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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Federal-State Joint Board on ) CC Docket No. 96-45 Universal Service ) NINTH ORDER ON RECONSIDERATION Adopted: December 31, 1998 Released: December 31, 1998 By the Commission: I. INTRODUCTION 1. In this Order, we grant the Rural Health Care Corporation's (RHCC) request to reconsider the Commission's decision regarding the funding year for the rural health care universal service support mechanism. We conclude that the public interest will be served by changing the funding year for the rural health care universal service support mechanism from a calendar year cycle (January 1 - December 31) to a fiscal year cycle (July 1 - June 30), and extending the first funding year by six months to June 30, 1999. Moreover, we conclude that the transition to a fiscal year cycle should be implemented immediately. Accordingly, applications submitted during the initial 75-day filing window and approved for funding will be funded through June 30, 1999, within the funding limitations adopted herein. II. BACKGROUND 2. On May 8, 1997, the Commission released an Order which, among other things, established the federal universal service support mechanisms for schools, libraries, and rural health care providers. In the Universal Service Order, the Commission concluded that the funding year for the schools and libraries and the rural health care support mechanisms would be the calendar year. It also required schools and libraries, and rural health care providers to reapply for universal service support each year. In the Fifth Order on Reconsideration, the Commission reconsidered its decision regarding the funding year for the schools and libraries universal service support mechanism. The Commission concluded that the public interest would be served by changing the funding year for the schools and libraries universal service support mechanism from a calendar year cycle (January 1 - December 31) to a fiscal year cycle (July 1 - June 30). In order to accommodate the transition to a fiscal year funding cycle, the Commission established the first funding period as the 18-month period from January 1, 1998 through June 30, 1999. The Commission did not address changes to the funding year for the rural health care support mechanism in the Fifth Order on Reconsideration. 3. RHCC is the entity currently administering the rural health care support mechanism pursuant to the Commission's rules. In October of 1998, RHCC submitted two letters requesting that the Commission extend until June 30, 1999, the initial funding cycle for the rural health care universal service support mechanism, and make the funding cycle consistent with that of the schools and libraries support mechanism. RHCC states that this extension is necessary to allow the current applicants to conclude negotiations with telecommunications service providers, and take advantage of the time already invested in participating in the application process. RHCC further explains that granting the extension is advantageous because it would provide RHCC and the Commission with additional time to implement changes to improve operations. Finally, RHCC maintains that granting its request would result in some administrative efficiencies for the Universal Service Administrative Company (USAC). 4. By January 1, 1999, RHCC and the Schools and Libraries Corporation (SLC) will merge into USAC. As a result of the merger, USAC will assume an expanded role that will include responsibility for overseeing the administration of the rural health care support mechanism. USAC has submitted a letter supporting RHCC's request to extend its first funding year. USAC states that granting the requested changes will improve its operations without adding any significant administrative burdens. 5. The Accounting Policy Division issued a public notice seeking comment on RHCC's request. The Commission received comments from nine entities, eight of whom unconditionally support RHCC's request. The U.S. Department of Health and Human Services (HHS), however, proposes two alternatives. HHS suggests that we could either adopt the six- month extension requested by RHCC, or we could implement a "grandfather" approach by considering any pending 1998 funding year applications in the 1999 funding year without requiring the applicants to resubmit those applications. HHS asserts that the six-month extension has the advantages of allowing existing applications to be processed without the need to submit new applications in January 1999, and allowing more applicants to obtain support in the first funding period. HHS is concerned, however, that the extension will result in less money for the program, and will cause confusion as to whether additional providers may apply for support during the extension period. HHS claims that the "grandfather" approach would have the advantage of increasing the number of completed applications for the second funding period, but also would have the disadvantage of the Commission and RHCC reporting a very low disbursement for the first funding period. III. DISCUSSION 6. We find that the public interest will be served by changing the funding year for the rural health care universal service support mechanism from a calendar year cycle (January 1 - December 31) to a fiscal year cycle that will run from July 1 - June 30, and extending the first funding period by six months to June 30, 1999. We conclude that the transition to a fiscal year should be implemented immediately. In order to accommodate the transition to a fiscal year funding cycle, the first funding period will be the 18-month period from January 1, 1998 through June 30, 1999. The second funding period will begin on July 1, 1999. Applications that were submitted during the initial 75-day filing window and approved for funding by the rural health care support mechanism will be funded through June 30, 1999, to the extent permitted by funding constraints. We direct the RHCC, in consultation with USAC and the Common Carrier Bureau, to establish a filing window for the next fiscal year, to open on March 1, 1999. Parties seeking support for the second funding period may begin to file applications on March 1, 1999. We also conclude that RHCC should determine the length of that window, and resolve other administrative matters necessary to implement a filing window in consultation with the Common Carrier Bureau. Upon consummation of the merger, USAC shall assume RHCC's role in implementing these directives. 7. We have decided to extend the initial funding period and implement a fiscal year funding cycle for rural health care, and to transition to this approach immediately, for several reasons. We agree with RHCC that applicants will benefit from the six-month extension. Although RHCC has received more than 2,500 applications for support, very few rural health care providers (RHCPs) have completed the application process. The transition to the fiscal year funding cycle adopted herein will afford applicants an opportunity to conclude negotiations with telecommunications service providers, and take advantage of the resources that they have already invested in the application process. 8. We also agree with RHCC that granting the extension will provide an opportunity to implement changes that may be identified in the near future to further enhance the operation of the rural health care universal service support mechanism. Specifically, we recently directed USAC to evaluate anticipated demand for 1999, and review the operations of the rural health care support mechanism to improve the opportunities for eligible rural health care providers to take advantage of the support mechanism. We further directed that USAC submit the results of such evaluation to the Commission by March 1, 1999. A six-month extension of the initial funding period will provide RHCC, USAC, and the Commission with additional time to implement any such changes prior to the commencement of the second funding period. 9. In addition, our decision to adopt a fiscal year funding period will synchronize the rural health care universal service support mechanism with the budgetary and planning cycle of the schools and libraries universal service support mechanism. This coordination of support mechanisms will simplify USAC's tasks of tracking collections, processing accumulated credits, and complying with financial reporting requirements. USAC also believes that consistency of year end close of books will provide the additional benefit of minimizing the frequency of disruptions therefrom. 10. Moreover, we find that, as noted in the Fifth Order on Reconsideration, using a fiscal year funding cycle will ease the administrative burden on carriers by aligning universal service contribution levels with the local exchange carrier annual access tariff filing schedule. Under our rules, local exchange carriers file their annual tariffs to be effective July 1 of each year. One piece of information these companies require in order to file their tariffs is the universal service contribution factors. 11. Additionally, we disagree with HHS's concern that granting RHCC's request for a six-month extension will result in less money being available for the support mechanism. It is anticipated that the rural health care support mechanism will have a balance of approximately $85.5 million at the end of the fourth quarter of 1998. As discussed in the Contribution Factors Public Notice, we directed that half of this amount be used to reduce the amount of contributions collected during the first quarter of 1999. We further directed that once USAC has completed its evaluation of rural health care funding needs, the amount remaining in the account, net of expected 1999 funding requirements, be used to reduce subsequent contribution factors. In light of current estimates of demand for support, as discussed in the Contribution Factors Public Notice, we conclude that there is sufficient funding for the rural health care support mechanism. HHS also believes that there may be confusion as to whether additional providers may apply for support during the six-month extension period, and if they are not permitted to do so, then the extension may be perceived as a delay. As explained below in paragraphs 13 and 14, we are moving the start date for the second funding period, which should ameliorate the concerns of additional providers who wish to apply for support. Moreover, we reject the alternative "grandfather" approach suggested by HHS. As explained above, HHS suggests considering any pending initial funding period applications in the second funding period, thus eliminating the need for applicants to resubmit those applications. Under such an approach, the rural health care mechanism's second funding period would begin on January 1, 1999. We would therefore be unable to convert the mechanism to a fiscal year cycle, and we would forego the administrative benefits of such a conversion. Thus, we continue to believe that granting RHCC's request is in the public interest. 12. To accomplish the changes requested by RHCC, we conclude that, for applications filed within the initial 75-day filing window, the Administrator shall make funding commitments effective for services provided no earlier than January 1, 1998. These services will be funded at the approved monthly level through June 30, 1999. We conclude that this approach is reasonable because telecommunications services and Internet access are generally provided at regular, monthly intervals and are billed on a monthly, recurring basis. 13. The transition from a calendar year to a fiscal year also requires that we amend our rules concerning the acceptance of funding requests. The universal service funding period for RHCPs presently runs from January 1 to December 31. Section 54.623(c) of the Commission's rules permits RHCPs to begin to apply for support on July 1 prior to each funding period. The 1998 funding period, which by this Order we extend to June 30, 1999, is the first funding period during which the universal service mechanism designed to benefit RHCPs is in place. The RHCC, the entity currently charged with administering the application process, did not begin accepting applications from health care providers for the first funding period until May 1, 1998, largely due to the challenges of implementing a new universal service support mechanism. As a result of this delay, RHCC was not able to accept applications for the second funding period beginning on July 1, 1998, and to date, has not opened a filing window for the second funding period nor received applications for support for the second funding period. Thus, we need to establish a new start date for the application process for the second funding period. 14. We conclude that a start date of March 1, 1999, for the application process for the second funding period will serve the public interest. Moving the start date to March 1, 1999, will give applicants sufficient time to complete their applications for the first funding period before they are required to submit applications for the second funding period. In addition, moving the start date to March 1, 1999, will allow applicants an opportunity to assess the sufficiency of the supported services they receive in the first funding period before they are asked to declare which services they will require in the second funding period. Accordingly, we find that the public interest will be served by amending section 54.623(c) of our rules and moving the commencement of the application process for the second funding period from July 1, 1998, to March 1, 1999. 15. The transition to a fiscal year funding cycle adopted herein further requires that we reconsider on our own motion the limitation on the exemption from competitive bidding for voluntary extensions of contracts. Our rules currently provide that voluntary extensions of existing contracts are not exempt from the competitive bidding rules. To accomplish an orderly transition to the fiscal year funding cycle, however, we conclude that we must allow existing contracts that have a termination date between December 31, 1998 and June 30, 1999 to be voluntarily extended to a date no later than June 30, 1999. Although voluntary extensions of contracts generally are not exempt from the competitive bidding requirement, we adopt this limited exception for voluntary extensions of contracts up to June 30, 1999. To hold otherwise would result in RHCPs either having to participate in competitive bidding for only a six-month service period, or not being eligible for support for that six-month period. We conclude that either result would be both administratively and financially unworkable for RHCPs. Thus, we find that the public interest will be served by amending the exemption from the competitive bidding requirements found in section 54.603 of our rules, to allow RHCPs that filed applications within the 75-day initial filing window to extend voluntarily, to a date no later than June 30, 1999, existing contracts that otherwise would terminate between December 31, 1998 and June 30, 1999. 16. We conclude that the amendments to our rules adopted herein shall be effective upon publication in the Federal Register. In this Order, we adopt amendments that change the funding period for the rural health care support mechanism from a calendar year cycle (January 1 - December 31) to a fiscal year cycle (July 1 - June 30), and extend the first funding year for the rural health care support mechanism by six months to June 30, 1999. Thus, these amendments must take effect before the rural health care support mechanism's first funding year expires on December 31, 1998. Additionally, compliance with these amendments requires preparation only by USAC and RHCC. These entities will have actual notice of their obligations when the Commission adopts this Order, and both entities will be able to comply with these amendments in a short amount of time. Accordingly, pursuant to the Administrative Procedure Act, we find good cause to depart from the general requirement that final rules take effect not less than thirty days after their publication in the Federal Register. IV. SUPPLEMENTAL FINAL REGULATORY FLEXIBILITY ANALYSIS 17. In compliance with the Regulatory Flexibility Act (RFA), this Supplemental Final Regulatory Flexibility Analysis (SFRFA) supplements the Final Regulatory Flexibility Analysis (FRFA) included in the Universal Service Order only to the extent that changes to that Order adopted herein on reconsideration require changes in the conclusions reached in the FRFA. As required by section 603 RFA, 5 U.S.C.  603, the FRFA was preceded by an Initial Regulatory Flexibility Analysis (IRFA) incorporated in the Notice of Proposed Rulemaking and Order Establishing the Joint Board (NPRM), and an IRFA, prepared in connection with the Recommended Decision, which sought written public comment on the proposals in the NPRM and the Recommended Decision. A. Need for and Objectives of this Order. 18. The Commission is required by section 254 of the Act to promulgate rules to implement promptly the universal service provisions of section 254. On May 8, 1997, the Commission adopted rules whose principle goal is to reform our system of universal service support mechanisms so that universal service is preserved and advanced as markets move toward competition. In this Order, we reconsider one aspect of those rules. To give RHCPs an opportunity to complete the application process during the first funding period, we grant the request to reconsider the funding cycle for RHCPs. We conclude that the public interest will be served by changing the funding year for the rural health care universal service support mechanism from a calendar year cycle to a fiscal year cycle running from July 1 to June 30, and extending the first funding year by six months to June 30, 1999. Moreover, this change to a fiscal year funding cycle will synchronize the budgetary and planning cycles of the rural health care and schools and libraries universal service support mechanisms, and will align universal service contribution levels with projected reductions in access charges. B. Summary and Analysis of the Significant Issues Raised by Public Comments in Response to the IRFA. 19. Nine entities filed comments in response to the Public Notice released on December 8, 1998. The overwhelming majority support RHCC's request to extend its initial funding year to June 30, 1999. One commenter, HHS, expressed concerns about the amount of funding available and the ability of additional providers to apply for support if the rural health care mechanism's funding year is extended through June 30, 1999. As discussed above and in the Contribution Factors Public Notice, there is sufficient funding for the support mechanism, and the Commission has taken steps to ensure that additional providers will be able to apply for support. The Commission also rejected HHS's suggestion of a "grandfather" approach because it would preclude converting the rural health care support mechanism to a fiscal year cycle and would prevent USAC and RHCPs from realizing the administrative efficiencies associated with a fiscal year cycle. C. Description and Estimates of the Number of Small Entities to Which the Rules Adopted in This Order will Apply. 20. In the FRFA at paragraphs 890-925 of the Universal Service Order, we described and estimated the number of small entities that would be affected by the new universal service rules. The rules adopted herein may apply to the same entities affected by the universal service rules. We therefore incorporate by reference paragraphs 890-925 of the Universal Service Order. D. Summary Analysis of the Projected Reporting, Recordkeeping, and Other Compliance Requirements and Significant Alternatives. 21. In the FRFA to the Universal Service Order, we described the projected reporting, recordkeeping, and other compliance requirements and significant alternatives associated with the Schools and Libraries section, the Rural Health Care Provider section, and the Administration section of the Universal Service Order. Because the rules adopted herein may only affect those requirements in a marginal way, we incorporate by reference paragraphs 956-60, 968-71, and 980 of the Universal Service Order, which describe those requirements and provide the following analysis of the new requirements adopted herein. 22. Under the rules adopted herein, we revise the funding year for the rural health care support mechanism from a calendar year cycle (January 1 - December 31) to a fiscal year cycle (July 1 - June 30), and extend the first funding year by six months to June 30, 1999. This revision will benefit RHCPs in three ways: (1) it will give them an opportunity to complete the application process for the initial funding cycle; (2) it will synchronize the rural health care support mechanism with the budgetary and planning cycles of schools and libraries support mechanism, thereby resulting in administrative efficiencies for USAC; and (3) it will align universal service contribution levels with projected reductions in access charges. These changes will not have a significant impact on the reporting, recordkeeping, and other compliance requirements for the rural health care support mechanism. E. Steps Taken to Minimize the Significant Economic Impact on a Substantial Number of Small Entities Consistent with Stated Objectives. 23. In the FRFA to the Universal Service Order, we described the steps taken to minimize the significant economic impact on a substantial number of small entities consistent with stated objectives associated with the Schools and Libraries section, the Rural Health Care Provider section, and the Administration section of the Universal Service Order. Because the rules adopted herein may only affect those requirements in a marginal way, we incorporate by reference paragraphs 961-67, 972-76, and 981-82 of the Universal Service Order, which describe those requirements and provide the following analysis of the new requirements adopted herein. 24. As described above, our decision to change to a fiscal year funding cycle, and extend the first funding year by six months, will benefit RHCPs, as well as their chosen service providers, who may be small entities, by ensuring that they have an opportunity to complete the application process, and recoup their investment therein. We also find that this approach strikes the best balance between fulfilling the statutory mandate to enhance access to telecommunications services for RHCPs, and fulfilling the statutory principle of providing quality services at "just, reasonable, and affordable rates," without imposing unnecessary burdens on RHCPs or service providers, including small entities. VI. ORDERING CLAUSES 25. Accordingly, IT IS ORDERED that, pursuant to the authority contained in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151-154, 201-205, 218-220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, the NINTH ORDER ON RECONSIDERATION IS ADOPTED. 26. IT IS FURTHER ORDERED that, pursuant to the authority contained in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151-154, 201-205, 218-220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, Part 54 of the Commission's rules, 47 C.F.R. Part 54, ARE AMENDED as set forth in Appendix A attached hereto. 27. IT IS FURTHER ORDERED that, because the Commission has found good cause, the rule changes set forth in Appendix A ARE EFFECTIVE immediately upon publication in the Federal Register. 28. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference Operations Division, SHALL SEND a copy of this Ninth Order on Reconsideration, including the Supplemental Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary Appendix A -- RULE CHANGES Part 54 of Title 47 of the Code of Federal Regulations is amended as follows: Part 54 -- UNIVERSAL SERVICE 1. The authority for part 54 continues to read as follows: Authority: 47 USC Secs. 1, 4(i), 201, 205, 214, and 254 unless otherwise noted. 54.604 Existing contracts 2. Revise section 54.604(d) to read as follows: * * * * * (d) The exemption from the competitive bid requirements set forth in paragraph (a) shall not apply to voluntary extensions of existing contracts, with the exception that an eligible health care provider as defined under  54.601 or consortium that includes an eligible health care provider, that filed an application within the initial 75-day filing window (May 1, 1998 - July 14, 1998) may voluntarily extend, to a date no later than June 30, 1999, an existing contract that otherwise would terminate between December 31, 1998 and June 30, 1999.  54.623 Cap 3. Revise section 54.623(b) to read as follows: * * * * * (b) Funding year. A funding year for purposes of the health care providers cap shall be the period July 1 through June 30. For the initiation of the mechanism only, the eighteen month period from January 1, 1998 to June 30, 1999 shall be considered a funding year. Eligible health care providers filing applications within the initial 75-day filing window shall receive funding for requested services through June 30, 1999. * * * * * 4. Revise section 54.623(c) to read as follows: * * * * * (c) Requests. Funds shall be available as follows: (1) Generally, funds shall be available to eligible health care providers on a first-come-first-served basis, with requests accepted beginning on the first of January prior to each funding year. (2) For the initial funding year, the Administrator shall implement an initial filing period that treats all health care providers filing within that period as if they were simultaneously received. The initial filing period shall begin on the date that the Administrator begins to receive applications for support, and shall conclude on a date to be determined by the Administrator. (3) For the second funding year, which will begin on July 1, 1999, the Administrator shall implement a filing period that treats all health care providers filing within that period as if they were simultaneously received. The initial filing period shall begin on the date that the Administrator begins to receive applications for support, and shall conclude on a date to be determined by the Administrator. (4) The Administrator may implement such additional filing periods as it deems necessary. * * * * *