Local TV Act:

Progress Made, but Timeliness and Cost Accounting Issues Need to be Addressed

GAO-04-134: Published: Oct 31, 2003. Publicly Released: Oct 31, 2003.

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The LOCAL TV Act required that GAO perform an annual audit of the (1) administration of the provisions of the Act, and (2) financial position of each applicant who receives a loan guarantee under the Act, including the nature, amount, and purpose of investments made by the applicant. In fiscal year 2002, the LOCAL TV Program was funded; however, because it was not fully implemented in that year, there were no loan guarantee applicants for GAO to audit. Therefore, this report primarily addresses whether program administration during fiscal year 2002 satisfied the provisions of the Act.

In December 2000,the Congress passed the Launching Our Communities' Access to Local Television Act of 2000 (LOCAL TV Act or Act). The Act created the Local Television Loan Guarantee Program (Program or LOCAL TV Program) and established the Local Television Loan Guarantee Board (Board) to approve guaranteed loans, totaling no more than $1.25 billion, to finance projects that will provide local television access to households with limited over-the-air television broadcast signals or cable service. The Board is comprised of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of Agriculture, and the Secretary of Commerce, or their designees. The Department of Agriculture (USDA) Rural Utilities Service serves as Program Administrator (Administrator). The LOCAL TV Program has not been established in an expeditious fashion as specified by the Act. Given that funds were appropriated in November 2001, thus starting the clock on the 120 days allowed for completing program regulations and underwriting criteria, the Program should have been ready for implementation by March 2002. According to the Board and Administrator, three factors contributed to program delays: (1) initial uncertainties over program funding, (2) inadequate dedicated staff resources for program activities, and (3) the decision to issue a proposed rule. As of the end of August 2003, neither of these key documents, which provide the overall framework for the Program, was ready for implementation, thus delaying lending activities and ultimately, realization of improved television reception in target areas throughout the United States. Further, the full costs of administering the Program, including those incurred by the respective agencies and departments providing support to the Board, were not accumulated and charged to the program as called for by federal accounting standards. Statement of Federal Financial Accounting Standard No.4, Managerial Cost Accounting Standards requires federal agencies to capture the costs of federal programs to assist the Congress in authorizing, modifying, and discontinuing programs and to provide agencies with reliable cost data for making informed managerial decisions and evaluating performance. Further, the capacity to capture these costs going forward is key to fully recovering certain costs of administering the Program through loan application and loan guarantee origination fees.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The LOCAL TV Board (Board), of which the Administrator is a member, took actions to ensure that the program regulations and underwriting criteria were issued more timely. On November 26, 2003, the Board requested that the Office of Management and Budget clear the program regulations. Subsequently, the Board issued the Final Rule, which was published in the Federal Register on December 23, 2003. The Final Rule contains all of the mandatory requirements of the Program, including the program regulations and the general policies and procedures, as well as the Notice of Application Filing Deadline. The underwriting criteria, which provides guidance to the Board to assess the creditworthiness of a loan guarantee applicant, was issued simultaneously with the Final Rule and published on the LOCAL TV Board's web site. As a result of the issuance of the program regulations and underwriting criteria, the Board will be able to begin accepting loan guarantee applications, and, ultimately, target areas throughout the United States will realize improved television reception.

    Recommendation: To help ensure future timely implementation of the Program, the LOCAL Television Loan Guarantee Board and the Administrator, the Rural Utilities Service, should work collaboratively to issue the Program regulations and underwriting criteria in an expeditious manner.

    Agency Affected: LOCAL Television Loan Guarantee Board

  2. Status: Closed - Implemented

    Comments: A number of actions have been taken that are consistent with the intent of our recommendation. The President's Budgets for Fiscal Years 2006 and 2007 provided that (1) the unobligated budget authority for the program had been rescinded and (2) that the administration was not proposing additional funds for this program. Since inception of the Program, no loan guarantees have been approved for the program. Further, as of December 31, 2006, the Board no longer has authority to approve loan guarantees. Of the $2 million that was appropriated for administrative expenses, approximately $1.3 million remained unobligated. On December 13, 2004, the LOCAL TV Act Board authorized closing out one of two existing contracts after expending about $600,000. The other contract expired on December 31, 2005. Because the costs for operating the program were accounted for and that funds are no longer available for loans or loan guarantees, this recommendation was implemented.

    Recommendation: To help ensure better program management and that loan application and loan guarantee origination fees are sufficient to fully cover certain costs of administering the Program, the LOCAL Television Loan Guarantee Board and the Administrator, the Rural Utilities Service, should develop a process to ensure that future costs of the Program are accumulated, documented, and reported in accordance with federal accounting standards and related guidance.

    Agency Affected: LOCAL Television Loan Guarantee Board

 

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