Act appropriated about $10 million for my staff. If you look at my 

overall budget compared to the department it is a little less than 

that proportion, but my view is that I am going to deliver the best 

oversight I can with whatever resources I get. 

Mr. TOWNS. In other words you are sort of saying that might not 

be enough? 

Mr. ZINSER. It might not be enough, sir. If we start getting a lot 

of complaints and a lot of allegations of fraud for example it could 

get very expensive to go out and actually investigate each one of 

those with 230 plus grants out there. 

Mr. TOWNS. Ms. Fong? 

Ms. FONG. The RUS has an oversight program in place because, 

as you may know, the broadband program has pre-existed the Recovery Act for about 10 years. And we understand that they have 

a system whereby they have contracted out with an external contractor to help them for the next two years. They also have in place 

employees who are onsite across the nation to look at auditing the 

receipts that come in against the grants and also to do compliance 

reviews of recipients. It is our understanding that RUS believes 

that this framework will work well for them. I do not have a sense 

of whether they believe that they need more resources or not. Their 

request for fiscal year 2011 is about $300 million to run the whole 

program and that would include both grant and loan authority as 

well as oversight. At this point I would suggest that perhaps someone ask the RUS administrator their view on that in terms of oversight funding. 

Mr. TOWNS. My concern is that you know we talk about waste, 

fraud, and abuse, and even stupidity. You know we even add that, 

but the point is that many times though we are not prepared to 

fund you know and be able to go and to look and to see and that 

is really my concern. And that is really why I raise this question. 

Because I think that we make a mistake when we don’t have the 

resources to go out and do it because that is waste and I don’t 

think that—we cannot afford the luxury of waste in any kind of 

119 

way today. So on that note, Mr. Chairman, and again, I am delighted to be back and I yield back. 

Mr. WALDEN. We are delighted to have you back and we will 

take back the time and give it to Mr. Latta. Mr. Latta, you are recognized for 5 minutes. 

Mr. LATTA. Thank you, Mr. Chairman, and I want to thank all 

the folks who are here today. It has been very, very enlightening 

today on your testimony. Boy, I have a lot of questions I would like 

in such a short period of time, but if I could, Mr. Shorman, let me 

just go back to what Mr. Shimkus was saying a little bit earlier. 

I just want to make sure that we are clear for the record that your 

application was to serve those in unserved areas and that the 

award that was given was given to RTS and that was going to 

serve about—at least 50 percent of an area that has already been 

served. Is that correct? 

Mr. SHORMAN. That is close to correct, yes. 

Mr. LATTA. OK. And something else in your testimony I thought 

that it was also interesting that—unfortunately we don’t have time 

to have you give the entire testimony but you have 277 employees? 

Mr. SHORMAN. Yes. 

Mr. LATTA. And you have 212 which are employee owners 

through your employee stock ownership plan, but I also found it interesting in your testimony on page two. And this really goes to a 

crux of a lot of things that happen with a lot of companies in our 

areas. And what happens sometimes when government puts people 

out of business sometimes, it says here in your paragraph that 

your Eagle Cares program that you have a partnership with the 

Salvation Army that you help needy individuals with their telephone, Internet, and cable payments. You have helped deliver 

meals on wheels to retirees when there is bad weather that has 

kept their drivers off the road. You donated an emergency heart 

defibrillator units to the community schools. You raised hundreds 

of thousands of dollars for children by sponsoring an annual telethon. What happens when government puts you to a point that you 

can’t compete and what happens to your employees and what happens to all of your community work? 

Mr. SHORMAN. I am so proud of our employees. We are employee 

owned. Our 277 employees of which 212 are employee owners, they 

participate in the upside and the downside of the company. When 

we have a competitive overbuild like what has happened and happened in other communities it affects each one of their-our employees and their ability to go out and do these types of things. And 

I am proud of what they do. 

Mr. LATTA. Let me just follow up real quick on that. Do you foresee that you might with the competition you know that is coming 

through this grant that you might end up having to lose employees? 

Mr. SHORMAN. We have to survive as a company and when customers go away or are taken away by a government overbuild then 

we have to make adjustments there and that would cost us employees and would cost our company and the shareholders which are 

once again the employee owner. 

Mr. LATTA. OK. Thank you very much. If Ms. Fong, if I could ask 

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port, you say on page three of your testimony that in 2005 you 

made the report that there are 14 recommendations and in the response RUS did not agree with how the OIG portrayed the 

broadband grant and loan params and for the next several years 

the OIG worked with RUS to resolve those recommendations. And 

then in 2009, you revisited broadband programs and you saw that 

eight of the 14 recommendations had not been taken—had not had 

corrective adequate, or should say adequate corrective action at 

that time. You go on to state in your testimony that from ’05 

through ’09, RUS continued providing questionable loans to providers near very large cities or in areas of pre-existing service. And 

that you go on to state that they had—RUS delayed in responding 

because of the ’08 Farm bill. But you also state that as January 

of 2011 the office of the Chief Financial Officer has not accepted 

RUS as actions as adequate to close 10 of those four recommendations from ’05. I guess it really comes down to my question is this. 

You know when all these things are going on and all these years 

are passing what is your—what action can you be taking especially 

based on your experience of what percentage of the grants, of these 

grant awards can be expected to have problems with waste, fraud, 

and abuse and how much—how many of those might go—be unused and be reclaimed? 

Ms. FONG. Well, that would be the focus of our planned audit 

work for later this spring. What we plan to do is to go back and 

take a look at how RUS is implementing the Recovery Act in the 

context of the recommendations that we had made in the previous 

audits. And we recognize that some of those recommendations have 

been overtaken by events, but we are also very concerned about a 

number of them that go to the management of the program. In a 

nutshell, we are concerned that it appears RUS does not yet have 

final regulations to implement its broadband program. It lacks 

written staff guidance to help the staff make decisions on how to 

award service and deal with loans and de-obligate and cancel loans. 

And so we are very interested in going in and looking at the management controls of that program to see if that program could really run a lot more effectively. While we do that we will be looking 

at individual grants and loans to see if there are instances where 

some of those funds could be gotten back. And we will let RUS 

know about that. 

Mr. LATTA. Thank you. Mr. Chairman, I yield back. 

Mr. WALDEN. Thank the gentleman. We now recognize the gentleman from Massachusetts, Mr. Markey. Yes, I believe I will go to 

the gentlelady from California for a unanimous consent request. 

Ms. MATSUI. Thank you. I do have a unanimous consent request, 

Mr. Chairman, to place some things in the record. There are two 

letters in support of the Rural Telephone and Nex-Techs broadband 

expansion proposals from Lynn Jenkins and from Jerry Morand, 

Congressman Morand. These were referenced earlier. And then 

these are letters of support for the RTS project from the First National Bank of Hays, Kansas, the Ellis County Commission of 

Hays, Kansas, the Ellis County Coalition for Economic Development, the Hays Medical Center, the Hays Public Library, the North 

Central Kansas Technical College of Hays, Kansas, and the Fort 

121 

Hays State University of Hays, Kansas. So I appreciate this and 

I would like to place these in the record. 

Mr. WALDEN. Without objection. 

[The information appears at the conclusion of the hearing.] 

Mr. WALDEN. And now I would like to recognize the gentleman 

from Massachusetts, Mr. Markey. You are the last one so it is hard 

to pass at this point. 

Mr. MARKEY. Thank you very much. Thank you. If there is a 

proxy for economic development in a country it is the deployment 

of broadband. And 2 days ago we celebrated the 15th anniversary 

of the signing of the Telecommunications Act of 1996. February 8, 

1996. Fifteen years ago today, not one home in America had 

broadband. Fifteen years ago today, not one home in America had 

broadband. Fifteen years later, Google, eBay, Amazon, Hulu, 

YouTube, on and on and on. Two million jobs, branded, made in 

America. We won. We are not doing that in clean energy yet. China 

is trying to do that. We don’t have a plan, but that is a great economic opportunity for us. That is another committee right now that 

is even not here. In the Stimulus bill I was able to add language 

which required that each of these grants got open access as a part 

of the condition. Mr. Shorman, is that important to have open access as a part of insuring—as a part of the deployment of 

broadband in our country? 

Mr. SHORMAN. If open access is available and is easily usable 

that can be important. 

Mr. MARKEY. So what challenges would your business face if we 

had to—if open access was a part of receiving funds into the Recovery Act? 

Mr. SHORMAN. You have to be able to work—have a workable 

plan with the company that you would be getting access from and 

what we have found in some other experiences is that has been difficult to make happen. 

Mr. MARKEY. And why is it difficult? 

Mr. SHORMAN. It appears there is a boatload of rules that you 

have to go through to make things happen which is a great barrier. 

Mr. MARKEY. A boatload of rules that the other companies have? 

Mr. SHORMAN. That is correct. 

Mr. MARKEY. The companies, sir, a lot of companies that don’t 

really believe in open access. 

Mr. SHORMAN. That is exactly right. 

Mr. MARKEY. You create those rules as the obstacles. 

Mr. SHORMAN. And so in the pure sense having open access is 

very important. 

Mr. MARKEY. Oh, it is so—— 

Mr. SHORMAN. In reality it becomes a lot more difficult to make 

happen. 

Mr. MARKEY. It is so important. You know because as you know 

Verizon and AT&T turned down the contract to build the Internet 

and then they—at each juncture they have turned the opportunity 

to go into the Internet until we did the ’96 Act, you know and then 

they sued. They called it a Bill of Attainder in the Supreme Court 

and they tried to stop it, you know, after we passed the ’96 Act— 

Verizon and PacBell. So there are problems without question. 

Could you—can you provide, Mr. Goldstein, a specific example 

122 

where the Recovery Act does not provide the authority for the return to the Treasury of unused or reclaimed broadband funding 

with this draft bill would? 

Mr. GOLDSTEIN. We haven’t looked at that specifically, sir. I will 

take a look and get back to your office. I would be happy to. 

Mr. MARKEY. Yes, please, thank you. And on the issue of total 

percent of Americans which now do not have broadband. I know 

that those numbers came up earlier. Could you tell me what those 

numbers are? Ms. Fong, do you know the answer to that? 

Ms. FONG. I do not know. 

Mr. MARKEY. Does anyone out there know the answer to that 

question? 

Mr. GOLDSTEIN. We can get back to you, sir. We will take a look. 

Mr. MARKEY. OK. I think that is important. We need a—this is 

all part of a plan for the future for our country so that we are capturing all of the opportunities which broadband presents for economic development in rural America and inner city America so that 

everyone is participating. The E rate, which I was able to include 

in the 1996 Act and it ensured that all schools, the poorest schools 

all have access to it so that the kids get the skill set. It really 

doesn’t divide along regional lines. It is for every kid in America 

so that they have it in their schools. But this broadband plan actually helps them to get it in their homes as well and I just can’t 

think of a more important thing that we could be doing to ensure 

that our economic growth continues unabated without this kind of 

a program in place. It ensures that it is uniform and that it captures the future. It captures what our country has to be all about 

in the 21st century. And on a bipartisan basis I think we should 

all work towards that goal of empowering every human being, children especially to be able to maximize their God-given abilities by 

having access to broadband. Because it is the indispensible skill set 

that will make them competitive with a portable skill set that they 

can use anywhere in our country or the world in their lives here 

in the 21st century on this planet. And that is really what that provision was all about in the Stimulus bill and I thank you, Mr. 

Chairman, for holding this important hearing. 

Mr. WALDEN. Thank you, Mr. Markey. We appreciate it. We now 

go to Mr. Scalise for 5 minutes. 

Mr. SCALISE. Thank you, Mr. Chairman. Mr. Shorman, does your 

company use your private investment to make the investments that 

you have made to build out the network in rural communities? 

Mr. SHORMAN. Yes, in a sense we have a traditional banking relationship where we go and put our plan together and they in turn 

fund our projects. 

Mr. SCALISE. So you are risking your private capital to go build 

up a network and then of course as you risk that it is—the business model is that you are investing that capital so that you can 

ultimately create this infrastructure that ultimately people would 

be able to use and then you can get that money back instead of 

having taxpayer money go to build it out. 

Mr. SHORMAN. It is kind of the American way to be able to take 

money, build something, build a product, sell it, and then get the 

money back and pay off your loan. Correct. 

123 

Mr. SCALISE. Seems like a—for too long that model has worked 

so well and you know in the last few years it seems like government wants to come along and take the place of what the private 

sector did and of course from all the results the government’s not 

doing a real good job of it and we are drowning in a sea of red ink 

in the process. When you look at what happened with, you know, 

with these RUS grants does taxpayer money being used to in essence fund your competitor serve as an incentive or disincentive to 

you—for you to make future investments? 

Mr. SHORMAN. Well, it certainly disincentive in our areas where 

that—where there is an over builder that is using—again, it is my 

tax dollars also that are being used to compete against me along 

with our other employee owners. So exactly to that point it does 

cause us to have to look at where we spend our money and what 

we can do with that money. 

Mr. SCALISE. What kind of jobs are related to the investments 

you have made so far? How many jobs have you created along the 

way with this private investment, the risk that you have taken as 

a company? What kind of jobs has that equated to? 

Mr. SHORMAN. Well, our company has not quite doubled in size 

with some of the acquisitions that we have had. We also do our 

own fiber install. We do our own technology training. We do things 

throughout our company that continues to grow. And because of 

our employee owners live in those same communities it is not like 

we are a big cooperation. We are a small company based in Hays, 

Kansas that covers that area in North central and Northwest Kansas. 

Mr. SCALISE. How many people work for your company? 

Mr. SHORMAN. Two hundred seventy-seven give or take you know 

a few along the line and we have 212 of those are employee owners 

that own stock in the company and the employees own 63 percent 

of our company. 

Mr. SCALISE. And what is the average pay for these jobs? 

Mr. SHORMAN. It can vary. It can vary from 20-30,000 a year to 

higher than that in certain areas. 

Mr. SCALISE. Again, sounds like the American dream creating a 

lot of jobs and a lot of opportunities for people. When the Stimulus 

bill was going through one of the claims that was going to be made 

was that this would increase broadband deployment especially in 

rural areas and create jobs. From your experience is the program 

reaching the unserved or is it just jeopardizing some of the things 

that have already been done by the private sectors. 

Mr. SHORMAN. I think in some of the letters that were presented 

earlier this process was proposed to reach unserved rural Northwest Kansas people. That is a great project. If it reaches unserved 

customers that is a terrific way for this money to be spent. However, in reality the biggest part of that or a major part of that is 

overbuilding existing operations and existing broadband providers. 

Mr. SCALISE. And that kind of duplication just wasn’t what was 

promised to the American people. 

Mr. SHORMAN. That is not what we understood it to be. 

Mr. SCALISE. Appreciate that. Mr. Goldstein, you state that the 

RUS plans to use its existing oversight framework that it uses for 

grant and loan program. Given the problems the Inspector General 

124 

Fong has reported on about RUS is this an effective oversight plan 

to prevent the defaults and the obligations RUS has experienced in 

the past? 

Mr. GOLDSTEIN. I think we would have to wait and see, sir. We 

don’t know yet. 

Mr. SCALISE. All right, Mr. Fong, do you want to—I am sorry, 

Ms. Fong, do you want to comment on that? 

Ms. FONG. That will be one of the things that we will be looking 

at most likely in our audit. I will say that in the past RUS, in its 

oversight capacity, when it has identified instances of wrongdoing 

in the program they have come to us and made referrals to us and 

those have resulted in successful prosecutions. So we do know that 

at least on some level their oversight program has been effective. 

Mr. SCALISE. All right, thank you. And Mr. Zinser, I understand 

that auditing grants at this time is very difficult because even 

though the money has been awarded the grantees have not done 

much yet. What are planning to do to ensure that the taxpayer 

money is not misspent? 

Mr. ZINSER. We have got a number of steps we have to take. 

Number one, we are going to see how well NTIA is overseeing their 

portfolio of grants. We have got to make sure that the program office is doing its job. We are going to go through a process of identifying the grants into a risk assessment and identify the riskiest 

grants. NTIA is doing a similar process. 

Mr. SCALISE. Do you know how long it will take to really get a 

formula in place to know how well this taxpayer money is being 

spent? 

Mr. ZINSER. We are going to initiating grants. Very soon, I don’t 

know that a complete formula will be developed, but one of the 

things we are going to do for example is the Recovery Board, the 

Recovery and Accountability Transparency Board has set up a capacity of checking grantees across a number of public source databases for risk indicators. We are going to use that capacity to identify potential audit targets. 

Mr. SCALISE. Thank you, Mr. Chairman. I yield back. 

Mr. WALDEN. Thank you and I want to thank our panelists for 

your participation in the hearing today. I think it has helped us 

think about this program and look at the legislation that has been 

drafted. If you have comments and suggestions about how you— 

how we can improve the draft legislation we would welcome those 

not only from our panelists but others who are observing these proceedings and certainly from my colleagues on both sides of the 

aisle. I would like to thank our witnesses and members that participated in today’s hearing. I would remind members that they 

have 10 business days to submit questions for the record and I 

would ask that the witnesses all agree to respond promptly to those 

questions. I will note for the record your head nods in favor of that. 

And with that the subcommittee is adjourned. 

[Whereupon, at 11:56 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

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PREPARED STATEMENT OF HON. EDOLPHUS TOWNS

Thank you, Chairman Walden and Ranking Member Eshoo. I am very pleased 

that the Sub Committee is holding this hearing. Our constituents need to know that 

we are keeping an eye on how well the Recovery Act funding for broadband programs is being used in communities all over this country. 

As a long time member of this Committee I have seen how broadband has transformed our economy. Recovery Act funding will accelerate this trend and I truly believe that the benefits will be keeping America strong and competitive well into the 

21st Century. 

As Chairman of the Committee on Oversight and Government Reform last congress when the Recovery Act was enacted, I and my colleagues worked tirelessly to 

incorporate the processes that made this spending the most transparent and accountable in history. I pledge to work with the other side in the new congress to 

continue making sure taxpayer money is efficiently spent. However, I have looked 

at the proposed legislation that is being discussed at this hearing and I believe that 

it is unnecessary and duplicative of oversight efforts already mandated in the last 

congress. 

I am pleased that the GAO and the Inspector Generals in charge of preventing 

waste fraud and abuse in these broadband programs are here today to share their 

perspective. I look forward to hearing their findings and recommendations. I strongly believe we should make a bipartisan commitment to give them the resources they 

need to conduct vigorous oversight of the funds going forward. 

In New York City, these projects are already underway and having a major impact. As an example, The NYC Connected Learning program is designed to effectively link the home and school learning environments. It will provide more than 

18,000 sixth grade students in 72 low-income schools with home computers, discounted broadband service, educational software, digital literacy training and an 

array of resources. School populations are approximately 40 percent Latino, 31 percent African-American, 15 percent Asian-American, and one percent Native American. The program is underway citywide. Nearly 5,000 families in about half of the 

schools (nine from Brooklyn) have participated to date and the program is on track 

to ultimately serve the targeted number of 18,000 students. 

We embarked on an effort to prepare America for a 21st Century economy when 

we appropriated money towards broadband technology. We must take advantage of 

the opportunity these funds provide because, while recovery does not happen in the 

blink of an eye, innovation can. Readiness requires quality internet access for all 

Americans. It requires tough oversight and continuing our investment in broadband. 

Thank you and I yield back the balance of my time. 

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