With the holidays behind them, Americans are determining the aftermath of their annual holiday spending spree.  For the Federal Communications Commission (FCC), the spending spree at taxpayer expense has just begun.  On December 11, 2014, the FCC met to vote on changes to the E-Rate program, which is part of the Universal Service Fund (USF). 

The Telecommunications Act of 1996 created the USF, which includes the E-Rate program, which provides funding for school and library telecommunications programs; the High Cost program, which provides funding for telecommunications infrastructure in underserved or unserved areas of the country; the Rural Healthcare program, which provides telecommunications services, including broadband, to eligible healthcare providers; and the Low-Income Support program, which includes the Lifeline and Link-Up programs. 

In order to fund the USF, access charges were imposed on providers in the form of “contributions,” which are typically passed on to consumers in the form of a USF fee, which constitutes a hidden tax on telephone bills, including wireless bills.  These contributions are collected and administered through the Universal Service Administration Company (USAC).

The FCC can raise the contribution rate (more commonly known as the contribution factor) and spending caps for any program under the USF as part of its oversight function of the USAC, without approval by Congress.  This rate is recalculated quarterly.  During its December 11 meeting, the FCC voted to increase funding and raise the spending cap on the E-Rate program by an additional $1.5 billion per year.  FCC Commissioner Ajit Pai noted during the December 11 meeting, “This tax and spend scheme is nothing new.  Universal service contribution rates have jumped 60 percent under this Administration, from 9.5 percent to 16.1 percent.  With today’s new spending, they’ll go up again.  The contribution factor could rise as high as 20.3 percent next year.”

According to a 2004 report by the FCC Office of Inspector General, the E-Rate program has been fraught with wasteful spending: payments have been made on goods and services that were never delivered; and, one school over-ordered and overpaid for goods and services, storing unused network equipment worth about $4.5 million in warehouses.  A 2009 Government Accountability Office report noted that applicants have been subjected to a long and complicated application process, and that a “significant amount of committed funds are not disbursed to program participants.” 

CAGW’s 2014 book, Telecom Unplugged:  Ushering in a New Digital Era, discussed various proposals to reform the E-Rate program, including a proposal from Commissioner Pai, who recommended a student centric approach to redirect funding being used for telephone services to technology; streamlining the application process; and focusing funding directly on students.  FCC Commissioner Jessica Rosenworcel proposed additional auditing by the FCC in order to root out wasteful spending; developing public-private partnerships to provide students and teachers with access to content and devices; and simplifying the application process for participating schools and libraries. 

FCC Commissioner Michael O’Rielly provided the FCC with a five-step approach to improve the E-Rate program by not increasing costs to consumer; refocusing the program on broadband access; creating consistent matching requirements for applicants; leveraging private sector networks and services instead of overbuilding existing investments; and providing schools with flexibility to choose the speeds that best meet their needs.  In addition, O’Rielly recommended that E-Rate program administration be streamlined.

Commissioners Pai and O’Rielly pointed out that common sense reforms and the elimination of long-identified wasteful spending were ignored by the FCC in favor of an expansion of the program; there were not even changes in the unwieldy application process.  Commissioner O’Rielly detailed the impact of the increased expenses:

If surveys are accurate, our fellow citizens are worried about their jobs and employment, mortgages and home prices, student loan debt, college costs for their kids, food prices, lack of retirement savings, and many other financial problems.  In reality, these issues are not all solvable by the government, nor should they be, and most Americans don’t expect the government to do so.  But we shouldn’t make their problems and concerns worse by adding new taxes and fees on their monthly expenses. 

According to Commissioner O’Rielly, the E-Rate fund will increase by 62 percent, and will be generated by the FCC raising “telecommunications bills by at least 16 percent.”  O’Rielly also predicts that the FCC will impose new fees on broadband services. 

Commissioner Pai explained why there was no reason for the FCC to increase these fees:

So why does the Commission now think that another $4.5 billion [$1.5 billion over three years] is needed to meet demand for broadband connectivity?  In large part, it is because we are succumbing to a disease that afflicts so many inside the Beltway.  We don’t show that we care about a program by doing the hard work needed to solve it.  No, instead, we talk about how much we care about a problem based on the amount of money we are willing to throw at it, a public demonstration of supposed “compassion,” “courage,” and “vision” – all of which of course, is easy to do when you are spending other people’s money.”

Commissioner O’Rielly further raised concerns that the FCC would be increasing rates to cover the E-Rate expansion without also increasing the amount of matching funds from recipients, reducing incentives for more efficient spending that would stretch the dollars provided for the program. 

Increasing costs without restructuring the E-Rate program exemplifies the need to revamp the entire universal service program.  This is one of the many reasons that the Communications Act must be modernized and reformed in the 114th Congress.