The head of the Schools and Libraries Division reported April 18 that the demand for E-rate funds for the 2005 funding year would show a significant drop, which should, he said, be a "good news story" for the program.

George McDonald, vice president of the Universal Service Administrative Company for schools and libraries, told the Schools and Libraries Committee of the USAC board that the SLD had submitted its annual "demand projection" to the Federal Communications Commission last Friday, reporting that it projected that applicants had requested $3.65 billion in funding commitments, down from $4.28 billion in 2004.

McDonald said that requests for telecommunications services showed a slight decline and that requests for Internet access showed a slight increase. At the same time, requests for internal connections support from applicants at the 90 percent discount level had shown a substantial decrease, while requests from applicants in the 70 percent discount band and 60 percent discount band had increased. The result should be that more lower-discount applicants should be able to receive funding than have in the recent past.

McDonald said that a large urban applicant had confirmed that its requests were down because it had accomplished most of the wiring projects that it had planned to do. "This shows that the program is achieving its objectives," he said. "The high-discount applicants have what they need."

For the 2005 funding year, the FCC made two policy decisions that were designed to encourage this trend. It imposed a restriction that school districts could receive approved internal connections commitments for a site in only two out of every five years. In addition, applicants were barred from transferring E-rate-supported equipment for a period of three years, unless a facility was closed either temporarily or permanently. It was hoped that the changes would deter high-discount applicants from seeking new equipment every year.

For the 2004 funding year, the SLD has approved eligible internal connections requests from applicants eligible for a discount rate of 81 percent or higher. So far, the lower threshold for denials has not yet been set.

McDonald added that the big increase in telecommunications services requests that some observers had expected as a result of the FCC's so-called "Tennessee decision" has not yet materialized. Under that decision, on-premises equipment can qualify as Priority One services in certain circumstances.

It is expected that the specific details of the demand projection will soon be released publicly. The SLD committee has scheduled a meeting later this week to review the "funding parameters" for 2005 and to set a "denial threshold" for internal connections for the 2004 funding year.

The 2005 numbers reported at the meeting have not yet been reflected in the figures reported through its Data Retrieval Tool (and thus E-rate Manager). A state E-rate coordinator indicated that state leaders have raised some questions about a potential glitch in the application certification process; the SLD does not add the data until it has matched up a certification with an application. In previous years, the SLD noted that its demand projection represented the maximum funding it expected it would need, before it had started reviewing applications.