OLR Research Report

February 22, 2008





By: Kevin E. McCarthy, Principal Analyst

You asked for information on programs administered by the U.S. Department of Agriculture (USDA) and the Federal Communications Commission (FCC) designed to improve broadband access in rural areas. You specifically wanted to know who is eligible for the program, how much money is available, and when it is available.


The USDA provides low-interest loans to help build new and modernize existing telecommunications networks to provide broadband access in rural areas. The entities eligible for the loans include municipalities, nonprofit organizations, limited liability corporations, and other business organizations. The lending authority for this program in federal FY 08 is $304 million. Applications can be submitted throughout the year.

The USDA also provides grants to establish broadband service in poor, very rural communities where such service does not currently exist. The program is open to states, municipalities, and incorporated organizations. For federal FY 08, there is $13.4 million available, with an application deadline of March 28, 2008.

A 2007 review of the USDA programs by the Congressional Research Service is available at,

The FCC does not have programs specifically designed to promote broadband access in rural areas. But its Rural Health Care Support Program subsidizes broadband services for rural health care facilities. Further information about this program is available at

Further information about all of these programs is available at


The USDA's Rural Broadband Access Loan and Loan Guarantee Program helps fund the costs of constructing, improving, and acquiring facilities and buying equipment to provide broadband services to communities with up to 20,000 residents. The program's goal is to ensure that rural consumers enjoy the same quality and range of telecommunications services that are available in urban and suburban communities. The program operates on a technology-neutral basis, i.e., broadband access can be provided by digital subscriber lines (DSL), cable TV, satellite, and other technologies.

There are three financing alternatives. All applicants can seek loans whose interest rate equals that of treasury bills for the loan period. Applicants from communities with populations under 2,500 that currently do not have broadband access and that meet criteria for population density, per capita income can apply for loans at a 4% interest rate. In either case, the minimum loan is $100,000. USDA requires loan applicants to provide credit support in an amount equal to 20% of the requested loan amount. The credit support can be in the form of cash or letters of credit, among other things. In addition, all applicants can seek loan guarantees for up to 80% of the principal of privately issued loans.

The program's loans and loan guarantees can be used to finance: (1) the construction, improvement, and acquisition of facilities and equipment to provide broadband service in eligible communities; (2) broadband facilities leased under a capital lease, with the financing usually limited to 5 years of lease costs; and (3) the acquisition by an eligible entity of another system, lines, or facilities to furnish or improve rural broadband service (up to 50% of requested loan amount). The loans can also be used to refinance an outstanding obligation on another telecommunications loan made under the federal Rural Electrification Act. The refinancing cannot exceed 40% of the loan amount.

Since its inception, the program has approved 70 loans in 40 states, totaling over $1.22 billion. The broadband loans serve 1,263 communities with a total of 582,000 household subscribers. Approximately 40% of these communities were unserved at the time of the loan approval, and an additional 15% had only one provider.


The Community-Oriented Connectivity Broadband Grant Program provides financial assistance to furnish broadband service in poor, very rural communities where such service does not currently exist.

Grant funds may be used to deploy broadband transmission service to critical community facilities, rural residents, and rural businesses. The also can be used to construct, acquire, or expand, equip, and operate a community center that provides free access to broadband services to community residents for at least two years. Grants are awarded, on a competitive basis, to entities serving communities of up to 20,000 inhabitants to ensure rural consumers enjoy the same quality and range of telecommunications service as are available in urban and suburban areas.

Grant applications for federal FY 08 must be postmarked by March 28, 2008. The minimum grant that can be requested is $50,000 and the maximum is $1 million. There are specific maximum grant amounts for individual staff members who will be supported by the grant; bandwidth access; and training. The applicant must match at least 15% of the grant application. Applicants must have the legal capacity and authority to own and operate the broadband facilities as proposed in its application, to enter into contracts and to otherwise comply with applicable federal statutes and regulations.

The operating expenses incurred in providing broadband transmission service to community facilities and to provide training and instruction for the first two years of operation cannot exceed $250,000 in grant funds requested plus matching funds. The community center must be open and accessible to area residents before, during, and after normal working hours and either Saturday or Sunday. Grant funds provided for the community center are limited to the greater of $100,000 or 5% of the grant amount requested. The costs of the computer access points, their installation, or connection to the broadband transmission system are not included in this limit.

As noted above, this program is targeted at poor, very rural communities. The community's population accounts for up to 40 points on a 100-point funding scale. Communities with fewer than 500 residents get 40 points, those with 5,000 to 10,000 get 10 and those with 10,000 to 20,000 get five. The community's poverty accounts for up to another 30 points. Communities with a median household income that is less than half of the state median get 30 points. Communities with median household income that is 75% or more of the state median get no points on this measure.


The FCC's Rural Health Care Support mechanism subsidizes telecommunications and Internet access, including satellite and broadband services, for certain rural health care facilities. The program is intended to ensure that rural health care providers pay no more for telecommunications in providing health care services than their urban counterparts. The program will pay for 25% of the cost of Internet access, and up to $180 a month in toll charge credits if toll-free service to an Internet service provider is not available.

Public and non-profit rural health care providers are eligible to receive support under the program. Providers can include community health centers, local health departments or agencies, community mental health centers, non-for-profit hospitals, and rural health clinics. Further information about this program is available at