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E-rate funding restarts, but crisis continues

Funding for the federal program that helps schools and libraries pay for Internet services has resumed--but with huge delays.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read
After a nearly four-month hiatus, funding for the federal E-rate program resumed Monday, but the program is still in trouble as new accounting rules threaten to paralyze the financing process.

On Monday, the Universal Service Administrative Company (USAC), the not-for-profit organization that administers E-rate funds on behalf of the Federal Communications Commission, issued 198 letters to schools and libraries, promising funding that totals $23.4 million, said Mel Blackwell, vice president of external communications for the group. Additional letters will be issued once more funds have been collected, he added.

Such letters are being sent much more slowly than in the past. The result has been widespread uncertainty and frustration among schools and libraries, many of whom depend on E-rate reimbursements to pay for basic Internet services.

Some schools in Alaska actually turned off their Internet service this summer for fear that they would not be approved for funding.

"People are starting to lose confidence in the program because no one seems to know what is really going on," said Gary Rawson, the state E-rate coordinator for Mississippi and chairman of State E-rate Coordinators Alliance. "Some libraries in Mississippi are talking about dropping out of the program, because they can't get the information they need to make responsible business decisions."

The E-rate program, created as part of the 1996 Telecommunications Act, provides funding for public and private schools as well as public libraries to pay for up to 90 percent of technology costs such as wiring and connection fees. Consumers pay for the program through a "universal service" fee on their monthly long-distance telephone bills. Since it began, more than $8 billion has been disbursed from the E-rate fund.

In August, USAC stopped funding the program, pending adoption of new government accounting rules. Under the new rules, USAC must have money in the bank before it can issue "commitment letters" to schools and libraries guaranteeing them that they will be reimbursed.

Previously, USAC was able to issue letters once applications had been reviewed and approved. Because the lag time between issuing the commitment letter and getting the paperwork for reimbursement from the schools and libraries was roughly 12 to 18 months, USAC was able to issue letters throughout the year regardless of whether it had collected all of the money it needed from carriers.

The change in the accounting rules has caused a major backlog in the

system. When the program was halted in mid-August, USAC had committed only about $800 million of the $2.5 billion budget for fiscal 2004 available for reimbursements, Blackwell said.

The games politicians play
Congress has tried to intervene to help keep money flowing more smoothly. Over the weekend, the House of Representatives passed as part of a larger package of bills language that would exempt the Universal Services Fund, which includes the E-rate program, from having to adhere to the federal law that requires it to comply with government accounting rules. The exemption would be for one year, giving Congress sufficient time in the next session to work on a permanent solution.

But the measure has stalled in the Senate. According to several sources, Sen. John McCain, Republican chairman of the Senate Committee on Commerce, Science and Transportation, has refused to put his stamp of approval on the package of legislation because it does not include a bill he drafted to reform boxing regulations.

E-rate had already come under fire earlier this year as claims of abuse, fraud and waste surfaced.

"Everybody in the E-rate program has been raked over the coals because of all the waste, fraud and abuse," said Rawson, Mississippi's E-rate coordinator. "And that's fine. But now self-serving politics by a certain senator is preventing the program from going forward. And I think that is affecting more people and is more detrimental than all the waste, fraud and abuse that has happened."

McCain's office did not respond to requests for comment on the issue.

The Senate is currently in recess. The issue could come up again in December if the Senate meets before the Christmas holiday. For now, USAC's Blackwell said that the current government accounting rules will continue to be used.

"There's nothing we can do about it until Congress passes a law that says we don't have to follow these rules," he said.