News of the Week

FY4 Wave 15 Released

Wave 15 of Funding Commitment Decision Letters will be mailed on Friday, March 15. Total funding in this wave is $148 million. Cumulative funding for FY4 is now $2.255 billion, a clear indication that the SLD now has FCC authority to award funds in excess of the annual $2.25 billion disbursement cap with the knowledge that not all funds awarded will actually be used.

The funding threshold for Internal Connections was reduced one percentage point in Wave 15 to the 86% discount level. We do not expect internal connection funding for FY4 to fall further. Note that since Wave 15 was issued after March 1 of this funding year, the effective period for utilizing non-recurring funds awarded in this wave is September 30, 2003 (not 2002).

Applicants, funded in Wave 15 for services that are already being received, must file the associated Form 486s by July 13, 2002.

Wave 15 has been designated as the "final" regular funding wave for FY4. The SLD is still processing a number of applications and will periodically release additional funding notices. In the meantime, the SLD plans to send letters to applicants, who have not yet been funded, to confirm their pending application status.

At this stage in the FY4 funding cycle, any applicant who has not received a funding commitment or funding denial letter should confirm the status of their application by:

1. First checking the funding section of the SLD Web site to make sure that they have not, in fact been funded (see Funding Commitments). If funding has occurred, but the applicant has simply not received a commitment letter, a replacement copy can be obtained by calling the SLD (888-203-8100).
2. Click on the "Application Status" button in the Apply Online section of the SLD Web site (see Apply Online Area).
3. As a last resort, call the SLD for advice.

No Specific Requirement for E-mail Filtering

To be eligible for E-rate discounts for Internet access and/or internal connection services beginning July 1, 2002, applicants will have to be fully compliant with the Internet filtering and safety policies of the Children's Internet Protection Act ("CIPA"). As a result of the CIPA requirements, we have noticed an increase in advertising by filtering vendors. At least one vendor has stated that all visual images, including those attached to e-mails, must be filtered. Although filtering is clearly required for Web browsers - and applicants may find it desirable to filter e-mail as well - the FCC has so far avoided interpreting CIPA so as to require e-mail filtering.

Summarizing discussions with the FCC regarding e-mail filtering, the State of Wisconsin has reported the following:

"The FCC has not taken a position on [e-mail filtering]. Thus, statements from any filtering vendor saying that CIPA requirements are not limited to Web browsing represents the vendor's interpretation of the law. It is not an interpretation the FCC has made. CIPA gives schools and libraries wide latitude to make local interpretations of much of the language of the [A]ct. Neither the statute nor the FCC's order addresses the specific question of e-mail filtering nor filtering of any other end-user programs."

Although e-mail filtering is not specifically required, it should be noted that e-mail usage must be addressed in an applicant's Internet Safety Policy. A primer of Internet policies is available by going to our online CIPA Primer Policy.

Bankrupt Vendors and Good Samaritans

One unfortunate sign of today's economy is the bankruptcy of a number of companies (especially telecommunications carriers), many of which are E-rate vendors. An E-rate applicant, who has been paying bills in full to such a company, assuming that discounts would be paid retroactively through the BEAR process, will have a problem if SLD payments are held up in the bankruptcy.

Simplistically, the risk of a BEAR payment not reaching an applicant depends on the vendor's bankruptcy status. A company in Chapter 11 bankruptcy is protected from creditors, but continues to operate. For E-rate purposes, such a company would be able to receive USAC payments and pass them on to the deserving E-rate applicants. The biggest risk with a Chapter 11 company is that it becomes a Chapter 7 company overnight. A company in Chapter 7 bankruptcy is in a liquidation mode, and any payments it makes are strictly constrained by the courts. If USAC sends a BEAR check to a Chapter 7 company, the company may not be able to reimburse the applicant. Although we know of no actual court ruling on the status of E-rate payments made to a Chapter 7 company, there is every possibility that the applicant simply becomes another of the company's creditors.

From an applicant's standpoint, the trick is to avoid having a BEAR payment tied up in a bankruptcy proceeding. Here are a few points to consider:

1. The SLD will not knowingly disburse funds to a service provider in Chapter 7 but, as indicated above, the situation could easily arise if there is a change in bankruptcy status. If the payment is stopped by the SLD, some other mechanism must then be found to pass the reimbursement on to the applicant (see Good Samaritan policy below).
    
2. The best defense in dealing with a bankrupt E-rate vendor is to insist on discounted bills, in the extreme by paying only the undiscounted amount of each bill even if the vendor's billing system does not formally support discounting. This strategy works best when started at the beginning of a funding year, before paying any bills in full or, even worse, actually submitting a BEAR form.
    
3. If reimbursement is the only option, and the vendor is in Chapter 7 bankruptcy (or out of business), then arrangements must be made with the SLD to have BEAR payments sent through an alternative and willing vendor. (Note: Currently, the SLD believes that the enabling E-rate legislation requires all payments to be processed through vendors and that payments cannot be made directly to applicants.)

The SLD permits alternative vendor payments via its so-called "Good Samaritan" procedure. The process has received very little publicity. It is referenced on the SLD Web site only in a short "What's New" announcement in February 2001. The instructions in this announcement indicate that any needy applicant should call the SLD's Client Service Bureau (888-203-8100) for an explanation.

The Good Samaritan process is simple in concept, but can get a bit complex in practice. If, as instructed, a call is made to the CSB, the applicant will be referred to the more experienced Technical Client Service Bureau ("TCSB"). The following steps will be explained:

First, the applicant must find another E-rate vendor willing to act as a Good Samaritan. The vendor must be a telecommunications carrier. The SLD will help explain to the new vendor what is involved, but the actual responsibility of finding a Good Samaritan is the applicant's. Usually, a good place to start searching for a willing vendor is with any of the applicant's current telecommunications carriers.

Second, the applicant must send a Good Samaritan Request letter to the SLD (essentially a special version of a SPIN Change letter) providing:

1. documentation that bills have been paid in full;
    
2. documentation that the original vendor is bankrupt or out of business; and
    
3. certification that the applicant is no longer doing business with the original vendor.
    

Once, the Good Samaritan Request is approved, the SLD will process the outstanding BEAR form, disburse payment to the Good Samaritan vendor, and the Good Samaritan vendor can pay the applicant.