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The Rural Utilities Service (RUS) is amending regulations for the Rural Broadband Access Loan and Loan Guarantee program to implement section 6104 of the Agriculture Act of 2014 (2014 Farm Bill), which made changes the Agency must adopt prior to accepting applications for future loans. RUS published this regulation as an interim rule, which took effect upon publication in the Federal Register on July 30, 2015.  The rulemaking will allow the Agency to begin accepting applications once again.

In addition, the Agency is seeking comments regarding this interim rule to guide its efforts in drafting the final rule for the Broadband Loan Program.  The Comment Date ends  September 28, 2015.  

Statement of Need:

The Rural Utilities Service (RUS) is amending regulations for the Rural Broadband Access Loan and Loan Guarantee program to implement section 6104 of the Agriculture Act of 2014 (2014 Farm Bill) which made changes the Agency must adopt prior to accepting applications for future loans. RUS published this regulation as an interim rule, which took effect upon publication in the Federal Register on July 30, 2015. The rulemaking will allow the Agency to begin accepting applications once again.

Summary of the Legal Basis:

On May 13, 2002, the Farm Security and Rural Investment Act of 2002, Public Law 107-171 (2002 Farm Bill) was signed into law.  The 2002 Farm Bill amended the Rural Electrification Act of 1936 to include title VI, the Rural Broadband Access Loan and Loan Guarantee Program (Broadband Loan Program), to be administered by the Agency.  Title VI authorized the Agency to approve loans and loan guarantees for the costs of construction, improvement, and acquisition of facilities and equipment for broadband service in eligible rural communities.  Under the 2002 Farm Bill, the Agency was directed to promulgate regulations without public comment.  Implementing the program required a different lending approach for the Agency than it employed in its earlier telephone program because of the unregulated, highly competitive, and technologically diverse nature of the broadband market.  Those regulations were published on January 30, 2003, at 68 FR 4684.

In an attempt to enhance the Broadband Loan Program and to acknowledge growing criticism of funding competitive areas, the Agency proposed to amend the program’s regulations on May 11, 2007, at 72 FR 26742.  As the Agency began analysis of the public comments it received on the proposed regulations, the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) was working its way through Congress.  On March 14, 2011, the Agency published an interim rule implementing the requirements of the 2008 Farm Bill and started accepting applications.  The Agency did not receive any significant comments to the interim rule and published a final rule on February 6, 2013.  With the enactment of the Agricultural Act of 2014 (2014 Farm Bill) section 6104, Public Law 113-79 (Feb. 7, 2014), additional requirements were added to the Broadband Loan Program, including the prioritization of approving applications, a minimum benchmark of broadband service, a more transparent public notice requirement, and the first statutorily required reporting standards, all of which are implemented in the rule.

Alternatives:

N/A

Anticipated Costs and Benefits:

Bringing broadband services to rural areas does present some challenges.  Because rural systems must contend with lower household density than urban systems, the cost to deploy fiber-to-the-home (FTTH) and 4G LTE systems in urban communities is considerably lower on a per household basis, making urban systems more economical to construct.  Depending upon the technology deployed it can cost three times more, on average, to provide service to rural customers than to customers located in urban areas. Other associated rural issues, such as environmental challenges or providing wireless service through mountainous areas, also can add to the cost of deployment.

Areas with low population size, locations that have experienced persistent population loss and an aging population, or places where population is widely dispersed over demanding terrain generally have difficulty attracting broadband service providers.  These characteristics can make the fixed cost of providing broadband access too high, or limit potential demand, thus depressing the profitability of providing service.  Clusters of lower service exist in sparsely populated areas, such as the Dakotas, eastern Montana, northern Minnesota, and eastern Oregon.  Other low-service areas, such as the Missouri-Iowa border and Appalachia, have aging and declining numbers of residents. Nonetheless, rural areas in some States (such as Nebraska, Kansas, and Vermont) have higher-than expected broadband service, given their population characteristics, suggesting that policy, economic, and social factors can overcome common barriers to broadband expansion.

Most employment growth in the U.S. over the last several decades has been in the service sector, a sector especially conducive for broadband applications.  Broadband allows rural areas to compete for low- and high-end service jobs, from call centers to software development.   Rural businesses have been adopting more e-commerce and Internet practices, improving efficiency and expanding market reach.  Some rural retailers use the Internet to satisfy supplier requirements.  The farm sector, a pioneer in rural Internet use, is increasingly comprised of farm businesses that purchase inputs and make sales online. Farm household characteristics such as age, education, presence of children, and household income are significant factors in adopting broadband Internet use, whereas distance from urban centers is not a factor.  Larger farm businesses are more apt to use broadband in managing their operation; the more multifaceted the farm business, the more the farm used the Internet.

The 2015 subsidy rate is 18.69   percent. The available FY 2015 budget authority for this program is $4.5 million, which will provide a program level of $24.077 million in outlays at the current subsidy rate.  Since the Interim Regulation for the Broadband Program was published in March of 2011, 27 applications have been received for an average of 7 loan applications per year. The applications range in size and may cover requests for funding for many communities. All of the pre-loan data collected by the applicant is generally submitted to RUS at the same time.  The annual burden for preparation and submission per respondent for the pre-loan data is estimated to be 400 hours per response, response to the public notice filing requirement is 1.5 hours per response, and the preparation of loan documents is estimated at 24 hours per response.

The Agency estimates the cost to respondents will be at $108,325. The overall hours spent per application and cost to respondents did not change from the former regulation.  The projected change in the overall cost to the government is minimal compared with the former projections, only $366. The burden of review breaks out into the following fashion: It is projected that there will be one more hour for the engineering analysis and financial analysis per application. The initial financial review and initial engineering review stay the same as it is under the previous regulation, as does the loan closing attorney and clerical assistance. Finally, it is estimated that the Loan Closing-Analyst time per application will increase by a half hour. 

Risks:

Without access to advanced telecommunications networks, rural areas suffer from declining educational opportunities, inadequate health care, depressed economies, and high unemployment. In contrast, access to broadband can play a vital role in offsetting the obstacles of distances and isolation that have traditionally stifled rural progress and living standards. With broadband infrastructure in place high volumes of data can be shared easily across distances great and small.  This technology is not a luxury service but rather a lifeline to modern everyday transactions. Without this basic utility rural residents do not and will not have adequate medical or educational services; rural businesses unable to thrive; and local governments disorganized and unconnected. Broadband accessibility is as fundamental for the future viability of rural communities today as was the telephone in the 20th century, and as railroads and highways were more than a century ago.