LOCAL TV Act: Administrative Funds May No Longer Be Necessary
Published: 2005-04-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This is GAO's third report addressing the LOCAL TV Act's requirement that GAO perform an annual audit of the (1) administration of the provisions of the act and (2) financial position of each applicant who receives a loan guarantee under the act, including the nature, amount, and purpose of investments made by the applicant. Although the LOCAL Television Loan Guarantee Program (LOCAL TV Program) was implemented in fiscal year 2004, there were no loan guarantee applicants for GAO to audit. Therefore, this report primarily addresses whether program administration during fiscal year 2004 satisfied the provisions of the act.
section_title: What GAO Found
paragraphs: During fiscal year 2004, the LOCAL Television Loan Guarantee Board completed the steps necessary to prepare the LOCAL TV Program for implementation by issuing the mandated underwriting criteria and operating rules. On December 23, 2003, the board provided applicants the first opportunity to apply for a loan guarantee. The board received one application, which it returned with the related fee because the board determined that it was incomplete. On December 8, 2004, the Congress passed the Consolidated Appropriations Act, 2005, one provision of which rescinded appropriations that would have been used to guarantee loans under the LOCAL TV Program. The President's Budget for Fiscal Year 2006 pointed out that the unobligated budget authority for this program had been rescinded and the administration was not proposing additional funds for this program. The LOCAL TV Act authorizes the LOCAL TV Board to approve loan guarantees until December 31, 2006. An amendment to this act provides for an earlier cut-off date with regard to most of the funding if the Secretary of Agriculture were to determine that at least 75 percent of the designated market areas (DMA) not in the top 40 had access to local television broadcast signals for virtually all households. During fiscal year 2004, there were 210 DMAs throughout the United States. To satisfy the requirement that at least 75 percent of the remaining 170 DMAs have access to local television signals, 128 DMAs would require local television access. Using available industry data, the board's analysis showed that as of September 30, 2004, 114 DMAs were receiving local television signals from at least one of the two major direct broadcast satellite (DBS) providers. These data further indicate that nationally, the number of U.S. television households without access to local television signals from DBS decreased from approximately 23.4 million in August 2003 to about 4.8 million as of September 2004. The board also pointed out that, during the same time period, the number of television households without access to local television through DBS or cable television dropped from 2.9 million to .6 million. The board's estimated cost to implement the LOCAL TV Program from its initial funding on November 28, 2001, to September 30, 2004, is just over $1.2 million, composed of contractual and in-house services. The contractual services include $662,000 in obligations and disbursements made from the $2 million administrative appropriation, primarily for an independent public accounting firm to develop the underwriting criteria and program regulations. Salaries and expenses incurred by the Working Group members to support the LOCAL TV Board were approximately $597,000 from initial program funding through September 30, 2004. These costs were borne by the staff's respective departments and agencies.

section_title: Letter
paragraphs: To facilitate access to signals of local television stations for households  located in nonserved and underserved areas, the Congress passed the  Launching Our Communities’ Access to Local Television Act of 2000  (LOCAL TV Act). The act created the LOCAL Television Loan Guarantee  Program (LOCAL TV Program), which provides for loan guarantees of up to  80 percent of loans totaling no more than $1.25 billion in the aggregate to  finance projects to enable local television signal access to communities  where distance and topography limit access to over-the-air television  broadcast signals or cable service. The act called for establishing the  LOCAL Television Loan Guarantee Board (LOCAL TV Board or board),  which is composed of the Secretary of the Treasury, the Chairman of the  Board of Governors of the Federal Reserve System, the Secretary of  Agriculture, and the Secretary of Commerce, or their designees, primarily  to approve loan guarantees. It also established the Department of  Agriculture’s (USDA) Rural Utilities Service (RUS) Administrator as  Program Administrator (Administrator) to issue and administer approved  loan guarantees.
This report, our third since the program’s initial funding, addresses  the act’s requirement that we perform an annual audit of the  (1) administration of the provisions of the act and (2) financial position of  each applicant who receives a loan guarantee under the act, including the  nature, amount, and purpose of investments made by the applicant.  Although the program was implemented in fiscal year 2004, there were no  loan guarantee applicants for us to audit. Therefore, this report primarily  addresses whether program administration during fiscal year 2004 satisfied  the provisions of the act.
subsections: section_title: Background
paragraphs: The Launching Our Communities’ Access to Local Television Act of 2000  created a guaranteed loan program to facilitate access to signals of local  television stations for households located in nonserved and underserved  areas of the United States. The act established the LOCAL Television Loan  Guarantee Board. The board’s primary function is to approve loan  guarantees to finance projects to provide local television signal access for  communities in remote areas throughout the United States. The act  authorized the board to approve loan guarantees up to 80 percent of the  value of each loan and provided that total guaranteed lending was not to  exceed $1.25 billion. Loan repayment was to be made during the lesser of  (1) 25 years from the date of the execution of the loan or (2) the  economically useful life of the primary assets to be used in the delivery of  the signal involved.
The act set forth specific provisions and requirements for the LOCAL TV  Board to implement this new program. Specifically, the act requires the  board to: (1) direct the Administrator to prescribe regulations and  develop underwriting criteria in consultation with the Director of the Office  of Management and Budget (OMB) and an independent public accounting  firm within 120 days after the Congress appropriated funds; (2) establish  and collect loan application and loan guarantee origination fees to offset  the cost of administering the program under the act, including the costs of  the board and the Administrator; and (3) consider other numerous  specialized technical and business requirements prior to approving a loan  guarantee. Further, the act, as amended in 2002, restricts the time period  during which the board may approve loan guarantees. The act provides for  terminating the board’s authority to guarantee loans (1) by December 31,  2006 with all appropriated funds or (2) by an earlier cut-off date with regard  to most of the funding if the Secretary of Agriculture determines that at  least 75 percent of the DMAs not in the top 40 DMAs have access to local  television broadcast signals for virtually all households (as determined by  the Secretary of Agriculture).
The act directs the Administrator of RUS, an agency of the USDA’s Rural  Development, to develop the regulations and to issue and administer loan  guarantees that have been approved by the LOCAL TV Board. This is  consistent with RUS’s mission of administering loan and grant programs,  including those to finance projects so rural areas can have, among other  things, more modern affordable electricity, telecommunications, public  water, and waste removal services.
Based on authority granted in the act, the LOCAL TV Board established a  Working Group, consisting of senior level officials from the various  departments and agencies that represent the board, to assist it with  implementing the program.
Initial program funding was provided in November 2001 through the  Agriculture, Rural Development, Food and Drug Administration, and  Related Agencies Appropriations Act, 2002. This act provided $2 million  for administrative expenses and a $20 million appropriation which, based  on estimated subsidy costs, would have supported $258 million in loan  guarantee authority over the life of the loans. In May 2002, the Farm  Security and Rural Investment Act of 2002 appropriated an additional  $80 million to support guaranteed lending. In August 2002, the  Supplemental Appropriations Act for Further Recovery from and Response  to Terrorist Attacks on the United States rescinded the $20 million credit  subsidy appropriated in November 2001 and appropriated an additional  $8 million credit subsidy. Cumulatively the LOCAL TV Program had an  $88 million credit subsidy to finance expected costs to support $1.07 billion  in loan guarantee authority, at the end of fiscal year 2002. The program  retained this budget authority until December 2004, when the Congress  rescinded the entire $88 million credit subsidy in the Consolidated  Appropriations Act, 2005, thus eliminating all authority for the LOCAL TV  Board to approve loans pending a future appropriation for this purpose.  Figure 1 provides a listing of key activities from program inception through  September 2003.
section_title: Scope and Methodology
paragraphs: To evaluate how the provisions of the act were administered, we focused  primarily on program activities and related obligations and administrative  expenses that were incurred on behalf of the LOCAL TV Program during  fiscal year 2004. We analyzed the LOCAL TV Act to obtain an understanding  of its provisions and reviewed legislation concerning the program’s  funding. We obtained and evaluated information from the LOCAL TV  Board, including minutes from board meetings and other budget and cost  information, to obtain an understanding of the activities that occurred to  implement the program during fiscal year 2004. We did not independently  verify or audit the cost data we obtained from the board. Also, we did not  independently review the program regulations or underwriting criteria.  Therefore, we do not provide any assurance on them. We did not obtain the  loan application received by the LOCAL TV Board, nor did we review the  board’s assessment of the application. Further, we did not independently  audit or verify the board’s analysis of local television coverage by DBS for  the DMAs not in the top 40 DMAs. We conducted our work from September  2004 through March 2005 in accordance with U.S. generally accepted  government auditing standards.
We requested comments on a draft of this report from the Local TV Board.  The board’s comments are discussed in the Agency Comments and Our  Evaluation section of this report.
section_title: Program Prepared for Implementation but Funding Rescinded
paragraphs: During fiscal year 2004, the LOCAL TV Board completed the steps  necessary to prepare the LOCAL TV Program for implementation by  issuing the mandated underwriting criteria and operating rules. On  December 23, 2003, through a notice published in the Federal Register,  the board provided applicants the first opportunity to apply for a loan  guarantee. The board received one application during the application  period, which opened on December 23, 2003 and closed on April 21, 2004.  The board reported that the application lacked essential components  required by the program regulations and returned it to the applicant with  the related fee.
On May 24, 2004, the LOCAL TV Board considered opening another 60-day  application window for the program. However, it later decided against  doing so because of the limited response to the first application  opportunity and the pending congressional action to rescind the program’s  entire loan guarantee authority. On December 8, 2004, the Congress passed  the Consolidated Appropriations Act, 2005, one provision of which  rescinded the program’s unobligated balances which were available for  guaranteeing loans. Further, the President’s Budget for Fiscal Year 2006  pointed out that the unobligated budget authority for this account had been  rescinded and stated that the Administration was not proposing additional  funds for the Local TV Program.
section_title: The Board’s Analysis Showed That Access to Local Television Signals Using DBS in Rural Areas Improved
paragraphs: The LOCAL TV Act authorizes the board to approve loan guarantees funded  with appropriated funds until December 31, 2006. Furthermore, as  discussed earlier, for most of the funding, the board’s authority to approve  loan guarantees would terminate before then if the Secretary of Agriculture  determines that at least 75 percent of the DMAs not in the top 40 have  access to local television broadcast signals for virtually all households.  During fiscal year 2004, there were 210 DMAs throughout the United States.  To make this statutory determination for early termination of loan  guarantee authority, the Secretary would have had to determine that at  least 75 percent of the remaining 170 DMAs (i.e., at least 128 DMAs) have  access to local television signals for virtually all households.
The LOCAL TV Board provided us with written documentation showing  how RUS staff tracked market developments through industry sources,  including press releases and trade news reports. Using these sources, the  board’s analysis showed as of September 30, 2004, that 114 of the 170 DMAs  were receiving local television signals from at least one of the two major  DBS providers. Based on that data, the criteria for early termination under  the act were not satisfied. Therefore, at the end of fiscal year 2004,  56 DMAs, or approximately 4.8 million U.S. television households, were not  receiving access to local television signals from DBS. Based on the criteria  established by the act, as amended, and the board’s analysis as of  September 30, 2004, it would appear that at least 14 more DMAs would  need access to local television signals for virtually all households.
This need would be met if DBS providers began delivering local signals to  those markets. Based on data received from the LOCAL TV Board, this  would involve approximately 470,000 to 2 million additional television  households, depending on which DMAs are provided access. Table 1 shows  the status of the local television signal access by DBS for DMAs and  television households as of September 30, 2004.
From a national perspective and based on the board’s analysis, we  determined the number of television households that have access to local  television signals using DBS has increased since August 2003. In August  2003, approximately 83.2 million of 106.6 million television households had  access to local television signals. During fiscal year 2004, the board  analyzed the extent to which direct broadcast satellites were currently  providing access to local television signals in DMAs. The board’s estimate  of U.S. television households with access to local television signals using  DBS was approximately 103.4 million out of 108.4 million as of  September 30, 2004. This represents an increase from 78 percent to  95 percent in U.S. television households that had access to local television  signals from DBS between August 2003 and September 2004. Conversely,  these data indicate that the number of U.S. television households without  access to local television signals from DBS has decreased from  approximately 23.4 million in August 2003 to about 4.8 million in  September 2004. This represents a decrease of approximately 18.6 million  U.S. television households, or a 79 percent reduction. The board also told  us that the number of television households without access to local  television via DBS or cable television dropped from 2.9 million in August  2003 to .6 million in September 2004. Because all of the appropriated funds  for the LOCAL TV Program were rescinded, the board advised us that it has  no plans to conduct additional market analyses.
section_title: Program Development Costs Total More Than $1.2 Million
paragraphs: The LOCAL TV Board’s estimated cost to implement the program from its  initial funding on November 28, 2001, to September 30, 2004, is over  $1.2 million. This estimate is composed of two components. First, it  includes $662,000 in obligations and disbursements made from the  $2 million administrative appropriation for Ernst & Young LLP to develop  the underwriting criteria and program regulations and related GovWorks  administrative fees. The second component includes the board’s estimate  of salaries and expenses incurred by the Working Group members to  support the board that totals approximately $597,000.
The Agriculture, Rural Development, Food and Drug Administration, and  Related Agencies Appropriations Act of 2002 provided $2 million to USDA  for administrative expenses. During fiscal year 2002, USDA obligated the  entire $2 million by issuing an order for its anticipated needs to GovWorks,  which subsequently awarded, on the board’s behalf, two contracts totaling  about $1.2 million. The first contract was awarded to Ernst & Young LLP  for approximately $749,000 (including GovWorks fees). Of this amount,  GovWorks obligated and disbursed approximately $640,000 to Ernst &  Young LLP to develop the underwriting criteria and program regulations  and $22,000 in fees to GovWorks. The second contract was issued to Arnold  and Porter LLP for legal services in the amount of $500,000. No obligations  or disbursements were made for this contract, and during the first quarter  of fiscal year 2005, the board decided to terminate it. As of December 31,  2004, the remaining available balance was approximately $1.3 million,  including $800,000 that was never awarded and $500,000 from the  terminated Arnold and Porter LLP contract.
Separate from the $2 million administrative appropriation, based on  authority granted in the act, the LOCAL TV Board established a Working  Group, consisting of senior level officials from various departments and  agencies that are represented on the board, to assist it with implementing  the LOCAL TV Program. The program did not have full-time staff but  depended on staff from the various agencies supporting individual board  members as a collateral duty. The costs incurred by the Working Group  members to support their board members have been borne by the  respective departments and agencies from within their existing budgetary  resources (i.e., salaries and expenses appropriations or accounts). The  LOCAL TV Board estimated that the Working Group incurred a total cost  from initial funding of the program through September 30, 2004, of  approximately $597,000. Table 2 provides a summary of the reported  estimated administrative costs incurred by the Working Group for fiscal  years ended September 30, 2002 through 2004.
Because no applications were accepted and no loan guarantees were  issued, none of the costs in Table 2 were recovered by fees charged to loan  guarantee applicants.
section_title: Conclusions
paragraphs: The Congress has rescinded the funding to support loan guarantees under  the LOCAL TV Act, and the President’s Budget for Fiscal Year 2006 did not  propose additional funds for the LOCAL TV Program. Unless the Congress  appropriates additional budget authority for loan guarantees, USDA may  not need the balance of the administrative funds (about $1.3 million)  transferred to and remaining unobligated by contract in the GovWorks  account.
section_title: Matter for Congressional Consideration
paragraphs: Should the Congress decide not to provide future loan guarantee funding, it  may wish to consider saving budgetary resources by rescinding the balance  of the $2 million appropriated for administrative expenses to carry out the  LOCAL TV Program that has been transferred to GovWorks, but remains  unobligated by contracts in that account.
section_title: Agency Comments and Our Evaluation
paragraphs: In oral comments, the LOCAL TV Board generally agreed with the report’s  findings and provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to the Secretaries of Agriculture,  Commerce, and Treasury, and the Chairman of the Board of Governors of  the Federal Reserve System, members of the Local Television Loan  Guarantee Board, and the Director of the Office of Management and  Budget. We will also make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
Should you or your staff have any questions on matters discussed in  this report, please contact me at (202) 512-6906 or by e-mail at  williamsm1@gao.gov or Alana Stanfield, Assistant Director, at  (202) 512-3197 or stanfielda@gao.gov. Major contributors to this report  are acknowledged in appendix I.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, the following individuals made  important contributions to this report: Lisa Crye, F. Abe Dymond,  Lauren S. Fassler, Jeff Isaacs, and Christina Quattrociocchi.
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