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The Cost of Cost Allocation: FFL’s FY 2015 ESL Comments

Applicants, warm up your engines – E-rate 2.0 is about to begin!  But don’t look for the green flag just yet.  First, the FCC must approve the draft Eligible Services List (ESL) for FY 2015.  You can find that list and the FCC’s request for comments on it here.

The proposed list includes numerous changes from previous funding years, many of them radical, so it’s important that you look it over very carefully. You can find Funds For Learning’s ESL comments here

In our comments, we asked the FCC to scale back its cost allocation policy, because it is not all that effective and, on top of that, it oftentimes yields results that are difficult, if not impossible, to justify.  We questioned why the FCC dropped DHCP and DNS functionality from the ESL this year, since broadband cannot be distributed into and throughout school and library buildings without it.  We agreed with the proposal to make it clear in the ESL that E-rate funding for the installation of eligible equipment is eligible, whether or not the vendor installing the equipment also supplied the equipment.  This is the common sense policy we argued for earlier this year on behalf of one of our clients.  And we also agreed with the proposal, which we made on behalf of another one of our client’s – thirteen long years ago – that caching servers should be eligible. 

In the spirit of modernization, we focused mostly on the program’s cost allocation policy, a frustratingly complex policy that is anything but modern.  It is a holdover from an earlier, darker E-rate age, when it seemed like just about everyone was taking pot shots at the program.  Yes, for those of you new to E-rate, there was a time, very different from today, when E-rate was not the most popular “kid” on the block.  Back then, the FCC needed a way to deflect the criticism coming from Congress and elsewhere that applicants were receiving E-rate money for painting, carpet and all kinds of other ineligible “stuff.”  Cost allocation proved to be an excellent shield, and it has been a mainstay of the program ever since.  The policy is based on an incredibly strict, overly literal reading of the rules.  It focuses laser-like on not funding anything even remotely or arguably ineligible, theoretically or otherwise.  

On its face, cost allocation makes a great deal of sense.  How could it not?   But look just a little bit closer, which we did in our comments, and you will see why, in many instances, it does not.  You will discover a policy that is, for the most part, pretty darn ineffective as a compliance tool, too often costs applicants badly needed funding for no good reason, and is squarely at odds with the FCC’s E-rate Modernization order’s goal of eliminating unnecessary program complexity.  That is why we urged the FCC to take a long hard look at its cost allocation rules and, for now at least, to focus on those that appear in its draft FY 2015 ESL. 

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