User:PuerExMachina/E-Rate

Authorization
The Schools and Libraries portion of the Universal Service Fund, more widely known as E-Rate, was authorized as part of the Telecommunications Act of 1996. Section 254 codified provisions for universal service, a principle that broadly means everyone should have access to advanced telecommunications services at reasonable rates regardless of their location. Two measures were included to advance this goal specifically for libraries and schools. Telecommunications providers were ordered to supply their services to schools and libraries at discounted rates to be determined by the FCC (S.652, Section 254(h)(1)(B)). More generally, the FCC was directed to establish rules “to enhance... access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms, health care providers, and libraries” (Section 254(h)(2)(A)). The FCC was given the authority to establish and periodically evaluate what services qualified for support under both measures according to four broad criteria (Section 254(c)(1)). Funding was to be provided by contributions from telecommunications providers through an unspecified but “equitable and nondiscriminatory” mechanism (Section 254(b)(4)).

Structure
The FCC adopted Order 97-157 in response to Section 254 on May 7, 1997. The FCC determined that “telecommunications services, Internet access, and internal connections,” including “installation and maintenance,” were eligible for discounted rates (FCC 1997a, 255). Internal connections were defined as “essential element[s] in the transmission of information within the school or library” (459). The level of discount that a school or library received would vary from 20% to 90% depending on the cost of services and level of poverty as measured by the percentage of students eligible for the national school lunch program (498). The total amount of money to be disbursed was capped at 2.25 billion (425). The FCC designed the application process to promote cost effective and accountable solutions. As a part of their applications, schools and libraries were required to conduct an assessment of their current technology resources and explain how they utilize it for their educational mission. These assessment had to be certified by an outside organization, preferably the state government. Schools and libraries were required to select vendors through a competitive bidding process publicized through a national website. Record-keeping requirements were instituted to ease audits. (572-581). The FCC decided to fund E-Rate through the same pool of money collected for other Universal Service Fund, or USF, programs (584). The new language in the Telecommunications Act of 1996 expanded the pool of companies required to contribute to any company that provided interstate telecommunications service to the public for a fee (777). This raised the number of companies contributing to the USF from 65 to around 3500 (CBO, 1998, 19). A companies contribution to the USF is based on its interstate and intrastate revenues from sales to end users (FCC, 1997a, 843). Companies submit revenue projections, from which the contribution factor is determined and then assessed. This process takes place on a quarterly basis (How the USF Works). In order to preserve low-cost local phone service, companies are only permitted to increase interstate revenues to recoup their USF contribution costs (FCC, 1997a, 843) The National Exchange Carrier Association managed the existing universal service fund, and in their initial authorizing order the FCC directed the NECA to temporarily administer E-Rate as well (42). When the NECA was unable to agree on how to restructure its Board of Directors to reduce the influence of incumbent local exchange carriers, it instead proposed creation of a subsidiary, the Universal Service Administrative Company, with a board composed of representatives from telecommunications providers and the USF recipient groups (FCC, 1997b, 33). In Order 97-253 the FCC agreed to this proposal (12). The FCC also directed NECA to create to unaffiliated corporations to manage the schools and libraries and rural health care programs (26). However, Senator Ted Stevens and the House Committee on Commerce soon inquired whether this violated the Government Corporation Control Act. The GAO concluded that it did, and an amendment was added to s.1768 that required the FCC to restructure USF administration (GAO, 1998a, 5). IN response, the two new corporations were terminated and their responsibilities shifted to two new divisions within USAC (FCC, 1998, 2).

Criticism
In addition to the incorporation scandal, E-Rate faced faced legal challenges from eleven states and six telecommunications companies. These were consolidated in Texas Office of Public Utility Counsel, et. al. v. FCC before the US Court of Appeals for the 5th District. The chief state complaint was unrelated to E-Rate, but a company complaint about the method of contribution was relevant (GAO, 1998B). Since the USF fee collection is mandated by the federal government, the CBO and OMB consider the fees collected to be federal revenues and the money disbursed for discounts to be federal outlays (CBO, viii). However, only the House of Representatives is constitutionally permitted to introduce revenue-generating measures. Also, the power to establish user fees may be delegated to executive agencies, but the power to tax may not (Joint Committee, 1998). The court found that the FCC's collection of USF fees did not violate the constitution (Opinion of the U.S. Court of Appeals, 1999, (III)(5)(a)(i)(a)). Some members of Congress objected to the level and method of funding provided by the FCC to E-Rate. They viewed the inclusion of internal connections and $2.25 billion budget as excessive and a drain on resources needed to achieve other aspects of universal service. Two such members, Representative Tauzin and Senator Burns, proposed unsuccessful legislation in the 106th Congress to end E-Rate and replace it by a block grant program administered by the Commerce Department. Several other pieces of legislation have been introduced that keep E-Rate but change the funding mechanism to avoid a direct impact on local phone service (CRS, 2003, 5-7). In 2002, a report on USF from the FCC's Office of Inspector General raised considerable alarm. With regards to E-Rate, the OIG identified a “lack of resources for effective oversight,” “inadequate competitive bidding requirements,” and “no suspension of disbarment process” for schools, libraries, or companies with a history of fraud. Random audits conducted by the OIG led to a number of criminal investigations (FCC, 2002, 3-6). In response, Congress requested a GAO report on the health of E-Rate and planned hearings on the matter. The GAO found serious fault with the unusual organizational structure of E-Rate. USAC was not operating under federal fiscal accountability standards. Also, the GAO decried the lack of performance measures for evaluating the impact of E-Rate funds (GAO, 2005, 4-5). The House Committee on Energy and Commerce's Subcommittee on Oversights and Investigations held four hearings into misuse of E-Rate funds. The subcommittee found a multitude of irregularities: purchases were being made with fraudulent documentation and without competitive bidding; inadequate technology plans were accepted and led to unused, wasted resources; and no protections were in place to prevent gold plating (“procurement of technology goods and services far beyond reasonable school district needs and resources”) and many other forms of abuse (Committee on Energy and Commerce, 2005, 2-3).

Impact
Unfortunately, it is difficult to measure the effectiveness of a program that has broad goals and little oversight. Yearly requests for E-Rate funding almost triple the FCC's $2.25 billion limit (CRS, 2003, 7). At the beginning of 2005, over 100,000 schools had participated in the program (GAO, 2005, 58). In 2003, nearly half of the funding went to schools where more than half of the students receive reduced price lunches (CRS, 2004, 5). Department of Education Surveys show that between 1994 and 1999, Internet access in public schools rose from 35% to 95%, and access in classrooms rose from 3% to 63% (CRS, 2001, 5). This period coincides with growth in Internet access across society and only briefly coincides with the existence of E-Rate. It is thus impossible to causally link the two. However, other evidence does suggest a correlation. A 200 Case study performed by the Benton Foundation found that E-Rate funding had a direct impact on classroom Internet connectivity in four cities. An evaluation of E-Rate in California by Goolsbee and Guryan showed a 68% increase in classroom connectivity per teacher but could not identify any impact on student achievement.