What Does Broadband Have To Do With the Farm Bill?

I know what you’re thinking: what does a piece of legislation guiding American agriculture programs have to do with broadband access? You’re right to be asking that question since the answer should be: nothing. As we’ve frequently written, the USDA has long run a program to hand out taxpayer-subsidized loans to rural broadband companies. Last Congress, the Senate included language that increased transparency and put limits on the where the USDA could provide these broadband loans.  But now the USDA wants that language removed.

Little positive can be said about USDA’s Rural Utilities Service broadband loans, which provides low-interest, taxpayer-backed loans to companies to build-out broadband Internet. With a budget that hovers around $800 million, the program has a long history of waste, fraud, and abuse. The USDA’s Inspector General has reported at least five times that the program strayed from its statutory mission of subsidizing rural providers in under- and un-served areas with little to no broadband service.

Last year, Senator Mark Warner’s (D-Va.) amendment to scale back the program was included in the Farm Bill as Section 6104. Amongst other things, this language requires that loans go to areas where at least 25 percent of households are completely unserved and would require loan recipients to report on their progress. Ideally, the RUS broadband loan program would be scrapped entirely, but these requirements are a small step to scaling it back.  

But with the Senate in the midst of this year’s debate over the Agricultural Reform, Food, and Jobs Act, the USDA is arguing for language to be removed so they can go back to providing unaccountable loans for broadband to areas that aren’t in any real need.

On Tuesday, May 7, Americans for Tax Reform sent the Senate Agriculture Committee a letter supporting the language in Section 6104 in lieu of a completely nixing the program.

The best way to get broadband access to the last 5 percent of American homes that go without it to let the market function. For one thing, more focus should be put on wireless options, such as mobile and satellite broadband. That however requires the Federal Communications Commission (FCC) to do significantly more to free spectrum for mobile and satellite use. As AT&T CEO Randall Stephenson argued in the Wall Street Journal, there are large quantities of unused and inefficiently used spectrum that must be put on the market. Spectrum is the most necessary infrastructure for wireless broadband and – with mobile data usage doubling annually – a lack of adequate spectrum could cause prices to rise, download speeds to slow, and service to degrade. On the satellite side, this requires the FCC to approve satellite and ground networks, like those proposed by LightSquared and Dish Network.

Yet instead the federal government goes about subsidizing broadband through programs like that contained in the farm bill, killing mergers like AT&T/T-Mobile that would have used spectrum more efficiently, squashing new satellite broadband businesses like LightSquared, and moving slowly on deals like Verizon-SpectrumCo that would bring new spectrum online. If our goal is more access to broadband, the federal government has yet to really start helping.

A 2005 USDA Inspector General report that found over half of the money was spent on unrelated projects or was awarded to companies that did not even complete loan applications. Many of the loans also defaulted, costing taxpayers millions of dollars.  Another study found that 85 percent of homes serviced by a subsidized company already had access to three or more broadband providers. The loans are crony capitalism, used to overbuild and crowd out privately funded companies. Worst of all, companies reliant on taxpayer-backed loans often go belly up and have cost taxpayers tens of millions of dollars – all for naught.
The program is also engaged in consistent overbuilding of current broadband infrastructure, despite being intended for rural, underserved areas. In 2009, three-quarters of loans were spent in communities that already had broadband access, and almost 60 percent of spending occurred in places with two or more providers.

Despite its failings, RUS was handed another $2.5 billion in the 2009 “stimulus” package to expand the program with little oversight. It continued to overbuild broadband infrastructure, and pick winners and losers in the market using taxpayer dollars to give some companies a competitive advantage over others utilizing only private capital.

A study, released by Jeffrey A. Eisenach and Kevin W. Caves of Navigant Economics, examines the subsidization of rural broadband services by the American Recovery and Reinvestment Act of 2009 (ARRA). As was suspected, this program has proven to be an extremely wasteful and inefficient use of tax dollars.
In their report, Eisenach and Caves looked at three rural areas that were recipients of stimulus funds for broadband: Southwestern Montana, Northeastern Minnesota, and Northwestern Kansas. Oddly enough, while the BIP funds were meant to serve these areas due to a lack of broadband services, the authors of the report found that 85% of households in the three regions already had access to one or more broadband providers. The study found that the cost of providing broadband to the few underserved or unserved households in the three regions totaled $349,234…per household.

The project in Montana, in particular, was especially useless and wasteful. Over 98% of the households in the Southwestern Montana region that received subsidized broadband funds already had access to broadband. If 3G wireless service is taken into account, only seven households in the Montana project area had no access to this service. Eisenach and Caves calculated that to serve the households that did not already have access to broadband services in this particular region, it cost $7 million per household. This is hardly a justifiable amount, especially considering that many of these households probably did not want access to broadband services in the first place.

From the numerous reports highlighting RUS waste fraud and abuse, it is clear this program should be shut down completely.  However, until Congress can accomplish this the restrictions and new oversight measures that were added in 2012 should remain.