63–631

106TH CONGRESS REPT. 106–508 " ! HOUSE OF REPRESENTATIVES 2d Session Part 2

RURAL LOCAL BROADCAST SIGNAL ACT

APRIL 6, 2000.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. BLILEY, from the Committee on Commerce,

submitted the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 3615]

[Including cost estimate of the Congressional Budget Office]

The Committee on Commerce, to whom was referred the bill

(H.R. 3615) to amend the Rural Electrification Act of 1936 to ensure improved access to the signals of local television stations by

multichannel video providers to all households which desire such

service in unserved and underserved rural areas by December 31,

2006, having considered the same, report favorably thereon with an

amendment and recommend that the bill as amended do pass.

CONTENTS

Page

Amendment .............................................................................................................. 2

Purpose and Summary ............................................................................................ 11

Background and Need for Legislation .................................................................... 11

Hearings ................................................................................................................... 13

Committee Consideration ........................................................................................ 13

Committee Votes ...................................................................................................... 13

Committee Oversight Findings ............................................................................... 20

Committee on Government Reform Oversight Findings ...................................... 20

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 20

Committee Cost Estimate ....................................................................................... 20

Congressional Budget Office Estimate ................................................................... 20

Federal Mandates Statement ................................................................................. 24

Advisory Committee Statement .............................................................................. 24

Constitutional Authority Statement ...................................................................... 24

Applicability to Legislative Branch ........................................................................ 24

2

Section-by-Section Analysis of the Legislation ...................................................... 24

Changes in Existing Law Made by the Bill, as Reported ..................................... 29

Dissenting Views ..................................................................................................... 31

AMENDMENT

The amendment is as follows:

Strike out all after the enacting clause and insert in lieu thereof

the following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Rural Local Broadcast Signal

Act’’.

(b) TABLE OF CONTENTS.—The table of contents of this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Purpose.

Sec. 3. Rural television loan guarantee board.

Sec. 4. Approval of loan guarantees.

Sec. 5. Administration of loan guarantees.

Sec. 6. Prohibition on use of funds for spectrum auctions.

Sec. 7. Prohibition on use of funds by incumbent cable operators.

Sec. 8. Annual audit.

Sec. 9. Exemption from must carry requirements.

Sec. 10. Additional availability of broadcast signals in rural areas.

Sec. 11. Prevention of interference to satellite services applying for rural loan guarantees.

Sec. 12. Improved cellular service in rural areas.

Sec. 13. Technical amendment.

Sec. 14. Definitions.

Sec. 15. Authorizations of appropriations.

Sec. 16. Sunset.

SEC. 2. PURPOSE.

The purpose of this Act is to facilitate access, on a technologically neutral basis

and by December 31, 2006, to signals of local television stations for households located in unserved areas.

SEC. 3. RURAL TELEVISION LOAN GUARANTEE BOARD.

(a) ESTABLISHMENT.—There is established the Rural Television Loan Guarantee

Board (in this Act referred to as the ‘‘Board’’).

(b) MEMBERS.—

(1) IN GENERAL.—Subject to paragraph (2), the Board shall consist of the following members:

(A) The Secretary of the Treasury, or the designee of the Secretary.

(B) The Secretary of Agriculture, or the designee of the Secretary.

(C) The Secretary of Commerce, or the designee of the Secretary.

(2) REQUIREMENT AS TO DESIGNEES.—An individual may not be designated a

member of the Board under paragraph (1) unless the individual is an officer of

the United States pursuant to an appointment by the President, by and with

the advice and consent of the Senate.

(c) FUNCTIONS OF THE BOARD.—

(1) IN GENERAL.—The Board shall determine whether or not to approve loan

guarantees under this Act. The Board shall make such determinations consistent with the purpose of this Act and in accordance with this subsection and

section 4 of this Act.

(2) CONSULTATION AUTHORIZED.—

(A) IN GENERAL.—In carrying out its functions under this Act, the Board

shall consult with such departments and agencies of the Federal Government as the Board considers appropriate, including the Department of

Commerce, the Department of Agriculture, the Department of the Treasury,

the Department of Justice, the Department of the Interior, the Board of

Governors of the Federal Reserve System, the Federal Communications

Commission, the Federal Trade Commission, and the National Aeronautics

and Space Administration.

(B) RESPONSE.—A department or agency consulted by the Board under

subparagraph (A) shall provide the Board such expertise and assistance as

the Board requires to carry out its functions under this Act.

(3) APPROVAL BY MAJORITY VOTE.—The determination of the Board to approve

a loan guarantee under this Act shall be by a vote of a majority of the Board.

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SEC. 4. APPROVAL OF LOAN GUARANTEES.

(a) AUTHORITY TO APPROVE LOAN GUARANTEES.—Subject to the provisions of this

section and consistent with the purpose of this Act, the Board may approve loan

guarantees under this Act.

(b) REGULATIONS.—

(1) REQUIREMENTS.—The Administrator (as defined in section 5 of this Act),

under the direction of and for approval by the Board, shall prescribe regulations

to implement the provisions of this Act and shall do so not later than 120 days

after funds authorized to be appropriated under section 15 of this Act have been

appropriated in a bill signed into law.

(2) ELEMENTS.—The regulations prescribed under paragraph (1) shall—

(A) set forth the form of any application to be submitted to the Board

under this Act;

(B) set forth time periods for the review and consideration by the Board

of applications to be submitted to the Board under this Act, and for any

other action to be taken by the Board with respect to such applications;

(C) provide appropriate safeguards against the evasion of the provisions

of this Act;

(D) set forth the circumstances in which an applicant, together with any

affiliate of an applicant, shall be treated as an applicant for a loan guarantee under this Act;

(E) include requirements that appropriate parties submit to the Board

any documents and assurances that are required for the administration of

the provisions of this Act; and

(F) include such other provisions consistent with the purpose of this Act

as the Board considers appropriate.

(3) CONSTRUCTION.—(A) Nothing in this Act shall be construed to prohibit the

Board from requiring, to the extent and under circumstances considered appropriate by the Board, that affiliates of an applicant be subject to certain obligations of the applicant as a condition to the approval or maintenance of a loan

guarantee under this Act.

(B) If any provision of this Act or the application of such provision to any person or entity or circumstance is held to be invalid by a court of competent jurisdiction, the remainder of this Act, or the application of such provision to such

person or entity or circumstance other than those as to which it is held invalid,

shall not be affected thereby.

(c) AUTHORITY LIMITED BY APPROPRIATIONS ACTS.—The Board may approve loan

guarantees under this Act only to the extent provided for in advance in appropriations Acts.

(d) REQUIREMENTS AND CRITERIA APPLICABLE TO APPROVAL.—

(1) IN GENERAL.—The Board shall utilize the underwriting criteria developed

under subsection (g), and any relevant information provided by the departments

and agencies with which the Board consults under section 3, to determine which

loans may be eligible for a loan guarantee under this Act.

(2) PREREQUISITES.—In addition to meeting the underwriting criteria under

paragraph (1), a loan may not be guaranteed under this Act unless—

(A) the loan is made to finance the acquisition, improvement, enhancement, construction, deployment, launch, or rehabilitation of the means by

which local television broadcast signals will be delivered principally to an

unserved area;

(B) the proceeds of the loan will not be used for operating, advertising,

or promotion expenses;

(C) the proposed project, as determined by the National Telecommunications and Information Administration, is not likely to have a substantial

adverse impact on competition that outweighs the benefits of improving access to the signals of a local television station in an unserved area, and is

commercially viable;

(D) the loan is provided by—

(i) an insured depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) that is acceptable to the

Board; or

(ii) a lender that is acceptable to the Board, and—

(I) has not fewer than one issue of outstanding debt that is related within the highest three rating categories of a nationally recognized statistical rating agency; or

(II) has provided financing to entities with outstanding debt from

the Rural Utilities Service and which possess, in the judgment of

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the Board, the expertise, capacity, and capital strength to provide

financing pursuant to this Act;

(E) the loan has terms, in the judgment of the Board, that are consistent

in material respects with the terms of similar obligations in the private capital market;

(F) repayment of the loan is required to be made within a term of the

lesser of—

(i) 25 years from the date of the execution of the loan; or

(ii) the economically useful life, as determined by the Board or in consultation with persons or entities deemed appropriate by the Board, of

the primary assets to be used in the delivery of the signals concerned;

and

(G) the loan meets any additional criteria developed under subsection (g).

(3) PROTECTION OF UNITED STATES FINANCIAL INTERESTS.—The Board may not

approve the guarantee of a loan under this Act unless—

(A) the Board has been given documentation, assurances, and access to

information, persons, and entities necessary, as determined by the Board,

to address issues relevant to the review of the loan by the Board for purposes of this Act; and

(B) the Board makes a determination in writing that—

(i) to the best of its knowledge upon due inquiry, the assets, facilities,

or equipment covered by the loan will be utilized economically and efficiently;

(ii) the terms, conditions, security, and schedule and amount of repayments of principal and the payment of interest with respect to the

loan protect the financial interests of the United States and are reasonable;

(iii) to the extent possible, the value of collateral provided by an applicant is at least equal to the unpaid balance of the loan amount covered by the loan guarantee (the ‘‘Amount’’ for purposes of this clause);

and if the value of collateral provided by an applicant is less than the

Amount, the additional required collateral is provided by any affiliate

of the applicant; and if the combined value of collateral provided by an

applicant and any affiliate is not at least equal to the Amount, the collateral from such affiliate represents all of such affiliate’s assets;

(iv) all necessary and required regulatory and other approvals, spectrum rights, and delivery permissions have been received for the loan,

the project under the loan, and the Other Debt, if any, under subsection (f)(2)(B);

(v) the loan would not be available on reasonable terms and conditions without a loan guarantee under this Act; and

(vi) repayment of the loan can reasonably be expected.

(e) CONSIDERATIONS.—

(1) TYPE OF MARKET.—

(A) PRIORITY CONSIDERATIONS.—To the maximum extent practicable, the

Board shall give priority in the approval of loan guarantees under this Act

to projects that will serve the greatest number of households in unserved

areas. In each instance, the Board shall consider the project’s estimated

cost per household to be served.

(B) PROHIBITION.—The Board may not approve a loan guarantee under

this Act for a project that is designed primarily to serve 1 or more of the

40 most populated designated market areas (as that term is defined in section 122(j) of title 17, United States Code).

(2) OTHER CONSIDERATIONS.—The Board shall consider other factors, which

shall include projects that would—

(A) offer a separate tier of local broadcast signals;

(B) provide lower projected costs to consumers of such separate tier; and

(C) enable the delivery of local broadcast signals consistent with the purpose of this Act by a means reasonably compatible with existing systems

or devices predominantly in use.

(f) GUARANTEE LIMITS.—

(1) LIMITATION ON AGGREGATE VALUE OF LOANS.—The aggregate value of all

loans for which loan guarantees are issued under this Act (including the

unguaranteed portion of loans issued under paragraph (2)(A)) and Other Debt

under paragraph (2)(B) may not exceed $1,000,000,000.

(2) GUARANTEE LEVEL.—A loan guarantee issued under this Act—

(A) may not exceed an amount equal to 80 percent of a loan meeting in

its entirety the requirements of subsection (d)(2)(A). If only a portion of a

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loan meets the requirements of that subsection, the Board shall determine

that percentage of the loan meeting such requirements (the ‘‘applicable portion’’) and may issue a loan guarantee in an amount not exceeding 80 percent of the applicable portion; or

(B) may, as to a loan meeting in its entirety the requirements of subsection (d)(2)(A), cover the amount of such loan only if that loan is for an

amount not exceeding 80 percent of the total debt financing for the project,

and other debt financing (also meeting in its entirety the requirements of

subsection (d)(2)(A)) from the same source for a total amount not less than

20 percent of the total debt financing for the project (‘‘Other Debt’’) has

been approved.

(g) UNDERWRITING CRITERIA.—Within the period provided for under subsection

(b)(1), the Board shall, in consultation with the Director of the Office of Management and Budget and an independent public accounting firm, develop underwriting

criteria relating to the guarantee of loans that are consistent with the purpose of

this Act, including appropriate collateral and cash flow levels for loans guaranteed

under this Act, and such other matters as the Board considers appropriate.

(h) CREDIT RISK PREMIUMS.—

(1) ESTABLISHMENT AND ACCEPTANCE.—The Board may establish and approve

the acceptance of credit risk premiums with respect to a loan guarantee under

this Act in order to cover the cost, as determined under section 504(b)(1) of the

Federal Credit Reform Act of 1990, of the loan guarantee. To the extent that

appropriations of budget authority are insufficient to cover the cost, as so determined, of a loan guarantee under this Act, credit risk premiums shall be accepted from a non-Federal source under this subsection on behalf of the applicant

for the loan guarantee.

(2) CREDIT RISK PREMIUM AMOUNT.—

(A) IN GENERAL.—The Board shall determine the amount of any credit

risk premium to be accepted with respect to a loan guarantee under this

Act on the basis of—

(i) the financial and economic circumstances of the applicant for the

loan guarantee, including the amount of collateral offered;

(ii) the proposed schedule of loan disbursements;

(iii) the business plans of the applicant for providing service;

(iv) any financial commitment from a broadcast signal provider; and

(v) the concurrence of the Director of the Office of Management and

Budget as to the amount of the credit risk premium.

(B) PROPORTIONALITY.—To the extent that appropriations of budget authority are sufficient to cover the cost, as determined under section

504(b)(1) of the Federal Credit Reform Act of 1990, of loan guarantees

under this Act, the credit risk premium with respect to each loan guarantee

shall be reduced proportionately.

(C) PAYMENT OF PREMIUMS.—Credit risk premiums under this subsection

shall be paid to an account (the ‘‘Escrow Account’’) established in the Treasury which shall accrue interest and such interest shall be retained by the

account, subject to subparagraph (D).

(D) DEDUCTIONS FROM ESCROW ACCOUNT.—If a default occurs with respect

to any loan guaranteed under this Act and the default is not cured in accordance with the terms of the underlying loan or loan guarantee agreement, the Administrator, in accordance with subsections (h) and (i) of section 5 of this Act, shall liquidate, or shall cause to be liquidated, all assets

collateralizing such loan as to which it has a lien or security interest. Any

shortfall between the proceeds of the liquidation net of costs and expenses

relating to the liquidation, and the guarantee amount paid pursuant to this

Act shall be deducted from funds in the Escrow Account and credited to the

Administrator for payment of such shortfall. At such time as determined

under subsection (d)(2)(F) when all loans guaranteed under this Act have

been repaid or otherwise satisfied in accordance with this Act and the regulations promulgated hereunder, remaining funds in the Escrow Account, if

any, shall be refunded, on a pro rata basis, to applicants whose loans guaranteed under this Act were not in default, or where any default was cured

in accordance with the terms of the underlying loan or loan guarantee

agreement.

(i) JUDICIAL REVIEW.—The decision of the Board to approve or disapprove the

making of a loan guarantee under this Act shall not be subject to judicial review.

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SEC. 5. ADMINISTRATION OF LOAN GUARANTEES.

(a) IN GENERAL.—The Administrator of the Rural Utilities Service (in this Act referred to as the ‘‘Administrator’’) shall issue and otherwise administer loan guarantees that have been approved by the Board in accordance with sections 3 and 4 of

this Act.

(b) SECURITY FOR PROTECTION OF UNITED STATES FINANCIAL INTERESTS.— (1) TERMS AND CONDITIONS.—An applicant shall agree to such terms and conditions as are satisfactory, in the judgment of the Board, to ensure that, as long

as any principal or interest is due and payable on a loan guaranteed under this

Act, the applicant—

(A) shall maintain assets, equipment, facilities, and operations on a continuing basis;

(B) shall not make any discretionary dividend payments that impair its

ability to repay obligations guaranteed under this Act;

(C) shall remain sufficiently capitalized; and

(D) shall submit to, and cooperate fully with, any audit of the applicant

under section 8(a)(2) of this Act.

(2) COLLATERAL.— (A) EXISTENCE OF ADEQUATE COLLATERAL.—An applicant shall provide the

Board such documentation as is necessary, in the judgment of the Board,

to provide satisfactory evidence that appropriate and adequate collateral secures a loan guaranteed under this Act.

(B) FORM OF COLLATERAL.—Collateral required by subparagraph (A) shall

consist solely of assets of the applicant, any affiliate of the applicant, or

both (whichever the Board considers appropriate), including primary assets

to be used in the delivery of signals for which the loan is guaranteed.

(C) REVIEW OF VALUATION.—The value of collateral securing a loan guaranteed under this Act may be reviewed by the Board, and may be adjusted

downward by the Board if the Board reasonably believes such adjustment

is appropriate.

(3) LIEN ON INTERESTS IN ASSETS.—Upon the Board’s approval of a loan guarantee under this Act, the Administrator shall have liens on assets securing the

loan, which shall be superior to all other liens on such assets, and the value

of the assets (based on a determination satisfactory to the Board) subject to the

liens shall be at least equal to the unpaid balance of the loan amount covered

by the loan guarantee, or that value approved by the Board under section

4(d)(3)(B)(iii) of this Act.

(4) PERFECTED SECURITY INTEREST.—With respect to a loan guaranteed under

this Act, the Administrator and the lender shall have a perfected security interest in assets securing the loan that are fully sufficient to protect the financial

interests of the United States and the lender.

(5) INSURANCE.—In accordance with practices in the private capital market,

as determined by the Board, the applicant for a loan guarantee under this Act

shall obtain, at its expense, insurance sufficient to protect the financial interests of the United States, as determined by the Board.

(c) ASSIGNMENT OF LOAN GUARANTEES.—The holder of a loan guarantee under

this Act may assign the loan guaranteed under this Act in whole or in part, subject

to such requirements as the Board may prescribe.

(d) MODIFICATION.—The Board may approve the modification of any term or condition of a loan guarantee or a loan guaranteed under this Act, including the rate

of interest, time of payment of principal or interest, or security requirements only

if—

(1) the modification is consistent with the financial interests of the United

States;

(2) consent has been obtained from the parties to the loan agreement;

(3) the modification is consistent with the underwriting criteria developed

under section 4(g) of this Act;

(4) the modification does not adversely affect the interest of the Federal Government in the assets or collateral of the applicant;

(5) the modification does not adversely affect the ability of the applicant to

repay the loan; and

(6) the National Telecommunications and Information Administration has

been consulted by the Board regarding the modification.

(e) PERFORMANCE SCHEDULES.—

(1) PERFORMANCE SCHEDULES.—An applicant for a loan guarantee under this

Act for a project covered by section 4(e)(1) of this Act shall enter into stipulated

performance schedules with the Administrator with respect to the signals to be

provided through the project.

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(2) PENALTY.—The Administrator may assess against and collect from an applicant described in paragraph (1) a penalty not to exceed 3 times the interest

due on the guaranteed loan of the applicant under this Act if the applicant fails

to meet its stipulated performance schedule under that paragraph.

(f) COMPLIANCE.—The Administrator, in cooperation with the Board and as the

regulations of the Board may provide, shall enforce compliance by an applicant, and

any other party to a loan guarantee for whose benefit assistance under this Act is

intended, with the provisions of this Act, any regulations under this Act, and the

terms and conditions of the loan guarantee, including through the submittal of such

reports and documents as the Board may require in regulations prescribed by the

Board and through regular periodic inspections and audits.

(g) COMMERCIAL VALIDITY.—A loan guarantee under this Act shall be

incontestable—

(1) in the hands of an applicant on whose behalf the loan guarantee is made,

unless the applicant engaged in fraud or misrepresentation in securing the loan

guarantee; and

(2) as to any person or entity (or their respective successor in interest) who

makes or contracts to make a loan to the applicant for the loan guarantee in

reliance thereon, unless such person or entity (or respective successor in interest) engaged in fraud or misrepresentation in making or contracting to make

such loan.

(h) DEFAULTS.—The Board shall prescribe regulations governing defaults on loans

guaranteed under this Act, including the administration of the payment of guaranteed amounts upon default.

(i) RECOVERY OF PAYMENTS.—

(1) IN GENERAL.—The Administrator shall be entitled to recover from an applicant for a loan guarantee under this Act the amount of any payment made

to the holder of the guarantee with respect to the loan.

(2) SUBROGATION.—Upon making a payment described in paragraph (1), the

Administrator shall be subrogated to all rights of the party to whom the payment is made with respect to the guarantee which was the basis for the payment.

(3) DISPOSITION OF PROPERTY.—

(A) SALE OR DISPOSAL.—The Administrator shall, in an orderly and efficient manner, sell or otherwise dispose of any property or other interests

obtained under this Act in a manner that maximizes taxpayer return and

is consistent with the financial interests of the United States.

(B) MAINTENANCE.—The Administrator shall maintain in a cost-effective

and reasonable manner any property or other interests pending sale or disposal of such property or other interests under subparagraph (A).

(j) ACTION AGAINST OBLIGOR.—

(1) AUTHORITY TO BRING CIVIL ACTION.—The Administrator may bring a civil

action in an appropriate district court of the United States in the name of the

United States or of the holder of the obligation in the event of a default on a

loan guaranteed under this Act. The holder of a loan guarantee shall make

available to the Administrator all records and evidence necessary to prosecute

the civil action.

(2) FULLY SATISFYING OBLIGATIONS OWED THE UNITED STATES.—The Administrator may accept property in satisfaction of any sums owed the United States

as a result of a default on a loan guaranteed under this Act, but only to the

extent that any cash accepted by the Administrator is not sufficient to satisfy

fully the sums owed as a result of the default.

(k) BREACH OF CONDITIONS.—The Administrator shall commence a civil action in

a court of appropriate jurisdiction to enjoin any activity which the Board finds is

in violation of this Act, the regulations under this Act, or any conditions which were

duly agreed to, and to secure any other appropriate relief, including relief against

any affiliate of the applicant.

(l) ATTACHMENT.—No attachment or execution may be issued against the Administrator or any property in the control of the Administrator pursuant to this Act before the entry of a final judgment (as to which all rights of appeal have expired)

by a Federal, State, or other court of competent jurisdiction against the Administrator in a proceeding for such action.

(m) FEES.—

(1) APPLICATION FEE.—The Board shall charge and collect from an applicant

for a loan guarantee under this Act a fee to cover the cost of the Board in making necessary determinations and findings with respect to the loan guarantee

application under this Act. The amount of the fee shall be reasonable.

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(2) LOAN GUARANTEE ORIGINATION FEE.—The Board shall charge, and the Administrator may collect, a loan guarantee origination fee with respect to the

issuance of a loan guarantee under this Act.

(3) USE OF FEES COLLECTED.—Any fee collected under this subsection shall be

used to offset administrative costs under this Act, including costs of the Board

and of the Administrator.

(n) REQUIREMENTS RELATING TO AFFILIATES.— (1) INDEMNIFICATION.—The United States shall be indemnified by any affiliate (acceptable to the Board) of an applicant for a loan guarantee under this

Act for any losses that the United States incurs as a result of—

(A) a judgment against the applicant or any of its affiliates;

(B) any breach by the applicant or any of its affiliates of their obligations

under the loan guarantee agreement;

(C) any violation of the provisions of this Act, and the regulations prescribed under this Act, by the applicant or any of its affiliates;

(D) any penalties incurred by the applicant or any of its affiliates for any

reason, including violation of a stipulated performance schedule under subsection (e); and

(E) any other circumstances that the Board considers appropriate.

(2) LIMITATION ON TRANSFER OF LOAN PROCEEDS.—An applicant for a loan

guarantee under this Act may not transfer any part of the proceeds of the loan

to an affiliate.

(o) EFFECT OF BANKRUPTCY.—(1) Notwithstanding any other provision of law,

whenever any person or entity is indebted to the United States as a result of any

loan guarantee issued under this Act and such person or entity is insolvent or is

a debtor in a case under title 11, United States Code, the debts due to the United

States shall be satisfied first.

(2) A discharge in bankruptcy under title 11, United States Code, shall not release

a person or entity from an obligation to the United States in connection with a loan

guarantee under this Act.

SEC. 6. PROHIBITION ON USE OF FUNDS FOR SPECTRUM AUCTIONS.

Notwithstanding any other provision of this Act, no loan guarantee under this Act

may be granted or used to provide funds for the acquisition of licenses for the use

of spectrum in any competitive bidding under section 309(j) of the Communications

Act of 1934 (47 U.S.C. 309(j)).

SEC. 7. PROHIBITION ON USE OF FUNDS BY INCUMBENT CABLE OPERATORS.

Notwithstanding any other provision of this Act, no loan guarantee under this Act

may be granted or used to provide funds for—

(1) the extension of any cable system to any area or areas for which the cable

operator of such cable system has a cable franchise, if such franchise obligates

the operator to extend such system to such area or areas; or

(2) the upgrading or enhancement of the services provided over any cable system, unless such upgrading or enhancement is principally undertaken to extend

services to areas outside of the previously existing franchise area of the cable

operator.

SEC. 8. ANNUAL AUDIT.

(a) REQUIREMENT.—The Comptroller General of the United States shall conduct

on an annual basis an audit of—

(1) the administration of the provisions of this Act; and

(2) the financial position of each applicant who receives a loan guarantee

under this Act, including the nature, amount, and purpose of investments made

by the applicant.

(b) REPORT.—The Comptroller General shall submit to the Congress a report on

each audit conducted under subsection (a).

SEC. 9. EXEMPTION FROM MUST CARRY REQUIREMENTS.

A facility of a satellite carrier, cable system, or other multichannel video programming distributor that is financed with a loan guaranteed under this Act and that

delivers local broadcast signals in a television market pursuant to the provisions of

section 338, 614, or 615 of the Communications Act of 1934 (47 U.S.C. 338, 534, or

535) shall not be required to carry in such market a greater number of local broadcast signals than the number of such signals that is carried by the cable system

serving the largest number of subscribers in such market.

SEC. 10. ADDITIONAL AVAILABILITY OF BROADCAST SIGNALS IN RURAL AREAS.

(a) OPENING OF FILING FOR ADDITIONAL TRANSLATOR AND LOW-POWER STATIONS.—The Federal Communications Commission shall, in accordance with its regVerDate 20-MAR-2000 22:38 Apr 07, 2000 Jkt 063631 PO 00000 Frm 00008 Fmt 6659 Sfmt 6621 E:\HR\OC\HR508P2.XXX pfrm01 PsN: HR508P2
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ulations, open a filing period window for the acceptance of applications for television

translator stations and low-power television stations in rural areas.

(b) DEADLINES FOR NOTICE.—The Commission shall announce the filing period

window no less than 90 days prior to the commencement of the window.

SEC. 11. PREVENTION OF INTERFERENCE TO SATELLITE SERVICES APPLYING FOR RURAL

LOAN GUARANTEES.

(a) TESTING FOR HARMFUL INTERFERENCE.—The Board shall approve no loan

guarantee until the Federal Communications Commission has determined on the

basis of a technical demonstration or, if infeasible, an analysis, that any terrestrial

service proposing to operate in the satellite broadcast frequency band will not cause

harmful interference to any satellite service eligible for a loan guarantee under the

provisions of this Act.

(b) TECHNICAL DEMONSTRATION.—For the purpose of making the determination

required by subsection (a), the demonstration or analysis shall be conducted and the

results analyzed by an engineering firm or other qualified entity that is independent

of any interested party. Such demonstration and resulting analysis shall be subject

to public notice and comment, and shall be completed within 90 days after the date

of enactment of this Act.

(c) TERRESTRIAL USES OF SATELLITE FREQUENCIES PROHIBITED.—In order to ensure that there is no harmful interference to satellite services eligible for loan guarantees under the provisions of this Act, the Federal Communications Commission

shall not allocate spectrum for, or issue any license or other authorization with respect to, any terrestrial service proposing to operate in the satellite broadcast frequency band during the 90-day period described in subsection (b).

(d) DEFINITIONS.—

(1) DIRECT BROADCAST SATELLITE SERVICE FREQUENCY BAND.—The term ‘‘satellite broadcast frequency band’’ means the band of frequencies at 12.2 to 12.7

gigahertz.

(2) SATELLITE SERVICES.—The term ‘‘satellite services’’ means—

(A) all systems licensed by the Commission to operate in the direct broadcast satellite services; and

(B) all nongeostationary orbit fixed satellite service systems that may be

licensed by the Commission—

(i) that are authorized, on the date of enactment of this Act, to use

the satellite broadcast frequency band; or

(ii) for which applications to use such frequency band are pending before the Commission on such date.

SEC. 12. IMPROVED CELLULAR SERVICE IN RURAL AREAS.

(a) REINSTATEMENT OF APPLICANTS AS TENTATIVE SELECTEES.—

(1) IN GENERAL.—Notwithstanding the order of the Federal Communications

Commission in the proceeding described in paragraph (3), the Commission

shall—

(A) reinstate each applicant as a tentative selectee under the covered

rural service area licensing proceeding; and

(B) permit each applicant to amend its application, to the extent necessary to update factual information and to comply with the rules of the

Commission, at any time before the Commission’s final licensing action in

the covered rural service area licensing proceeding.

(2) EXEMPTION FROM PETITIONS TO DENY.—For purposes of the amended applications filed pursuant to paragraph (1)(B), the provisions of section 309(d)(1) of

the Communications Act of 1934 (47 U.S.C. 309(d)(1)) shall not apply.

(3) PROCEEDING.—The proceeding described in this paragraph is the proceeding of the Commission In re Applications of Cellwave Telephone Services

L.P, Futurewave General Partners L.P., and Great Western Cellular Partners,

7 FCC Rcd No. 19 (1992).

(b) CONTINUATION OF LICENSE PROCEEDING; FEE ASSESSMENT.—

(1) AWARD OF LICENSES.—The Commission shall award licenses under the

covered rural service area licensing proceeding within 90 days after the date of

the enactment of this Act.

(2) SERVICE REQUIREMENTS.—The Commission shall provide that, as a condition of an applicant receiving a license pursuant to the covered rural service

area licensing proceeding, the applicant shall provide cellular radiotelephone

service to subscribers in accordance with sections 22.946 and 22.947 of the Commission’s rules (47 CFR 22.946, 22.947); except that the time period applicable

under section 22.947 of the Commission’s rules (or any successor rule) to the

applicants identified in subparagraphs (A) and (B) of subsection (d)(1) shall be

10

3 years rather than 5 years and the waiver authority of the Commission shall

apply to such 3-year period.

(3) CALCULATION OF LICENSE FEE.— (A) FEE REQUIRED.—The Commission shall establish a fee for each of the

licenses under the covered rural service area licensing proceeding. In determining the amount of the fee, the Commission shall consider—

(i) the average price paid per person served in the Commission’s Cellular Unserved Auction (Auction No. 12); and

(ii) the settlement payments required to be paid by the permittees

pursuant to the consent decree set forth in the Commission’s order, In

re the Tellesis Partners (7 FCC Rcd 3168 (1992)), multiplying such payments by two.

(B) NOTICE OF FEE.—Within 30 days after the date an applicant files the

amended application permitted by subsection (a)(1)(B), the Commission

shall notify each applicant of the fee established for the license associated

with its application.

(4) PAYMENT FOR LICENSES.—No later than 18 months after the date that an

applicant is granted a license, each applicant shall pay to the Commission the

fee established pursuant to paragraph (3) for the license granted to the applicant under paragraph (1).

(5) AUCTION AUTHORITY.—If, after the amendment of an application pursuant

to subsection (a)(1)(B), the Commission finds that the applicant is ineligible for

grant of a license to provide cellular radiotelephone services for a rural service

area or the applicant does not meet the requirements under paragraph (2) of

this subsection, the Commission shall grant the license for which the applicant

is the tentative selectee (pursuant to subsection (a)(1)(B) by competitive bidding

pursuant to section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)).

(c) PROHIBITION OF TRANSFER.—During the 5-year period that begins on the date

that an applicant is granted any license pursuant to subsection (a), the Commission

may not authorize the transfer or assignment of that license under section 310 of

the Communications Act of 1934 (47 U.S.C. 310). Nothing in this Act may be construed to prohibit any applicant granted a license pursuant to subsection (a) from

contracting with other licensees to improve cellular telephone service.

(d) DEFINITIONS.—For the purposes of this section, the following definitions shall

apply:

(1) APPLICANT.—The term ‘‘applicant’’ means—

(A) Great Western Cellular Partners, a California general partnership

chosen by the Commission as tentative selectee for RSA #492 on May 4,

1989;

(B) Monroe Telephone Services L.P., a Delaware limited partnership chosen by the Commission as tentative selectee for RSA #370 on August 24,

1989 (formerly Cellwave Telephone Services L.P.); and

(C) FutureWave General Partners L.P., a Delaware limited partnership

chosen by the Commission as tentative selectee for RSA #615 on May 25,

1990.

(2) COMMISSION.—The term ‘‘Commission’’ means the Federal Communications Commission.

(3) COVERED RURAL SERVICE AREA LICENSING PROCEEDING.—The term ‘‘covered

rural service area licensing proceeding’’ means the proceeding of the Commission for the grant of cellular radiotelephone licenses for rural service areas #492

(Minnesota 11), #370 (Florida 11), and #615 (Pennsylvania 4).

(4) TENTATIVE SELECTEE.—The term ‘‘tentative selectee’’ means a party that

has been selected by the Commission under a licensing proceeding for grant of

a license, but has not yet been granted the license because the Commission has

not yet determined whether the party is qualified under the Commission’s rules

for grant of the license.

SEC. 13. TECHNICAL AMENDMENT.

Section 339(c) of the Communications Act of 1934 (47 U.S.C. 339(c)) is amended

by adding at the end the following new paragraph:

‘‘(5) DEFINITION.—Notwithstanding subsection (d)(4), for purposes of paragraphs (2) and (4) of this subsection, the term ‘satellite carrier’ includes a distributor (as defined in section 119(d)(1) of title 17, United States Code), but only

if the satellite distributor’s relationship with the subscriber includes billing, collection, service activation, and service deactivation.’’.

SEC. 14. DEFINITIONS.

In this Act:

(1) AFFILIATE.—The term ‘‘affiliate’’—

11

(A) means any person or entity that controls, or is controlled by, or is

under common control with, another person or entity; and

(B) may include any individual who is a director or senior management

officer of an affiliate, a shareholder controlling more than 25 percent of the

voting securities of an affiliate, or more than 25 percent of the ownership

interest in an affiliate not organized in stock form.

(2) COMMON TERMS.—Except as provided in paragraph (1), any term used in

this Act that is defined in the Communications Act of 1934 (47 U.S.C. 151 et

seq.) has the meaning given that term in the Communications Act of 1934.

SEC. 15. AUTHORIZATIONS OF APPROPRIATIONS.

(a) COST OF LOAN GUARANTEES.—For the cost of the loans guaranteed under this

Act, including the cost of modifying the loans, as defined in section 502 of the Congressional Budget Act of 1974 (2 U.S.C. 661a), there are authorized to be appropriated for fiscal years 2001 through 2006, such amounts as may be necessary.

(b) COST OF ADMINISTRATION.—There is hereby authorized to be appropriated

such sums as may be necessary to carry out the provisions of this Act, other than

to cover costs under subsection (a).

(c) AVAILABILITY.—Any amounts appropriated pursuant to the authorizations of

appropriations in subsections (a) and (b) shall remain available until expended.

SEC. 16. SUNSET.

No loan guarantee may be approved under this Act after December 31, 2006.

PURPOSE AND SUMMARY

The purpose of H.R. 3615, the Rural Local Broadcast Signal Act,

is to authorize the Federal government to subsidize the construction of cable, satellite and other multichannel video programming

distribution (‘‘MVPD’’) systems that can deliver local broadcast signals to unserved areas.

BACKGROUND AND NEED FOR LEGISLATION

Recent developments in the MVPD Market. The Federal Communications Commission’s (‘‘FCC’s’’) recent report on the state of competition in the MVPD market found that incumbent cable operators

maintain a dominant share of the market (82 percent). But satellite

television, direct broadcast satellite (‘‘DBS’’) service in particular, is

gaining ground. The report found that between 1998 and 1999,

DBS subscribership rose from 7.2 million households to 10.1 million households, which accounts for 12.5 percent of all MVPD subscribers.

The FCC’s report also notes that satellite service will likely continue to erode cable’s dominant market share, due in large part to

the fact that Congress last year enacted the Satellite Home Viewer

Improvements Act (‘‘SHVIA’’) of 1999. SHVIA, among other things,

provides satellite carriers with a compulsory license to carry local

broadcast signals into their market of origination (also known as

‘‘local-into-local’’). Thus, in markets where carriers offer local-intolocal, consumers will have a complete alternative to cable. In fact,

the largest satellite carriers have already begun providing localinto-local to the largest markets. DirecTV currently provides localinto-local to 23 metropolitan markets, and EchoStar currently provides local-into-local to 26 metropolitan markets. In the long run,

DirecTV and Echostar will be offering local-into-local to about 70

percent of American households.

For the remaining 30 percent of American households, most of

which are located in sparsely populated rural areas, consumers will

still have the same options that existed prior to SHVIA. In other

12

words, most of these consumers will have access to their local

broadcast signals through either over-the-air reception and/or cable

retransmission of local signals. Industry analysts and the FCC note

that probably less than one percent of all television households in

the United States (e.g., somewhere between 800,000 and 1 million)

have no access to an over-the-air signal. In addition, analysts note

that, while only 65 percent of American homes subscribe to cable

service, 97 percent of all American homes are passed by a cable operator that offers MVPD access to local broadcast signals.

Nevertheless, the likelihood that incumbent satellite carriers will

not provide local-into-local in many rural areas has led some to call

for government intervention. H.R. 3615, and its companion in the

Senate (S. 2097), would authorize the Rural Utilities Service (an

agency within the Department of Agriculture) to subsidize the

MVPD industry’s deployment and/or modification of multichannel

systems that will enable the delivery of local broadcast signals to

rural areas.

The Rural Utilities Service (RUS). Among other things, the RUS

(which used to be known as the Rural Electrification Administration (‘‘REA’’)) is charged with making direct loans, as well as guaranteeing private loans, to rural telephone companies and rural

electric utilities for the purpose of developing local infrastructure.

The Inspector General (‘‘IG’’) for the Department of Agriculture recently completed two audits of the telephone and electric utility

loan programs. The IG’s audit of the telephone loan program,

which was released in February 2000, found: • that notwithstanding the General Accounting Office’s similar findings in 1998, the ‘‘RUS continues to make and service

loans to financially strong borrowers who likely could obtain financing from other sources;’’ • that the ‘‘RUS has not established procedures and requirements for financially strong borrowers to seek credit from other

sources,’’ and,

• that the RUS has not ‘‘established a loan graduation program for borrowers who no longer need Government assistance.’’

With regard to the RUS’ electric utility loan program, the IG’s

March 2000 audit of that program examined the outside investment activity of utilities that had received direct or guaranteed financing from the RUS. Current law provides that an electric utility

that borrows from the RUS is permitted to make outside investments of up to 15 percent of the utility’s total value without RUS

approval—provided the utility invests in the rural community in

which it is located.

But the IG’s audit of the electric utility loan program found that

most RUS borrowers are failing to re-invest in their rural communities. The audit estimated that, based on a statistical sample from

1997, the electric utility borrowers made approximately $10.9 billion in outside investments, but that these same borrowers invested only one-half of one percent of that sum in rural infrastructure development. The audit concluded that borrowers invested primarily in the stock and bond markets, and that some borrowers

made no investments whatsoever in rural infrastructure development.

13

HEARINGS

The Subcommittee on Telecommunications, Trade, and Consumer

Protection held a legislative hearing on March 16, 2000. The Subcommittee received testimony from: The Honorable Bob Goodlatte,

M.C., the sponsor of H.R. 3615; Mr. Dan L. Crippen, Director, Congressional Budget Office (CBO); Mr. Christopher A. McLean, Acting

Administrator, Rural Utilities Service; Mr. Roger C. Viadero, Inspector General, Department of Agriculture; and Mr. R. Kent Parsons, Vice President, National Translators Association (NTA).

COMMITTEE CONSIDERATION

On March 23, 2000, the Subcommittee on Telecommunications,

Trade, and Consumer Protection met in open markup session and

approved H.R. 3615, the Rural Local Broadcast Signal Act for Full

Committee consideration, as amended, by a voice vote. The Full

Commerce Committee met in open markup session on March 29,

2000, and ordered H.R. 3615 reported, as amended, by a voice vote.

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House requires the

Committee to list the record votes on the motion to report legislation and amendments thereto. There were no record votes taken in

connection with ordering H.R. 3615 reported. A motion by Mr. Bliley to order H.R. 3615 reported to the House, without amendment,

was agreed to by a voice vote.

The following amendments were agreed to by voice vote:

An amendment by Mr. Tauzin, No. 3, limiting the number of local broadcast signals that must be carried by a

multichannel video programming distributor in a particular market to no more than the number of local broadcast signals carried by the cable system serving the largest

number of subscribers in the market;

An amendment by Mr. Oxley, No. 8, conditioning approval of any loan guarantees under the bill to the FCC

conducting an independent test of harmful interference to

satellite services that are eligible for loan guarantees (The

amendment was modified to change the period in which

the independent test was to occur from 180 days to 90

days by unanimous consent); and,

An amendment by Mrs. Cubin, No. 11, redefining the

term ‘‘satellite carrier’’ for the purpose of determining

which entities may submit consumer waivers for distant

signal eligibility.

The following amendment was not agreed to by voice vote:

An amendment by Mr. Cox, No. 2, imposing a $200 million cap on appropriations for loan subsidy costs under the

bill.

The Committee took other action on the following amendments:

An amendment by Mr. Markey, No. 1, requiring that

borrowers seek loans from commercial lenders on reasonable terms before obtaining guaranteed loans from the

14

Rural Utilities Service (RUS), was not agreed to by a division vote of 6 yeas and 24 nays;

An amendment by Mrs. Wilson, No. 6, carving out public

booster and translator stations, as well as instructional

television fixed service (ITFS), from the FCC’s competitive

bidding authority, was withdrawn by unanimous consent;

An amendment by Mr. Stupak, No. 9, adding a new title

of the bill directing the FCC to initiate a proceeding to provide federal universal service support for the deployment

of broadband service to eligible rural communities, was

ruled nongermane by the Chair; and,

An amendment by Mr. Lazio, No. 12, authorizing appro- priations of $10 million for fiscal year 2000 for public television stations’ transition to digital television, was withdrawn by unanimous consent.

The Committee took record votes on the following amendments:

A substitute amendment by Mr. Markey for the amendment offered by Mr. Tauzin, No. 3a, providing that MVPDs

that obtain guaranteed loans are not subject to must-carry

requirements for any local broadcast station, unless that

station broadcasts 7 hours a week of local news, public affairs, sports, weather, or other locally-originated programming;

An amendment by Mr. Cox, No. 4, requiring the Board

to collect a ‘‘loan guarantee origination fee’’ to cover the

administrative costs of the program;

An amendment by Mr. Largent, No. 5, defining the term

‘‘unserved areas’’ to be those areas outside local broadcast

stations’ grade A contours and those areas where consumers have no access to any MVPD that offers local

broadcast signals;

An amendment by Mr. Cox, No. 7, requiring that at

least one of the officers or directors of an applicant for a

loan guarantee under the bill personally guarantee the repayment of sums owed the United States as a result of default on the loan; and,

An amendment by Mr. Cox, No. 10, accelerating the sunset date for the program from 2006 to 2004.

The vote totals and names of Members voting for and against

each amendment follow:

15

16

17

18

19

20

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House

of Representatives, the Committee held a legislative hearing and

made findings that are reflected in this report.

COMMITTEE ON GOVERNMENT REFORM OVERSIGHT FINDINGS

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House

of Representatives, no oversight findings have been submitted to

the Committee by the Committee on Government Reform.

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee concurs in the finding of

the Congressional Budget Office that H.R. 3615, the Rural Local

Broadcast Signal Act, would result in new or increased budget authority, entitlement authority, or tax expenditures or revenues as

described in the cost estimate prepared pursuant to section 402 of

the Congressional Budget Act of 1974.

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by

the Director of the Congressional Budget Office pursuant to section

402 of the Congressional Budget Act of 1974.

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House

of Representatives, the following is the cost estimate provided by

the Congressional Budget Office pursuant to section 402 of the

Congressional Budget Act of 1974:

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, April 6, 2000.

Hon. TOM BLILEY,

Chairman, Committee on Commerce,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 3615, the Rural Local

Broadcast Signal Act.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contacts are Mark Hadley and

Kathleen Gramp (for federal costs), and Shelley Finlayson (for the

state and local impact).

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

21

H.R. 3615—Rural Local Broadcast Signal Act

Summary: H.R. 3615 would establish a loan guarantee program

for certain companies to provide local television service to areas of

the country that do not receive local television stations from satellite companies. The bill would authorize the Administrator of the

Rural Utilities Service (RUS) at the Department of Agriculture to

guarantee up to 80 percent of private loans authorized to be made

to qualified borrowers. The bill would authorize the appropriation

of amounts necessary for the costs of the loan guarantees for up to

$1 billion of private borrowing, and associated administrative expenses. Qualifying loans would be payable in full within the lesser

of 25 years or the useful life of the assets purchased. The authority

to guarantee loans would be contingent upon future appropriation

action and would expire on December 31, 2006.

Other provisions in the bill would direct the Federal Communications Commission (FCC) to allow certain television stations to file

license applications, award rural cellular telephone licenses to selected entities, and conduct a study related to direct broadcast

services. Finally, the bill would change the definition of satellite

carriers under telecommunications law to include distributors of

satellite television services, which would allow customers to receive

distant network signals.

CBO estimates that implementing H.R. 3615 would increase discretionary spending by a total of $210 million over the 2000–2005

period, assuming appropriation of the necessary amounts. We estimate that provisions in section 11 regarding rural cellular licenses

would reduce offsetting receipts (a form of direct spending) by

about $1 million in 2001. The provision in section 14 that would

redefine the term ‘‘satellite carrier’’ would have a negligible affect

on collections and distributions made by the Copyright Office. Because H.R 3615 would affect direct spending and receipts, pay-asyou-go procedures would apply. H.R. 3615 contains no intergovernmental or private-sector mandates as defined in the Unfunded

Mandates Reform Act (UMRA) and would not affect the budgets of

state, local, or tribal governments.

Estimated cost to the Federal Government: For the purpose of

this estimate, CBO assumes that H.R. 3615 will be enacted in fiscal year 2000 and that funds will be provided for its implementation each year. The estimated budgetary impact of H.R. 3615 is

shown in the following table. The costs of this legislation fall within budget function 370 (commerce and housing credit).

By fiscal year, in millions of dollars—

2000 2001 2002 2003 2004 2005

SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level .................................................................. 6 196 2 2 2 2

Estimated Outlays .................................................................................... 3 129 72 2 2 2

CHANGES IN DIRECT SPENDING

Estimated Budget Authority ..................................................................... 0 1 (1) (1) (1) (1)

Estimated Outlays .................................................................................... 0 1 (1) (1) (1) (1)

CHANGES IN REVENUES

Estimated Revenue Increase .................................................................... 0 (1) (1) (1) (1) (1)

1 Less than $500,000.

22

Spending subject to appropriation

CBO estimates that implementing the loan program authorized by this bill would cost $210 million over the 2001–2005 period, subject to appropriation of the necessary amounts. Under procedures

established by the Federal Credit Reform Act of 1990, the subsidy

cost of a loan guarantee is the estimated long-term cost to the government, calculated on a net present value basis (excluding administrative costs). We estimate that the loan guarantees provided

under the bill would cost about 20 percent of the total amount borrowed—or $200 million, subject to appropriation of the necessary

funds. The bill would authorize the Administrator of the RUS to

charge fees, which would offset some of the subsidy costs, but this

estimate assumes no such fees would be charged.

To prepare this estimate, CBO consulted with industry experts

and investment analysts and examined the credit ratings of firms

in the satellite television and related industries. The information

on credit ratings is useful because different credit ratings reflect

analysts’ expectations of defaults. Based on this information, we assume that the rural television loans likely to be guaranteed under

this bill would have a credit risk comparable to debt rated as ‘‘B’’

and ‘‘CCC,’’ which typically have default rates ranging from about

30 percent to 45 percent, respectively.

In addition, CBO estimates that administering the loan program would cost about $5 million in 2000 and about $2 million in each

subsequent year. The bill would require the Secretary of Agriculture to charge fees to offset some of the administrative costs.

Based on the amount of fees collected under other federal credit

programs, CBO expects the RUS would charge a 0.5 percent fee

and collect $5 million in 2001.

Finally, H.R. 3615 would direct the FCC to conduct a study within 90 days after enactment on the compatibility of satellite and terrestrial services in the 12.2 gigahertz to 12.7 gigahertz band now

used for direct broadcast services. According to the FCC, this study

would cost about $500,000 in 2000. Under current law, the FCC is

authorized to collect fees to cover costs related to its regulatory, enforcement, and other functions. Because such fees typically are assessed in June, the commission probably would be unable to offset

this additional expense until the next billing cycle. Hence, assuming appropriation of the necessary amounts in 2000 and assuming

the commission could collect the fees in 2001, CBO estimates that

this provision would increase discretionary outlays by $500,000 in

fiscal year 2000 but reduce outlays by a corresponding amount in

2001.

Direct spending and revenues

H.R. 3615 would designate certain companies for the award of

cellular telephone licenses in three rural service areas: one in the

Florida Keys, one in northeastern Pennsylvania, and one in southern Minnesota. These companies would be awarded the licenses

within 90 days after enactment if they satisfy certain license requirements and agree to pay a fee within 18 months after receiving

the licenses. For purposes of this estimate, CBO assumes that the

companies would comply with these conditions, and we estimate

that offsetting receipts from the fees would be $1 million less than

23

the amounts that would have been collected if the licenses were

awarded through competitive bidding. (Offsetting receipts are a

credit against direct spending.) Thus, this provision would increase

direct spending by about $1 million in 2001.

Under current law, satellite carriers pay a monthly royalty fee

for each subscriber to the U.S. Copyright Office for the right to retransmit distant network signals by satellite to certain subscribers

for private home viewing. This fee is recorded on the budget as a

governmental receipt (i.e., a revenue). The Copyright Office later

distributes (without further appropriation) the fees with interest to

those who own copyrights on the material retransmitted by satellite. Such fees are about $0.15 per subscriber per channel per

month through December 31, 2004. H.R. 3615 would expand the

definition of satellite carriers to include satellite distributors. This

would allow some customers of such satellite distributors to receive

distant network signals. Based on information from the satellite

broadcast industry, CBO estimates that the additional royalty fees

collected and subsequently distributed by the Copyright Office for

such signals would be less than $500,000 a year over the 2000–

2005 period.

Pay-as-you-go considerations: The Balanced Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures for legislation affecting direct spending or receipts. The net changes in

outlays that are subject to pay-as-you-go procedures are shown in

the following table. For the purposes of enforcing pay-as-you-go

procedures, only the effects in the current year, the budget year,

and the succeeding four years are counted.

By fiscal year, in millions of dollars—

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Changes in outlays .............................. 0 1 0 0 0 0 0 0 0 0 0

Changes in receipts ............................. Not applicable

Intergovernmental and private-sector impact: H.R. 3615 contains

no intergovernmental or private-sector mandates as defined in

UMRA and would not affect the budgets of state, local, or tribal

governments. These governments may experience some minimal

benefits to the extent that they wish to file applications for television translator stations and low-power television stations in rural

areas. The bill would require the FCC to establish and announce

an open filing period during which some applications could be filed.

Previous CBO estimates: On March 1, 2000, CBO transmitted a

cost estimate for H.R. 3615, as ordered reported by the House Committee on Agriculture on February 16, 2000. That bill would authorize the RUS to guarantee 100 percent of the value of loans

made for this purpose—up to $1.25 billion in private borrowing. It

also would allow the government’s guarantee to be subordinate to

third-party financing. CBO estimated that implementing the Agriculture Committee’s version of H.R. 3615 would cost $365 million

over the 2000–2005 period, subject to appropriate of the necessary

funds.

On March 15, 2000, CBO transmitted a cost estimate for S. 2097,

the Launching Our Communities’ Access to Local Television Act of

2000, as ordered reported by the Senate Committee on Banking,

24

Housing, and Urban Affairs on March 8, 2000. That bill would authorize the RUS to guarantee 80 percent of the value of loans made

for this purpose—up to $1.25 billion in private borrowing. CBO estimated that implementing S. 2097 would cost $265 million over

the 2000–2005 period, subject to appropriation of the necessary

funds.

Estimate prepared by: Federal costs: Mark Hadley and Kathleen

Gramp. Federal revenues: Hester Grippando. Impact on State,

local, and tribal governments: Shelley Finlayson. Impact on the private sector: Jean Wooster.

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office

pursuant to section 423 of the Unfunded Mandates Reform Act.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the

Federal Advisory Committee Act were created by this legislation.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the Committee finds that the Constitutional authority for this legislation is provided in Article I, section 8, clause

3, which grants Congress the power to regulate commerce with foreign nations, among the several States, and with the Indian tribes.

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the

terms and conditions of employment or access to public services or

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act.

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title; table of contents

Section 1 provides the short title of the bill, the ‘‘Rural Local

Broadcast Signal Act,’’ and lists a table of contents.

Section 2. Purpose

Section 2 establishes the purpose of the Act as facilitating access,

on a technologically neutral basis and by December 31, 2006, to

signals of local television stations for households located in

unserved areas.

Section 3. Rural Television Loan Guarantee Board

Section 3 establishes and describes the responsibilities of the

Rural Television Loan Guarantee Board (‘‘the Board’’). The Board

is made up of three members: the Secretary of the Treasury, the

Secretary of Agriculture, and the Secretary of Commerce. Each

members of the Board may appoint a designee, provided the desVerDate 20-MAR-2000 22:38 Apr 07, 2000 Jkt 063631 PO 00000 Frm 00024 Fmt 6659 Sfmt 6602 E:\HR\OC\HR508P2.XXX pfrm01 PsN: HR508P2
25

ignee is an officer of the United States who has been appointed by

the President with the advice and consent of the Senate.

The Board is responsible for determining which entities will receive loan guarantees under the Act. The Board must consult with

such departments and agencies of the Federal Government as it

considers appropriate to carry out its responsibilities under the Act,

and these departments and agencies are required to assist the

Board. Loan guarantees may be made only with the approval of a

majority of the Board.

Section 4. Approval of loan guarantees

Section 4 authorizes the Board to approve loan guarantees. The

Administrator of the Rural Utilities Service (RUS) will prescribe

regulations to implement the Act under the direction of and for approval by the Board. The regulations will include provisions for the

time period to review applications, safeguards against evasion of

the provisions of the Act, the description of who will be considered

an applicant, and requirements for the submission of documents

and other information necessary for the administration of the provisions of the Act. The Board is authorized to approve loan guarantees only to the extent that funds for this purpose are provided for

in advance in appropriations acts.

Section 4 also stipulates the requirements that must be met in

order for a loan guarantee to be approved. Specifically, the loan to

be guaranteed must be used to finance the means by which local

television signals will be delivered principally to an unserved area,

and the proceeds from such loan may not be used for operating, advertising, or promotional expenses. The proposed project, as determined by the National Telecommunications and Information Administration (NTIA), may not have a substantial adverse effect on

competition that outweighs the benefits of the proposed project.

In addition, the proposed project, in the estimation of the NTIA,

must be commercially viable. The Committee expects that, in assessing commercial viability, NTIA will ensure that the loan applicant has demonstrated that the proposed project will be forward

compatible with the conversion to digital television. To this end,

NTIA and the Board must determine that the loan applicant has

a plan that demonstrates that the proposed local television signal

delivery system will be forward compatible and in compliance with

the digital television rollout requirement in section 336 of the Communications Act of 1934, as amended (47 U.S.C. § 336).

The loan must also be provided by certain qualifying lenders, including depository institutions that are insured by the Federal Deposit Insurance Corporation. The loan may not be for a term longer

than 25 years or the economically useful life of the asset, whichever

is less.

Other requirements for approval of a loan guarantee include a

written determination that the collateral is sufficient to protect

U.S. financial interests. To this end, the Board must determine

that the collateral is equal to the unpaid balance of the loan

amount covered by the loan guarantee. If such collateral is of a

lower amount, then the collateral of an affiliate of the applicant

must be added to the existing collateral. If necessary to meet requirements for sufficient collateral under the Act, the assets of the

26

applicant and all assets from any affiliate can be required. Finally,

the Board must determine in writing that all necessary and required regulatory approvals have been received for the loan and

the project that is associated with the loan, that the loan would not

have been available on reasonable terms and conditions without

the guarantee provided under the Act, and that there is a reasonable expectation by the Board that the loan will be repaid.

The Board will prioritize applicants for loan guarantees using

certain criteria. The Board’s chief priority will be for projects that

serve the greatest number of households in unserved areas. The

Board must also consider the cost per household served for the proposed projects. The Board may not approve a loan guarantee for a

project that is designed primarily to serve one or more of the 40

most populated designated market areas.

The aggregate value of all loans for which loan guarantees may be issued under this Act cannot exceed $1 billion, but otherwise

there is no minimum or maximum value required for a loan guarantee. The Board may guarantee up to 80 percent of that portion

of a loan that will be used to provide local television signals and

that otherwise meets the requirements established by the Board

and the Act. The 80 percent loan guarantee may take one of two

forms. The guarantee may represent up to 80 percent of a loan that

comprises all (100 percent) of the debt associated with a project

meeting the purposes of the Act. Alternatively, the guarantee may

represent a full guarantee (100 percent) of a loan that comprises

up to 80 percent of the debt associated with a project. Under this

second scenario, the same lender must provide all of the financing

for the project, including both the guaranteed and the

unguaranteed portions.

The Board also is authorized to establish and accept credit risk

premiums with respect to loan guarantees under the Act. To the

extent appropriations of budget authority are not sufficient to cover

the cost of loan guarantees under the Act, the Board must require

credit risk premiums from applicants to cover this shortfall. Credit

risk premiums will be paid into an account established in the

Treasury and shall accrue interest. The Board shall use the proceeds of this account to cover any shortfall between a guaranteed

amount paid pursuant to the Act and the net proceeds earned upon

liquidation of all assets used as collateral for the loan. When all

loans guaranteed by the Act have been repaid or otherwise satisfied, the Board will refund any remainder in the account to those

borrowers who did not default or who cured any default, on a pro

rata basis.

Section 5. Administration of loan guarantees

Section 5 provides that the Administrator of the Rural Utilities

Service (‘‘Administrator’’) will be responsible for administering loan

guarantees issued pursuant to the Act. The Administrator will enforce the terms and conditions specified by the Board and monitor

the performance of loans guaranteed by the Board.

The Administrator will have superior status to all other

lienholders on assets used to secure a loan guaranteed under the

Act and a perfected security interest in such assets. The Administrator must also ensure that an applicant has obtained sufficient

27

insurance. The Board may approve the modification of a loan guarantee under this Act, provided the Board satisfies certain criteria.

The Administrator must establish performance schedules with all

applicants, and impose penalties for failure to meet such schedules.

The Administrator must also enforce compliance with this Act and

the provisions of a loan guarantee.

The Board is required to establish rules governing defaults on

loans guaranteed under the Act. In the event of default, all property or related interests must be sold or disposed of in an orderly

and efficient manner so as to maximize return to the taxpayer. The

Administrator is authorized to accept property as payment of

amounts owed to the United States, but only to the extent that the

obligation is not fully satisfied by cash.

The Board is required to charge and collect an application fee,

and must also charge a loan origination fee. The fees collected

under the Act shall offset its administrative costs. Affiliates of an

applicant must indemnify the United States for any losses incurred

by the United States.

Notwithstanding any other provision of law, if any person or entity indebted to the United States as a result of this Act files for

bankruptcy protection, the person’s or entity’s debts due to the

United States must be satisfied first. A discharge in bankruptcy

will not release a person or entity from obligations under this Act.

Section 6. Prohibition on use of funds for spectrum auctions

Section 6 provides that no loan guarantee under this Act may be

granted or used to provide funds for the acquisition of licenses for

the use of spectrum in an FCC auction.

Section 7. Prohibition on use of funds by incumbent cable operators

Section 7 provides that no loan guarantee under this Act may be

granted or used to provide funds for either (1) the extension of any

cable system to any area or areas for which the cable operator of

such cable system has a cable franchise, if such franchise obligates

the operator to extend such system to such area or areas; or (2) the

upgrading or enhancement of the services provided over any cable

system, unless such upgrading or enhancement is principally undertaken to extend services to areas outside of the previously existing franchise area of the cable operator.

Section 8. Annual audit

Section 8 requires the General Accounting Office (GAO) to conduct an annual audit of (1) the loan guarantee program, and (2) the

financial position of each applicant who receives a loan guarantee

under this Act, including the nature, amount, and purpose of investments made by the applicant. The GAO is required to submit

a report of each audit to Congress.

Section 9. Exemption from must carry requirements

Section 9 establishes that a facility of a satellite carrier, cable

system, or other multichannel video programming distributor that

is financed with a loan guaranteed under this Act and that delivers

local broadcast signals in a television market pursuant to the provisions of section 338, 614, or 615 of the Communications Act of

28

1934 (47 U.S.C. §§ 338, 534, or 535) is not required to carry in such

market a greater number of local broadcast signals than the number of such signals that is carried by the cable system serving the

largest number of subscribers in such market.

Section 10. Additional availability of broadcast signals in rural

areas

Section 10 directs the FCC to open a filing period window for the

acceptance of applications for television translator stations and

low-power television stations in rural areas.

Section 11. Prevention of interference to satellite services applying

for rural loan guarantees

Section 11 forbids the Board from approving a loan guarantee

under the Act until the FCC has determined on the basis of a technical demonstration or, if infeasible, an analysis, that any terrestrial service proposing to operate in the satellite broadcast frequency band will not cause harmful interference to any satellite

service eligible for a loan guarantee under the Act.

Section 11 also requires that the technical demonstration or

analysis be both conducted and analyzed by an independent engineering firm or other qualified entity. The independent demonstration and analysis must be subject to public notice and comment,

and be completed within 90 days after the date of enactment. During that 90-day period, to ensure no harmful interference to eligible

satellite services, the FCC is precluded from allocating spectrum

for, or issuing licenses to, any terrestrial service proposing to operate in the satellite broadcast frequency band.

Section 12. Improved cellular service in rural areas

Section 12 directs the FCC to tentatively reinstate three applicants that intend to provide much-needed cellular competition in

Pennsylvania, Minnesota, and Florida, and to permit each applicant to amend its application to update factual information and to

comply with the rules of the FCC. The Committee notes that this

problem has persisted for ten years, and will help to ensure that

valuable spectrum is put to its highest, best, and fullest use.

Section 13. Technical amendment

Section 13 is intended to correct an oversight from the Satellite

Home Viewer Improvements Act that has led to unnecessary confusion for many consumers. Among other things, SHVIA clarified the

circumstances under which DBS subscribers are eligible to receive

distant network signals. SHVIA specifically established procedures

under which subscribers who are presumptively ineligible to receive distant network stations may ask for a waiver of that ineligibility from their local broadcaster, or should that request be denied, arrange for their eligibility to be determined on the basis of

a signal strength test conducted at the subscriber’s residence.

Unfortunately, for many consumers, the right to seek a waiver

has been frustrated by some local broadcasters who are narrowly

interpreting their right to do so. Specifically, SHVIA provides that

a consumer’s request for a waiver must be conveyed to the local

broadcaster by a ‘‘satellite carrier,’’ which under SHVIA is defined

29

as a facilities-based satellite operator that has a direct relationship

with the consumer (e.g., DirecTV or EchoStar).

The problem is that more than a million consumers subscribe to

DBS service through a retail distributor that has a wholesale contractual arrangement with carriers like DirecTV, and as such,

lacks the requisite facilities to qualify as a ‘‘satellite carrier’’ as

that term is presently defined in SHVIA. Nevertheless, these retail

distributors have unique relationships with their consumers in the

billing, collection, activation and deactivation of their customer’s

satellite service. Moreover, from the consumers’ perspective, these

distributors are no different than facilities-based distributors. Congress never intended, and is disappointed to learn, that some local

broadcasters would refuse to consider a consumer’s waiver request

based upon whether the entity is facilities-based. Section 13 therefore clarifies that, for purposes only of consumer requests of a

waiver from SHVIA’s distant signal eligibility requirements, the

term ‘‘satellite carrier’’ shall include a retail distributor, provided

the distributor serves the subscriber and engages in basic subscriber functions such as billing, collecting, activating service accounts and service changes.

Section 14. Definitions

Section 14 defines certain terms.

Section 15. Authorization of appropriations

Section 15 authorizes appropriations for both the cost of the

guaranteed loans and the cost of the administering the loan guarantee program.

Section 16. Sunset

Section 16 prohibits the Board from approving any loan guarantee under this Act after December 31, 2006.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (new matter is printed in italic

and existing law in which no change is proposed is shown in

roman):

SECTION 339 OF THE COMMUNICATIONS ACT OF 1934

SEC. 339. CARRIAGE OF DISTANT TELEVISION STATIONS BY SATELLITE CARRIERS.

(a) * * *

* * * * * * *

(c) ELIGIBILITY FOR RETRANSMISSION.—

(1) * * *

* * * * * * *

(5) DEFINITION.—Notwithstanding subsection (d)(4), for purposes of paragraphs (2) and (4) of this subsection, the term ‘‘satellite carrier’’ includes a distributor (as defined in section

119(d)(1) of title 17, United States Code), but only if the satVerDate 20-MAR-2000 22:38 Apr 07, 2000 Jkt 063631 PO 00000 Frm 00029 Fmt 6659 Sfmt 6603 E:\HR\OC\HR508P2.XXX pfrm01 PsN: HR508P2
30

ellite distributor’s relationship with the subscriber includes billing, collection, service activation, and service deactivation.

* * * * * * *

(31)

DISSENTING VIEWS

INTRODUCTION

I share the goals of the sponsors of H.R. 3615 to ensure the

speedy deployment of television service and new technologies to

rural America. Where we differ is on how best to get there. H.R.

3615 chooses the wrong path: it will actually inhibit competition

and retard the deployment of new technologies in rural areas.

H.R. 3615 keeps in place the onerous government mandates that

now preclude satellite broadcasters and other television providers

from delivering local television signals into small and rural markets. Instead, the bill proposes to have the government ‘‘solve’’ this

problem of its own making by creating a new $1 billion subsidy

program—in the process further injuring the very market that

would gladly serve rural America of its own accord if the government wasn’t already standing in the way.

Adding insult to injury, the bill puts a 70-year-old federal bureaucracy within the U.S. Department of Agriculture, which has no

television technology expertise, in charge of administering the new

$1 billion subsidy program. The ‘‘Rural Utilities Service’’ (the renamed Rural Electrification Administration, a notoriously wasteful

and outmoded bureaucracy now in search of a new mission) has—

to quote from Rep. Markey—‘‘perhaps the worst record in U.S. history of the public or private sector in the administration of loan

programs.’’ These government bureaucrats will now play high-tech

venture capitalist, using taxpayer dollars to pick one winner in a

market (and thus also to pick many losers, who won’t get subsidies

and won’t want to enter the market against a subsidized competitor). From among the many current and would-be competitors trying to deliver local television service to any given rural market,

only one will be blessed with federal largesse.

The result will be disastrous:

• Even if satellite technology wins the government subsidy lottery (as seems likely), satellite companies will now face unfair competition from a government-run or government-subsidized satellite

venture. • Worse, government regulations will continue to hinder satellite

companies from delivering local television service to smaller markets. • Taxpayers will lose several hundreds of millions (and potentially a billion) dollars if the government’s technology bets and

business decisions don’t pay off (as the Congressional Budget Office

predicts they won’t).

• A dinosaur of a federal agency that might otherwise finally be

on the verge of being shut down will instead be given new life.

Worst of all, the bill seems certain to subsidize existing rather

than new technology, which in turn will dissuade new entrants

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from developing new, more effective, and less expensive ways to deliver local TV signals—and other digital services—to rural communities.

I. I’M WITH THE GOVERNMENT AND I’M HERE TO HELP

‘‘I’m with the government and I’m here to help’’ is a phrase that

Americans have learned to regard with great suspicion. They’ve

learned that often many of the problems the government is trying

to solve, it has in fact helped to create. The story is no different

when it comes to the delivery of local TV broadcasts to small cities

and rural areas.

In 1999, when Congress finally made it legal for satellite broadcasters to transmit local TV signals (‘‘local-into-local’’ service), there

was a major catch. The law contains a burdensome mandate: in

order to carry even one local TV signal in a market, a satellite

broadcaster must carry all local TV signals in that market. This

draconian mandate is called ‘‘must-carry.’’

What it means is that a satellite broadcaster who wants to include a local station in Los Angeles can only do so if it agrees to

carry all the local TV stations throughout the LA region. This is

true no matter how few viewers some of the stations might have,

or how lousy the quality of their programming. In Los Angeles,

must-carry covers 23 government-mandated stations that Uncle

Sam, not the marketplace, requires you to buy.

Small cities and rural areas pay most dearly for this must-carry

mandate, in the form of lost service. Because satellite capacity is

limited, having to carry all 23 stations in order to serve Los Angeles means 23 fewer channel slots on the satellite system. Because

there are so many local TV stations in the top 20 to 30 markets,

and because no satellite provider would ever give up Los Angeles

or New York to serve a small rural market, there just isn’t room

for satellites to add local stations in rural areas. Today, as a result

of must-carry, the nationwide capacity for the major satellite

broadcasters is completely filled up in serving just the large markets.

The federal mandates that cause smaller media markets to go

unserved are blatantly unfair to residents outside of big cities. In

practice, the must-carry law says it is more important for a resident in Los Angeles or New York to receive all 23 local TV stations

than it is for a resident of Roanoke, Buffalo, Louisville, or Omaha

to get even a single channel of local content.

Today, the major satellite broadcasters deliver local-into-local

signals to 50% of the nation’s population. If it weren’t for the mustcarry law, satellite broadcasters told the Commerce Committee

that they would have enough capacity on their satellites to immediately expand local-into-local service to 80 million Americans in

smaller markets.

II. IF IT MOVES, TAX IT. IF IT KEEPS MOVING, REGULATE IT. AND IF

IT STOPS MOVING, SUBSIDIZE IT

President Ronald Reagan summed up the typical Washington

view of economic policy as follows: ‘‘If it moves, tax it. If it keeps

moving, regulate it. And if it stops moving, subsidize it.’’

33

President Reagan’s aphorism is nowhere better applied than to

today’s bill subsidizing television in small markets—a ‘‘solution’’ to

a problem government created in the first place. The government,

of course, steeply taxes the satellite broadcasters who will now simultaneously be subsidized to overcome their ‘‘capital shortage.’’ It

regulates satellite broadcasters so heavily that they can’t broadcast

to smaller markets. And now the government will subsidize broadcasts to smaller communities, because the ‘‘market’’ has ‘‘failed.’’

The $1 billion loan subsidy program will, in turn, force higher-still

taxes on millions of working Americans, almost none of whom will

get the subsidized TV they’re paying for.

While no specific platform for delivering the TV service is mentioned, the sponsors of the legislation have made it clear that they

intend the loans to be used to finance the construction and launch

of a new satellite television service. This will put the government,

and taxpayers, in the satellite TV business. But the commercial

satellite business is extremely risky. And Congressional Budget Office Director Dan Crippen testified on March 16, 2000 that the new

$1 billion loan program, just like the underlying industry, ‘‘is likely

to prove financially and technically risky.’’ CBO concluded, after

consulting with industry experts and financial analysts, that the

likely default rate for the loans will be between 30% and 45%. This

will result in losses to taxpayers of hundreds of millions of dollars.

Unfortunately, the Commerce Committee defeated a number of

amendments offered at Subcommittee and full Committee markup

that would have reduced taxpayers’ exposure.

III. A ‘‘DINOSAUR’’ ENTERS THE INFORMATION AGE

The agency charged by H.R. 3615 with administering this information-age loan program is not up to the task. The Rural Utilities

Service, a branch of the U.S. Department of Agriculture, is a 70-

year-old bureaucracy with no specialty in television or satellites,

but with one salient feature above all others: a disastrous loan

management track record that has caused taxpayers to suffer billions of dollars of write-offs and losses.

A quick look at the track record of the Rural Utilities Service

should leave taxpayers worried indeed about giving billions more

to the RUS for this new program:

• The RUS makes loans to people who can’t even get a business

off the ground with a federal subsidy. In just the last five years,

the U.S. Department of Agriculture has been forced to write off

nearly $2 billion in money owed to taxpayers by RUS borrowers

who have gone belly up. The GAO has identified another $8 billion

in loans—roughly one-fifth of RUS’s outstanding loan portfolio—

that are not likely to be collected because the borrowers are in

bankruptcy or ‘‘experiencing serious financial difficulties.’’

• If RUS loans aren’t written off, it’s because they’ve been made

to people who don’t need them. According to the March 16, 2000

testimony by the USDA’s own Inspector General: ‘‘[H]alf of RUS

telephone borrowers are in strong financial condition. * * * good

enough financial condition to satisfy their credit needs from their

own financial organizations or from other credit sources.’’ A 1998

GAO report also concluded that RUS loans are often made to ‘‘financially healthy borrowers that may not need federal assistance.

34

* * * 56 percent of the borrowers had equity—total assets less liabilities—of $10 million or more at the end of the year prior to receiving the loans.’’ • The RUS makes loans for purposes other than what Congress

intended. While the clear purpose of the Rural Electrification Act

is to promote development in rural and unserved areas, many RUS

loans have gone to support service to wealthy communities far removed from the ‘‘little house on the prairie.’’ The Office of Management and Budget found that RUS loans have been used to subsidize electricity bills for the residents of such ‘‘needy’’ communities

as Aspen, Vail, and Hilton Head, and for such ‘‘rural’’ areas as Atlanta, Minneapolis, and Nashville. The USDA’s Inspector General

testified before the Committee that RUS borrowers ‘‘have not become major players in financing America’s rural infrastructure, despite the fact that these borrowers hold almost $11 billion in total

investments. Disappointingly, only one-half of one percent of this

amount—about $61 million—is actually invested in rural America.’’

President Reagan also once said that the closest thing to eternal

life on earth is a government bureaucracy. Once America’s farms

were hooked up to electricity and telephones, the Rural Electrification Administration was a bureaucracy without a purpose. That

has never retarded its growth, however. With its recent name

change to the ‘‘Rural Utilities Service’’ and a potential new venture

into satellite TV and maybe even cyberspace, the 70-year-old RUS

will surely outlive us all.

IV. BUREAUCRATS AS VENTURE CAPITALISTS

By far the biggest failing of H.R. 3615 is that it would put the

government in the business of speculating—with taxpayer dollars—

on which financial risks in the television technology marketplace

are likely to be ‘‘winners’’ and ‘‘losers.’’ It is foolish to think that

the government can do a better job of allocating risk capital than

the free market does. Yet this is the presumption of H.R. 3615.

The original mission of the RUS—providing electricity and telephone service to farms that didn’t already have service—was a

technologically simple one. First, there was no competition to worry

about: electric utilities and the phone company were monopolies.

Second, the technology was static: electricity was electricity, and

phones were phones.

By contrast, today’s television technology is not plain vanilla.

There are an endless variety of flavors, from wireless cable to

Internet broadcasting to digital cable to satellite broadcast to TV

service offered by your electric or phone company—not to mention

a dozen new technologies currently in incubation. Asking bureaucrats and political appointees at the U.S. Department of Agriculture to step into this rapidly changing marketplace and figure

out whom to subsidize is a recipe for disaster. It will coddle inefficiency and subsidize losers, promote unwanted services, sustain old

technologies, impose high-cost solutions, and create new monopolies—all the while retarding the advancement of technologies that

could solve today’s rural TV service problem far better than any

government program.

Here is a business question that RUS might ask themselves for

starters: Is the consumer demand for satellite delivery of local TV

35

signals sufficient to make a profit in the current regulated environment? The answer to this question is critical, as the argument

mustered by supporters of H.R. 3615 is not that rural America cannot receive any television signals. (In fact, the main reason satellite

TV came of age over the last two decades is that it can provide nationwide service to rural areas that would be too costly to wire for

cable service.) Rural households can already receive scores of channels of television programming via satellite service or cable TV. In

fact, the availability of numerous national TV signals like CNN,

ESPN, and the Weather Channel in rural markets is often advanced as an explanation of the sluggish demand for local TV signal in those same markets.

Moreover, most rural households can already receive local TV

signals for free via over-the-air broadcast. Whether consumers in

rural areas will be willing to pay for satellite delivery of local signals (and only pay TV will be subsidized under H.R. 3615) is another matter. Yet H.R. 3615 simply takes it for granted that millions of consumers will do so.

This is an extremely risky assumption. According to Congressional Budget Office estimates, satellite providers will need to acquire 1.6 million new rural customers paying $6 a month for local

TV service merely to cover debt service on $1 billion in loans. But

CBO notes that the total number of homes that cannot now receive

local TV service is only 3 million nationwide.

Moreover, paying back the principal on the loan is another matter altogether. The second largest satellite television company in

America today still loses money after five years of operation, even

though it has 3.4 million subscribers. Can the technological expertise and business savvy of a 70-year-old federal agriculture bureaucracy acquire more subscribers than EchoStar?

The 25-year term of the loans to be issued under H.R. 3615 further assumes that what we know today as ‘‘television’’ will remain

static. But it is far from obvious that in five years—let alone 25—

consumers will prefer their local news, sports, and weather information to be packaged as they are today on television programs,

rather than in the many new formats currently being tested on the

Internet. Is it unreasonable to think that farmers might actually

someday soon get TV over the Internet? If so, would you want to

make a $1 billion, 25-year bet on the older technology the Internet

wiped out?

If this loan program were set up 100 years ago, the government

might today be subsidizing home newspaper delivery to rural

areas. But just as television replaced newspapers as the primary

local news source for much of America, so too the Internet might

one day soon replace traditional television broadcasts as the primary source for local news. Undoubtedly, there are other technologies not yet on the market that might soon supplant even the

Internet.

The sponsors of H.R. 3615 have made it clear that they intend

the loans to be used primarily to start up a new satellite television

service. But transmission of high-quality digital TV signals can be

carried over a variety of different technologies—from copper wire to

fiber optics, from satellites to terrestrial fixed wireless, and over

electricity wires. As more and more companies roll out newer and

36

faster data services to rural areas, any number of new technologies

will likely prove better and cheaper means of serving rural markets. Who is the government to say that it knows for certain the

best way to deliver TV to rural America?

CONCLUSION

The world of technology is complex, fast-changing, and

unstructured. H.R. 3615 unwisely presumes that the government

should play the role of high-tech venture capitalist. The bill is likely to coddle inefficient and high-cost enterprises, rather than subjecting them to the discipline of the capital markets and of consumers. It is likely to produce significant losses for taxpayers. And

it will result in subsidies for existing technologies, inhibiting the

development of innovations that could deliver, at cheaper prices,

improved services for residents of rural and urban America alike.

During markup in the Commerce Committee, one of our colleagues offered an amendment to expand this ill-advised subsidy

program from $1 billion to $4 billion—and to add ‘‘digital services’’

including the Internet as potential objects of the government’s affection. It is very clear where this kind of thinking, like another

well-known road, will lead.

CHRISTOPHER COX.

Æ