Future of Category 2 E-rate Funding – Let’s Discuss

July 16, 2018

One of the most frequent questions I receive is about how long schools/libraries have to utilize their Category 2 budgets, and what the FCC intends to do with the C2 initiative in future years.  I also know that some consultants are spamming applicants with rhetoric stating that C2 funding is ending after FY 2019.  So let’s discuss what are facts, what the future could hold, and my recommendation for FY 2019.   In a separate message I will send the amount of each entity’s C2 budget that has been “used” thus far and instructions to determine the C2 amounts remaining/entity.

What We Know

  • Under the current program, applicants have a 5-year cycle to apply for their Category 2 funding, with Year 1 being the first year the applicant is committed C2 funding, beginning with FY 2015.  So if an applicant was committed C2 funding in FY 2015, their C2 5-year cycle began in FY 2015, and their last year to use this funding will be FY 2019.  Likewise, if an applicant’s first C2 year was FY 2017, their last year to use this funding will be FY 2021.
  • If an applicant has not yet utilized any of their C2 budget, FY 2019 is the last year they can “opt-in” to the C2 funding initiative and still be apply for the funding over a 5-year cycle.
  • The FY 2014 E-rate Modernization Order states that after an applicant’s 5-year C2 budget cycle is completed, the old 2/5 method of awarding C2 funding will resume if the FCC does not extend the current C2 budget program.  The 2/5 rule stated that each school and library could only receive internal connections funding two out of every five years.  There is widespread opposition in the applicant and service provider community to reverting back to the 2/5 rule for several reasons, but most notably that it will create a hybrid situation where some applicants could still be utilizing their C2 budgets under their 5-year cycle, and other applicants could be subject to the 2/5 program.   We believe that this will be impossibly confusing for both E-rate applicants and USAC to implement.
  • Beginning in FY 2020, basic maintenance, MIBS and caching equipment/services will no longer be eligible.
  • All of these “knowns” are subject to change.

What Will the Category 2 Initiative Look Like Beginning in FY 2020?

In September 2017, the FCC sought public comment on the sufficiency and usage of C2 budgets, administration of the C2 budgets, calculation of C2 budgets, and the C2 application process.  The FCC’s Wireline Competition Bureau is reviewing those comments along with the E-rate funding data available through USAC and is required to issue a report to the full Commission before the opening of the FY 2019 Form 471 filing window, which is expected to open in early January 2019.   This report is intended to provide the FCC with recommendations on whether to continue the C2 budget program and if so, what should be the C2 budget amounts moving forward, should C2 budgets be district-based instead of building-based, what should be eligible, etc.  Until this report is released, we don’t know what the future holds for C2.  But in my opinion, I don’t think that C2 funding is going away and would be shocked if the FCC allowed the C2 program to revert back to the 2/5 method of funding.

In the meantime, my advice for PA applicants is to utilize as much of their Category 2 budgets as possible in Funding Year 2019, while we know with 100% certainty that the Category 2 budgets are in effect and will be funded at the current levels.  How much C2 funding has each school/library used since FY 2015?  Stay tuned for a follow-up message that will provide that data and show how to calculate what C2 funding remains.

If you have any questions about the future of Category 2, please don’t hesitate to contact me!   I will keep you updated as I learn more.

– Julie

Julie Tritt Schell
PA E-rate Coordinator
717-730-7133 – o
717-730-9060 – f

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