* Important Notice to All E-rate Applicants and Service Providers *
Message Posted October 5, 2004
In mid-August, I informed you that the SLD had put a temporary hold on the
issuance of additional funding commitment decision letters because USAC (the
SLD's parent organization) had been directed by the FCC to move to
government accounting standards by October 1, 2004, which raised budget
authority issues that impacted USAC. We were told that the suspension of
funding commitments was temporary and that the FCDLs should begin flowing
again in a few weeks.
As the weeks dragged on, it was obvious that this wasn't a simple problem as
the SLD had first indicated and there were much larger issues at play. On
September 23, I, along with 40 other State E-rate Coordinators, sent an
urgent letter to Frank Gumper, USAC Chairman, and George McDonald, Vice
President for Schools and Libraries, imploring them to resolve this issue as
soon as possible. As a result of that letter, a meeting was held on
Thursday, September 30 in Washington, D.C. between Frank Gumper, Lisa Zaina
(USAC CEO), George McDonald, and the State E-rate Coordinators' Alliance
(SECA) and the American Library Association (ALA) During that meeting, we
learned more details about the funding suspension and its impact on
applicants and service providers alike, and those details are listed below.
Also, the New York Times ran a story yesterday detailing the suspension of
funding, which I know many of you have read. For those who did not catch
it, I have copied and pasted its text at the very end of this message and I
encourage you to read it.
Rather than the simple "adjustment of accounting procedures" that we were
led to believe would cause a short hiatus in funding waves, USAC has reached
the end of a year-long mandate to change all their accounting to GAAC
principles on Oct. 1 and run the program accordingly from now on. It was
explained by Mr. Gumper that under the new accounting requirements, the SLD
may only commit funds that it has on hand and for which are not obligated
through previous funding commitments, provisions for pending appeals, or
invoices in process. The past practice was to issue commitment letters
knowing that the fund would receive $2.25 billion during over the course of
the year through carrier contributions, which has always worked because most
applicants don't submit BEARs until the end of the funding year, after the
USAC fund balance has been replenished.
So, using the new rules, the SLD currently has only about $200 million in
non-obligated funds that it can commit, and according to Mr. McDonald, the
SLD has processed over $1 billion in funding requests during the suspension.
So this means that when the funding suspension is lifted (which could be as
late as November, we're told), they will only be able to fund a small number
of applications anyway. They are in the process of trying to determine who
has priority of getting that tiny bit of money. As carrier contributions
flow into the fund over the next quarter, additional funding commitments
could be issued. How quickly funding commitments are made depends entirely
on how fast carriers submit their quarterly contributions to the fund. As
you can see, a worst-case scenario is that funding commitments for the
current year (Year 7, 2004-2005) would extend through next July or later.
Because so many applications have been successfully reviewed and are just
sitting in the funding queue, the SLD is considering issuing a "conditional
funding commitment letter" to applicants indicating that your application
has been approved, so you can plan for Year 8, and so service providers can
begin services (if they are so willing). The invoices (SPIF or BEARs) would
not be able to be submitted to USAC for payment until the funding becomes
available, which likely would become known by a second FCDL. Again, this is
just an idea being floated around, and there certainly are pros and cons
associated with it. I'll let you know as soon I hear anything about whether
they're going to issue the "CFCDLs -- Conditional FCDLs." According to my
calculations, approx. 35% of Pennsylvania's priority 1 FRNs have yet to be
funded. While this number is staggering, it is small in comparison to most
other states that have 50-75% of their priority 1 FRNs pending. Because
we're faring better than most, there's always the possibility that they
commit the first funding wave after the suspension is lifted to the priority
1 FRNs in those other states.
As you can see, this change in USAC accounting procedures has implications
far beyond this year because the cash-on-hand issues aren't going away.
FCDLs may trickle out throughout the entire funding year, with priority
given to priority 1 commitments first, then priority 2. So for applicants
that have been used to getting FCDLs for equipment and purchasing and
installing it before the school year begins, I would guess that those
priority 2 commitments will now be issued much much later in the funding
year.
SO FOR NOW...
Please keep answering PIA inquiries relating to your pending applications.
It's important that your application be in the funding queue when the money
does become available. Also, THE FUNDING SUSPENSION DOES NOT AFFECT PAYMENT
OF INVOICES. So applicants and service providers should continue to submit
their BEARs and SPIFs on a timely basis, which, for almost everyone with a
Year 6 (2003-2004) priority 1 FRN, the deadline is October 28, 2004 (A
reminder about this date will go out shortly).
IN ADDITION
Another huge effect of this accounting rule change is the requirement set
forth in federal Anti-Deficiency Act which says that the ADA's Red Light
Rule applies to E-Rate funds. Simply put, if any applicant or service
provider owes the FCC or other cooperating federal agency a debt, no E-Rate
funds can be committed or paid until that debt is cleared. So if service
provider X is late on paying a fine completely unrelated to E-rate, or is
negligent in submitting its quarterly contribution to USAC, NO invoices with
that service provider's SPIN will be paid to any applicant. And visa
versa. But wait, there's more.
In order for the FCC to track all service providers and entities (not just
billed entities) to determine if they are compliant with the Red Light Rule,
the FCC is requiring all entities to obtain an FCC Registration Number
(FCCRN, as we're calling it) by November 1. So every building that's listed
on your Form 471 discount calculation worksheet now must have an entity
number, an FCCRN, AND, new this year, their NCES code (for schools) or FSCS
(for libraries). I will be sending an entirely separate message on how to
obtain an FCCRN in the next 24 hours.
If you're still reading, I can only imagine your frustration. It's going to
increase as I send out more details of the changes for the upcoming year.
If you haven't done so already, please, please register for one of the
training workshops coming up so you don't miss anything.
If you have any questions, please don't hesitate to contact me at
jtschell@comcast.net.
-- Julie
Internet Grants to Schools Halted as the F.C.C. Tightens the Rules
By STEPHEN LABATON
New York Times
WASHINGTON, Oct. 3 - Public libraries and schools around the nation have
suddenly stopped receiving any new grants from a federal program that is
wrestling with new rules on how it spends $2.25 billion each year to provide
high-speed Internet and telephone service.
The moratorium at what is known as the E-Rate program began two months ago,
with no notice, and may last for months, causing significant hardships at
schools and libraries, say state officials and executives at the company
that runs the program.
The suspension came after the Federal Communications Commission, in
consultation with the White House, imposed tighter spending rules that
commission officials say will make it easier to detect fraud and waste in
the program. As much as $1 billion in grants the states say they expected
to receive by the end of the year may be affected, one official estimate
says. That has led state administrators to either take money from other
educational programs or postpone paying their phone and Internet companies.
"We are fearful that they could shut down our service," said Curt Wolfe,
chief information officer for North Dakota. The federal program contributes
more than 60 percent of the money, or about $1.7 million a year, that pays
for Internet services and to link video services for the state's 100,000
students, he said. "If this isn't resolved this month, we're going to be in
very serious trouble," he said. "We don't have extra funds to get us through
this, and this is a major issue for every state."
Robert Boucher, who works for the Wisconsin education agency that arranges
for the financing of the state's schools and libraries, said the state had
not received commitments for about $22 million, or about two-thirds of the
amount necessary for Internet and telephone services for the state's 426
school districts and 387 public libraries.
The tighter spending rules also forced the Universal Service Administrative
Company, the nonprofit group that runs the program under the commission's
oversight, to hastily liquidate more than $3 billion in investments last
week. The sale generated a loss, but officials said they had not yet
calculated the amount.
And the changes are expected to lead to higher charge imposed on telephone
companies - and passed on to consumers - later this year or early next year.
The increase may be necessary, senior officials at the universal service
company said, because of a cash squeeze created by the tighter spending
rules and an F.C.C. decision over the last nine months to reduce the phone
companies' contributions to the E-rate program.
Although commission officials said they had made the decisions leading the
moratorium in close consultation with the White House Office of Management
and Budget, administration officials sought on Friday to distance themselves
from the FCC's moves and said that the budget office had never issued a
formal legal opinion on the appropriateness of some of the changes.
Commission officials say the changes were crucial for better monitoring of
the program."
The E-Rate program is vital for America, but we must insist that it complies
strictly with the highest government accounting and auditing standards,"
Michael K. Powell, chairman of the commission, said. "Any delays are
temporary while we place the program on sounder footing. We are committed to
ensuring these funds flow responsibly to America's classrooms and libraries
as soon as possible."
The E-Rate program was created by the Telecommunications Act of 1996 as a
way to finance telephone and Internet services for the states. The program
expanded an earlier universal service program to include public schools and
libraries and the Internet, giving money both for equipment and for service.
Derided by its opponents as the "Gore Tax" because it was advanced by Vice
President Al Gore, the program has occasionally been attacked in Congress by
some Republicans. In recent interviews, administration and commission
officials denied that the changes were intended to hinder the program. But
some officials have said that in tightening the rules, the government may
have made unintentional mistakes.
The changes have created significant tension between the F.C.C. and the
Universal Service Administrative Company. Executives say they have felt
whip-sawed by the commission. For instance, the executives say, top
officials in Mr. Powell's office approved in July a set of investment
guidelines for the more than $3 billion held by the company. Two months
later, the commission ordered the immediate liquidation of those investments
to comply with the new budget restrictions.
Senator Olympia J. Snow, the Maine Republican who co-sponsored the provision
that led to the creation of the program in 1996, expressed concern that the
moratorium could jeopardize its longer-term prospects. "This has the
potential to imperil the program by leaving it in a state of such
uncertainty," she said in an interview. "It raises questions about why these
decisions were made." She and Senator John D. Rockefeller IV, Democrat of
West Virginia, sent a letter on Friday to Mr. Powel, seeking an
explanation.
The Universal Service Administrative Company was set up to provide money to
the states for phone and Internet services in four areas - schools and
libraries; rural health care; remote or underserved areas that are more
expensive for phone carriers to service; and low-income customers. Officials
say the spending restrictions have been applied only to the schools and
libraries and to relatively small rural health care programs.
The Clinton administration decided to list the money held in the universal
service accounts on the federal budget, which had the effect of reducing the
deficit by billions of dollars. But after considerable debate, former
officials recalled, the Clinton administration decided not to apply a series
of restrictions that are imposed on money considered part of the public
Treasury. As late as April 2000, William E. Kennard, the chairman of the
F.C.C. at the time, issued an opinion that the fund should be maintained
outside the Treasury, and by implication, not be subject to the rules that
are now being applied to it.
Some lawmakers have recently criticized the E-Rate program as laden with
fraud and waste, and the F.C.C. has given it more scrutiny. Last October,
the F.C.C. in consultation with the White House budget office ordered the
company to begin applying generally accepted accounting principles for
federal agencies by Oct. 1, 2004. But officials said it was only last summer
when they began to realize that the change would have consequences that
would sharply limit the program's ability to spend and manage its money.
The problems have been made worse, some officials said, by the decision of
the F.C.C. over the last nine months to reduce the level of contributions
made to the library and school program by telephone companies by $550
million.
"There was a lot of pressure to keep the contribution factor down until the
election passes, after which it will then have to rise again," said Anne L.
Bryant, a member of the board of the universal services company and
executive director of the National School Boards Association, which
represents 95,000 school board members in 15,000 school districts.
F.C.C. officials say they reduced the contribution level because it appeared
that the universal service company had been holding more than $3 billion,
and they were concerned that it would be criticized for sitting on so much
idle cash. "It was the right decision to draw down, based on what we knew at
the time," said Jeffrey Carlisle, chief of the Wireline Competition Bureau
at the F.C.C. "But under what we know now, I'm not sure we would have made
the same decision." He and other commission officials denied that this was a
move to keep the rates down until after the election.
In recent weeks, officials from the company have had discussions with the
F.C.C. and the budget office. Interviews with officials and correspondences
between the parties reflect deep frustration between them. In a Sept. 16
letter to Mr. Powell, Frank Gumper, the chairman of the Universal Service
Administrative Company, predicted that the changes in the accounting and
spending rules could delay "meaningful cash outlays" into 2006 and could
delay more than $1 billion in financing commitments that would be ready to
be sent by the end of the year. He also predicted that "a significant
increase in the contribution factor in future quarters is likely."
The immediate cause of the crisis is the application of a federal budget
law, the Anti-Deficiency Act, to the E-Rate program. The company had issued
financial commitment letters to the states for amounts whose total exceeded
the company's budget, because the schools and libraries as a whole spend
less than 80 percent of the money they requested, company officials said.
But F.C.C. officials say the Anti-Deficiency Act prohibits the company from
making commitments greater than its cash on hand. The Anti-Deficiency Act
created a second problem. With the FCC's permission, the company had placed
more than $3 billion in bonds and bond mutual funds to earn annual interest
of more than $25 million. But under the act, those investments count as part
of the company's total spending and offset the amount available for the
states.
On Sept. 27, the F.C.C. instructed the company to "liquidate any such
investments by Sept. 30." A few weeks earlier, Mr. Gumper said he expected
that liquidation, which has been completed, would result in "an immediate
loss" of $2 million and the forgoing of at least $25 million to $30 million
in annual interest income.
Julie Tritt Schell
jtschell@comcast.net
(717) 730.7133 (voice)
(717) 730.9060 (fax)
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