eRate Update: SLC deluged with school applications … and critics

The school field in recent weeks has been receiving diametrically opposite messages about the Schools and Libraries Corporation (SLC), the agency created by the Federal Communications Commission (FCC) to handle eRate discount applications.

The agency announced on April 8 that it was doubling its client service staff in an effort to handle the deluge of eRate inquiries pouring in by phone, fax, and eMail. (Schools and libraries must submit their plans to the SLC as a prelude to receiving funding to offset the costs of connecting to the internet.)

At the same time, the very future of the SLC was cast in doubt. On March 31, the Senate approved a bill requiring the FCC to revamp its universal service programs.

The bill, S 1768, would require the FCC to come up with a plan to combine the SLC with the Rural Health Care Corporation, the nonprofit entity that doles out universal service discounts to rural health care providers.

The FCC’s plan, scheduled to arrive in Congress on May 8, also must include a detailed report on how the eRate is being funded.

The measure came in response to a congressional opinion that declared the SLC an illegal institution. Prompted by Sen. Ted Stevens, R-Alaska, who also drafted S 1768, the General Accounting Office (GAO) held on Feb. 11 that the FCC had overstepped its legal authority when it created the SLC. The GAO cited a 1945 law that forbids federal agencies from creating or acquiring corporations without congressional approval.

The FCC, meanwhile, has maintained repeatedly that it acted legally when it established the SLC.

Congressional staffers and FCC officials would not comment on whether the proposed legislation would have any impact on the nearly 50,000 schools, districts, and libraries that already have applied for the eRate this year. But one thing is clearÐthe debate over how the eRate will be implemented is far from over.

Frying Fishman

The FCC has faced heavy criticism about how it has implemented universal service from key members of Congress, most notably Sen. Stevens, who chairs the communications subcommittee; Sen. John McCain, R-Ariz., chairman of the Commerce Committee; and Sen. Conrad Burns, R-Mont., a member of both committees. They and other lawmakers argue that the FCC has created a bloated bureaucracy to administer the eRate when the agency itself could have handled this function.

Lawmakers call the SLC’s budget exorbitant. For the second quarter of 1998 alone, the SLC requested $4.1 million in funding to cover its operating costs. That amount is taken from the pool of money earmarked to subsidize eRate discounts to schools and libraries. The National Exchange Carrier Association, which filled in for the SLC before the corporation was organized, had previously estimated that the SLC would spend $7.8 million for the entire year.

Critics in Congress complain that SLC’s salaries in particular are lavish. SLC chief executive officer Ira Fishman reportedly earns $200,000 per year, plus a potential $50,000 bonus. A provision in Senate bill S 1768 would cap the salary of FishmanÐor whoever ends up heading a new entityÐat level 1 pay for government executives such as the secretaries of state or defense, which currently top out at about $155,000 per year.

Testifying before the House Commerce Committee on March 31, Fishman defended the SLC’s budget.

“One of our central operating principles is to minimize administrative costs,” he told the committee. “This is the reason we have built a lean staff and relied upon outside contractors whose costs can be reduced over time as appropriate.”

Fishman’s testimony preceded the April 8 announcement about staff increases. At that time, the SLC had 13 full-time employees in Washington and 84 outside contractors in Iowa and New Jersey to handle the volume of calls and process the mountain of applications received. At press time, Fishman said the SLC had fielded 45,934 calls and 6,500 eMail requests for information, while nearly 50,000 applications have poured in.

Many of the organization’s costs are one-time expenses, Fishman also told the Congress. He cited construction of the SLC web site and development of program-integrity procedures as substantial initial investments that won’t have to be repeated.

Kowtowing to the Veep

But the SLC’s operating costs are not the only point of contention. Stevens and Burns both have questioned whether the collection of fees from telecommunications carriers to subsidize the eRate would raise residential phone rates. Both senators represent rural constituents, many of whom rely on universal service subsidies for their basic telephone service.

At a Senate appropriations subcommittee hearing March 19, Stevens blasted FCC Chairman William Kennard for kowtowing to the vice president’s political agenda of wiring all schools to the internet, at the expense of basic phone service for poor and rural citizens.

“I’m just appalled at the way the [eRate] program has been accelerated for political purposes. I think you’re going to end up destroying the universal service fund,” Stevens told Kennard.

Sources on Capitol Hill said the original language of Senate bill S 1768Ðas written by StevensÐwould have dumped the SLC and the Rural Health Care Corp. altogether rather than combining them into a single entity.

Some businesses have reported increased costs for their telecommunications services as a result of eRate subsidies, but it is unclear what the impact will be on residential consumers or on the universal service fund at large.

S 1768 would require the FCC to provide Congress with a detailed account of how much was contributed to the universal service fund for schools and libraries by five different types of carriers during the second quarter of 1998. The commission also would have to compute the amount recovered by these carriers from their subscribers.

And that’s not all. Stevens and his supporters also want to know exactly how much the eRate program is going to cost. Under provisions of his bill, the FCC’s report to Congress would have to include the amounts requested by schools and libraries through April 15 for telecommunications services, internal connections, and internet access. The FCC also would have to supply a justification for any proposed discounts for schools and libraries that exceed the funding collected through the first half of 1998.

As are many school leaders, members of Congress say they are concerned that the universal service fund will fall short of the money it needs to pay for the eRate. Senate Commerce Committee members John D. Rockefeller, D-W.Va., and Olympia Snowe, R-Maine, expressed just such concerns in a March letter to the FCC’s Kennard.

Rockefeller and Snowe also argued that internet service providers (ISPs) should be required to pay into the universal service fund. Proponents of this ideaÐmost notably long-distance carriers such as AT&TÐargue that ISPs stand to benefit from schools using eRate discounts, so they should have to contribute to the pool that funds the discounts as well.

Other lawmakers, including Sen. McCain, argue that ISPs shouldn’t be required to contribute to universal service. Bringing ISPs under the jurisdiction of the Telecommunications Act of 1996 would be “disastrous to the growth and development of [their] services,” McCain wrote in his own letter to Kennard.

By requiring the FCC to report separately on the amount requested by schools for telecommunications services and for internet services, Congress hopes to get a clearer assessment of how ISPs stand to benefit from the eRate and whether they should be required to contribute to its funding.

Further discord

Senate bill S 1768, as originally drafted, also would have required the FCC to “prioritize assistance [to schools and libraries] on the basis of need.” But many eRate advocates, including Sen. Byron Dorgan, D-N.D., believed that Sen. Stevens’ language split radically from the requirements of the Telecommunications Act of 1996. The bill’s current form omits any reference to awarding eRate discounts solely on the basis of need.

Pia Pialorsi, a spokeswoman for Sen. McCain, told eSchool News that McCain planned to introduce legislation of his own that would grant eRate funds first to schools that can demonstrate need. Although such legislation has been tabled for now, Pialorsi said, it remains “on the radar screen.”

Schools & Libraries Corp.

Federal Communications Commission

Sen. Conrad Burns

Sen. Byron Dorgan

Sen. John McCain

Sen. Ted Stevens

Dennis Pierce

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