Senate Broadband Oversight Focuses on Department of Agriculture

With the Department of Agriculture's ReConnect Program poised to distribute this fiscal year an additional $1.5 billion in broadband infrastructure subsidies and amid reports that the 2023 farm bill could provide that agency with even more construction funding, I am encouraged by the news that a bipartisan group of Senators is taking action to prevent (1) waste, fraud, and abuse, and (2) the use of federal dollars to overbuild existing, privately financed networks.

On January 30, 2023, Senators John Thune (R-SD), Ben Ray Luján (D-NM), Amy Klobuchar (D-MN), and Deb Fischer (R-NE), all members of the Senate Committee on Agriculture, Nutrition, and Forestry, reintroduced legislation designed to "streamline and bolster U.S. Department of Agriculture (USDA) Rural Development broadband programs and ensure that their funding is being targeted to rural areas that need it the most."

Seth L. Cooper, Free State Foundation Director of Policy Studies and Senior Fellow, detailed the specific provisions of the Rural Internet Improvement Act of 2022 in a December 2022 post to the FSF Blog. The Rural Internet Improvement Act of 2023, like the 2022 version, would combine Rural Utility Service (RUS) broadband loan and grant programs, specify that no more than 10 percent of locations targeted by a funded project already have access to broadband, encourage greater broadband provider participation, improve the challenge process, and promote greater interagency coordination with the FCC and NTIA.

The RUS manages multiple broadband subsidy programs, the largest being the ReConnect Loan and Grant Program, which to date has distributed more than $3 billion. In a recent interview, RUS administrator Andrew Berke stated his expectation that the ReConnect Program will dole out an additional $1.5 billion in 2023.

In addition, news reports indicate that the next farm bill could appropriate still more money to RUS – Representative David Scott (D-GA), ranking member of the House Committee on Agriculture, identified as his top priority that "[w]e must ensure that appropriate funding is given to USDA to help us bridge the digital divide between rural and urban America" (emphasis added) and argued that "USDA knows what works for our rural communities better than many other Federal agencies."

Considering that (1) tens of billions in taxpayers dollars have been appropriated for the expansion of broadband infrastructure but not yet put to use, and (2) the vast majority of those subsidies will flow to rural areas – after all, at this point in the rollout of broadband "unserved" and "rural" are virtually synonymous – regardless of the distributing agency, it is not at all clear that any additional funding is "appropriate" at this time.

In "Absent Oversight, the Broadband Funding Faucet Likely Will Overflow," a November 2022 Perspectives from FSF Scholars, I drew attention to the concerning potential that, given the large amount of money involved and absent better interagency coordination and oversight, the number of different agencies sharing responsibility for government-led efforts to extend broadband connectivity to those areas that remain unserved could lead to substantial waste and inefficiencies.

But as Mr. Cooper wrote, it is equally true that "intra-agency coordination of broadband deployment subsidy programs through streamlined processes or merging of disparate programs is no doubt essential to ensure that precious tax dollars are spent wisely and that duplicative efforts and other forms of fraud, waste, or abuse are avoided" (emphasis added).

As you may recall, Free State Foundation President Randolph May received a letter from Senator Thune on December 6, 2022, soliciting input on, among other things, the potential for waste, fraud, and abuse as a result of the sheer number of federal broadband subsidy programs, including those administered by the Department of Agriculture.

In his response, Mr. May wrote that "[g]iven the large number of separate programs, it seems self-evident that some of them should be combined and/or eliminated so that there are many fewer programs and fewer agencies disbursing subsidies. This would increase manageability and facilitate accountability and meaningful congressional oversight." He therefore referenced with approval the introduction the Rural Internet Improvement Act of 2022.

In addition, Mr. May drew attention to the fact that the ReConnect Program (1) opens the door to rate regulation via a preference for applicants that provide "at least one low-cost option"; (2) inappropriately encourages applicants to "commit to net neutrality"; and (3) permits grant and loan recipients to apply that assistance in areas where up to 50 percent of locations already are served, in many instances by privately funded networks, "thus disincentivizing further private investment." As noted above, the Rural Internet Improvement Act of 2023 would decrease that threshold to 10 percent.

Congress Disavows USDA's Misguided Favoritism of Municipal Broadband

Congress disapproved of the Department of Agriculture's (USDA) favoritism for municipal broadband in a nonbinding directive attached to the Consolidated Appropriations Act of 2022 passed last week. That nonbinding directive, which appears within a Joint Explanatory Statement, "encourages the Secretary to eliminate or revise the awarding of extra points…" to municipal broadband networks applying for ReConnect program deployment subsidies.

If followed, this nonbinding directive would improve the likelihood that ReConnect funds flow to states based on true need for broadband service rather than states' conformity to unrelated policy objectives. ReConnect is a multi-billion broadband deployment grant and loan program managed by USDA that generally targets unserved rural areas. Congress tasked ReConnect with distributing $3.15 billion in broadband subsidies over the next few years between the Infrastructure Investment and Jobs Act (IIJA) and appropriations made in 2021.

In response to this cash influx, USDA published "Evaluation Criteria" guidance last year explaining how it will review applications for ReConnect deployment subsidies. This guidance amounts to a points-based system that awards applicants with greater chances of success for meeting standards contained within.

As Free State Foundation Senior Fellow Andrew Long explained in a Perspectives from FSF Scholars, the portion of the Evaluation Criteria awarding 15 extra points for applications submitted by municipal broadband providers exceeds USDA's authority. This criterion intrudes into the FCC's jurisdiction to set communications policy "in the face of conflicting congressional intent" and should be repealed. And USDA didn't adhere to Administrative Procedure Act notice and comment requirements while adopting the municipal favoritism criterion, which foreclosed potential for public comment on whether USDA has authority to adopt such a criterion in the first place.

Further, the municipal favoritism criterion biases ReConnect funds to flow to states that lack prohibitions on municipal broadband, irrespective of actual need for broadband infrastructure, because only municipal applicants within those states will be eligible for these 15 extra points. This is an ill-advised policy choice. As Andrew Long explained in another Perspectives from FSF Scholars, municipal networks are often economic failures that cannot achieve financial viability, explaining why many states prohibit them. So biasing ReConnect funds in favor of municipal networks will reduce ReConnect's effectiveness for narrowing the digital divide.

Now, in the Consolidated Appropriations Act of 2022, Congress appears to agree. This law added nearly $550 million additional funds to ReConnect and other smaller broadband programs at USDA, and it included a nonbinding directive that disavows the Evaluation Criteria's municipal favoritism:

"In addition, the agreement encourages the Secretary to eliminate or revise the awarding of extra points under the ReConnect program to applicants from States without restrictions on broadband delivery by utilities service providers in order to ensure this criterion is not a determining factor for funding awards."

This disavowal should be unsurprising because Congress rejected similar municipal favoritism in the IIJA. Of course, nonbinding directives are, indeed, nonbinding, and amount to legislative history, which is disfavored and cannot substitute for the plain text of the law. But Congress's disavowal of municipal broadband favoritism is at least notable because no law authorizes the Department of Agriculture authority to set Communications Policy in the first place.

Also, a separate nonbinding directive in the Consolidated Appropriations Act of 2022's Joint Explanatory Statement encourages the Secretary of Agriculture to follow notice and comment rulemaking for "all program administration and activities" regarding ReConnect.

It will be interesting to see if the Secretary of Agriculture heeds Congress's wise advice to stop favoring often failed municipal networks for subsidized support.