News of the Week

Funding Status

Wave 25 for FY 2014 will be released on Wednesday, October 29th. Funding for FY 2014 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2014 is $2.04 billion.

Wave 71 for FY 2013 will be released on Thursday, October 30th. Funding for FY 2013 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2013 is $2.12 billion.

E-Rate Modernization – The Urban Cluster Controversy

Historically, the urban or rural designation for any given E-rate entity has been based on Metropolitan Statistical Area ("MSA") data. The E-rate modernization Order, however, changes this definition. As of FY 2015, the urban or rural designation of any individual location will be based on the U.S. Census Bureau's data defining "urban" areas as those with populations of 50,000 people or more. In addition — and subject to increasing controversy for E-rate purposes — the Census definition of urban also includes areas with populations of 2,500 to 50,000 people in urban "clusters" surrounded by otherwise rural areas.

Although the new urban/rural definitions will not change the status of the majority of E-rate entities, a significant minority will be affected. Use of the urban clusters, in particular, appears to mean that more entities will move from a rural to an urban status than vice versa. A rural-to-urban change tends to adversely impact mid- to lower- discount rate applicants whose discount rates would drop from 25-70% to 20-60%. Examples of the impact of this change are included below in our discussion of the most recent S&L News Brief.

Several Petitions for Reconsideration to the E-rate modernization Order, including a petition by the State E-Rate Coordinators' Alliance (“SECA”), have been filed with the FCC focusing on the urban/rural status change. The SECA petition, together with comments filed last week by the Pennsylvania Department of Education and Utah Governor's Office of Economic Development, provide illustrative maps showing the overlap between the Census Bureau's urban clusters and MSA's urban counties.

Nationwide, thanks to data analyzed by the State E-Rate Coordinator in Washington, there are 3,087 urban clusters, most of which have populations of less than 10,000 people. More specifically, the population breakdown of these clusters is as follows:

• Less than 10,000         2,175 clusters (71%)
• 10,000 to 24,999         666 clusters (21%)
• 25,000 to 49,999         246 clusters (8%)

The basic request by the petitioners is to have the FCC redefine "urban" so as to continue to include areas with 50,000 people or more, but exclude all or most (e.g., with populations under 25,000) urban clusters.

Given the FCC's concern with the availability and cost of broadband facilities for rural schools and libraries, reducing the discount rates of applicants in essentially rural, but urban clusters, would not be a helpful move. It would be cynical to think that the FCC is endeavoring to solve the rural broadband problem by simply redefining more schools and libraries out of the rural category.

E-Rate Updates and Reminders

Invoice and Form 486 Deadlines:

There are two important E-rate deadlines this week:  the October 28th deadline for FY 2012 and FY 2013 recurring service BEAR (and SPI) invoices, and the October 29th and 30th Form 486 deadlines for most FY 2014 applications funded in Waves 1-8. Please see fuller explanations in our newsletter of October 20, 2014. Most importantly, applicants in danger of missing the October 28th invoicing deadline, even inadvertently, should file an invoice deadline extension request by that date.

FCC Appeal Decisions Watch:

Continuing a new process begun last month to streamline its release of precedent-based appeal decisions, the FCC issued Public Notice (DA 14-1526). The E-rate decisions in this October release included:

1. Appeal approvals for:
   1. Three applicants for late-filed Form 471 applications.
   2. One applicant for ministerial and/or clerical errors.
   3. Twenty-one applicants for no signed contracts when their applications were filed.
2. Denied appeals or petitions for reconsideration for:
   1. Four applicants for late-filed Form 471 applications.
   2. One applicant for ministerial and/or clerical errors.
   3. Fourteen applicants for untimely filed requests for review.

The approvals for the applicants that did not have formally signed contracts in place when they had filed their Form 471 applications are consistent with the change made in the E-rate modernization Order that now requires only that applicants have some documented form of contractual agreement at the time.

Schools and Libraries News Brief Dated October 24 – Urban/Rural Status

The S&L News Brief for October 24, 2014 discusses the applicability of the new urban/rural definitions and rules to individual schools and libraries, school districts and library systems, and consortia. The discussion revolves around two basic changes encompassed by the E-rate modernization Order.

The first change is that urban and rural designations for individual E-rate entities will be based on U.S. Census Bureau data rather than on MSA data as has been used historically (through FY 2014). This is likely to change the urban/rural designations of certain entities, quite often from rural to urban. Without a change in the new FCC rule, as discussed above, this rural-to-urban change is most likely to occur for entities located within urban clusters.

At the moment the Urban/Rural Status reference section of the SLD website still reflects the historical MSA definition applicable for FY 2014 and earlier funding years. For those seeking rural/urban Census data now, we recommend looking at the Bureau's 2010 Census Urban Area FAQs, specifically the link to an address search screen contained in the last FAQ.

Better still, the News Brief indicates that USAC expects to have an online tool available within the next few weeks to assist applicants in determining the urban or rural status of a particular entity based on its entity number and address. The same functionality is expected to be embedded in USAC's online Form 471 application system. This may require applicants to correct and/or update their entity addresses (e.g., by replacing P.O. Boxes with physical street addresses).

The second change — and the primary focus of last week's News Brief — is that a single discount rate will now apply to a school district or library system (and to all entities within that district or system). In the mid-range of the discount matrix, this means that it becomes important whether the school district or system as a whole is considered urban or rural. The basic rule is that a district or system will be considered rural if the majority of that district's schools or that system's libraries are rural. Otherwise — including when there are equal numbers of rural and urban schools or libraries — the district or system will be considered urban. Non-instructional facilities ("NIFs") do not figure into the urban/rural determination.

As an example of how these two changes might affect a school district's overall discount rate, consider the following four comparative discount rate calculations shown in the table below. In all cases, the calculations are shown in a format similar to the Block 4 in the current version of the Form 471. Note the following: