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Rural Broadband Program in Farm Bill is Woefully Broken

May 09, 2013 J

By Christine Harbin

There are so many problematic programs packed into the Farm Bill, it’s difficult to keep track of them all.  While programs like commodity price supports and crop insurance premium subsidies get most of the attention in Washington policy discussions, a number of similarly-flawed Farm Bill programs fly under the radar.  The Rural Utilities Service (RUS) Rural Broadband Access Loan and Loan Guarantee Program is a prime example.  Administered by the U.S. Department of Agriculture (USDA), this program is intended to spread high-speed internet to rural parts of the U.S. But just like most other programs in the Farm Bill, the RUS program has a lot of problems, and it needs serious change.

Since its inception in 2001, the RUS program has strayed away from its mission of expanding broadband to unserved rural areas. Less than 3 percent of loans provided by RUS actually go toward projects in communities that don’t already have access to broadband, according to a 2009 report from the USDA inspector general. Two-thirds of the time, in fact, these funds go toward projects in areas that already have one or more providers.

Government-funded broadband distorts local economies, too. When the government extends financing to provide broadband service in areas where private capital already has been invested, it leads to overbuilding. It means that the economy is diverting more resources toward developing broadband—and away from other uses—than it would otherwise.  Government-funded broadband also discourages private companies from building in other areas that are under-served in the future, which economists call a “crowding-out effect” in investment.

The RUS broadband program is yet another example of the government picking winners and losers in the marketplace—this time among broadband providers and their capital needs. By extending financing to some projects and not others, the government penalizes private providers that have already invested in a particular area. It forces them to compete against a government-selected and subsidized competitor.

Not only is extending financing bad in principle, it’s bad in practice. In general, federally-administered loan guarantee programs have a high rate of failure. We discussed the faults of this financing structure very recently on the blog, in our post about the proposed water loan guarantee program included in the water resources bill. These programs are scattered throughout federal agencies, and they mean that American taxpayers are on the hook for trillions in liabilities. Government has repeatedly failed at administering loans in other areas in the economy, so why should we believe that it will have any greater success in proliferating broadband?

The 2013 Farm Bill is quickly moving through Congress—the agriculture committees in both chambers are planning to mark up their versions of the bill as soon as next week. Congress should take this opportunity to re-evaluate and reform this broken program. Our coalition partner Taxpayer Protection Alliance has  proposed many common sense reforms that Congress would be wise to consider. If they don’t reform it now, then we may have to wait five more years until the next Farm Bill reauthorization before Congress gets another chance.

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