The USDA recently announced the availability of $550 million in funding for a second round of its ReConnect loan and grant program—designed to enable last-mile broadband infrastructure deployment in rural areas. This funding, appropriated by Congress, follows on last year’s $600 million Round 1 appropriation.
Applicants should anticipate stiff competition for funding simply due to the large number of applications that will likely be submitted. (Round 1 saw $1.4 billion in funding requests, far beyond the $600 million allocated.)[i]
If you are considering applying for Round 2 funding, time is of the essence. The 46-day application window opens January 31, 2020, and closes March 16, 2020. The following is our high-level analysis and strategic guidance for public sector applicants, including counties, cities, towns, states, and public utilities.
Prepare a Competitive Application
The USDA will be looking for applicants that have developed key partnerships and prepared business and technical models. A successful application will need an assessment of existing service, engineering plans, a cost estimate, and a long-term business plan that demonstrates financial viability five years from the start of the project.
Much like last year in Round 1, we expect experienced public ISPs, as well as collaborative public-private efforts, to be well positioned to compete for the new round of funding. As you map out your plans, the following are some of the steps we believe are critical to preparing a competitive ReConnect application:
- Develop a grant strategy.Your goal is to maximize your application’s scoring given USDA’s stated criteria.[ii] Every element of your application should speak to those criteria. Start by developing a comprehensive strategy that aligns your approach (with respect to technology, partnerships, business plan, and service levels) with what USDA is seeking to fund. Note that the scoring criteria for Round 2 have changed slightly from Round 1 to include Opportunity Zones and expand the number of farms included in proposed projects. (Farms must be mapped using the application portal tool and are now worth one point for every 10 farms, up to 20 points; applicants will need 200 farms to garner all 20 points.) In addition, small changes to the scoring and evaluation of existing services in PFSAs will have an impact on how applications are scored—and thus should be reflected in your grant strategy. (See below for more details.)
- Consider applying for State funds, if available, to complement your grant strategy. Several states have announced grant programs that are meant to complement the needs of potential ReConnect applicants. If your state has such a program, you could potentially leverage that funding as the match for a ReConnect-funded project (e.g., a 25 percent match is required for a 100 percent grant ReConnect application). For this scenario to work, the state grant program must allow its funds to be leveraged as part of the cash match for ReConnect.
- Gather the many types of information and support materials required.You’ll need a range of data and numbers—such as population statistics—to establish eligibility under the program rules and to provide content for the grant narrative. You’ll also need supporting materials, ranging from letters from your governor to documents that demonstrate the support of the local government, prospective customers, and the business community. Our recommendation here is to go over and above; additional letters (such as from your congressional delegation, the Chamber of Commerce, and so on) can only help to demonstrate the breadth of support in the community for your initiative.
- Define and refine your PFSA. Define the PFSA with a count of the number of rural premises to be connected, including homes, farms, schools, libraries, healthcare facilities, and businesses (which are important because they confer additional points in the application). Then, document the engineering methodology used to demonstrate that the PFSA lacks service and is therefore eligible for funding. You’ll also need to verify that no Connect America Fund II award census blocks are included in the PFSA and that your project area is not located in what is known as a Protected Broadband Borrower Service Area (i.e., the service area of a borrower that has an RUS broadband loan).
- Develop and review your project’s engineering plans and cost estimates.The critical engineering task after you have defined the PFSA is to develop a conceptual design for your network—including project plan, buildout timeline, design, and diagram—and cost estimates for materials and construction. The cost estimates will become a critical input to your business plan and pro forma financials and will need to be certified by a licensed Professional Engineer under the ReConnect application rules.
- Develop a financial pro forma and business plan.The pro forma should be prepared in the format provided by USDA (which is available only on the application portal) and should include subscriber projections and descriptions of planned services and pricing. To support the pro forma revenue projections, you’ll need very compelling data, ideally in the form of statistically valid market research, as well as empirical data about your or your partner’s historical success in achieving comparable market share. Projections should contain five years’ forecasted financial data. This is possibly the most critical item in the application, given USDA’s interest in funding projects it considers sustainable and low-risk.
- Develop a market narrative, including discussion and data regarding service in the region. You’ll need to demonstrate that your services will be better and no more expensive than other services offered nearby—and present a narrative discussion of why the proposed services will be both marketable and affordable.
- Collect the appropriate forms from businesses to demonstrate market interest and maximize points for that application item.[iii] This is something that can be done through one-on-one conversations or by mailing the forms (with a cover letter and a stamped return envelope) to all the farms and businesses in the PFSA.
- Set up accounts and then navigate Sam.gov and the USDA portal site, to be ready to input the grant application into the online grants system. (You may already have accounts in place, but we recommend that you check to be sure the accounts are current and that someone on your team is comfortable navigating the portals.) The USDA application portal requires additional effort and may require some users to go to a USDA office in person for verification.
- Commission the required legal opinionand reviews.
- Finally, write compelling grant and budget narratives.These and other narrative elements of the application are an opportunity to truly make your case for funding.
Develop a Grant Strategy That Reflects the Round 2 Scoring and Evaluation Criteria
For applicants who participated in Round 1, it is important to note there are a few small changes to the rules for Round 2 (in addition to the change in points for farms) that you should take into account as you put your grant strategy together:
- Opportunity Zones get 5 points. If your PFSA includes even a part of an Opportunity Zone, your overall score will benefit. (The IRS offers a primer on Opportunity Zones here.) If you include an Opportunity Zone, discuss how economic development fits into the overall goals of your proposed project as part of the scoring criterion review/narrative.
- 90 percent unserved PFSAs are now allowed. For the 100 percent grant program, the USDA loosened the requirements for existing service as compared to Round 1 applications. Instead of requiring that 100 percent of the PFSA have no service, the new rule allows a PFSA to be to 90 percent unserved. This is an important change that should positively affect your strategy . Our advice: do your due diligence and document the actual services available to the greatest extent possible.
- Revisions to PFSA’s may be allowed after application submission. Revisions to PFSAs after an application is submitted “may” be requested by the USDA review team should they determine service is in place in parts of a PFSA and that a revision is feasible.
- Challenges to protected borrower area status may be viable. If you find a protected borrower area is infringing on your PFSA, you can challenge the protected status as part of your application. However, challenges create significant extra risk for a potential funding application, should USDA decide the challenge has no merit. Under the program rules, a challenge can be made “if the applicant believes that at least 75% of the households in the part of the proposed funded service area in which they are seeking ReConnect funds are not receiving broadband service at the level for which an original RUS Broadband loan was made.” In order for the challenge to be viable, the RUS loan will need to have been “rescinded, defaulted on, or the terms and conditions of the original loan must not have been met.”
- Round 1 application costs can be eligible for reimbursement in a successful Round 2 application. If an applicant worked on a Round 1 application that was not submitted or not successful, but manages to make a successful Round 2 application, those preparation expenses from Round 1 are eligible (up to 5 percent of the award) for reimbursement. Remember to include them in your narrative and budget.
- Audited financial statements are still required, and you may have to provide two years’ statements. Applicants must include an “unqualified, comparative, audited financial statement for the previous year from the date the application is submitted.” However, “if an application is submitted in the first quarter of the calendar year and most recent year end audit has not been completed, the applicant can submit the two previous unqualified audits that have been completed.” Since this application is due within the first quarter of the year, applicants should plan on submitting the most recently completed two years of unqualified, comparative, audited financial statements. Note that any adverse opinions submitted will disqualify the application.
Finally, we recommend you take the time to get in touch with your USDA regional representative. Go the extra mile to be in touch with the USDA about your project. Attend at least one of what is likely to be several ReConnect Workshops to be scheduled over the next few months.
Please don’t hesitate to contact us if you have questions. CTC’s funding strategies and grant-writing team are ready to assist you with your ReConnect application planning.
[i] “ReConnect Program Background – First Round of Funding,” https://www.usda.gov/reconnect/program-overview
[ii] “Evaluation Criteria,” ReConnect Loan and Grant Program, USDA, https://www.usda.gov/reconnect/evaluation-criteria
[iii] “Broadband Pre-subscription Form for Farms and Other Businesses,” ReConnect Loan and Grant Program, USDA, https://www.rd.usda.gov/files/FarmorBusiness_Pre-subscription_Form_Final.pdf