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Complaint 2 to OIG - Lake County Fiber Project 02 07 11 (2)

Complaint 2 to OIG - Lake County Fiber Project 02 07 11 (2)

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Complaint, filed 02-07-2011, of Mediacom vs. Lake County, MN asking for a federal probe by the Inspector General of the U.S. Department of Agriculture of the broadband stimulus award to the County for $66.5 million.
Complaint, filed 02-07-2011, of Mediacom vs. Lake County, MN asking for a federal probe by the Inspector General of the U.S. Department of Agriculture of the broadband stimulus award to the County for $66.5 million.

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Published by: StimulatingBroadband.com on Feb 24, 2011
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United States Department of AgricultureOffice of Inspector GeneralWashington, DC 20250
 In the Matter of:        ))Easygrants ID 4538     )Lake County Fiber Network    )Winter 2010 Broadband Initiatives Program Award )   
Absent immediate investigation by the Office of Inspector General (“OIG”), a $56million Broadband Initiatives Program (“BIP”) taxpayer-funded loan is at risk of default andconversion to an unlawful grant.  Mediacom Communications Corporation (“Mediacom”)respectfully requests that the OIG expeditiously investigate whether a BIP $66 million plusloan/grant combination awarded to Lake County, Minnesota (“Lake County”) to construct a last-mile broadband network in portions of Lake and St. Louis Counties, Minnesota (“Project”) wasimproperly obtained.  Mediacom further requests that OIG investigate statements made by localofficials that RUS personnel have provided assurances that RUS will not seek repayment of its$56 million loan should the County default.  If true, such collection forbearance would covert theBIP loan into an unlawful grant. To maintain the status quo pending its investigation, Mediacomrespectfully requests that OIG immediately direct RUS to hold the award in abeyance andrescind the award should the investigation confirm Mediacom’s concerns.Briefly, this Complaint will highlight the following:
Because the Project is not financially viable, actual funding of the Project standsto result in default of the loan portion of the Project award.   Lake County hasmade statements that it believes that RUS will forgive the loan, effectivelyconverting that loan into an impermissible grant.2.
At the time of its application, Lake County lacked, and continues to lack, the legalauthority necessary to enter into the loan/grant award; build and operate thebroadband system or make the necessary initial capital contribution.3.
Lake County’s retention of a third party, National Public Broadband, Inc.(“NPB”), to not only prepare the application but to build and operate the systemfor Lake County raises a number of compliance issues, including the fact thatLake County has agreed to pay an impermissible success fee that was contingentupon the grant of the award as well as the likelihood of future impermissibleawards of contracts to entities owned by officers of NPB.
On September 13, 2010, RUS announced that it would fund a Round 2 application(Easygrants ID 4538 -“Lake County Fiber Network”) (“Application”).
The Project wouldprovide voice, video and data services
to “all of Lake County and a portion of Saint LouisCounty including the cities of Ely, Babbitt, Aurora, Hoyt Lakes and the townships of Basset,Colvin, Duluth, Embarrass, Morse, Waasa and White.”
The proposed network will serve about
Rural Utilities Service Broadband Initiatives Program, Round Two Application Directory, Last Mile and MiddleMile Infrastructure Applications
, at 388 (June 2, 2010), attached as Exhibit 1.
Lake County Fiber Optic Project – Fact Sheet, October 15, 2010,http://www.co.lake.mn.us/index.asp?Type=B_PRGSRV&SEC={3098D1D8-0AFD-4D47-BDD5-EF5CA66878C4}(last visited January 13, 2011), attached as Exhibit 2.  The Project includes the St. Louis County municipalities of City of Ely, City of Babbitt, City of Aurora, City of Hoyt Lakes, and the Town of Basset, Town of Colvin, Town of Duluth, Town of Embarrass, Town of Morse, Town of Waasa, and the Town of White; and the Lake Countymunicipalities include: City of Beaver Bay, Town of Beaver Bay, City of Silver Bay, City of Two Harbors, Town of 
“15,000 homes, 1,000 businesses and 100 ‘critical community facilities’ (schools, hospitals,libraries, etc.).”  The Project funding consisted of approximately $56.4 million in loans,approximately $10 million in the form of a grant and $3.5 million in funding to be provided byLake County – funds that it will procure from the sale of revenue bonds.
 Mediacom, through its affiliates, owns and operates cable television systems inincorporated areas in the Project’s service area, including the Minnesota cities of Beaver Bay,Silver Bay, Two Harbors, Aurora and Hoyt Lakes (collectively “Mediacom ServedCommunities”).  Mediacom provides a full array of services, including video, broadband phoneand Internet access with speeds of up to 20 Mbps throughout these communities.  Based on itsreview of the published service area maps, Mediacom believes that these communities wereproperly listed as “served” in the Application.
 Midcontinent Communications (“Midcontinent”) owns and operates cable televisionsystems in incorporated areas in the Project’s service area, including the Minnesota cities of Babbitt and Ely (collectively “Midcontinent Served Communities”).  Midcontinent provides afull array of services, including video, broadband phone and Internet access with speeds of up to50 Mbps throughout these communities.  Based on its review of the published service area maps,Midcontinent believes that these communities were properly listed as “served” in theApplication.
Crystal Bay, Town of Fall Lake, Town of Silver Creek and Town of Stony River (individually “Municipality” andcollectively “Municipalities”).
Exhibit 1;
see also
Lake County Fretting Over Internet Link 
, Star Tribune,http://www.startribune.com/business/112285054.html(December 21, 2010) (discussing the concerns of LakeCounty officials over aspects of the broadband initiative, citing to a $4 million contribution by Lake County, ratherthan the $3.5 million contribution listed in the Round Two Application Directory).
Declaration of Thomas Larsen attached as Exhibit 3.
Declaration of W. Tom Simmons attached as Exhibit 4.  Other providers of service that meet the BIP definition of “broadband,” such as Frontier Telephone and Qwest, also exist within the Project’s service area.  These additionalproviders simply bolster the points in this complaint but are not essential to establish the disqualification of theProject’s service area for funding.

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Read our first story on this issue, here: http://www.stimulatingbroadband.com/2011/02/mediacom-asks-usda-inspector-general.html

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