West Virginia may have to return more than $2.5 million in leftover federal stimulus funds from a statewide high-speed Internet expansion project that has been plagued by allegations of mismanagement and reckless spending.
The National Telecommunications and Information Administration recently declined to approve the state's plan to award the remaining stimulus funds to Citynet, a Bridgeport-based Internet provider.
Citynet wants to use the federal funding - along with $7.2 million of its own money - to set up nine "GigaPop" facilities in West Virginia that would funnel data and connect to the national Internet "backbone" in Columbus and Pittsburgh.
To help purchase equipment, Citynet also would use a $1.9 million credit from Cisco Systems, which has agreed to take back about 100 oversized Internet routers that the state bought from the company in 2010 but never used.
"We believe that Gov. Tomblin would prefer that these residual monies be put to use in West Virginia to address our broadband shortcomings, rather than sent back to the federal government," said Citynet CEO Jim Martin.
The state has until Dec. 31 to spend its remaining stimulus funds - or send them back to the feds. State officials and Citynet are now scrambling to provide additional information about the Citynet project to the federal agency. They believe the NTIA still might approve the project.
"I can't speak for NTIA, but they have not denied the project yet," Gale Given, chief technology officer for West Virginia state government, said in an email to the Gazette-Mail.
Frontier Communications, West Virginia's largest Internet provider, opposes Citynet's project. The Communications Workers of America union also has objected.
"We have questions whether the project may be duplicating an [Internet] network that's already there," said Elaine Harris, a union spokeswoman.
In late October, House Speaker Tim Miley wrote a letter to U.S. Sens. Joe Manchin and Jay Rockefeller, urging them to support Citynet's project. Citynet has said the project will increase Internet speeds and lower the cost of subscribing to broadband service.
"Regrettably, it is my understanding that Frontier and the Communications Workers of America are actively trying to dissuade those in Washington from approving this project," Miley wrote to Manchin and Rockefeller.
Frontier has declined to comment on the Citynet project. The company has asked that the state use the leftover stimulus funds to bring high-speed fiber-optic cable to additional public facilities across the state.
"Should the state have access to any remaining federal funds, we hope those resources would be used to support projects that comply with [federal broadband grant program] guidelines," said Frontier spokesman Dan Page.
Harris confirmed that union lobbyists have spoken to state and federal lawmakers about the Citynet project.
"We have a right to raise questions," she said. "We have a right to object."
Federal officials initially approved Citynet's project in early September.
The state technology office revised the proposal and asked for the federal agency's OK a second time in late October. On Nov. 12, federal officials notified the state that Citynet's revised proposal had multiple shortcomings.
The state had neglected to provide information about plans to return routers to Cisco, according to NTIA's letter.
The federal agency also cited an $880,000 shortfall in the project budget, and questioned whether Citynet could complete the work by the end of the year.
What's more, the state's proposal didn't included letters of support that explain how the Citynet project would benefit "specific communities," according to NTIA's letter.
Federal officials said they couldn't evaluate the project without the requested information, and "any unobligated grant funds will be returned to the U.S. Treasury."
Two days later, Citynet's Martin wrote a letter to state officials, promising that the company would cover any budget shortfalls.
"There is no scenario in which the state will not have enough funds to complete the project," Martin said.
Martin also disputed federal officials' assertions that Citynet couldn't complete the project by Dec. 31, adding that the two-week federal government shutdown in October had prompted delays.
"The state should not be penalized and required to send back residual funds because of timing concerns that are just now being presented, especially since much of the delay over the past month was caused by the federal shutdown," Martin said.
If the NTIA doesn't approve the Citynet project, the $1.9 million Cisco credit would be used for equipment unrelated to broadband, and the state would have to return millions of dollars in leftover stimulus funds, Martin said.
Citynet has said the GigaPop facilities would provide West Virginia with direct connections to the lightning-fast national Internet system.
The state would purchase and own the equipment. Citynet would operate the network.
At least a dozen companies - including Suddenlink Communications, nTelos and Shentel - have expressed interest in tapping into the proposed high-speed network. Frontier wasn't one of them.
The excess funds for the Citynet project would come from a $126.3 million federal grant that the state received in 2010 to expand high-speed Internet.
That year, the state announced plans to install more than 900 miles of fiber-optic cable to more than 1,000 public facilities.
Instead, the state scaled back the project to 675 miles of fiber, and only 590 buildings received high-speed connections.
State officials also used the stimulus funds to purchase more than 1,100 high-capacity Internet routers without checking to see whether the public facilities needed the devices.
Last February, the state Legislative Auditor released a scathing report, finding that the state wasted at least $7.9 million - and up to $15 million - on the routers. The $126.3 million project was supposed to be completed last January, but federal officials granted two extensions. The NTIA doesn't appear willing to extend the project deadline past Dec. 31.
Reach Eric Eyre at email@example.com or 304-348-4869.
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