Washington, DC - Senator Hillary Rodham Clinton (NY) and Congressman John M. McHugh (NY) are urging the head of the Rural Utilities Service (RUS) to address problems with administration of the Broadband Loan Program that are preventing it from achieving its potential. In a letter sent to RUS Administrator James Andrew, Clinton and McHugh emphasized the pivotal role the program plays in encouraging broadband deployment in rural and underserved areas, one of the most critical elements in promoting economic development. The two also underscored the factors - such as long processing time, the cost and complexity of the application process, and the fact that more loan applications are being rejected or returned than funded - that show the program is not adequately serving those it was intended to benefit.

"Deploying broadband service to our rural areas could be as important to economic development as rural electrification was during the Great Depression as it holds tremendous potential to bridge the technological and economic gap of many rural and underserved communities in New York. It is critical that the Bush Administration and the Rural Utilities Service give serious consideration to our proposed improvements. It is vital for this loan program to function efficiently and reach the companies and communities that Congress intended it to," said Senator Clinton.

"As America's telecommunications infrastructure continues to advance with newer technologies, bridging the digital divide between urban and rural areas remains important as ever," Congressman McHugh said. "While I have witnessed some significant progress in this area throughout my longstanding commitment to promoting broadband deployment, it is disappointing to see such a promising broadband loan program riddled with bureaucratic inefficiencies. I support the President's goal that all Americans should have access to broadband by 2007. Addressing these shortcomings within the Rural Utilities Service will certainly help move the country, particularly rural areas such as the 23rd Congressional District, toward that end."

Text of the letter from Senator Clinton and Congressman McHugh follows:

The Honorable James M. Andrew
Administrator
Rural Utilities Service
South Agriculture Building
1400 Independence Avenue, S.W.
Washington, D.C. 20250

Dear Mr. Andrew:

We are writing regarding our concern with the administration of the Rural Utilities Service (RUS) Broadband Loan Program. As you know, this program plays a pivotal role in encouraging broadband deployment in rural and underserved areas, which we believe is one of the most critical elements in promoting economic development. Since it was first enacted as a pilot program in the last year of the Clinton Administration, the program has remained as important as ever. Indeed, the role of rural broadband is as critical to the economy of the 21st century as rural electrification was in the 1930s, and we are particularly committed to ensuring its continued viability and success.

In parts of rural Upstate New York, we have already seen the tremendous impact of broadband on businesses and entrepreneurs. It is clearly an economic multiplier and the effects of its widespread deployment cannot be overstated. For these reasons, we are committed to ensuring that this critical program remains available in New York. However, we do believe that there are certain inefficiencies that must be addressed if the program is to work as Congress intended. Specifically, we have concerns that certain impediments may be preventing the program from fully realizing its goals and utilizing its allocated resources.

First, it is our understanding that, since its inception, this program has received approximately 150 loan applications (totaling more than $2 billion), but has only approved roughly one-third of those applications (approximately $770 million). Considering the program was allocated funds of $2.157 billion in FY 2005 alone, the fact that there appears to be a significant disparity in the amount of funds available and those awarded to applicants is of great concern. In addition, we feel that it is critical that factors be addressed to correct the wait times of up to a year for loan processing, such as adequate staffing to prevent a pile up of applications. This long processing time simply does not suit the quick turnaround times and operating deadlines that are associated with the telecommunications industry. We believe that, if the program is to function properly, steps must be taken to streamline the turnaround time of the loan applications.

We are also concerned that the program, as it is currently administered, may discourage new and young companies - the very companies that should be targeted to take advantage of the program - from even applying for the loans. As you know, there is a requirement that applicants for the program have on hand at least one year of operating cash. However, many start-up companies typically do not have access to such capital as they have invested their resources in mapping out a business plan or purchasing capital resources. In an effort to ensure that more of the resources from the loan program are dedicated to truly underserved rural areas, it may be worth revisiting the stringent and prohibitive cash-on-hand requirement and perhaps considering alternative requirements that would not prevent companies with sound business plans and revenue growth projections from qualifying for these loans. In addition, it has been brought to our attention that application process itself may be prohibitive to the many smaller telecommunications companies the program was designed to assist. Under current rules, prospective borrowers first submit a letter of inquiry explaining their intended service, territory and technology to the agency. The agency reviews this and assigns a field staffer to work with the applicant on the project. However, as currently structured, the loan application has associated with it expensive market research, competitive analysis, engineering, publication, and financial costs. While such provisions are all part of a good business plan, these requirements all constitute a significant allocation of resources, especially for smaller companies.

Perhaps most troubling is the fact that, after committing significant resources and a long uncertain wait time for these loans, statistics show us that many companies are rejected. We urge you to consider implementing a two-step process - adding a pre-application, which could consist of financial disclosures and a business plan outline. This step would provide applicants with more certainty and confidence that if specific conditions are met, then a loan would be made and, in turn, giving them the assurances needed to raise additional capital to leverage a broadband loan.

Overall, interest in this important program has cooled significantly due to the long loan processing time, the cost and complexity of application process, and that RUS has rejected or returned more loans than have been funded - as evidenced by the surplus of unexpended resources. Nevertheless, we believe that addressing some of the concerns outlined in this letter could significantly improve the program and ensure that it reaches out to those it was intended to benefit.

Thank you for your consideration of these issues. We remain committed to working with you to ensure the success of this program and we look forward to hearing from you how Congress can coordinate its efforts with you to strengthen and improve the program's administration.

Sincerely,

Hillary Rodham Clinton
United States Senate John M. McHugh
United States House of Representatives

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