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Senate Commerce Committee Probes E-rate Funding Suspension

Four members of the Senate Commerce Committee, including the E-rate program’s key congressional sponsors, asked pointed questions about the program’s hold-up in funding commitments at an Oct. 4 hearing, but came away with few direct answers.

Four members of the Senate Commerce Committee, including the E-rate program's key congressional sponsors, asked pointed questions about the program's current hold-up in funding commitments at an October 4 hearing, but came away with few direct answers.

Frank Gumper, chairman of the Universal Service Administrative Company's Board of Directors, said outside of the hearing that barring further action, the Schools and Libraries Division would be unable to resume making funding commitments until late November at the earliest. USAC Vice President George McDonald testified at the hearing that the SLD was currently holding up more than $300 million worth of funding commitments to 4,200 applicants because of the accounting issues. The SLD would be expected to review additional funding commitments over the next two months, but not be able to issue them until the accounting matter is resolved.

After the hearing, USAC CEO Lisa Zaina said that USAC hoped to provide better guidance to program stakeholders soon, but that the Federal Communications Commission still had to review and approve the statement.

Sen. John D. "Jay" Rockefeller IV, D-WV, one of the program's congressional sponsors, said that he was "very, very disappointed" that officials from the FCC's Wireline Competition Bureau had declined the committee's invitation to testify. "The policy process leading up to the suspension [of funding] was unclear," he said, and the current situation "needs to be resolved." He added that it was "inconceivable" that funding would continue to be held up.

The short hearing was called ostensibly to review what the program's administrators were doing to address concerns about waste, fraud and abuse, but quickly shifted to questioning about USAC's inability to approve more funding commitments since early August.

Officials from the FCC's Office of Inspector General did appear at the hearing, but said they could not address the panel's questions about how the funding situation would be resolved.

Many months ago the FCC asked USAC to adopt the Federal Generally Accepted Accounting Principles by October 1, 2004. FCC officials acknowledged after the hearing that this was done to help improve auditing and accounting procedures among the other federal agencies that had been enlisted to work with the FCC on enforcing E-rate program rules.

This move, however, subjected USAC to the Anti-Deficiency Act and other budgetary laws and regulations that are imposed on more traditional federal government agencies. This impacted USAC's ability to continue to approve funding commitments as it had in the past—issuing funding commitments before it had collected the necessary funding from the telecommunications carriers. Traditionally, the SLD has begun approving funding commitments before the start of a funding year, recognizing that it would not be required to disburse the discounts until many months later when applicants and service providers actually got around to using the discounts and submitting their payment paperwork. In fact, in recent years, the FCC permitted the SLD to approve more funding than its traditional $2.25 billion cap in recognition that schools and libraries traditionally did not use all of the funds that had been approved for them.

Under the new accounting rules, however, USAC would be required to have the funds in hand before they could be committed.

USAC has continued to disburse discounts on funding commitments that had already been approved while holding up action on pending funding commitments, including $700 million worth of requests still under review from the 2003 funding year. Funding commitments for the Rural Health Care program have also been held up until the issue is resolved.

Senators expressed their dismay that to comply with the law, USAC was forced to sell off $3 billion worth of new investments in the bond market by the end of September 30, at a loss of approximately $4 million on the day that the transaction took place and the potential loss of up to $40 million worth of interest income over the course of the next year. The transaction was required because long-term investments are viewed as liabilities rather than assets under the government accounting standards, and thus, for accounting purposes, further reduced the size of the available funding pool.

In response to questions, Gumper said that it was not until early September that USAC was able to resolve with the FCC and the Office of Management and Budget how USAC should manage its finances. He said the USAC staff was instructed to get written instructions from the government agencies before selling the bonds, and then was advised not to inform anyone in advance so as not to disrupt the bond markets by selling off such a large investment.

Rockefeller and Sen. Olympia Snowe, R-ME, the program's other chief congressional sponsor, wrote the FCC earlier this month, seeking answers on how the current situation arose and what could be done to address it. Gumper suggested after the hearing that Congress could respond by moving to exempt USAC from the requirements of the Anti-Deficiency Act, but Snowe said that that would be difficult to accomplish before Congress adjourns for the November elections. It is expected that Congress will return in November to, among other things, deal with the fiscal 2005 appropriations bills for most federal agencies.

Senators also questioned whether the E-rate and Rural Health Care programs had been "singled out" for special treatment by USAC, but witnesses disputed that assessment. Gumper said that the accounting issue would soon become an issue for the High Cost and Low Income programs. Those Universal Service Fund programs are structured differently than the E-rate and Rural Health Care programs, and their pattern of disbursements is different.

The good news out of the hearing for the E-rate program was that both Republican and Democratic committee members voiced their support for the program's goals, while expressing concern about the potential for waste, fraud and abuse in the program. Sen. John McCain, R-AZ, who is about to step down as the panel's chairman, said, "It's incumbent upon us to ensure that the E-rate program continues." And Sen. Conrad Burns, R-MT, note that dozens of rural schools in his state had come to depend on the program for their continued connectivity to the Internet.

The hearing gave McDonald yet another opportunity to describe for a congressional panel the steps the agency had taken and was taking to address waste, fraud and abuse. When asked what impact the accounting change would have on his agency's ability to address the concerns, he replied that he "did not see a relationship" between the two.

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