Detailed Information on the
Universal Service Fund E-Rate Assessment

Collect performance data on a quarterly basis at the time of the contribution factor filing. Once sufficient data is collected to provide a reliable baseline, establish targets for the performance measures.

Continue review of the USF IPIA audits and determine further opportunities to improve USF oversight.

Increase financial oversight of USF

Conduct comprehensive review of USF performance measures, management, administration, policy, and oversight.

Is the program purpose clear?

Explanation: The purpose of the Schools and Libraries program (commonly known as the E-rate program), as outlined by the Telecommunications Act of 1996, is to establish a program to provide discounts on services provided to schools and libraries in order to provide discount telecommunications services and access to advanced telecommunications services to schools and libraries to the extent technically feasible and economically reasonable.

Evidence: 47 U.S.C. §254 (b)(6) and (h)(1)(B).

Does the program address a specific and existing problem, interest, or need?

Explanation: The E-rate program was created by the 1996 Telecommunications Act to address the fact that schools and libraries had only limited access to the advanced telecommunications and information services to effectively support the educational, economic, and cultural needs of the United States. It is no longer clear that the program currently serves an existing need. Internet connectivity in schools and libraries has increased dramatically. From 1994 to 1996, even before the E-rate began, internet connection in schools rose from 14 percent to 35 percent. In 2003, nearly 100 percent of public schools now have internet access, including 93 percent of classrooms. 95 percent of these schools reported that they use broadband. A recent American Library Association report shows that 99.6 percent of libraries have Internet access, although only 42 percent have broadband access. There is no data that isolates the impact of E-rate funding on this growth. It is also important to note that E-rate supports a host of other services, including basic telephone services. As these services become an integral part of the Nation's infrastructure (such as electricity and water, which are not subsidized for schools and libraries) and as competition and technology drive costs down, funding levels and eligible services should be reconsidered.

Evidence: See 47 U.S.C. § 254(b)(6) and (h)(1)(B); National Center for Education Statistics Report Internet Access in U.S. Public Schools and Classrooms: 1994-2003; and American Library Association report, June 2005.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: While there are other programs that provide funding for equipment and/or training that build upon availability of advanced telecommunications services funded by E-rate, these efforts do not directly fund access to services. These programs are complementary, rather than redundant. Thirteen states, a few local governments, and private organizations fund information technology hardware and software once access to advanced telecommunications and information services is established through the E-rate program.

Evidence: See 47 U.S.C. § 254(b)(6) and (h)(1)(B). Survey results presented in a February 2002 GAO study, Federal and State Universal Service Programs and Challenges to Funding (GAO-02-187), identifies thirteen state-funded E-rate programs.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: While the Telecommunications Act of 1996 set out a clear purpose for the program, there was little structure provided in the authorizing statute. The statute tasks the FCC with creating a program to provide discounts on services and access to services, but did not provide the FCC clear goals or a framework for managing the program. Moreover, the FCC is a regulatory agency and lacks the programmatic expertise to maximize educational benefits sought through the program. The program's management structure and funding also raises challenges. The E-rate program is managed by a private entity with no contract or memorandum of understanding with the FCC and no performance measures, and funds are maintained outside of Treasury, raising issues related to financial management. Currently the FCC is taking steps to address E-rate management and administration issues, seeing comment on ways to improve the administration and management of the Universal Service Fund, including the E-rate application process. Since the last evaluation, the FCC has made some changes to the E-rate program to improve management and accountability, including requiring that the program use Federal government accounting standards.

Evidence: See, e.g., Federal-State Joint Board on Universal Service, Order on Reconsideration and Fourth Report and Order, CC Docket 02-6, 19 FCC Rcd. 15252 (2004); In matter of Schools and Libraries Universal Service Support Mechanism, Fifth Report and Order, CC Docket 02-6, 19 FCC Rcd 15808 (2004). See, e.g., GAO-05-151 Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate Program, Report to the Chairman, Committee on Energy and Commerce, House of Representatives, February 2005 GAO, Concerns Regarding the Structure and FCC's Management of the E-Rate Program, Testimony Before the Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, House of Representatives, March 16, 2005. See report of Taskforce on Prevention of Waste, Fraud and Abuse at www.sl.universalservice.org/taskforce/default.asp. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124 (June 14, 2005).

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The E-rate program is targeted to public and private schools and libraries in the U.S. The program provides 20% to 90% discounts on advanced telecommunications services, based on a demonstration of need. The E-rate program is targeted in that it provides higher discounts to the most economically-challenged schools and libraries, based on the rate student participation in the federal lunch program. There is some evidence to suggest that the availability of E-rate funding has accelerated the introduction of Internet-based learning and related technology-based learning into schools. Roughly 72 percent of schools and 58 percent of libraries have received E-rate funding.

Evidence: As of 2003, the latest year for which we have data, the percentage of public schools with Internet access is nearly 100 percent. The percentage of instructional classrooms with Internet access increased significantly after implementation of the E-rate program: Of 123,273 schools (including private schools) 89,642 received E-rate funding. Of roughly 17,300 library outlets, including central libraries, branch libraries, and bookmobiles,10,092 of these libraries receive E-rate funding. In funding year 2004, almost 70% of E-rate funding went to the poorest schools (with an 80-90 percent discount rate). 57% ($1,156 M) went to priority I (internet access and telecommunications) and 43% ($1,540 M) went to priority II (internal connections). The National Center for Education Statistics (NCES) compiles these data from multiple sources including the Census Bureau, their own surveys, and state and local providers. Funding amounts are based on program commitments, which can be found on USAC's website. USAC Funding Commitments: www.sl.universalservice.org/funding/.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The program currently has no long-term performance measures. A recent GAO report stated that "while $13 billion in E-rate funding has been committed during the past 7 years, the FCC did not develop performance goals and measures that could be used to assess the impact of these funds and improve management of the program." The Commission is currently seeking comment on long-term performance measures. As stated in the original PART evaluation, the FCC should develop a long-term outcome measure that reflects the purpose of providing E-rate discounts. Long term measures could focus on educational achievement (or, in the case of libraries, community benefits). Also, the program has no measure of efficiency or cost-effectiveness. Efficiency measures could consider cost per connected-hour or per-person for students and library users.

Evidence: See GAO 05-151; FCC Strategic Plans, 2004 Performance Plan, and 2002 Performance Report; and Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The Schools and Libraries program does not currently have long-term performance measures. The Commission has also sought comment on long-term performance measures, baselines, and targets.

Evidence: Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Schools and Libraries program does not currently have performance measures. With respect to previous performance measures, the FCC's Annual Performance Reports: 1999 through 2002 note the E-rate program's accomplishment of its performance goal of classroom connectivity, but the metric used reflected all schools connectivity, and did not reflect the impact of E-rate funding.

Evidence: See FY2005 Schools and Libraries PART; Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The Schools and Libraries program does not currently have annual performance measures. See question 2.3.

Evidence: See question 2.3 above.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: While the partners support the overall intent of the program, since the long-term goals and efficiency measures are still undefined, this response must be no. While schools and libraries must supply a technology plan to document the connections between the access provided and the objectives that will lead to improved education and library services, there is no mechanism for recipients to report on how successful they were in achieving the goals with the assistance of e-rate funding. As long-term goals are developed and instituted, it should be possible to have the program partners commit to and report on the E-rate goals as established by the FCC.

Evidence: Descriptions of the technology plan requirements can be found on USAC's web site at: www.sl.universalservice.org/overview/techplan.asp. A fact sheet regarding documentation requirements and audits is also located on USAC's web site at: www.sl.universalservice.org/reference/AuditFactSheet.asp. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: While there have been numerous evaluations of the E-rate program, there has been no evaluations examining how well the program is accomplishing its mission and meeting its long term goals. There have been several GAO evaluations that focus on program management and process, and the FCC has taken steps to address recommendations made in these reports. The FCC's Inspector General has conducted audits and investigations of specific applicants, and the FCC has requested funds every year to support the Inspector General (IG), including support for conducting audits on a statistically significant, randomized sample of schools and libraries. In the recently released NPRM, the Commission sought comment on how well the program has worked, and whether the program is meeting its goals. The Commission is also considering establishing regular reviews. Once the FCC has established performance measures that reflect the long-term goals of the program, there should be regular independent evaluations to evaluate progress. Such reviews could be a regular report by the FCC's IG.

Evidence: Relevant GAO reviews include Schools and Libraries Program: Application and Invoice Review Procedures Need Strengthening, GAO-01-105, December 2000; Schools and Libraries Program: Actions Taken to Improve Operational Procedures Prior to Committing Funds, GAO/RCED-99-51, March 1999; Schools and Libraries Corporation: Actions Needed to Strengthen Program Integrity Operations Before Committing Funds, GAO/T-RCED-98-243, July 1998; Telecommunications: Court Challenges to FCC's Universal Service Order and Federal Support for Telecommunications for Schools and Libraries, GAO/RCED/OGC-98-172R, May 1998; and Telecommunications: FCC Lacked Authority to Create Corporations to Administer Universal Service Programs, GAO/T-RCED/OGC-98-84, March 1998. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 24-29 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html. Evaluations and reviews of the E-rate program by the Department of Education include: E-Rate and the Digital Divide: A Preliminary Analysis From the Integrated Studies of Educational Technology; Michael J. Puma, Duncan D. Chaplin, and Andreas D. Pape; September 31, 2000; (DOEd Doc #00-17). Congressional Research Service reviews of the E-rate program include: Telecommunications Discounts for Schools and Libraries, CRS, Angele Gilroy, May 29, 2002; and Information Technology and Elementary and Secondary Education, CRS, Patricia Osorio-O'Dea, June 9, 2000.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The FCC does not currently have performance goals or measures for the E-rate program. Therefore, this answer must be no. In developing goals and measures, the FCC should consider overall funding levels for the program, as well as ways to measure cost effectiveness and consider improvement educational achievement directly related to E-rate funds.

Evidence: See question 2.1 and 2.3.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The Schools and Libraries program does not currently measure annual or long-term goals or targets, and thus has not adequately identified strategic planning deficiencies. Nevertheless, through rulemaking proceedings, the FCC works to improve the efficiency of program administration and ensure that the statutory goals are addressed. The recently released NPRM seeks comment on whether any changes to the administrative structure of USAC are needed in order to enhance management of the USF. It also asks for comment on whether any proposals to change the current administrative structure would affect the independence and neutrality of the USF program administration.

Evidence: See FCC rulemakings regarding the schools and libraries program at: www.fcc.gov/wcb/universal_service/schoolsandlibs.html Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 12-14 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html

Are all regulations issued by the program/agency necessary to meet the stated goals of the program, and do all regulations clearly indicate how the rules contribute to achievement of the goals?

Explanation: The E-rate program was adopted by statute and is implemented by regulation. Changes to eligible services, application processes, funding levels, etc. are made through administrative or regulatory changes. In making regulatory changes, the rulemaking process addresses why the changes are needed to meet the statutory goal of providing discounted services to eligible schools and libraries. In addition, Section 11 of the Act requires the Commission to evaluate its regulations and eliminate any unnecessary regulations every two years. The recently released NPRM seeks comment on ways to improve the management, administration, and oversight of the USF programs, including the billing and collection process and the process of disbursing funds. The NPRM also seeks comment on whether the Commission should adopt rules requiring periodic review of the administration and management of the USF. Once the FCC develops measures that indicate progress towards program goals, rulemakings should indicate how the regulations contribute to achievement of the goals.

Evidence: FCC rulemakings regarding the schools and libraries program are found at: www.fcc.gov/wcb/universal_service/schoolsandlibs.html. 47 U.S.C. § 161 (requires the Commission to review its regulations every two years to determine whether any regulations are no longer in the public interest). Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 32-43, 66 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The Universal Service Administrative Company (USAC), the not-for-profit organization appointed by the FCC in 1997 to administer the disbursement of all Universal Service Funds, does not collect data from program recipients regarding application of funds. Data on connectivity comes from the National Center for Education Statistics, and does not separate out which schools receive e-rate funds, and which do not. USAC does audit selected samples of those who receive funds to ensure that the funding was spent in compliance with all requirements, and such audits have led to changes in program management to change front-end reviews of eligible services. However, there is no regular collection from key program partners, including schools, libraries, and service providers to measure or improve performance. The recently released NPRM seeks comment on adopting performance measures that assess the extent to which the schools and libraries program is meeting its statutory goals. The FCC should incorporate measures and collect performance information from all program partners (including service providers) to improve program performance.

Evidence: See Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 24-29 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html; National Center for Education Statistics.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: While the Schools and Libraries Committee of the USAC Board oversees the E-rate program operates under the rules established by the FCC, there are no performance standards and no contract or Memorandum of Understanding that outlines performance expectations for the program administrator. There is no specific evidence that Federal managers and program partners are held accountable for cost, schedule, and performance results. There should be specific, measurable standards for program administration. For Federal managers, such accountability should be built into their performance evaluations. Other program partners could also be required to achieve specific performance standards.

Evidence: General information about the USAC Board of Directors and its by-laws are located at: www.universalservice.org/board and www.universalservice.org/download/usacbylaws.pdf Information on the USAC Management Team can be found at: www.universalservice.org/overview. The FCC rules relating to the Fund Administrator can be found at 47 C.F.R. §§ 54.701-54.705. (www.access.gpo.gov/nara/cfr/waisidx_02/47cfrv3_02.html)

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: Because the program was in violation of the Antideficiency Act at the end of FY04, the answer must be no. Moreover, the FCC was unable to certify the FY04 year-end reporting to Treasury. This was in part due to the determination that commitments made to program beneficiaries were obligations. Roughly $3 billion in outstanding commitments made to schools and libraries were properly recorded as obligations for the first time in FY04. By the end of the year, the deficiency was cured, and the FCC has taken steps to correct and strengthen financial management of the program. Commission rules require schools and libraries to use funds only for their approved purpose, and to use the funds within a specified time period. In some cases, however, the Commission has identified violations of these rules. The FCC and USAC believe that significant progress has been made in addressing the issue of ensuring that all disbursed funds are spent in ways that comply with the program's rules in the last fiscal year. There are currently 21 investigations involving the Universal Service Fund, which have been referred to the FBI and Department of Justice. In addition, the FCC's Office of Inspector General (OIG) opened five additional USF-related investigations, for a total of 26 open USF-related cases. The FCC has requested funding to help combat fraud, waste and abuse in the E-rate program, and is working with USAC to conduct audits on a statistically valid sample of beneficiaries. The FCC is also working with USAC to improve financial management and reporting of financial data. This effort to assure improved accountability promises to produce positive results.

Evidence: See Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Third Report and Order and Second Further Notice of Proposed Rulemaking, 18 FCC Rcd 26912 (2003); 47 C.F.R. section 54.507(d) (schools and libraries must use funds within a specified time) and 47 C.F.R. sections 54.504(b)(2), 54.513 (the services will be used only for educational purposes and not sold, resold, or transferred, except as permitted by Commission rules). The OIG reports to Congress can be found at: www.fcc.gov/oig/oigreports.html. Fiscal Year 2004 Performance and Accountability Report (Oct 1, 2003 - Sept 30, 2004) at 167. This can be found at: www.fcc.gov/Reports/ar2004.pdf. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 70 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The Commission has not adopted specific efficiency measures for program administration and financial integrity protection. The program has some requirements to promote efficiency and cost effectiveness embedded in the application and review process. Schools and libraries must use competitive bidding processes to award contracts. The program requires recipient schools and libraries to fund a portion of the contract, which creates an incentive for beneficiaries to only choose the most cost-effective service provider and to only request services that are necessary and can be put to effective use. In collecting performance data from program partners going forward, the FCC could develop benchmarks to compare discounted services against average rates charged to schools for similar services, or even develop market rate benchmarks. USAC and NECA have efficiency measures set forth in their annual performance agreement. For example, the agreement contains financial incentives and credits which are applied to performance on specific measures. The FCC should consider whether these or other measures could be developed as program measures for overall efficiency and cost-effectiveness. In the recently released NPRM, the Commission seeks comment on appropriate performance goals to measure and achieve efficiencies and cost effectiveness.

Evidence: See USAC/NSI Performance Agreement, Schools and Libraries Universal Service Support Mechanism, Contract Year 7/1/04 - 6/30/05. See 47 C.F.R. sections 54.504(a), (b), and 54.511 (competitive bidding rules); 47 C.F.R. section 54.523 (applicants required to fund part of contract). Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 24-31 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html. 47 C.F.R. § 54.504(a) (competitive bidding rule)

Does the program collaborate and coordinate effectively with related programs?

Explanation: Although the E-rate program is the only federal program that provides discounts to eligible schools and libraries for advanced telecommunications services and information services, there is little coordination with related programs to tie these investments in with the overall program goals. Representatives of the Commission and the Department of Education have discussed ways to reduce burdens on applicants through the sharing of information. The FCC should investigate opportunities for coordinating with programs that could assist with developing and measuring progress towards educational goals or other community benefits.

Evidence:  

Does the program use strong financial management practices?

Explanation: Because FCC's auditors found material weakness due to issues with the Universal Service fund, including the E-rate program, this answer must be no. FCC's independent auditors found weaknesses with financial management, and the FCC's Inspector General found that "controls over management oversight and accountability for receipts of USF funds by program beneficiaries have been materially weak because of inadequate management controls, lack of a sufficient independent audit program to deter future fraudulent activity, and weaknesses in the structure of the program." FCC has taken steps to address financial management practices. Since October 1, 2004, pursuant to Commission direction, USAC has been working to implement generally acceptable accounting principals for federal agencies (Federal GAAP) and maintain universal service funds in accordance with the United States Government Standard General Ledger (USGSGL). USAC is working with the Commission towards bringing the USF into full compliance with Federal GAAP. By October 2005, auditors of the USF will make a determination of whether USF balances are fairly stated in all material respects. The Commission continues to address program modifications to improve USF procedures through ongoing proceedings. In response to a GAO recommendation, the FCC has also agreed to examine review the framework for USF financial management, consulting with OMB and GAO as appropriate.

Evidence: See FCC Fiscal Year 2004 Performance and Accountability Report; USAC -- Schools and Libraries Support Mechanism Interim Response to the Recommendations of the Task Force on the Prevention of Waste, Fraud, and Abuse, CC Docket No. 02-6, Nov. 26, 2003; Application of Generally Accepted Accounting Principles for Federal Agencies and Generally Accepted Government Auditing Standards to the Universal Service Fund, CC Docket No. 96-45, Order, 18 FCC Rcd 19911 (2003); Federal-State Joint Board on Universal Service, Order on Reconsideration and Fourth Report and Order, CC Docket 02-6, 19 FCC Rcd 15252 (2004); In matter of Schools and Libraries Universal Service Support Mechanism, Fifth Report and Order, CC Docket 02-6, 19 FCC Rcd 15808 (2004). Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html. Rules requiring reporting and audits. See 47 C.F.R. § 54.702(g-h) (Administrator quarterly and annual reports) See 47 C.F.R. § 54.717 (Audits of the Administrator)

Has the program taken meaningful steps to address its management deficiencies?

Explanation: Typically, the FCC has worked with the Universal Service Administrative Company (USAC) to correct deficiencies as they have been identified by FCC's IG, GAO, or Congressional hearing. Deficiencies are generally corrected through administrative or rulemakings. For example, in response to concerns raised by GAO and OIG, the Commission adopted the 4th Report and Order and the 5th Report and Order, instituting many recommended changes. Some of these changes include: requirement that USAC follow GovGAAP, recovery of unlawfully distributed funds that violated the statute or a Commission rule, extension of debt collection activities, initiation of audits, increased document retention requirements, improved procedures and certification requirements, and improved beneficiary technology plans. When USAC obtains information relating to a potential program violation, it subjects funding requests to a more intensive review. USAC has also increased its audit activity. The FCC is working to continue progress towards better management of the E-rate program. In addition to performance measures, the most recent Notice of Proposed Rulemaking seeks comment on ways to improve the management and administrative structure of the program, engaging key stakeholders in the process. FCC is also working with USAC to improve current finanical management and reporting.

Evidence: See answer to 2.1. Also, see Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Notice of Proposed Rulemaking and Order, 17 FCC Rcd 1914 (2002); Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Report and Order, 17 FCC Rcd 11521 (2002); Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Fifth Report and Order, 19 FCC Rcd 15808 (2004). Universal Service Administrative Company, 2003 Annual Report, www.universalservice.org/download/pdf/2003AnnualReport.pdf. Also, e.g., Federal-State Joint Board on Universal Service, Order on Reconsideration and Fourth Report and Order, CC Docket 02-6, 19 FCC Rcd. 15252 (2004); In matter of Schools and Libraries Universal Service Support Mechanism, Fifth Report and Order, CC Docket 02-6, 19 FCC Rcd 15808 (2004).

Does the program have oversight practices that provide sufficient knowledge of grantee activities?

Explanation: The FCC's Office of the Inspector General (OIG) has conducted audits and investigations of specific program applicants. To date, USAC, an independent auditor, and the OIG have issued a total of 198 audit reports of E-rate program beneficiaries. Past audits have been sporadic and not performed in accordance with Government Auditing standards. Many were targeted towards applications that were identified as potentially non-compliant. The FCC and USAC have taken steps to improve oversight practices. USAC has implemented measures and reporting functions that provide substantial information about grantees and their expenditures of USF monies. For example, USAC will perform over 1000 site visits to ensure that beneficiaries use funds for the intended purposes. Through USAC's procedures, USAC is able to track expenditures by individual applicants, and on an individual funding request basis. In the recently released NPRM, the Commission is seeking comment on whether to require some recipients of E-rate funding to obtain an annual independent audit evaluating compliance with the statute and the Commission's rules. The Commission also asks for detailed comment on the appropriate scope and methodology for such an audit.

Evidence: Descriptions of the technology plan requirements can be found on USAC's web site at: www.sl.universalservice.org/overview/techplan.asp. A fact sheet regarding documentation requirements and audits is also located on USAC's web site at: www.sl.universalservice.org/reference/AuditFactSheet.asp. Explanation of the Whistleblower Hotline can be found on USAC's web site at: www.sl.universalservice.org/reference/whistle.asp. www.sl.universalservice.org/sitevisits/ See Universal Service Administrative Company, 2003 Annual Report, www.universalservice.org/download/pdf/2003AnnualReport.pdf. See USAC - Schools and Libraries Support Mechanism Interim Response to the Recommendations of the Task Force on the Prevention of Waste, Fraud, and Abuse, CC Docket No. 02-6, Nov. 26, 2003. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at paras. 71-75, 97 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the program collect grantee performance data on an annual basis and make it available to the public in a transparent and meaningful manner?

Explanation: The program does not collect performance data from E-rate recipients, and therefore the answer must be a no. Once performance measures are developed, the Commission could make available transparent and meaningful performance information. The recently released NPRM seeks comment on adopting performance measures that assess the extent to which the schools and libraries program is meeting its statutory goals. In addition, the Commission and USAC conduct beneficiary audits and the audit reports are publicly available.

Evidence: Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at paras. 24-29 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Did the program seek and take into account the views of all affected parties (e.g., consumers; large and small businesses; State, local and tribal governments; beneficiaries; and the general public) when developing significant regulations?

Explanation: The rulemaking establishing the schools and libraries support mechanism included comments from a wide range of parties, including the Federal-State Joint Board on Universal Service, schools, libraries, telecommunications carriers, and educational associations. Comment is sought and taken into consideration before implementing changes to the program rules.

Evidence: See Orders and Notices of Proposed Rulemaking in www.fcc.gov/wcb/universal_service/schoolsandlibs.html.

Did the program prepare adequate regulatory impact analyses if required by Executive Order 12866, regulatory flexibility analyses if required by the Regulatory Flexibility Act and SBREFA, and cost-benefit analyses if required under the Unfunded Mandates Reform Act; and did those analyses comply with OMB guidelines?

Explanation: FCC regulations are not subject to E.O. 12866 or the Unfunded Mandates Reform Act. They are subject to the Regulatory Flexibility Act and SBREFA. The order initiating the program rules, and subsequent implementing decisions, complied with the Regulatory Flexibility Act. OMB reviews FCC rules under the Paperwork Reduction Act. The Commission does consider the costs of implementing regulations for small businesses in the course of rulemaking proceedings in accordance with the Regulatory Flexibility Act.

Evidence: See Orders and Notices of Proposed Rulemaking in www.fcc.gov/wcb/universal_service/schoolsandlibs.html

Does the program systematically review its current regulations to ensure consistency among all regulations in accomplishing program goals?

Explanation: The FCC reviews and updates the E-rate regulations as necessary to streamline the program based on its experience and on suggestions from USAC or program participants. The FCC also addresses issues regarding implementation as they arise. In addition, Section 11 of the Communications Act requires the Commission to evaluate its rules every two years. In the recently released NPRM, the Commission sought comment on how well the program has worked, and whether the program is meeting its goals. The Commission is also considering establishing regular reviews.

Evidence: See E-rate rulemakings at: www.fcc.gov/wcb/universal_service/schoolsandlibs.html. 47 U.S.C. § 161 requires the FCC to evaluate its rules every two years. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 24-29 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Are the regulations designed to achieve program goals, to the extent practicable, by maximizing the net benefits of its regulatory activity?

Explanation: The E-rate program was designed to reach as many schools and libraries as possible, with priority given to funding telecommunications services. The current structure is designed to target the most financially disadvantaged institutions. While program design targets the most disadvantaged institutions, net benefits in terms of educational achievement and application of technology are not considered. Program reforms geared towards increased efficiency and program benefits could be achieved through regulation. The FCC currently has requested comments on ways to improve the program.

Evidence: For data on public instructional classroom access to the Internet, see reports from the National Center for Education Statistics; the most recent report is found at: http://nces.ed.gov/pubs2004/2004011.pdf.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The Commission is still in the process of developing the long-term outcome goals for the Schools and Libraries program. The Commission recently sought comment on performance measures for the Schools and Libraries program.

Evidence: See question 2.1 and 2.3. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at paras. 24-29 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Does the program (including program partners) achieve its annual performance goals?

Explanation: In the past, the Commission measured the percentage of public schools with Internet access, and the percentage of instructional classrooms with Internet access. Under those measures, the E-rate program met its annual performance goals in FY99 and FY00. It slightly missed its goal in FY01. The FY01 goal was 90% of public school instructional classrooms having access to advanced telecommunications and information services. Instead, only 87% of such classrooms had such access. This still represented a significant improvement from the time the authorizing legislation passed in 1996, when only 14% of instructional classrooms had Internet access. 92% of public school instructional classrooms had Internet access in 2002. This performance goal was discontinued in FY03. Currently, 99% of public schools have Internet access, a significant increase from the 65% rate of Internet access in 1996. Each goal captured different levels of Internet access, i.e., "bare-bones" access at the school, and "convenience" access in classrooms. The GAO states that the FCC has not developed useful performance goals and measures to assess the specific impact of these funds on schools' and libraries' Internet access and to improve the management of the program. Currently, the E-rate program does not have performance measures. The Commission is considering adopting new performance measures.

Evidence: See Federal Communications Commission, FY 2002 Annual Program Performance Report, page 18. Available at: www.fcc.gov/Reports/ar2002.pdf. For data on public instructional classroom access to the Internet, see reports from the National Center for Education Statistics; the most recent report is found at: nces.ed.gov/pubs2004/2004011.pdf. GAO-05-151 Telecommunications: Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate Program, GAO Report, February 2005 Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, June 14, 2005. www.fcc.gov/wcb/universal_service/welcome.html.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The Universal Service Administrative Company (USAC) is the permanent administrator of the E-rate program. While the budget is reviewed and approved quarterly by the FCC in the context of the contribution factor, there is no wholistic review and approval of program costs on an annual basis, nor are there measures of cost efficiency in program delivery. The FCC should consider establishing set performance standards for the program administrator, and develop measures that reflect cost efficiency.

Evidence: See Universal Service Administrative Company, 2003 Annual Report, www.universalservice.org/download/pdf/2003AnnualReport.pdf; 2004 Annual Report, www.universalservice.org/download/pdf/2004AnnualReport.pdf

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The E-rate program is the only federal program that provides discounted access to advanced telecommunications and information services for public and not-for-profit elementary schools and secondary schools and libraries. The Department of Agriculture, Rural Utility Service Distance Learning and Telemedicine (DLT) program provides loans and grants to link to an end user through the use of eligible equipment to: (1) provide educational programs, instruction, or information originating in one area, whether rural or not, to students and teachers who are located in rural areas; or (2) connect teachers and students, located in one rural area with teachers and students that are located in a different rural area. Eligible equipment means computer hardware and software, audio or video equipment, computer network components, telecommunications terminal equipment, data terminal equipment, inside wiring, interactive video equipment, or other facilities that would further telemedicine services or distance learning services. In comparison to the Schools and Libraries program, DLT targets only rural areas, and only provides for some types of equipment and facilities, not recurring telecommunications and internet access costs. The only program overlap is inside wiring in rural areas.

Evidence: See Rural Utilities Service, Distance Learning and Telemedicine Program Grant Application Guide, Fiscal Year 2005 www.usda.gov/rus/telecom/dlt/pdf_files/05-dlt-app-guide-21-a.pdf See, 7 CFR 1703.102 for definitions of eligible equipment, eligible facilities and telecommunications transmission facilities. www.usda.gov/rus/telecom/dlt/pdf_files/2004-new/dlt-regs-all.pdf

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: There have been several evaluations of the E-rate program by the GAO, however these focus mostly on process and compliance rather than program effectiveness. The FCC's Office of the Inspector General (OIG) has conducted audits and investigations of specific program applicants. As of fiscal year end 2004, 55 investigations were initiated by the OIG. To date, USAC, an independent auditor, and the OIG have issued a total of 198 audit reports of E-rate program beneficiaries. In addition, the 99% connectivity rate for public schools in 2001 and 2002 indicates that the E-rate program is achieving significant results, however as these figures only reflect public school classrooms and do not isolate the impact of E-rate funding, there is insufficient evidence of E-rate's effectiveness. These evaluations have identified areas for potential improvement, and the Commission continues to work to make the program more effective. In the recently released NPRM, the Commission is seeking comment on whether to adopt rules requiring periodic review of the administration and management of the USF, such as a triennial review, as we have for the Local Competition rules.

Evidence: Fiscal Year 2004 Performance and Accountability Report (Oct. 1, 2003 - Sept. 30, 2004) at 167. This can be found at: www.fcc.gov/Reports/ar2004.pdf. OIG audit reports can be found at: www.fcc.gov/oig/oigreportsaudit.html. Relevant GAO reviews include: Telecommunications, Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate Program, GAO-05-151 (Washington, D.C.: Feb. 9, 2005); Update on State-Level Funding by Category of Services, GAO-01-673, May 2001; Schools and Libraries Program: Application and Invoice Review Procedures Need Strengthening, GAO-01-105, December 2000; Schools and Libraries Program: Actions Taken to Improve Operational Procedures Prior to Committing Funds, GAO/RCED-99-51, March 1999; Schools and Libraries Corporation: Actions Needed to Strengthen Program Integrity Operations Before Committing Funds, GAO/T-RCED-98-243, July 1998; Telecommunications: Court Challenges to FCC's Universal Service Order and Federal Support for Telecommunications for Schools and Libraries, GAO/RCED/OGC-98-172R, May 1998; and Telecommunications: FCC Lacked Authority to Create Corporations to Administer Universal Service Programs, GAO/T-RCED/OGC-98-84, March 1998. Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, CC Docket No. 02-6, FCC 05-124, at para. 66 (June 14, 2005). www.fcc.gov/wcb/universal_service/welcome.html.

Were programmatic goals (and benefits) achieved at the least incremental societal cost and did the program maximize net benefits?

Explanation: The E-rate program was designed to reach as many schools and libraries and possible in a short amount of time, but did not consider the incremental societal cost or net benefits related to the goal of increased access. While NCES data and some studies have suggest that the Schools and Libraries program have likely increased school Internet access above what would have occurred absent the program, it is not clear that the current structure maximizes net benefits. The program does not consider other elements vital to providing improved education including teaching quality or school infrastructure, nor does it ensure that the investments made result in increased access to advanced telecommunications services. Two former FCC Commissioners, Harold Furchtgott-Roth and Michael Powell (later Chairman of the FCC), questioned whether the FCC's 1999 increase in E-rate funding was in the public interest compared to the other components of universal service.

Evidence: See schools and libraries rulemakings at: www.fcc.gov/wcb/universal_service/schoolsandlibs.html. Goolsbee, A. & Guryan, J. (2002). The impact of Internet subsidies in public schools. NBER working paper series, No. 9090. Cambridge, MA: National Bureau of Economic Research. Retrieved October 21, 2002, from www.nber.org/papers/w9090 . Who Pays for Universal Service, When Telephone Subsidies Become Transparent, Robert W. Crandall and Leonard Waverman, 2000 Separate statements of Commissioner Furchtgott-Roth and Commissioner Powell: FCC, Twelfth Order on Reconsideration in the matter of Federal State Joint Board on Universal Service, CC Docket No. 96-45, FCC 99-121, May 28, 1999.