Questioning Federal Broadband Spending

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Millions of Americans still are not online – many in rural areas. Did the broadband stimulus fail them?

The vast majority of Americans are online. And, over time, the offline population has been shrinking. The highly-respected Pew Research Center released an analysis this week highlighting that 15 percent of all U.S. adults do not use the Internet – a fraction of the number (48%) in 2000, but a figure that is mainly unchanged in the past three years.

A number of demographic variables, including age, educational attainment, household income, race and ethnicity, and community type contribute to non-adoption:

  • Seniors are the group most likely to say they never go online.
  • A third of adults with less than a high school education do not use the Internet, but that share falls as the level of educational attainment increases.
  • Adults from households earning less than $30,000 a year are roughly eight times more likely than the most affluent adults to not use the Internet.
  • One-in-five blacks and 18% of Hispanics do not use the Internet, compared with 14% of whites and only 5% of English-speaking Asian-Americans – the racial or ethnic group least likely to be offline.
  • Rural Americans are about twice as likely as those who live in urban or suburban settings to never use the Internet.

Brian Fung of the Washington Post wrote in response to the Pew analysis, “It might seem inconceivable that in 2015 there could still be Americans who don't use the Internet — but they exist. Far from being irrelevant to modern society, they're increasingly the target of millions, if not billions, of dollars of taxpayer and private funding for Internet access. And that makes them a really important slice of the population.”

Politico Report on Rural Broadband Stimulus

Politico this week published a scathing critique of one program responsible for billions of U.S. taxpayer dollars spent to improve broadband access in the country’s hardest to serve areas. The National Broadband Map — completed in 2010, and updated again this year — shows that 50 percent of Americans in rural areas don’t have high-speed Internet in the way the Federal Communications Commission now defines it. In 2009, the American Recovery and Reinvestment Act made up to $2.5 billion available to the Department of Agriculture’s Rural Utilities Service (RUS) to extend broadband’s reach in rural areas. The purpose of the RUS loan program is to increase broadband deployment (that is, the number of broadband subscribers with access to new or improved broadband service) and economic opportunity in rural America through the provision of broadband services. Politico’s Tony Romm concludes that RUS’ program never found its footing in the digital age.

RUS “investments in broadband will connect nearly 7 million rural Americans along with more than 360,000 businesses and more than 30,000 critical community institutions like schools, health care facilities and public safety agencies, to new or improved service,” then-RUS Director Jonathan Adelstein, a former FCC Commissioner and Hill staffer, pledged to Congress. But Romm found that:

  • Forty-two of the projects RUS initially approved never got started at all. RUS killed the broadband infrastructure projects and rescinded more than $300 million in loans and grants before a single check was written. In many cases, local officials had struggled to finance their share of their networks, or obtain the permits needed to lay new fiber cables or erect new wireless towers. The 42 cancellations meant as many as 430,000 residents in rural areas did not benefit from the new or improved connections. Roughly half of the nearly 300 projects RUS approved as part of the 2009 Recovery Act have not yet drawn down the full amounts they were awarded.
  • If these networks do not draw all their cash by the end of September 2015, they will have to forfeit what remains. In other words, they may altogether squander as much as $277 million in still-untapped federal funds, which can’t be spent elsewhere in other neglected rural communities. [The money will be returned to the U.S. Treasury.]
  • Instead, the number of rural Americans connected because of RUS stimulus support is in the hundreds of thousands. For years, RUS quietly and steadily lowered its estimates. Its latest prediction, made in March 2014, is that it will benefit 728,000 homes within five years. In May, however, the agency stopped putting that number in writing.
  • RUS can’t tell which residents its stimulus dollars served. In May, the agency reported it has delivered new or improved services to 213,000 households and more than 15,000 businesses. But RUS, as it collected that data from awardees, never asked whether those residents live in unserved, neglected rural towns, or areas that had some broadband access before the Recovery Act.
  • RUS has not determined how many of its awardees completed their projects by the end of June. The agency imposed that deadline, after all, so it had sufficient time to ensure networks were built as proposed — and it’s unclear if it’s been met.

“RUS did not collect information that allowed anyone to evaluate whether or not it reached its goals or what impact it had,” said Mark Goldstein, an investigator at the Government Accountability Office. “We are left with a program that spent [billions] and we really don’t know what became of it.”

Warnings from Government Accountability Office

In 2014, Goldstein wrote a report on RUS’ broadband loan program addressing the 1) geographic distribution and financial performance of loans and 2) relationship between loans and broadband deployment and economic development, and how USDA evaluates progress towards these outcomes. Goldstein found that economic development, but USDA’s performance goals do not fully align with the loan program’s purpose. According to his analysis of National Broadband Map deployment data as of June 2013, areas with RUS loans generally have the same number of broadband providers as areas without a loan. However the RUS loan program can enhance the quality and reach of broadband networks in rural areas, according to stakeholders Goldstein spoke with. Further, according to the GAO analysis of RUS loans and U.S. Census Bureau data from 2003 through 2011 — the years for which RUS and relevant Census data are available — areas affected by at least one approved RUS loan were associated with modestly higher levels of employment and payroll (1 to 4 percent) after the year of loan approval and in all subsequent years, as compared to areas that did not receive RUS loans.

Goldstein found that the goals of the USDA’s Annual Performance Report (APR) do not fully align with the purpose of the loan program. For instance, USDA’s APR does not have any goals or measures to determine the loan program’s progress towards economic development outcomes. Since GAO has previously found that an attribute of a successful performance goal is whether it aligns with division and agency-wide goals, GAO suggested that performance goals aligned with the program’s purpose may help USDA and Congress better monitor the outcomes of the loan program.

GAO recommended that the Secretary of Agriculture:

  1. Evaluate loans made by RUS through the broadband loan program to identify characteristics of loans that may be at risk of rescission or default; and
  2. Align performance goals under the “enhance rural prosperity” strategic objective in the APR to the broadband loan program’s purpose, to the extent feasible.

Also in 2014, GAO’s Goldstein authored a report on 1) how RUS ensures that projects are completed by the deadline, and, as approved; and 2) the extent to which RUS provides information to show the impact of the loan program. In that report, he found that RUS reporting has been limited and is not reflected in USDA annual performance reports. As a result, RUS has not shown how the ARRA funds have affected broadband availability. GAO recommended that the Secretary of Agriculture include RUS broadband program performance information as part of the USDA’s annual performance plan and report by comparing actual results achieved against the current subscribership goal.

RUS Reforms

Although we haven’t seen an official response from RUS to the Politico story, the agency did launch a proceeding this week seeking public comment on new rules related to the broadband loan program as it also announced a new window for applications. RUS has:

  • Established a process for prioritizing applications;
  • Established a percentage of unserved households to receive broadband service. All proposed funded service areas must include a minimum of fifteen percent unserved households; and
  • Added additional incentives for reaching unserved areas.

RUS also set 4 megabits downstream and 1 megabit upstream as the minimum acceptable level of broadband service. RUS will use these speeds as the benchmark for determining whether broadband service exists in an area. However, with respect to minimum standards for applications requesting funding, RUS will be continuing its practice of a Broadband Lending Speed, which requires applicants to make available a minimum amount of bandwidth to all premises in the proposed funded service area. That standard will be updated from time to time. RUS seeks comment on what bandwidth requirements are needed for both Broadband Service and the Broadband Lending Speed. And, in its most recent round of requests for loans, RUS “strongly suggests” the applicants’ system designs allow for 25 megabits downstream and 3 megabits upstream.

RUS is also providing additional details on the contents of applications.

RUS and... Lifeline?

We were reminded how the performance of any federal agency can impact the politics of other government programs as Chairman Greg Walden (R-OR), at the House Communications Subcommittee’s FCC oversight hearing, pointed to Politico's investigation as a cautionary tale for the FCC’s consideration of expanding Lifeline to include broadband. "All one has to do is read [the story] regarding problems over at the Department of Agriculture's Rural Utilities Service to understand why it is essential before any agency moves to spend money it should have tight control and a budget," he said. "Unfortunately for ratepayers, in a party-line vote, the FCC decided to rush forward to expand the Lifeline program into broadband with little reform and no limit on the spending."

Of course the FCC only voted to propose the expansion and receive public comment on the proposal. RUS and the FCC are hugely different agencies. And both the goals and methods of the rural broadband loan program and Lifeline are unrelated. But without good evaluation tools in place, politics can rush in.

As early as December 2009, Charles Benton and Kate Williams were calling for effective evaluation of ARRA broadband programs:

These investments represent the most significant direct public funding of broadband projects ever made by the U.S. government. The success or failure of these projects is likely to be a huge factor in whether or not the federal government and other levels of government attempt to supplement private sector investment or correct for market failures in the future. Those are incredibly high stakes that will impact our nation's ability to compete economically against global competitors, to improve educational outcomes, and to achieve the promise of high-quality, affordable healthcare. To evaluate these investments honestly, we need to act now to ensure we collect the right data, organize it and make it publicly available.

In the absence of meaningful data collection and analysis, the results of the government's broadband investment will be subject to the vagaries of politics, uninformed media analysis, inevitable misunderstandings, and, dare we say, intentional misinterpretations.

By Kevin Taglang.