On August 8, 2017 USAC reported that in consultation with the FCC, they are in the process of “formulating a plan to transfer the funds of the Universal Service Fund (USF) to the U.S. Department of Treasury” in order to reduce the financial risks and to have additional fiscal controls over the USF program. The funds are currently being held at a third-party banking institution, however many E-rate stakeholders are confused by this move. Stakeholders are also unaware of the process by which this decision was ultimately made and are worried it might have a negative impact on the Universal Service Funds. Below is a timeline which provides more clarity on this issue and based on these findings, stakeholders should not be concerned that the funds can be used for other appropriation items subject to the whims of Congress.
As we all know, the USF program was expanded when Congress updated the nation’s telecommunications laws in 1996 to include schools and libraries. After the 1996 Telecommunications Act was signed into law, the Office of Management Budget (OMB) displayed Universal Service Funds in the budget for the first time in order to get a full sense of the overall Federal Government, but the actual funds were held at a third-party banking institution as opposed to the U.S General Treasury. In April 2000, the OMB sent a memo to the FCC outlining the legal justification in order to continue to have USAC managing the funds. The OMB memo concluded that the “…inclusion of the account (USF) in budgets beginning in fiscal year 1997 does not, in our view, support reclassifying the Fund as ‘governmental’ or ‘public money’ for all purposes”. In accordance with this guidance, USAC has been managing the USF outside the General Treasury.
In 2004 many E-rate stakeholders may remember the E-rate commitments were delayed many months because the FCC “new” interpretation of the Anti-Deficiency Act (ADA) that forced USAC to hold up issuing funding commitments until they had collected enough money to cover the commitments. The ADA “prohibits federal agencies from making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law”. Many stakeholders believed that because the OMB had provided legal guidance to the FCC that the USF was not to be treated as public money that the E-rate program should have never been subject to the ADA in the first place, but fortunately, Congress has exempted USF from the ADA and the current exemption expires December 31, 2017.
In 2005, the Government Accounting Office reviewed how USAC was administering E-rate funds and in their analysis supported FCC’s decision that E-rate commitments were subject to the ADA. The GAO was also concerned, however, that by having the USF managed by a third party banking institution that the funds did not have the necessary fiscal controls or auditing standards in place and asked the OMB and FCC to review the initial guidance. Based on the GAO report the FCC and USAC made some changes to better ensure USF had the necessary fiscal controls going forward. According to a May 2017 GAO report tied to the Lifeline program, in 2014 the OMB presented the FCC with new guidance tied to USF reforms and “observed that USF funds are federal resources and should enjoy the same rigorous management practices and regulatory safeguards as other federal programs.”. This led to the recent decision and announcement by USAC to move the funds to the U.S General Treasury.
The 2005 GAO E-rate report stated and the 2017 GAO Lifeline report reiterated the critical point that that “USF is a permanent indefinite appropriation”. In another words, moving the funds from the third party banking institution to the U.S. General Treasury should not be alarming news to E-rate stakeholders, but the FCC and USAC want to better protect the funds based on the 2014 OMB guidance. Congress cannot use these funds to support other federal programs unless the 1996 Telecommunications Act is amended or changed by Congress. According to USAC, the process of moving the funds to the General Treasury should be complete in 2018.