Note: This story was updated at 2:30 p.m., after federal officials confirmed that West Virginia must return the unused stimulus funds.
CHARLESTON, W.Va. -- West Virginia will have to return to the federal government about $2.5 million in stimulus funds left over from a statewide broadband expansion project plagued by allegations of mismanagement and reckless spending.
"West Virginia must now reconcile its costs and return unused funds to the U.S. Treasury as required by law," said a spokeswoman for the National Telecommunications and Information Administration, the agency overseeing the stimulus funds.
Last week, federal officials told state Chief Technlogy Officer Gale Given that West Virginia wouldn't be allowed to use the $2.5 million in leftover stimulus funds for a project designed to increase Internet speeds and lower broadband subscription prices.
West Virginia had until Dec. 31 to use the remaining funds, and state officials failed to "formally request" that the feds extend the deadline, according to a Jan. 16 letter from the NTIA.
Citynet, a Bridgeport-based Internet provider, had hoped to use the $2.5 million -- 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.
The excess funds for the Citynet project would have come from a $126.3 million grant that the state received in 2010 to expand high-speed Internet statewide.
Sen. Bob Williams, D-Taylor, said Wednesday he was "very disappointed" by NTIA's decision.
"We had this money allocated to us, and I was hopeful the federal government would have allowed us to keep the money and use it to expand broadband access," Williams said. "This was a really good project that would have brought broadband to a large number of folks throughout West Virginia and created some additional competition to marketplace."
The NTIA rejected the Citynet project last week and notified Given that West Virginia's "grant award expired Dec. 31." The federal agency said the Citynet project didn't comply with "programmatic requirements." State officials also didn't answer questions and provide sufficient details about the proposal, according to the NTIA.
"NTIA worked with West Virginia over several months, and ultimately they did not deliver a proposal for use of the funds that met the goals and requirements of our broadband grant program," the NTIA spokeswoman said today.
In previous letters, federal officials have said that West Virginia would have to send back any unused funds from the $126.3 million grant by Dec. 31, but the NTIA's Jan. 16 letter didn't specifically order the state to do so.
In that letter, NTIA acknowledged that West Virginia officials had asked the agency to approve the Citynet project and extend the Dec. 31 deadline, but the state never submitted a formal request for an extension.
"Considering the broadband challenges that exist in the state, it would be a travesty for these funds to go unused," Martin said.
Given said Wednesday that her office spoke frequently with NTIA officials about Citynet's project in recent months.
"We were not advised that we needed to request an extension 30 days in advance," Given said. "When we did make the request, we were told that it was late, but that that was just a technicality."
The NTIA had previously twice extended deadlines for completing the project over the past two years.
Martin said Citynet still might be able to complete its project without the $2.5 million in leftover stimulus funds.
Martin has asked whether the state would use a $1.4 million credit from Cisco Systems to help Citynet buy equipment for the project. In exchange for the $1.4 million credit, Cisco has said it would take back 60 to 100 oversized Internet routers that the state bought from the company in 2010 but never used.
Frontier Communications, West Virginia's largest Internet provider, has opposed Citynet's project, saying the proposal doesn't meet federal broadband grant guidelines. Frontier installed 675 miles of fiber-optic cable to public facilities in West Virginia as part of the $126.3 million statewide broadband expansion project.
Martin has asked the legislative auditor to review Frontier's invoices.
Frontier had recommended that the state use the leftover stimulus funds to bring fiber-optic cable to additional public buildings -- or to extend broadband to homes in rural Webster County. Frontier urged state officials to spend the leftover funds so the money wouldn't have to be returned to the federal government.
The $126.3 million project has repeatedly come under fire. Last February, the Legislative Auditor released a scathing report, finding that state officials wasted at least $7.9 million -- and up to $15 million -- after buying oversized Internet routers for small libraries and other public facilities with only a few Internet connections. In October, a second audit revealed that state officials circumvented state purchasing laws before awarding contracts to companies that were paid with stimulus funds.
Reach Eric Eyre at email@example.com or 304-348-4869.