About $5 billion of the estimated $19.5 billion in eRate funds committed to schools and libraries from 1998 to 2006 were never used, according to a recent report from the Government Accountability Office (GAO).

In some cases, funds were not claimed because the applicants’ needs changed from the time they applied until it was time to file a Form 486, which releases the funding to applicants or their service providers. In other cases, the actual expenses that applicants incurred were less than the amount of funding they had applied for. Often, the sheer complexity of the program caused applicants or their service providers to leave money on the table.

Whatever the reason, more than 25 percent of the available eRate funding that was committed to applicants during the program’s first nine years has not been disbursed.

Peter Kaplan, director of regulatory affairs for eRate consulting firm Funds for Learning LLC, called the trend "alarming."

"We certainly want schools to be able to use the funds when they get them," Kaplan said.

The percentage of applicants who used at least three-quarters of their eRate funding never exceeded 70 percent from 1998 to 2006, according to the GAO’s analysis. The percentage of applicants who used none of their committed funding ranged from 10 percent to 20 percent each year during this period.

Cheryl Stepp, instructional technology supervisor for Florida’s Osceola District Schools, said her district left some of its eRate money unclaimed in 2004, thanks to an unfortunate choice of a service provider.

"Our district did an RFP through the purchasing department for codecs for five schools," Stepp said, adding: "A company that was unfamiliar to the district, in another state, won the bid." Osceola submitted a Form 471 identifying that out-of-state company as its service provider.

But when it was time to claim funding for these services, "all attempts by every district department to make contact with this company were unsuccessful," Stepp said. "Unfortunately, the window of time [to claim the funds] expired."

In hindsight, Stepp said, Osceola should have filed a vendor change of request form with the Schools and Libraries Division of the Universal Service Administrative Co. (USAC), the agency that administers the eRate, before it was too late.

"Too much time was spent trying to deal with a deceptive company that must have gone under without notifying [its] prospective customers," she said, noting that the eRate funding approved for the codecs "went unclaimed, much to the misfortune of these five schools."

In 2003, the Federal Communications Commission (FCC) amended its eRate rules to allow for unused funding from prior years to be carried over for use in subsequent years. That practice began during the 2004 program year, when the agency carried forward $150 million in unused eRate funding from the 2001 program year for use in 2004.

Before this rule change, however, the FCC used about $1.3 billion in unspent funding from the program’s first three years to reduce eRate contributions from telecommunications carriers, according to a USAC report.

The GAO’s report confirms a separate analysis of schools’ use of eRate funds that Funds for Learning made in December.

In its own analysis, Funds for Learning found that the single biggest factor affecting whether eRate funds are used is how quickly applicants receive their funding commitment decision letter from USAC.

If applicants receive this letter before the start of the new program year, they are much more likely to use all or some of their eRate funding, the consulting firm said. But as the days stretch on beyond the start of the funding year before applicants receive their letter, the percentage of funding they end up using declines in turn.

So, one thing USAC could do to ensure greater use of eRate funding would be to get decision letters out to applicants sooner.

USAC says it already has taken several steps to streamline its funding commitment process, such as moving the entire application process online and increasing its training and outreach activities.

These steps appear to be paying off: This year saw the earliest release of the first wave of eRate funding since 2000, said USAC spokesman Eric Iverson, and Funds for Learning says the pace of funding commitments has increased from an average of $85 million per month in funding year 2005 to more than $110 million per month in 2007.

Still, there are limits to how quickly all decision letters can go out.

"The close of the [application filing] window in early February does not leave enough time to review all 40,000 applications prior to the July 1 funding year start," Iverson said. "The window closing date would have to be moved earlier in the year, or applicants would have to submit their applications earlier in the window, to review significantly more applications in the time available."

For now, USAC receives the "vast majority" of eRate applications during the last week of the filing window, Iverson said. And moving the filing window earlier in the year would create a whole new set of problems: There would be even more time between the application and disbursement stages, leading to more potential changes during that period–and more reasons that funds might go unclaimed.

Iverson said unused funds "present a significant issue in the oversight and administration of the eRate program," and USAC has "long worked with the FCC on ways to address the volume of funds that remain undisbursed from funding year to funding year." He also noted that these funds will "eventually get disbursed," once they’re carried over to a future program year.

"Demand for eRate support always outstrips supply, so undisbursed funds will not remain undisbursed for long," Iverson said. "Money collected in a given year might not be disbursed in that year, but it will eventually be disbursed."

Though unused funds are reallocated for use in future years, they are "still problematic," notes the GAO’s report, "because they preclude other applicants from being funded" during the program year in question.

Links:

GAO report
http://www.gao.gov/new.items/d09253.pdf

Schools and Libraries Division of USAC
http://www.universalservice.org/sl

Funds for Learning LLC
http://www.fundsforlearning.com