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Key Members of Congress Question E-rate Program’s Structure

Members of a key congressional subcommittee March 16 questioned the organizational structure of the E-rate program and asked whether the program had outlived its usefulness.

The occasion was a hearing by the House Energy and Commerce Subcommittee on Oversight and Investigations to review a year-long Government Accountability Office study of the Federal Communications Commission's management of the program. Last year the subcommittee held three critical hearings exploring instances of waste, fraud and abuse in the E-rate program.

The latest hearing turned its attention to the FCC itself. But members who had joined the panel since the start of the new Congress had some tough questions about whether the program was serving its intended purpose.

Rep. Joe Barton, R-TX, chairman of the full Energy and Commerce Committee, provided some of the toughest rhetoric. "The E-rate program is broken," he said, "and I'm not sure it can be fixed. I think we should look at significantly restructuring the program." Barton said that when his committee considered revisions to the Telecommunications Act of 1996 this summer, "It will have a portion that will deal with the E-rate program."

Barton suggested that schools and libraries would have gotten connected anyway without E-rate, and questioned whether "this was an appropriate role for Congress."

No representatives of schools and libraries were present to respond. However, Mark Goldstein, director of physical infrastructure issues for GAO, replied that he thought it was an appropriate policy goal. "Even though it is difficult to determine how much E-rate specifically increased the technology in schools, we have seen a lot of benefits. . . . Schools in rural areas are having particular benefits."

Barton also questioned whether the E-rate was still necessary, now that close to 95 percent of schools and libraries are connected to the Internet.

Jeffrey Carlisle, chief of the FCC's Wireline Competition Bureau, said, "From the point of view of program management, once you achieve an extremely high penetration level, you can say, ‘Everyone is on their own.' But there will be recurring costs, and costs associated with keeping the network maintained and upgraded. You can either say, ‘Everyone's on their own,' or ‘There will be a certain amount of targeted funding to maintain the networks.' It is a valid question as to whether our Priority 2 funding is appropriately targeted."

Rep. Ed. Whitfield, R-KY, who took over as subcommittee chairman in January, said the subcommittee was preparing a report on its investigative activities for the full committee. "The E-rate requires serious reforms and the FCC may turn out to be the wrong steward of this program."

Rep. Bart Stupak, D-MI, the subcommittee's new ranking minority member, praised the program's impact on his Upper Peninsula district, but still had tough questions and criticism for the program. He pointed to "the greed of a few bad vendors" and "the incompetence of the FCC." He added, "Vendors have viewed this as a cookie jar to be tapped at will."

Stupak said that the subcommittee would be "sending bipartisan recommendations shortly" to the full committee and "statutory changes that Congress should consider."

Rep. Jay Inslee, D-WA, said, "I'm honestly questioning whether this [the FCC] is the right agency for the distribution of these funds. I want to see the program remain." But Inslee mused whether it made sense to have a regulatory agency be in charge of a program that was responsible for distributing large amounts of money.

Carlisle of the Wireline Competition Bureau, responded, "I think you are asking exactly the right question." He noted that when the FCC was given responsibility for the E-rate program, it was "an independent regulatory agency with a budget of $250 million. It is nothing like the Department of Education or the Department of Agriculture. Moreover, it is a regulatory agency populated by regulatory attorneys and economists, not people used to giving out funding. I think it is a valid criticism. We should have asked for more help early on. . . . At this point, for the past couple of years, we have focused on trying to undo some of the process we started out with."

The FCC recently awarded a contract to the National Academy of Public Administration to review the organization of the program and suggest improvements. Goldstein of the GAO said he felt that was a positive step toward addressing some of the issues that the GAO had identified.

In its report, the GAO said that the FCC needed to take specific steps to improve its management of the program.

Among the issues identified was the FCC's large backlog of appeals cases, which it said the agency has now committed to eliminating by the end of the year. The GAO said that of 1,865 appeals that had been made to the FCC through the end of 2004, approximately 527 remain undecided, and 458 have been pending for longer than 90 days.

The GAO also found that the FCC's E-rate rulemakings "have often been broadly worded and lacking specificity," forcing the Universal Service Administrative Company to craft its own rules. Even when USAC staff members consult the FCC, it said, this can lead to problems when some USAC procedures "arguably rise to the level of policy decisions." Further, it said, enforcement problems can arise when audits uncover rule violations because there is no legal basis for recovering the funds. The history of program processes, it concluded, "begs the question of which entity is really establishing the rules" of the program.

The GAO recommended that FCC conduct a comprehensive assessment to determine whether "all necessary government accountability requirements, policies and practices, have been applied and are fully in place to protect the program and the funding. This, it said, should include "the implications of FCC's determination that the Universal Service Fund constitutes an appropriation by identifying the fiscal controls that apply. . . . " Last year, E-rate funding commitments came to a halt when it was determined that the program was subject to the requirements of the Anti-Deficiency Act. Thanks to congressional intervention, the program was given a one-year waiver from the accounting requirements that that law imposes on other federal programs.

The GAO also recommended that the FCC establish goals and measures for the program that are consistent with the Government Performance and Results Act. USAC's recently launched initiative, in which the consulting firm BearingPoint will conduct 1,000 site visits of beneficiaries this year, is designed in part to address this need.

A copy of the GAO's full report is available at

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