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The following information is Martin Group's interpretation of the RUS Rural Broadband Access Loan and Loan Guarantee Program. For definitive information about the program, please refer to The Notice of Funds Availability (NOFA) published in the Federal Register on January 20, 2003 and 7 CFR 1738 - Rural Broadband Access Loans and Loan Guarantees (Click here for that document).
The Rural Utility Service (RUS) has published the rules and enabled applications for the "Rural Broadband Access Loan and Loan Guarantee Program". This program is a new initiative by the RUS created with a goal of "ensuring that rural consumers enjoy the same quality and range of telecommunications services that are available in urban and suburban communities". This program is designed to provide loans for funding, on a technology neutral basis, the costs of construction, improvement and acquisition of facilities and equipment to provide broadband services to eligible rural communities.
This program contains many elements which may affect your organization in different ways. This letter contains an overview of the essential elements of the RUS broadband loan program. Martin Group stands ready to assist you with the preparation of an application or to defend your existing operations from a potential competitor who may seek to use these funds in your area.
Loan Program Overview
The RUS has identified $1.455 Billion of funds to be allocated during FY 2003 for this program. This is a multi-year program, implemented under the 2002 Farm Bill, with funding authorized through 2007. Previous "pilot" programs were substantially smaller, had numerous restrictions, and were limited to a single fiscal year.
This program enables three different loan mechanisms: A direct cost-of-money loan with interest rates tied to the Department of Treasury cost-of-money rate; Private loan guarantees, and direct 4% loans. The majority of the funding ($1.3 Billion) is associated with the cost-of-money loans, with $80 Million each for the other two loan types. The RUS does require prospective borrowers to provide credit support of 20% of the loan amount to be eligible. Existing telecommunications providers with two years of cash-flow positive operations are exempt from the credit support requirement.
The particular emphasis of this program is to encourage the development or expansion of broadband services into rural areas. The RUS defines broadband as 200 kbps both upstream and downstream, and "rural" as communities of 20,000 persons or less, including non-town areas. Communities with populations of 2,500 persons or less and rural areas with fewer than 10 persons per square mile are eligible for the direct 4% loan funds.
The RUS has established a priority mechanism giving priority different applications. For this year, unfunded applications from last year's broadband pilot program have first priority, but only for a limited time. The RUS will assign the highest priority to the smallest communities and those with no broadband services at all. If a community does have broadband service, but it is inadequate in either cost or quality, the RUS will take these factors under consideration and will consider the applications.
This program allows applicants to propose a wide variety of solutions, including copper, coax, fiber, wireless or other technologies. The program requires the delivery of broadband data services, but may also include voice and/or video as optional services.
Eligibility
The RUS broadband loan program is not restricted to telephone companies or to previous RUS borrowers. Nearly any type of business can participate, with a few notable exceptions. Individuals or partnerships of individuals may not participate, and the large telephone companies are not eligible (RBOCs and other companies serving more than 2% of the nation's telephone lines). State and local governments are restricted from eligibility until after April 30, 2003.
The RUS will fund proposals for broadband services in areas where the incumbent telephone company provides basic telephone service but not broadband, and areas where cable television service is available but without cable modem services. This allows loans to be used in a true facilities based competitive (overbuild) application.
Competition
Existing RUS borrowers are given a measure of protection from potential competitors desiring to use this money. Specifically, the RUS will not make loans to other applicants to provide service within any exchange of an existing borrower if the existing borrower submits a letter of intent to provide broadband services in the proposed area within 2 years. The existing borrower is allowed 90 days from the time a competing application is submitted to the RUS to state this intention. We recommend that all existing borrowers become familiar with these provisions of the RUS broadband loan program and take the appropriate steps if such a competitor does appear.
Loan Application
The application form for funding contains a specific list of items the RUS needs
to consider, and includes a Market Survey, a Business Plan, a System Design,
a Financial Forecast, certification of the existence or non-existence of broadband
services, and statements of compliance with the program requirements. The application
process is similar to the Loan Design process used by the RUS for traditional
telephone borrowers. Martin Group has 35 years of experience in preparing RUS
loan applications and has the staff and expertise to assist you with your application.
Construction & Implementation
The RUS does require that broadband loan borrowers follow construction practices similar to the practices established for traditional RUS telephone borrowers. In particular, the RUS requires that the borrowers maintain accounting and plant records to document the cost and location of all construction and to support loan fund advances and disbursements. Standard RUS contracts and contracting procedures are used for procurements and construction work. Borrowers must follow specific procedures to obtain advances and receive disbursements of loan funds. While these practices are familiar to telephone borrowers, they will be new and unfamiliar to those who have not used RUS loan funds in the past. To ensure quality work is performed, the RUS requires review and approval of various stages of the work by either RUS approved employees of the borrower or independent, registered professional engineers and/or architects.
RUS Bulletin 1738-2 details the construction requirements applicable to the broadband loan program. Key points include:
- All construction must conform to an Environmental Report.
- Borrowers will not receive funding for work done or equipment purchased before approval by the RUS. Specific procedures are required for borrowers to receive interim financing prior to the release of loan funds, at the borrowers risk.
- All equipment must be new and compliant with the "Buy American" provisions of the RE Act. RUS will only finance equipment or materials that have been accepted and included in the RUS List of Materials. (Some exceptions may be allowed).
- For construction exceeding $250,000, a contractor performance bond is required.
- The RUS requires the use of standard contracts including Forms 217, 257, 282, 390, 397, 515 and 773. Subcontracting provisions are allowed under these contracts. Contract amendments are allowed under certain conditions.
Traditional telephone loans are categorized as either "Minor Construction" or "Major Construction", with less restrictive requirements for Minor Construction. For the broadband loan program, this same approach is taken, but is described as "Small-Scale Construction" when the project is $500,000 or less, and "Large-Scale Construction" when larger than this amount.
For Large-Scale Construction, the RUS divides contracts into three types: Building, Core Network and Access Equipment, and Outside Plant. Bidding is required for procurements using RUS contract Forms 257 (buildings) and 515 (outside plant). Bidding or negotiation may be used with RUS form 397 (special equipment). Specific closeout processes are specified for each type of contract.
Advance And Disbursement Of Broadband Loan Funds
As with other programs, the RUS makes it clear that it is under no obligation to make or approve advances of loan funds unless the borrower is in compliance with all terms and conditions of the loan documents. A broadband loan budget will be established and used by the borrower and the RUS to manage the accounting and flow of loan funds.
Additional Information
For additional information about the RUS Broadband Loan program, contact Martin Group at (877) 996-9646.
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