AFP on Federal Fiscal Cliff

December 26, 2012

As Federal Fiscal Cliff Looms

East Texas Lesson of Government Waste, Fraud and Abuse

By Peggy Venable

The federal broadband stimulus program – ill-conceived from its start – continues to be plagued by problems, as illustrated by East Texas’ Peoples Telephone Cooperative and other companies nationwide that are unfairly leveraging more than $7 billion in taxpayer funded grants to expand their private businesses.

Could the broadband stimulus program be an example of spending gone wrong, as Congress grapples with putting its financial house in order to avoid sending the nation over the so-called “fiscal cliff”?

Peoples Telephone secured a $28.8 million grant in July 2010 to lay more than 600 miles of fiber optic cable for high-speed Internet in its service area. While the goal of bringing faster broadband to homes and businesses is worthy, there are several reasons to shine a spotlight on Peoples’ grant.

First, the feds awarded grants before finishing research showing broadband availability. In East Texas, some areas served by Peoples were already competitive and residents could choose from a number of Internet providers. In competitive areas such as this, government grants are essentially “free capital” that unfairly give the recipient a competitive advantage over other companies in the free market that provide broadband services.  Peoples’ broadband competitors built their networks with private capital investment and assume all risk in doing so.

Second, the federal program has little to no oversight to ensure the grants are used properly or that projects will be completed on time. It’s unknown what the feds will do if a grant recipient doesn’t deliver. Conceivably, they could demand repayment, although the law doesn’t specify. Fortunately, some states and grant recipients, knowing they couldn’t finish their projects by deadline, have returned the grant money.   Let’s face it — relying on companies to “do the right thing” without any accountability is not a solid foundation for policymaking.

In Texas, Peoples appears to be behind schedule on its project, which was only 46 percent complete at the end of the 2012 third quarter (lack of timely reporting and transparency is another stimulus program flaw). That’s a far cry from the “substantially complete” (66 percent) benchmark Peoples was supposed to reach by July 2012, two years after the grant award, under program rules.

In addition, Peoples’ public report states it is spending $40,000 to $75,000 per mile for construction, significantly higher than standard industry costs for similar construction.

At the end of the day, with the edge of the nation’s economic “fiscal cliff” in sight, there is no such thing as “federal dollars.”  Government money comes from hardworking men and women who deserve solid answers as to whether their tax dollars are used in a way that prevents waste and does not hinder competition with the private sector.

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