News of the Week

Funding Status

Wave 11 for FY 2011 will be released on Tuesday, August 30th.  Cumulative funding for FY 2011 is currently $754 million.  Only Priority 1 applications are being funded at this time, but Priority 2 funding at 90% is imminent (see below).

Wave 64 for FY 2010 will be released on Wednesday, August 31st.  Cumulative funding for FY 2010 is $2.57 billion.  Only Priority 2 funding at 81% and above is currently being funded, but funding at lower levels is expected in the next wave or two (see below).

Wave 92 for FY 2009 will also be released on Wednesday, August 31st.  Cumulative funding for FY 2009 is $2.86 billion.  Priority 2 funding is being provided at discount levels of 77% and above.

Additional Funds for FY 2010 and FY 2011

Earlier this month, USAC released its Fund Size Projections for Fourth Quarter 2011 (ending June 30, 2011).  The report included an estimate of $1.1 billion in unused reserved funds from prior years that were available to carry over into other funding years.  This is the largest amount of available roll-over money ever identified at one time.  As we noted at the time, however, the following two factors accounted for the record amount:

1. In July, 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.
2. 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.  The $1.1 billion represents a calculation based on five quarters accumulation, not the normal four.

Additionally (and at about the same time), the FCC announced that the E-rate program funding cap for FY 2011 has been adjusted upwards by 0.9% for inflation — the same percentage adjustment as last year.  This established the new cap for annual funding at $2.29 billion for FY 2011, up from $2.27 billion for FY 2010.

Last week, the FCC released an Order (DA 11-1354) prescribing how the roll-over money would be used.  The FCC indicated that $850 million of the available $1.1 billion would be rolled over into FY 2011.  As shown below, this results in slightly less funding for FY 2011 than had initially been made available for FY 2010.

More interestingly, the FCC's order indicated that additional funds — presumably the $250 million left over from the $1.1 billion — would be applied back into FY 2010.  This is over and above the initial $3.17 billion.  In doing so, the FCC instructed USAC to begin funding Priority 2 applications at all discount levels — not just at the 80% level that had been in question.  Since USAC had been denying (with the FCC's prior consent) Priority 2 requests at 79% and below, this means that many of these denials will be reversed.  Based on initial demand estimates provided by USAC in 2010, there were approximately $70 million of Priority 2 funding requests filed below 80% for FY 2010.

This is a precedent-breaking decision in two ways.  It is both the first time that: (a) available roll-over funds have been applied back into a previous funding year, and (b) Priority 2 requests below a previously announced discount threshold have been funded.

Implications for FY 2010:

For Priority 2 applicants with requests at 80%, the FCC's decision comes as a welcome relief.  For those with requests at 79% or below, the decision comes as a complete surprise.  In a special News Brief dated August 23, USAC notes that it had already started reviewing Priority 2 services for FY 2010 at the 80% level, and that funding at this level will begin “as soon as possible” (probably within the next wave or two).  For the most part, however, Priority 2 requests at 79% or below have not yet been reviewed.  Effectively, they had been denied out of hand.  As a result of the FCC's decision, these requests will have to be returned to the PIA queue for review, and will mean that commitments at or below 79% may not occur for some time.

Applicants funded for Priority 2 services in the coming waves should note the following:

• The deadline for using non-recurring (e.g., equipment purchase and/or installation) service funding for FY 2010 will be automatically extended until September 30, 2012.  Applicants, with contracts expiring this year wanting to take advantage of the extended deadline will have to formally extend those contracts and so notify USAC by filing Form 500s (see last Friday's SLD News Brief referenced below).
• The deadline for using recurring (e.g., maintenance) service funding for FY 2010 will not be extended.  That deadline was — and remains — June 30, 2011.  Applicants who had deferred Internal Connections maintenance pending funding should work with PIA to reduce or cancel those funding requests accordingly.

Implications for FY 2011 — and Beyond:

One implication for applicants with pending applications for FY 2011 is that the return of FY 2010's lower-discount Priority 2 requests to PIA is likely to further delay all FY 2011 funding — already running behind the previous year's funding pace.

The good news for FY 2011 Priority 2 applicants is that the FCC's decision should permit USAC to begin funding Priority 2 requests shortly, at least at the 90% level.  However, by applying a significant portion of the available roll-over funding to FY 2010,  the FY 2011 Priority 2 funding threshold is likely to be above 80%.

As indicated in the table above, the total dollars currently available for FY 2011 are less than what were initially available for FY 2010.  Unfortunately, USAC's preliminary total demand estimate for FY 2011 was 10% higher than the comparable number for FY 2010.

Before last week's FCC decision, the SLD had indicated that it could not fund Priority 2 below 81%.  With less funds available, and higher demand, even 81% appears to be a stretch for FY 2011.

The longer term problem is that the FCC's decision, by breaking precedent, makes it still harder for applicants to predict the availability of Priority 2 funding either for the current year (FY 2011 in this case) or for next year's applications.  We may garner some measure of the FCC's future intent when USAC requests approval from the FCC to set an initial percentage denial threshold for FY 2011 Priority 2 requests.

E-Rate Updates and Reminders – Training

SLD Fall Training Status:

The schedule for the SLD's annual applicant workshops is shown below.  Registration for these workshops has been open since May.  All but two are either filled or available only on a waiting list basis.  Many state-sponsored E-rate workshops are also typically available each fall.

Schools and Libraries News Brief dated August 26 – Non-Recurring Contract Extensions

The SLD's News Brief for August 26, 2011, is the second part of a discussion begun in the News Brief for August 19 concerning deadline and contract extensions for non-recurring services.  The important point to note is that the service delivery deadline and the associated contract expiration must be aligned before USAC will pay an invoice for services received.

The previous week's News Brief covered both automatic and requested service delivery deadlines.  Last week's News Brief discusses the need to extend a contract if the service delivery deadline has been extended and to notify USAC of the contract extension by filing a Form 500.

* Note that this would mean that next year's roll-over calculation will be based on only three quarters, instead of the normal four, unless the FCC again waits until after USAC's August filing.