oversight

Local TV Act: Progress Made, but Timeliness and Cost Accounting Issues Need to be Addressed

Published by the Government Accountability Office on 2003-10-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Report to Congressional Committees




October 2003
               LOCAL TV ACT
               Progress Made, but
               Timeliness and Cost
               Accounting Issues
               Need to be Addressed




GAO-04-134

               a

                                                October 2003


                                                LOCAL TV ACT

                                                Progress Made, but Timeliness and Cost
Highlights of GAO-04-134, a report to the       Accounting Issues Need to be Addressed
Committee on Banking, Housing and
Urban Affairs, United States Senate and
the Committee on Financial Services,
House of Representatives




The LOCAL TV Act required that                  In December 2000, the Congress passed the Launching Our Communities’
GAO perform an annual audit of                  Access to Local Television Act of 2000 (LOCAL TV Act or Act). The Act
the (1) administration of the                   created the Local Television Loan Guarantee Program (Program or LOCAL
provisions of the Act, and (2)                  TV Program) and established the Local Television Loan Guarantee Board
financial position of each applicant            (Board) to approve guaranteed loans, totaling no more than $1.25 billion, to
who receives a loan guarantee
under the Act, including the nature,
                                                finance projects that will provide local television access to households with
amount, and purpose of                          limited over-the-air television broadcast signals or cable service. The Board
investments made by the applicant.              is comprised of the Secretary of the Treasury, the Chairman of the Board of
In fiscal year 2002, the LOCAL TV               Governors of the Federal Reserve System, the Secretary of Agriculture, and
Program was funded; however,                    the Secretary of Commerce, or their designees. The Department of
because it was not fully                        Agriculture (USDA) Rural Utilities Service serves as Program Administrator
implemented in that year, there                 (Administrator).
were no loan guarantee applicants
for GAO to audit. Therefore, this               The LOCAL TV Program has not been established in an expeditious fashion
report primarily addresses whether              as specified by the Act. Given that funds were appropriated in November
program administration during                   2001, thus starting the clock on the 120 days allowed for completing program
fiscal year 2002 satisfied the
provisions of the Act.
                                                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
GAO is making recommendations                   the end of August 2003, neither of these key documents, which provide the
to the Board that it work with the              overall framework for the Program, was ready for implementation, thus
Administrator to help ensure that               delaying lending activities and ultimately, realization of improved television
(1) program regulations and
                                                reception in target areas throughout the United States.
underwriting criteria are issued
expeditiously, and (2) loan
application and origination fees are            Further, the full costs of administering the Program, including those
sufficient to cover certain costs of            incurred by the respective agencies and departments providing support to
administering the Program and that              the Board, were not accumulated and charged to the program as called for
these costs are accumulated,                    by federal accounting standards. Statement of Federal Financial Accounting
documented, and reported in                     Standard No. 4, Managerial Cost Accounting Standards requires federal
accordance with federal                         agencies to capture the costs of federal programs to assist the Congress in
accounting standards. In response,              authorizing, modifying, and discontinuing programs and to provide agencies
the Board stated that every effort is           with reliable cost data for making informed managerial decisions and
being made to ensure that the                   evaluating performance. Further, the capacity to capture these costs going
program regulations and
                                                forward is key to fully recovering certain costs of administering the Program
underwriting criteria are issued
expeditiously and that as                       through loan application and loan guarantee origination fees.
applications are received, it will
account for administrative
expenses in accordance with
federal accounting standards.
www.gao.gov/cgi-bin/getrpt?GAO-04-134.

To view the full product, including the scope
and methodology, click on the link above.
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Contents




Letter                                                                                                                 1
                            Results in Brief                                                                           2
                            Background                                                                                 3
                            Scope and Methodology                                                                      5
                            The LOCAL TV Program Has Not Been Implemented in a Timely
                              Manner                                                                                   6
                            Policies and Procedures Needed as a Basis for Collecting User Fees
                              Have Not Been Established                                                             9
                            Conclusions                                                                            11
                            Recommendations                                                                        12
                            Agency Comments and Our Evaluation                                                     12


Appendixes
             Appendix I:    Comments from the LOCAL TV Board                                                       14
             Appendix II:   GAO Contacts and Staff Acknowledgments                                                 16
                            GAO Contacts                                                                           16
                            Acknowledgments                                                                        16


Table                       Table 1: Summary Estimate of Other Administrative Costs Incurred
                                     by the Working Group During Fiscal Year 2002 to
                                     Implement the LOCAL TV Program                                                11


Figures                     Figure 1: Entities Involved in Implementing the LOCAL TV
                                      Program                                                                          5
                            Figure 2: Timeline for Key Activities to Implement the LOCAL TV
                                      Program                                                                          7




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                            Page i                                                        GAO-04-134 LOCAL TV ACT
Page ii   GAO-04-134 LOCAL TV ACT
A

United States General Accounting Office
Washington, D.C. 20548



                                    October 31, 2003


                                    The Honorable Richard C. Shelby

                                    Chairman

                                    The Honorable Paul S. Sarbanes

                                    Ranking Minority Member

                                    Committee on Banking, Housing and Urban Affairs

                                    United States Senate


                                    The Honorable Michael G. Oxley

                                    Chairman

                                    The Honorable Barney Frank

                                    Ranking Minority Member

                                    Committee on Financial Services

                                    House of Representatives


                                    Today, approximately 23.4 million households in the United States have 

                                    limited or no access to local television broadcast signals. To facilitate

                                    access to local television stations for households located in nonserved and 

                                    underserved1 areas, the Congress passed the Launching Our Communities’ 

                                    Access to Local Television Act of 2000 (LOCAL TV Act or Act).2 The Act 

                                    created the LOCAL Television Loan Guarantee Program (Program or

                                    LOCAL TV Program). The Program provides for loan guarantees of up to 80

                                    percent of loans totaling no more than $1.25 billion to finance projects to 

                                    enable local television access to communities where distance and 

                                    topography limit access to over-the-air television broadcast signals or cable 

                                    service. The Act established the LOCAL Television Loan Guarantee Board 

                                    (Board), which 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, primarily 

                                    to approve loan guarantees and the Department of Agriculture (USDA) 

                                    Rural Utilities Service (RUS) as Program Administrator (Administrator) to 

                                    issue and administer approved loan guarantees.




                                    1
                                      The Act defines nonserved areas and underserved areas in terms of the ability to receive
                                    local television broadcast signals serving a particular designated market area. Nonserved
                                    areas do not have access to such signals by any commercial, for-profit multichannel video
                                    provider. Underserved areas have access to local television broadcast signals from not more
                                    than one commercial, for-profit multichannel video provider.
                                    2
                                     Pub. L. No. 106-553, Title X, Dec. 21, 2000.




                                    Page 1                                                         GAO-04-134 LOCAL TV ACT
                    This report addresses the Act’s requirement that we 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. Because the Program was not funded during fiscal year 2001, we
                    agreed with your offices that we would revisit the mandate in fiscal year
                    2002. The Program was funded in fiscal year 2002; 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.



Results in Brief	   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 Board and
                    RUS officials, 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.

                    Total costs of administering the Program, including those incurred by the
                    respective departments and agencies 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 cost 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. The capacity to capture these costs going forward is key to
                    satisfying federal accounting standards and fully recovering certain costs
                    of administering the Program through loan application and loan guarantee
                    origination fees.




                    Page 2                                                GAO-04-134 LOCAL TV ACT
              We are making recommendations to the Board and the Administrator to
              help ensure that (1) program regulations and underwriting criteria are
              issued expeditiously, and (2) loan application and loan guarantee
              origination fees are sufficient to cover, but not exceed, certain costs of
              administering the Program.

              In commenting on a draft of this report, the Board stated that every effort is
              being made to ensure that program regulations and the underwriting
              criteria are issued expeditiously. The Board further stated that as it begins
              accepting applications, it will ensure that the recording of administrative
              expenses adheres to managerial cost accounting concepts in accordance
              with federal accounting standards and related guidance. For additional
              information see the Agency Comments and Our Evaluation section of this
              report and appendix I.



Background	   The Launching Our Communities’ Access to Local Television Act of 2000
              created a guaranteed loan program to facilitate access to signals of local
              television stations for households located in nonserved and underserved
              areas of the United States. The Act established the LOCAL Television Loan
              Guarantee Board (Board) whose primary function is to approve loan
              guarantees to finance projects to provide local television access for
              communities in remote areas throughout the United States. The Board is
              authorized to approve loan guarantees up to 80 percent of the aggregate
              value of each loan. The Board may not approve loan guarantees after
              December 31, 2006,3 and the aggregate of all loans guaranteed may not be
              more than $1.25 billion. The repayment of the loan(s) is required to be
              made with a term of the lesser of 25 years from the date of the execution of
              the loan or the economically useful life of the primary assets to be used in
              the delivery of the signal involved.

              The Act set forth specific provisions and requirements for the Board to
              implement this new program. Specifically, the Act required the Board to:
              (1) direct the Administrator to prescribe regulations within 120 days after
              the Congress appropriated funds, (2) develop underwriting criteria in
              consultation with the Director, Office of Management and Budget (OMB)


              3
               The Board may stop approving loan guarantees the earlier of (1) the date the Secretary of
              Agriculture determines that at least 75 percent of the designated market areas (DMAs) not
              in the top 40 DMAs have access to local television broadcast signals (as determined by the
              Secretary) or (2) December 31, 2006. (P.L. 107-171, §6404, May 13, 2002).




              Page 3                                                         GAO-04-134 LOCAL TV ACT
and an independent public accounting firm (IPA) within 120 days after the
Congress appropriated funds, (3) establish and collect loan application and
loan guarantee origination fees4 to offset the cost of administering the
Program under the Act, including the costs of the Board and the
Administrator,5 and (4) consider other numerous specialized technical and
business requirements prior to approving a loan guarantee.

In addition to developing the regulations, the Act directed RUS, an agency
of the Department of Agriculture’s Rural Development, to issue and
administer loan guarantees that have been approved by the Board. This is
consistent with RUS’s mission of administering loan and grant programs,
including those to finance projects so rural areas can have, among other
things, more modern affordable electricity, telecommunications, public
water, and waste removal services.

Based on authority granted in the Act, the Board established a Working
Group, consisting of senior level officials from the various departments and
agencies that represent the Board, to assist it with activities to implement
the Program. The costs incurred by the Working Group members to
support the Board have been borne by the respective departments and
agencies from within their existing budgetary resources (i.e., salaries and
expense appropriations or accounts).

Although the Act was passed on December 21, 2000, which required the
establishment of program regulations and underwriting criteria, initial
funding for the Program was not provided until November 2001 through the
Agriculture, Rural Development, Food and Drug Administration, and
Related Agencies Appropriations Act, 2002.6 The Act provided $258 million
in loan guarantee authority and $2 million for administrative expenses.
Later in the fiscal year, two additional pieces of legislation7 resulted in
USDA receiving approximately a combined $1.07 billion in loan guarantee


4
  The Board shall charge and the Administrator may collect the loan guarantee origination
fee with respect to the issuance of a loan guarantee under this Act.
5
 The authority of the Board to charge and use the fees is effective only to the extent
provided in advance in appropriation acts.
6
 Pub. L. No. 107-76, Title III, Nov. 28, 2001.
7
 Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, May 13, 2002, and the
2002 Supplemental Appropriations Act for Further Recovery from and Response to Terrorist
Attacks on the United States, Pub. L. No. 107-206, Aug. 2, 2002.




Page 4                                                           GAO-04-134 LOCAL TV ACT
              authority available for providing access to local TV stations through direct
              broadcast satellite (DBS) or some other means.

              Figure 1 illustrates the relationships between the Congress, federal entities
              involved in implementing the LOCAL TV Program, and the public.



              Figure 1: Entities Involved in Implementing the LOCAL TV Program

                                                            LOCAL TV Board
                                                                 Secretaries of
                                                           Agriculture, Commerce,
                                                         Treasury and the Chairman                LOCAL TV Board
                                 Congress establishes     of the Board of Governors                 working group
                                  LOCAL TV Board            of the Federal Reserve              Staffing provided by
                                                               or their designees               board members'
                                                        Develops underwriting criteria          respective departments
                      Congress                          and approves regulations                and agencies
                                                        and loan guarantees
                                                        Directs Administrator to
                                                        prescribe regulations



                                      Congress funds
                                         LOCAL TV                 USDA
                                      program through      Rural Utilities Service
                                           USDA                                          Report to public
                                                         Administrator prescribes
                                                         regulations and
                                                         issues/administers
                                                         loan guarantees
                                                                                                                  Public

              Source: GAO analysis.




Scope and     To determine how the provisions of the Act were administered, we focused
              primarily on program activities and related obligations and administrative
Methodology   expenses that were incurred on behalf of the Program during fiscal year
              2002. We analyzed the LOCAL TV Act to obtain an understanding of its
              provisions and reviewed legislation concerning the Program’s funding. We
              obtained and evaluated information from the LOCAL TV Board including its
              internal operating regulations, minutes from Board meetings, the IPA’s
              technical and price proposals, the solicitation to obtain information related
              to the legal advisory services for the Board, and other budget and cost
              information to obtain an understanding of the activities that occurred to
              implement the Program during fiscal year 2002. We reviewed OMB
              circulars and federal accounting standards, as applicable. We did not
              independently verify or audit the cost data we obtained from the Board. We
              did not review the proposed regulations or draft underwriting criteria


              Page 5                                                                           GAO-04-134 LOCAL TV ACT
                       because they were not made available to us while OMB was completing its
                       review. We conducted our work from February 2003 through August 2003
                       in accordance with generally accepted government auditing standards.

                       We requested comments on a draft of this report from the Chairman of the
                       Board and the Department of Agriculture. The Department of Agriculture
                       chose to have the Board incorporate its views into the Board’s overall
                       response. The Board’s comments are discussed in the Agency Comments
                       and Our Evaluation section of this report and are reprinted in appendix I.
                       The Board also provided technical comments on our draft report, which we
                       incorporated as appropriate.



The LOCAL TV           Under the requirements of the authorizing legislation and the timing of the
                       available appropriation, the Board was to have had the program regulations
Program Has Not Been   and underwriting criteria completed and ready to implement within 120
Implemented in a       days after funding was available. Since funds were appropriated in
                       November 2001, the target time frame was March 2002. However, as of the
Timely Manner          end of August 2003, neither of these key documents had been finalized.
                       Since these documents provide the overall framework for the Program,
                       including operating procedures and lending criteria, lending activities
                       cannot proceed.

                       Figure 2 provides a chronology of the key activities pertaining to the Act
                       and its implementation as discussed in the following paragraphs.




                       Page 6                                               GAO-04-134 LOCAL TV ACT
Figure 2: Timeline for Key Activities to Implement the LOCAL TV Program

                                            FY 2001                                      FY 2002                                          FY 2003
                            Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct
                            00 01                       01                        02                     02                        03                     03

 Local TV Act passed           12/21/00
 Established program -
 No congressional
 appropriation
 FY 2002 USDA                                                                11/28/01
 Appropriation
 Provided initial program
 funding

 FY 2002 Farm Bill                                                                                 5/13/02
 passed
 Provided sufficient
 program funding

 Board held its first                                                           120 day                             9/13/02
 meeting                                                                         period
                                                                               following
                                                                                 USDA
                                                                             appropriation
 Board submitted draft                                                                                                                 2/07/03
 of underwriting criteria
 to OMB for
 consultation

 Board submitted draft
 of prescribed                                                                                                                                      5/05/03
 regulations
 to OMB

 Board issued proposed                                                                                                                                           8/15/03
 rule in Federal Register



 Public comment period                                                                                                                                               9/15/03
 on proposed rule ends




Source: GAO analysis.




                                                              The Act established the Board for the primary purpose of approving loan
                                                              guarantees. Further, the Act required, prior to the Board’s approving loan
                                                              guarantees, that (1) the Board approve regulations prescribed by RUS that
                                                              provide the overall operating procedures for the Program, and (2) the
                                                              Board, in consultation with the Director, OMB, and an independent public
                                                              accounting firm, develop underwriting criteria relating to the guarantees,
                                                              including appropriate collateral and cash flow levels. Each of these key
                                                              documents was to be completed 120 days after program funding was
                                                              provided, which, given the timing of the appropriations, would have been
                                                              over a year ago.




                                                              Page 7                                                                        GAO-04-134 LOCAL TV ACT
According to Board and RUS officials, 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. Each of these reasons is discussed in the following
paragraphs.

In the fiscal year 2002 appropriation approved in November 2001, the
Congress provided $258 million in initial loan guarantee authority for the
Program and $2 million for administrative costs.8 RUS officials told us that
they had deferred action on developing the Program at that time because
the $258 million in loan guarantee authority was insufficient to fund the
technology needed to implement the Program. In April 2002, RUS issued a
Notice of Inquiry in the Federal Register to obtain information needed to
assist in drafting the proposed regulations such as changes in technology or
new developments in the industry. In the notice, RUS specifically requested
comments on the proposed merger of two major DBS providers that, if
approved, could have noticeably affected the Program and virtually
fulfilled the Act’s purpose. However, any substantial movement on the
Program was delayed until the Farm Bill was passed on May 13, 2002,9
when RUS believed that sufficient funding for the Program was available.

The Board determined that it needed the $2 million in appropriated funds
to procure the statutorily required IPA as well as other outside consultants
and experts needed to implement and administer the Program. Therefore,
the Working Group members have been supporting the Board as a
collateral duty. Because the members have been unable to focus
exclusively on Board activities, this resulted in further program delays.

The Board held its first meeting on September 13, 2002, and on September
26, 2002, awarded a $677,000 contract to Ernst and Young, an independent
public accounting firm, to assist in drafting the underwriting criteria. As of




8
 Pub. L. 107-76, Title III, Nov. 28, 2001. 

9
 Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, May 13, 2002.





Page 8                                                         GAO-04-134 LOCAL TV ACT
                         the end of fiscal year 2002, approximately $1.3 million of the $2 million
                         remained available for contracting with outside consultants.10

                         The third contributing factor to the delay of the Program was the Board’s
                         September 2002 decision to issue a proposed rule11 to provide the public an
                         opportunity to comment on the proposed regulations to ensure that the
                         Program’s objectives and mission were consistent with congressional
                         intent. Although the Act did not explicitly require formal rulemaking
                         procedures, the Board believed it necessary given the complex and
                         precedential issues raised in the statute. On February 7, 2003, the Board
                         submitted the underwriting criteria to OMB for consultation. The first draft
                         of the proposed operating regulations was submitted to OMB on May 5,
                         2003. OMB approved the draft regulations on August 8, 2003, and the Board
                         issued the proposed rule in the Federal Register on August 15, 2003, with a
                         closing date of September 15, 2003. The Board will issue a final rule after
                         considering and incorporating comments from the public and receiving
                         OMB’s approval of any revisions to the proposed rule. The Board plans to
                         begin accepting loan guarantee applications once the final rule is issued.
                         The Board stated they believe this process will begin by February 2004.



Policies and             Total costs of administering the Program, including those incurred by the
                         respective departments and agencies providing support to the Board, were
Procedures Needed as     not accumulated and charged to the Program. Statement of Federal
a Basis for Collecting   Financial Accounting Standard No. 4, Managerial Cost Accounting
                         Standards (SFFAS No. 4) requires federal agencies to capture the costs of
User Fees Have Not       federal programs to assist the Congress in authorizing, modifying, and
Been Established         discontinuing programs and to provide agencies with reliable cost data for
                         making informed managerial decisions and evaluating performance. Also, if
                         relevant costs of administering the Program are not accumulated, the


                         10
                          The Consolidated Appropriations Resolution, 2003, Pub. L. No. 108-7, Feb. 20, 2003,
                         provided that any balances available from prior years for the Rural Utilities, Rural Housing,
                         and the Rural Business-Cooperative Services salaries and expenses accounts be transferred
                         and merged with the fiscal year 2003 appropriation. Pursuant to this provision, the balance
                         of the $2 million appropriated in fiscal year 2002 was carried forward to fiscal year 2003. The
                         pending Agriculture, Rural Development, Food and Drug Administration, and Related
                         Agencies Appropriations Act for 2004 contains similar language as that found in the 2003
                         appropriation.
                         11
                          The purpose of the proposed rule was to establish eligibility and guarantee requirements,
                         the application and approval process, and the administration of guarantees approved by the
                         Board. Further, it proposed the process under which the Board will consider applications.




                         Page 9                                                            GAO-04-134 LOCAL TV ACT
Board will not be able to support the establishment of loan application and
loan guarantee origination fees that are sufficient to recover, but not
exceed, certain costs of administering the Program.

According to SFFAS No. 4, costs of federal resources required by programs
are an important factor in making policy decisions related to program
authorization, modification, and discontinuation.12 SFFAS No. 4 also states
that to fully account for the costs of the goods and services they produce,
reporting entities should include the cost of goods and services received
from other entities.13 Further, the standard states that, “Ideally, all inter-
entity costs should be recognized. This is especially important when those
costs constitute inputs to government goods or services provided to non-
federal entities for a fee or user charge. The fees and user charges should
recover the full costs of those goods and services.”14

During fiscal year 2002, the Board did not have a process in place to fully
accumulate and report costs, including those of the IPA, the Board, and
Working Group in conformance with SFFAS No. 4. As mentioned earlier, in
fiscal year 2002, the Congress appropriated $2 million for costs to
implement the Program, which the Board decided to use exclusively for an
IPA and other consulting services. During fiscal year 2002, the Working
Group participated in a number of organizational meetings, coordinated
the Board’s initial meeting, and participated as technical evaluation staff on
the procurement for the IPA. The Working Group also worked with Ernst
and Young to develop the underwriting criteria and with the Board to assist
in the development of the program regulations and other procurement
activities. Because the Board did not request additional funding in fiscal
year 2002 to support Working Group activities, the respective departments
and agencies of the Working Group members absorbed these costs. We
requested that the Board estimate the costs that the Working Group
incurred during fiscal year 2002 in support of the Program’s administrative
activities. The Board estimated that the Working Group incurred $78,000 in
administrative expenses. Table 1 provides a summary of these cost
estimates.




12
     SFFAS No. 4, para. 39.
13
     SFFAS No. 4, para. 105.
14
     SFFAS No. 4, para. 111.




Page 10                                               GAO-04-134 LOCAL TV ACT
               Table 1: Summary Estimate of Other Administrative Costs Incurred by the Working
               Group During Fiscal Year 2002 to Implement the LOCAL TV Program

                                                                                                       Estimated costs incurred FY
               Entity representing the Board                                                                                  2002
               USDA/Rural Utilities Service                                                                               $53,586
               Department of the Treasury                                                                                  11,202
               Department of Commerce                                                                                       8,506
               Federal Reserve Board                                                                                        5,155
               Total estimated costs                                                                                      $78,449
               Source: GAO analysis based on data obtained from the Board. Information is unaudited.


               Without accumulating and reporting the costs of administering the
               Program, the Board will not comply with SFFAS No. 4 or have the cost
               information needed to make informed decisions about the Program. The
               Board acknowledged that if the costs incurred by the Working Group were
               accumulated and reported, it would more accurately reflect the total cost
               of this program.

               More importantly, the Act directed the Board to charge and the
               Administrator to collect loan guarantee application and origination fees to
               cover, but not exceed, certain costs of administering the Program such as
               reviewing and approving applications. The Board has proposed in its draft
               regulations an application fee of $10,000 to $40,000, depending on the size
               of the loan, and a loan guarantee origination fee equal to the lesser of 2
               percent of the loan amount or $500,000. Without knowing the costs of
               administering the Program, the Board cannot determine whether the
               aggregate amount of fees collected is sufficient to recover, but not exceed,
               certain costs of administering the Program. It is expected that the Board
               will approve a small number of loans; therefore, it has a limited opportunity
               to charge the appropriate fees.



Conclusions	   The LOCAL TV Program has not been implemented within the time frames
               specified in the LOCAL TV Act. Notwithstanding considerable delays
               already incurred, it is important that the Board begin to put the Program in
               operation in an expedient fashion. Further delays in completing regulations
               and underwriting criteria will postpone lending activities necessary to
               carry out the Program. Additionally, without instituting cost accounting
               practices in conformance with federal accounting standards, the Board will
               not have the information needed to manage and report on the Program or



               Page 11                                                                                   GAO-04-134 LOCAL TV ACT
                      to support the full recovery of certain Program costs. If the Board does not
                      set adequate fees, a government subsidy to program applicants may result.



Recommendations	      To help ensure future timely implementation of the Program, we
                      recommend that the Board and the Administrator work collaboratively to
                      issue the Program regulations and underwriting criteria in an expeditious
                      manner.

                      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, we recommend that the Board and the
                      Administrator 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 Comments and   In written comments on a draft of this report, the Board described its plans
                      for implementing our recommendations. The Board stated that it continues
Our Evaluation        to work with the Administrator and every effort is being made to ensure
                      that the Program regulations and underwriting criteria are issued
                      expeditiously. Further, the Board informed us that as it begins accepting
                      applications, it will ensure that administrative expenses adhere to
                      managerial cost accounting concepts in accordance with federal
                      accounting standards and related guidance. The Board also provided
                      technical comments on our draft report, which we incorporated as
                      appropriate.


                      We are sending copies of this report to the Secretaries of Agriculture,
                      Commerce, and Treasury, and the Chairman of Board of Governors of the
                      Federal Reserve System, members of the Local Television Loan Guarantee
                      Board, and the Director, Office of Management and Budget. We will also
                      make copies available to others upon request. In addition, the report will be
                      available at no charge on the GAO Web site at http://www.gao.gov.

                      Should you or your staff have any questions on matters discussed in this
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                      williamsm1@gao.gov or Alana Stanfield, Assistant Director, at




                      Page 12                                               GAO-04-134 LOCAL TV ACT
(202) 512-3197 or stanfielda@gao.gov. Major contributors to this report are 

acknowledged in appendix II. 





McCoy Williams

Director

Financial Management and Assurance





Page 13                                              GAO-04-134 LOCAL TV ACT
Appendix I

Comments from the LOCAL TV Board





             Page 14           GAO-04-134 LOCAL TV ACT
Appendix I

Comments from the LOCAL TV Board





Page 15                             GAO-04-134 LOCAL TV ACT
Appendix II

GAO Contacts and Staff Acknowledgments




GAO Contacts	      McCoy Williams, (202) 512-6906
                   Alana Stanfield, (202) 512-3197



Acknowledgments	   In addition to those named above the following individuals made important
                   contributions to this report: Lisa Crye, Jeff Isaacs, Jeff Jacobson, Jason
                   Kelly, Hannah Laufe, and Christina Quattrociocchi.




(190054)           Page 16                                            GAO-04-134 LOCAL TV ACT
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