Category 2 funding for schools and libraries is now capped over a five-year period on a “per student” or “per square foot” basis. In many cases, particularly when major Internal Connection systems need to be installed or substantially upgraded, five-year Category 2 budgets may be insufficient to cover all expenses. In such cases, it is worth considering when funding is to be requested. One strategy is to wait to request Category 2 funding until the year in which major non-recurring expenses are projected. An alternative strategy — one that may be beneficial in the longer-term — is to begin requesting Category 2 funding as early as possible, even if it only covers recurring expenses for Basic Maintenance of Internal Connections (“BMIC”) or Managed Internal Broadband Services (“MIBS”).
To understand the potential benefits of early funding, it is useful to recognize the fundamental differences between the new Category 2 budget process and the previous 2-in-5 Priority 2 restriction. The 2-in-5 rule was based on a rolling five-year period. It limited Priority 2 funding, regardless of the funding level in a given year, to two out of any five sequential years. With this limitation, it usually made no sense to apply for a small amount of Internal Connections expenses in a given year and essentially waste one of the two available years.
Category 2 funding, on the other hand, is limited to a total amount of funding awarded any time within a fixed five-year period. The five-year period for Category 2 starts with the first year of funding and ends four years later. In other words, the five-year period could be: FY 2015 to FY 2019, FY 2016 to FY 2020, FY 2017 to FY 2021, etc.
One interesting aspect of the Category 2 budget process is that the FCC rule, as currently adopted, applies only to applicants first funded between FY 2015 and FY 2019. Once funded in any year within this period, however, an applicant is locked in to the pre-discount budget process for a full five years. What happens beyond that five years depends upon what the FCC does next, effective FY 2020. By that point, the FCC may decide to extend, modify, or completely change the current budget process. If the FCC takes no action, Category 2 funding presumably reverts to a 2-in-5 process.
What’s important is that an applicant subject to the five-year Category 2 budget cap does not become eligible for additional Category 2 funding until the sixth year thereafter. Absent significant changes in student enrollment or library square footage, consider the following two scenarios for an applicant planning a major system project in 2017-2018:
| Scenario #1: |
The applicant waits until FY 2017 to seek and receive Category 2 funding (which it may fully utilize in FY 2017). The applicant’s next opportunity for additional Category 2 funding (beyond the initial budget cap) will not occur until FY 2022. |
| Scenario #2: |
The applicant requests and is awarded some funding (perhaps for BMIC) in FY 2015 and FY 2016, then applies for larger system funding in FY 2017. The applicant’s funding may be less in FY 2017 (because of funding previously utilized), but the total five-year budget cap remains the same. What is different is that this applicant’s next opportunity for additional Category 2 funding will be in FY 2020 — two years earlier! |
For a school district or library system, an early application for Category 2 funding for every site — regardless of the combination or amount of recurring and/or non-recurring expenses — has another advantage. It simplifies the recordkeeping for Category 2 purposes by keeping all entities on the same five-year budget cycle.
Until recently, we have argued that the added complexities of applying for BMIC — one way to structure funding requests for all entities — favored a strategy of reserving Category 2 funding for major non-recurring service projects. Less than two weeks ago, however, USAC announced a new and somewhat simpler Alternative Data Entry (“ADE”) process for filing BMIC requests (see USAC’s Special Edition News Brief of March 10th and our newsletter of March 16th). An early Category 2 filing strategy, if only as a plan for FY 2016, is now worth serious consideration.