News of the Week

Funding Status

Wave 8 for FY 2011 will be released on Tuesday, August 9th.  Cumulative funding for FY 2011 is currently $637 million. Only Priority 1 applications are being funded at this time.

Wave 61 for FY 2010 will be released on Wednesday, August 10th. Cumulative funding for FY 2010 is $2.55 billion. Priority 2 funding is still being awarded at 81% and above, and denied at 79% and below.

Wave 90 for FY 2009 will be released on Monday, August 8th. Cumulative funding for FY 2009 is $2.86 billion.

USAC's Fund Size Projections for Fourth Quarter 2011 (ending June 30, 2011) included an estimate of $1.1 billion in unused funds that would be available to carry over into other funding years. This is the largest amount of available roll-over money ever identified at one time. However, two points should be noted:

1. Historically, available roll-over funding was calculated based on fund size projections as of the third quarter of each year, permitting the FCC to issue a roll-over order by July 1st. This amount, therefore, represents a calculation based on five quarters of experience, not the normal four.
2. Additionally, on July 13th, USAC informed the FCC that it "identified additional funds in schools and libraries reserve accounts that were not already designated for carry-forward" — presumably a one-time change based on a reexamination of reserve funds.

It will now be up to the FCC to decide how this $1.1 billion will be allocated. The alternatives appear to be as follows:

1. All $1.1 billion could be rolled over into FY 2011. With inflation adjustments, this would mean a total of over $3.4 billion — probably enough to fund Priority 2 down to, or close to, 80%.
2. As noted in USAC's July 13th letter, a portion of the funds could be used in FY 2010 to reduce the Priority 2 threshold to 80%. Doing this, however, would reduce roll-over funding for FY 2011 to a level that would probably exclude 80%.
3. Finally, as it did two years ago, the FCC could reserve a portion of the funds for roll over into FY 2012.

Applicants with pending Priority 2 requests at 80% in FY 2010 and/or FY 2011 should be holding their breaths. There should be enough money to fund Priority 2 at 80% in one of those years, but probably not in both. An FCC decision is expected later this month.

Black Holes and COMADs

The State E-Rate Coordinators' Alliance ("SECA") submitted an important white paper to the FCC last week dealing with black hole and COMAD issues. In part, the filing describes the issues as follows:

"Black holes" refers to those situations in which no decisions are made on individual or related groups of E-rate applications and/or invoices for extended periods of time with little or no recent communication from SLD. The problems may be related to an applicant, vendor, or consultant, but it is often difficult to know. Affected applicants and service providers often receive no — or even misleading — information on the reasons for the delays when they initiate status inquiries with SLD. There are no established procedures to seek useful information, and more importantly, to address and resolve perceived problems. There also is no established time frame for SLD to address and resolve these situations.

Financially, Commitment Adjustments ("COMADs") may cause even greater hardships. Under current procedures, when previously awarded funding decisions are reversed after funds have actually been disbursed, the applicants or service providers deemed responsible for the errors or rule violations are required to return all such funds to USAC. The FCC occasionally may waive a rule otherwise leading to the recovery of funds. But if it does not, USAC seeks to recover 100% of the "improperly" disbursed funds, regardless of the severity or fault. This means that no applicant or service provider can ever be certain that approved funding requests will not be reversed years later.

The SECA filing includes two appendices listing what we could call the "poster children" of the black hole problem — "24 applicants that, having applied every year, have not had a single FRN funded since at least FY 2008," and "a comparable list of 11 service providers that have not had a single E-rate customer funded" over the same time frame. The number of pending applications for FY 2009 and FY 2010 are much higher. Another appendix shows a table from the FCC's most recent semi-annual report to Congress showing COMADs of over $325 million in various stages of recovery.

While recognizing a number of constraints under which USAC and the FCC are operating, SECA sets forth a number of recommendations briefly outlined below.

1. An E-rate "Bill of Rights," that, at a minimum, would include:
   • The right to expect timely decisions on funding requests and changes, invoices, and appeals.
   • Absent active criminal proceedings, the right to informative status updates on pending decisions.
   • Absent the misrepresentation of information on an application or invoice, or on submissions to USAC reviewers, the right to consider funding decisions final.
   • The right to the due process resolution of outstanding issues.
   • The right to have all rules and procedures fully explained and available for review in a single, indexed, source.
   • Freedom from the retroactive application of new or revised rules, procedures, and/or interpretations.
2. Increased transparency including the principle that the longer a decision is pending, the more status update information should be made available to the affected parties.
3. Increased use of "Under Review" decisions to withhold action only on problematic FRNs while funding other requests.
4. Streamlining of the handling of Code 9 reports and implementation of procedures to discourage abusive use of the system.
5. Recovery of funds deadlines to limit the exposure of applicants and service providers so as to provide some finality on funding awards and invoice payments.
6. Gradations of financial COMAD penalties, including limitations on the recovery of funds disbursed in error for non-statutory violations.

E-Rate Updates and Reminders

FCC Guidance Sought on Gift Rules:

On August 5th, USAC sent the FCC a Request for Guidance on Rules Governing Gifts in the E-rate Program. The request is an attempt by USAC to get some clarification on a number of issues affecting both applicants and service providers since the FCC instituted strict gift rules in its 6th Report and Order last September. Four specific gray areas are covered in USAC's request, namely:

1. Charitable donations and free equipment: The provision of "free" mobile devices (phones, notebooks, iPads, etc.) for applicants subscribing to wireless Internet services is currently permitted only if the arrangement is also available to the public or "a designated class of subscribers." Otherwise, the costs of such devices must be allocated out of the wireless Internet charges. USAC asks the FCC whether schools and libraries themselves are a "designated class."  USAC also asks the FCC for help differentiating between acceptable charitable donations and equipment subject to the Free Services Advisory requiring cost allocation.
2. Widely attended gatherings and speaking and writing engagements: USAC asks for additional guidance on gifts or prizes proffered at conferences and on payments for applicant product testimonials.
3. Tracking and curing gift violations: USAC asks whether it is possible, and under what conditions, for an applicant who improperly receives a gift to "cure" the E-rate violation by returning or paying for the gift. USAC also seeks guidance on responsibilities of applicants and/or service providers to maintain records of gifts, even if allowable.
4. Timing and applicability:  In the event of a gift rule violation, USAC asks what funding year(s) are affected. It also asks about the application of gift rules to vendors not providing services to a specific applicant.

Tighter Definition on Clerical and Ministerial Errors:

Last April, the FCC issued an Order, designated FCC 11-60, extending the deadline for making corrections of "clerical and ministerial" errors in pending Form 471s to anytime up to and through the PIA review process. As a practical matter, such changes had been accepted for some time, but technically the FCC allowed them only through the 20-day RAL period following the submission of an application. Simply relaxing that technical rule would have been fine, but the FCC went on to explain that only "truly ministerial and clerical errors" can be corrected.  "Such errors include only the kinds of errors that a typist might make when entering data from one list to another, such as mistyping a number, using the wrong name or phone number, failing to enter an item from the source list onto the application, or making an arithmetic error."

PIA review procedures now appear to have caught up with the FCC's decision. We have begun seeing more detailed PIA inquiries on requested application changes — particularly when such changes would increase the amount of funding requested. In such cases, PIA is asking:  "Please explain how the error occurred. Provide a copy of the source or supporting documentation you used to prepare your Form 471 application, if applicable, that features the correct information. Examples of source documentation are contracts, vendor quotes, vendor bills, invoices, RFPs, NSLP data, board minutes, etc."

Schools and Libraries News Brief dated August 5 – Form 498 Vendor Updates

The SLD's News Brief for August 5, 2011, provides tips to service providers needing to update their Form 498s, including:

• File online.
• Be prepared to provide all required information.
• Forms to be filed on paper can be filled out online and printed.
• Monitor your e-mail.
• Call or e-mail if you have questions.