10/12/04 -- A moratorium on federal e-rate commitments is creating uncertainty and confusion for local school districts who are wondering when -- and if -- they will be reimbursed for high-speed Internet access and other technology enhancements.
The Universal Service Administrative Co. (USAC) will start disbursing funds again by late November, says spokesperson Mel Blackwell. But the money will go out "at a slower rate than in the past."
The main reason for the moratorium is a change in accounting practices. The FCC recently compounded the funding problem by capping the amount of money telecommunications companies must contribute, reducing the available funds by $550 million. In addition, the USAC board was forced to change its investment policy last June, resulting in the potential loss of some $25 million in interest.
At the same time, the $2.25 billion-a-year e-rate program is facing increasing pressure from members of Congress, due to a few high-profile cases of fraud and abuse involving several companies, including IBM.
All of these developments have led to what NSBA Executive Director Anne L. Bryant calls "a perfect storm."
"The halt in funding puts school districts and their planning cycles into a tailspin," says Bryant, who is a member of the USAC Board of Directors.
James Mingo, computer services supervisor for the St. Martin Parish school district in Louisiana, says his district's application for $70,000 in e-rate funding to provide basic telephone services in schools has been held up.
Fortunately, funding for two other e-rate applications -- totalling $137,00 -- came through before the commitment letters were halted, Mingo says.
St. Martin Parish has used e-rate funding to provide basic Internet access to schools, create a fiber optic network, and set up a wide area network. "We couldn't do it without the e-rate," Mingo says. "We've fought for and justified the use of e-rate funds for years now."
"All of us work hard to get this money and use it correctly," says Nancy Hunt, technology coordinator of the Southwest School Corporation in Sullivan County, Ind.
Hunt's school system has gotten about $42,000 this year before the funding moratorium. The district has used e-rate funding for Internet connections, which allowed it to use the savings for computer equipment and staff training -- which the district "couldn't have afforded without the e-rate," Hunt says.
The moratorium was imposed Aug. 3 after the FCC determined that the federal Anti-Deficiency Act, a budget law, applied to the e-rate. That meant USAC had to convert to a new accounting standard (called Government GAPP) which redefines e-rate funds as government obligations.
As a result, USAC can no longer distribute funding commitment letters to school districts until it has the money in hand. This is creating a major funding flow problem because e-rate funds are collected from telecommunications companies on a quarterly basis.
USAC expects to have approximately $1.4 billion in commitments for schools and libraries this quarter, which ends Dec. 31, but does not expect to have enough cash on hand to support these commitments.
This means a number of processed e-rate applications will not receive funding commitments this month, and there also is uncertainty over whether there will be sufficient money in USAC's accounts to cover applications next quarter.
Of the $2.25 billion available for e-rate funding for the current year, only $760 million has been committed.
Sens. Olympia Snowe (R-Maine) and John D. Rockefeller IV (D-W.Va.), original sponsors of the e-rate legislation, wrote to FCC Chair Michael K. Powell Oct. 1 expressing "serious concerns" about the changes in the accounting procedures and the way they are being implemented. The moratorium "has already had a significant negative impact on schools, libraries, and rural health care providers across the country," the letter states.
In response, the FCC issued a statement Oct. 6 saying it "is working with the Administration, Congress, and the schools to get funds flowing as soon as possible while still protecting the fund." It also says the FCC is "exploring a variety of options with USAC to ease the temporary cash flow problems as the new accounting standards are being implemented."
To address the fraud and abuse charges, the FCC issued rule changes in August to strengthen oversight of the program. At a hearing of the Senate Committee on Commerce, Science, and Transportation Oct. 5, USAC Chair Frank Gumper testified that more anti-fraud efforts will be implemented and more audits of e-rate applications will be conducted.
Blackwell says it's likely that the FCC will reduce the maximum discount rate from the current level of 90 percent -- which goes to the poorest school districts -- to 70 or 80 percent.
Meanwhile, at a symposium sponsored by the FCC Oct. 6 on "Unleashing the Educational Power of Broadband," school officials described how connectivity made possible by the e-rate has enhanced learning.
Cynthia Stout, curriculum content specialist for the Jefferson County, Colo., school system, described how the Internet can enliven history lessons by giving teachers and students access to primary source materials, such as those available from the Library of Congress' American Memory project.
Another panelist, Darryl LaGace, director of information systems for the Lemon Grove, Calif., school district, says his district has received more than $1.5 million in e-rate funding over the past six years. The average classroom now has three multimedia computers plus 13 networked appliances, called "thin clients," that can access the Internet.
High-speed broadband connectivity allows teachers to build Web-based lessons enhanced with streaming video, LaGace says. A pilot project at Lemon Grove Middle School provides hand-held wireless devices to students they can use to access their homework assignments and the Internet.
Technology has changed the classroom into a collaborative environment, he says, and "the e-rate is helping to make it possible."