Recovery Act: Broadband Programs Awards and Risks to Oversight
Published: 2011-02-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Access to broadband service--a highspeed connection to the Internet--is seen as vital to economic, social, and educational development, yet many areas of the country lack access to, or their residents do not use, broadband. To expand broadband deployment and adoption, the American Recovery and Reinvestment Act of 2009 (Recovery Act) provided $7.2 billion to the Department of Commerce's National Telecommunications and Information Administration (NTIA) and the Department of Agriculture's Rural Utilities Service (RUS) for grants or loans to a variety of program applicants. The Recovery Act required the agencies to award all funds by September 30, 2010. This testimony addresses (1) NTIA's and RUS's efforts to award Recovery Act broadband funds and (2) the remaining risks that NTIA and RUS face in providing oversight for funded projects. To conduct this work, GAO reviewed and summarized information from prior GAO work. GAO also reviewed NTIA and RUS reports on the status of the agencies' programs and gathered information from the agencies on steps taken to respond to prior GAO recommendations. In past work, GAO recommended that the agencies take several actions, such as developing contingency plans to ensure sufficient resources for project oversight. NTIA and RUS have taken some steps to address GAO's recommendations.
section_title: What GAO Found
paragraphs: NTIA and RUS awarded grants and loans for several hundred broadband projects in two funding rounds. By the end of fiscal year 2010, NTIA and RUS awarded grants and loans to 553 broadband projects across the country. These projects represent almost $7.5 billion in awarded funds, which exceeds the $7.2 billion provided by the Recovery Act because RUS-- which awards loans that must be repaid to the government--has authority to provide funds in excess of its budget authority. In its review of the first funding round, GAO found that NTIA and RUS, with the help of the agencies' contractors, consistently substantiated information provided by award recipients' applications. GAO has not evaluated the thoroughness of the process used by the agencies in the second round of funding. Even with steps taken to address project oversight, risks to the success of the broadband programs remain. GAO previously reported that NTIA and RUS face several challenges to successfully overseeing the broadband programs. These challenges include (1) monitoring and overseeing a combined total of 553 projects that are diverse in scale, scope, and technology and (2) conducting project oversight activities after the expiration of Recovery Act funding on September 30, 2010. Because of these challenges, in two previous reports, GAO recommended that NTIA and RUS take several actions to ensure that funded projects receive sufficient oversight. For example, GAO recommended that NTIA and RUS develop contingency plans to ensure sufficient resources for oversight of funded projects beyond fiscal year 2010. The agencies have taken several actions to address GAO's recommendations and improve oversight of funded projects--both agencies developed oversight plans, RUS secured contractor support though fiscal year 2013, and NTIA established audit requirements for commercial awardees. Even with these actions, GAO remains concerned about the oversight of the broadband programs. In particular, GAO believes the agencies, and especially NTIA, need to do more to ensure their oversight plans reflect current fiscal realities.

section_title: Letter
paragraphs: We appreciate the opportunity to participate in this hearing to discuss  oversight of the broadband programs funded through the American  Recovery and Reinvestment Act of 2009 (Recovery Act). Access to  broadband—which offers a higher speed Internet connection than dial-up  and always-on connectivity—is seen as vital to economic, social, and  educational development. However, many areas of the country lack access  to, or their residents do not use, broadband. The Recovery Act  appropriated $7.2 billion to extend access to broadband throughout the  United States. Of the $7.2 billion, $4.7 billion was appropriated for the  Department of Commerce’s National Telecommunications and  Information Administration (NTIA) and $2.5 billion for the Department of  Agriculture’s Rural Utilities Service (RUS). Specifically, the Recovery Act  authorized NTIA to create the Broadband Technology Opportunities  Program (BTOP) to support broadband infrastructure deployment, public  computer centers, and innovative projects to stimulate demand for, and  adoption of, broadband. Similarly, RUS established the Broadband  Initiatives Program (BIP) to support broadband infrastructure projects in  rural areas. The Recovery Act required NTIA and RUS to award all funds  by September 30, 2010, and both BTOP and BIP projects must be  substantially complete within 2 years and fully complete no later than 3  years following the date of issuance of their award.
As part of our ongoing efforts to monitor Recovery Act programs, we  issued two reports that reviewed NTIA’s and RUS’s respective  implementation of BTOP and BIP. In those reports, we provided  information on the agencies’ efforts to evaluate grant and loan  applications and award funds, as well as on challenges the agencies face in  overseeing funded projects. We made several recommendations to NTIA  and RUS in those reports to address the process by which the agencies  reviewed funding applications, and to improve the agencies’ oversight and  monitoring of funded projects. My testimony today summarizes and  updates information from those reports by discussing (1) NTIA’s and  RUS’s efforts to award Recovery Act broadband funds and (2) remaining  risks that NTIA and RUS face in providing oversight for funded projects.
To conduct our work, we reviewed and summarized information from our  existing reports and prior testimony. We reviewed NTIA and RUS reports  on the status of BTOP and BIP awards. We also gathered additional  information from NTIA and RUS on steps taken by the agencies to respond  to recommendations in our prior reports. We conducted all of our work in  accordance with generally accepted government auditing standards.  Additional information on our scope and methodology is available in each  issued product.
subsections: section_title: NTIA and RUS Awarded Grants and Loans for Several Hundred Broadband Projects in Two Funding Rounds
paragraphs: By the end of fiscal year 2010, NTIA and RUS awarded grants and loans to  553 broadband projects across the country (see table 1). These projects  represent almost $7.5 billion in funds awarded, which exceeds the $7.2  billion provided by the Recovery Act because an agency such as RUS that  awards loans can award and obligate funds in excess of its budget  authority. NTIA awarded more than $3.9 billion in grant funding to 233  projects for various purposes, including 123 broadband infrastructure  projects, 66 public computer center projects, and 44 projects designed to  encourage broadband adoption. NTIA reported that the vast majority of its  broadband infrastructure projects were investments in middle-mile  infrastructure projects, which are intended to provide a link from the  Internet backbone to the networks of local broadband service providers,  such as cable or phone companies. Based on a budget authority of more  than $2.4 billion, RUS awarded funds to 320 projects, including more than  $2.3 billion for grants and about $87 million for loans. According to RUS,  the budget authority of $87 million for loans supports almost $1.2 billion in  total loans, and a combined loan and grant award amount of more than  $3.5 billion. According to RUS, the vast majority of its awards and funding  amounts went to last-mile projects, which are intended to provide  connections from Internet service providers to homes, businesses, or  other users.
NTIA and RUS awarded the BTOP and BIP grants, loans, and loan/grant  combinations in two funding rounds. NTIA and RUS initially proposed  using three separate funding rounds during the 18-month window to award  the entire $7.2 billion. We reported that under this approach each funding  round would operate under a compressed schedule that would impose  challenges on applicants in preparing their project applications, as well as  on the agencies in reviewing these applications to meet their statutory  deadlines. NTIA and RUS subsequently revised their plans and issued the  awards in two funding rounds.
In the first funding round, which began in July 2009 and ended in April  2010, NTIA and RUS received more than 2,200 applications and awarded  143 grants, loans, and loan/grant combinations totaling almost $2.2 billion  to a variety of entities in nearly every state and U.S. territory. In our review  of the first funding round, we found that NTIA and RUS, with the help of  the agencies’ contractors—Booz Allen Hamilton and ICF International,  respectively—consistently substantiated information provided by award  recipients in their applications during the first round of funding. We  reviewed 32 award recipient applications and found that the agencies  consistently reviewed the applications and substantiated the information  as specified in the first funding notice. In each of the files, we observed  written documentation that the agencies and their contractors reviewed  and verified pertinent application materials, and requested additional  documentation where necessary.
In the second funding round, which began in January 2010 and ended in  September 2010, NTIA and RUS received more than 1,700 applications and  awarded approximately $5.3 billion in funding for 410 projects. To meet  the Recovery Act’s September 30, 2010, deadline for awarding broadband  funds, NTIA and RUS streamlined their application review processes by  issuing separate funding notices that targeted different types of  infrastructure projects and reduced the number of steps in the due- diligence review process. NTIA also reduced the basic eligibility factors  for BTOP grants from five to three, moved from a largely unpaid to a paid  reviewer model to ensure that reviews were conducted in a timely fashion,  and decreased the number of reviewers per application from three to two.  Although NTIA officials reported that these steps allowed the agency to  complete the initial portion of its review ahead of schedule, we have not  evaluated the thoroughness of the revised evaluation process used by the  agencies in the second round of funding.
section_title: Even with Steps Taken to Address Project Oversight, Risks to the Success of the Broadband Programs Remain
paragraphs: We previously reported that NTIA and RUS face several challenges to  successfully overseeing the broadband programs. These challenges  include:  Number and scale of projects. NTIA and RUS will need to monitor and  oversee a combined total of 553 projects that are diverse in scale, scope,  and technology. The agencies funded several types of broadband projects  dispersed nationwide, with at least one project in every state. NTIA funded  middle-mile broadband infrastructure projects for unserved and  underserved areas, public computer centers, and sustainable broadband  adoption projects. RUS funded both last- and middle-mile infrastructure  projects in rural areas across the country. The agencies funded projects  using multiple types of technology, including wireline, wireless, and  satellite. In addition, the agencies awarded funds to many large projects,  which may pose a greater risk for misuse of federal funds than smaller  projects. One of RUS’s largest projects provided more than $81 million in  grant funding and $10 million in loan funding to the American Samoa  Telecommunications Authority to replace old copper infrastructure with a  fiber-optic network to link the main islands of American Samoa; RUS  reported that this project will make broadband services available to 9,735  households, 315 businesses, and 106 anchor institutions, and create an  estimated 2,000 jobs. One of NTIA’s largest BTOP projects received more  than $154 million, which was awarded to Los Angeles region public safety  agencies to deploy a public safety mobile broadband network across Los  Angeles County to enable services such as computer-aided dispatch, rapid  law-enforcement queries, real-time video streaming, and medical telemetry  and patient tracking, among others.
Adding to these challenges, NTIA and RUS must ensure that the recipient  constructs the infrastructure project in the entire project area, not just the  area where it may be most profitable for the company to provide service.  For example, the Recovery Act mandates that RUS fund projects where at  least 75 percent of the funded area is in a rural area that lacks sufficient  access to high-speed broadband service to facilitate rural economic  development; these are often rural areas with limited demand, and the  high cost of providing service to these areas make them less profitable for  broadband providers. Companies may have an incentive to build first  where they have the most opportunity for profit and leave the unserved  parts of their projects for last in order to achieve the highest number of  subscribers as possible. To ensure that Recovery Act funds reach hard-to- serve areas, recipients must deploy their infrastructure projects  throughout the proposed area on which their award was based.
Providing oversight after Recovery Act funding has ceased. BTOP  and BIP projects must be substantially complete within 2 years of the  award date and fully complete within 3 years of the award date. As a  result, some projects are not expected to be completed until 2013. As we  previously reported, NTIA and RUS officials maintain that site visits, in  particular, are essential to monitoring progress and ensuring compliance.  However, the Recovery Act did not provide specific funding for the  administration and oversight of BTOP- and BIP-funded projects beyond  September 30, 2010. To effectively monitor and oversee more than $7  billion in Recovery Act broadband funding, NTIA and RUS will have to  devote sufficient resources, including staffing, to ensure that recipients  fulfill their obligations.
Because of these challenges, in our 2009 and 2010 reports, we  recommended that NTIA and RUS take several actions to ensure that  funded projects receive sufficient oversight:  1.  NTIA and RUS should develop contingency plans to ensure  sufficient resources for oversight of funded projects beyond fiscal  year 2010. Furthermore, we recommended that the agencies  incorporate into their risk-based monitoring plans, steps to address  the variability in funding levels for postaward oversight beyond  September 30, 2010.  2.  NTIA and RUS should use information provided by applicants in  the first funding round to establish quantifiable, outcome-based  performance goals by which to measure program effectiveness.  3.  NTIA should determine whether commercial entities receiving  BTOP grants should be subject to an annual audit requirement.
NTIA and RUS have taken several actions to address these  recommendations and improve oversight of funded projects. These actions  include:  NTIA and RUS developed oversight plans. NTIA has developed and is  beginning to implement a postaward framework to ensure the successful  execution of BTOP. This framework includes three main elements: (1)  monitoring and reporting, (2) compliance, and (3) technical assistance. As  part of its oversight plans, NTIA intends to use desk reviews and on-site  visits to monitor the implementation of BTOP awards and ensure  compliance with award conditions by recipients. NTIA also plans to  provide technical assistance in the form of training, Webinars, conference  calls, workshops, and outreach for all recipients of BTOP funding to  address any problems or issues recipients may have implementing the  projects, as well as to assist in adhering to award guidelines and regulatory  requirements. Additionally, RUS is putting into place a multifaceted  oversight framework to monitor compliance and progress for recipients of  BIP funding. Unlike NTIA, which is developing a new oversight framework  for BTOP, RUS plans to use the same oversight framework for BIP that it  uses for its existing grant and loan programs. The main components of  RUS’s oversight framework are (1) financial and program reporting and  (2) desk and field monitoring. According to RUS officials, no later than 30  days after the end of each calendar-year quarter, BIP recipients will be  required to submit several types of information to RUS, including balance  sheets, income statements, statements of cash flow, summaries of rate  packages, and the number of broadband subscribers in each community.  In addition, RUS intends to conduct desk and site reviews.
RUS secured contractor support through fiscal year 2013. RUS  extended its contract with ICF International to provide BIP program  support through 2013. According to RUS, the agency fully funded the  contract extension using Recovery Act funds and no additional  appropriations are required to continue the contract through fiscal year  2013. In addition, RUS extended of the term of employment through fiscal  year 2011 for 25 temporary employees assigned to assist with the oversight  of BIP projects.
NTIA established audit requirements for commercial awardees. On  May 17, 2010, NTIA reported that for-profit awardees will be required to  comply with program-specific audit requirements set forth by the Office of  Management and Budget. This audit and reporting requirement will give  NTIA the oversight tools it needs to help ensure that projects meet the  objectives of the Recovery Act and guard against waste, fraud, and abuse.
Even with these actions, NTIA and RUS have not fully addressed all our  recommendations and we therefore remain concerned about the oversight  of the broadband programs. First, NTIA’s oversight plan assumes the  agency will receive additional funding for oversight. For fiscal year 2011,  the President’s budget request includes nearly $24 million to continue  oversight activities. NTIA reported that it is imperative that it receive  sufficient funding to ensure effective oversight. In contrast, the President’s  budget request does not include additional resources to continue RUS’s  oversight activities, which the agency in part addressed through the  extension of its contact with ICF International. However, should there be a  reduction in RUS’s fiscal year 2011 budget, the agency will need to assess  its impacts and the temporary employment of 25 staff members, as  discussed previously. Therefore, we believe the agencies, especially NTIA,  need to do more to ensure their oversight plans reflect current fiscal  realities. Second, we continue to keep our recommendation regarding  performance goals open. NTIA has taken some action on this  recommendation, such as creating goals related to new network miles and  workstations deployed, but it continues to establish additional goals.
Mr. Chairman and Members of the subcommittee, this concludes my  prepared statement. I would be pleased to respond to any questions that  you or other members of the subcommittee might have.
For questions regarding this statement, please contact Mark L. Goldstein  at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of  Congressional Relations and Public Relations can be found on the last  page of this statement. Michael Clements, Assistant Director; Matt  Barranca; Elizabeth Eisenstadt; Hannah Laufe; and Mindi Weisenbloom  also made key contributions to this statement.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.