News of the Week

Funding Status

Wave 17 for FY 2011 will be released on Wednesday, October 12th, for $25.9 million.  Cumulative funding for FY 2011 will be $1.01 billion.  Only Priority 1 applications are being funded at this time, but Priority 2 funding at 90% is scheduled to begin next week with Wave 18.  

Wave 70 for FY 2010 will be released on Thursday, October 13th, for $78.3 million.  Cumulative funding for FY 2010 will be $2.83 billion.  Priority 2 funding is being provided at all discount levels.

Unlike most years, when USAC lowered the funding threshold gradually, all FY 2010 Priority 2 requests still pending, including those at 79% and below which had been previously denied, are now being reviewed all at once.  This may mean that some lower-discount FRNs will get funded before some higher-discount FRNs.  Administratively, previously denied FRNs at 79% and below will be processed through the appeals system without the need for applicants to actually file appeals.  When completed, Revised FCDLs will be issued.  Note that USAC's Application Status tool will not provide current information about the re-review process; applicants who want to get a status report on previously denied FRNs may call the Client Service Bureau (888-203-8100) or Submit a Question online.

Gift Rules Update

This is the second in a series of articles covering the major topics presented in the SLD's fall applicant training workshops.  The SLD's PowerPoint slides on gifts and the other key topics are all available online.

The E-rate gift rules, set forth in the FCC's 6th Report and Order, were adopted to help ensure fair and open competition for the provision of E-rate products and services.  Basically, the rules prohibit service provider gifts to applicant employees participating in E-rate-related technology planning and procurement.  Exceptions are provided for nominal gifts under $20 each and/or $50/year, for certain charitable donations, and for participation in widely-attended events.

Although based on the gift rules for federal employees, the application of the new E-rate rules to schools and libraries has been the source of continued confusion since their release in September 2010.  A further FCC clarification order (DA 10-2355) released in December 2010 still left many questions unanswered, so much so that USAC sent the FCC a Request for Guidance on Rules Governing Gifts in the E-rate Program in August 2011.

The FCC has not publicly responded to USAC's questions — and we are still expecting an FCC request for comments on certain aspects of the gift rules — but has apparently provided some additional guidance which is incorporated in the SLD training slides.  In particular:

1. The FCC had indicated that a service provider could provide free or discounted equipment to a school or library only if such equipment (e.g., ineligible cellphones, netbooks, etc.) was likewise available to the public or a class of subscribers as a part of a general service offering.  The SLD clarified that the "class of subscribers" cannot be just E-rate customers.
2. Gifts or prizes received at conferences are exempt from the gift rules only when such conferences are open to the public (for free) or meet narrowly-defined conditions as "widely attended events."
3. Service providers cannot pay or reimburse expenses for applicant employees speaking at conferences or providing testimonials on behalf of those service providers.
4. Although applicant employees are generally prohibited from serving on the boards of service providers, special exemptions are provided to educational service agencies ("ESAs") whose boards often legally require applicant board member participation.
5. Gift rule violations, identified by applicants after-the-fact, may be "cured" by:  (a) the return of gifts to the donors; (b) market value reimbursements to the donors; or, if perishable, (c) gifts to charities, sharing within the office, or destruction.

Both the FCC and the SLD continue to stress that the gift rules "are not intended to discourage charitable donations" as long as they are not directly or indirectly linked to applicant procurement activities or are "not given with the intention of circumventing competitive bidding or other FCC rules."  The lack of "safe harbor" guidelines for permissible donations, and the fear of retroactive findings of illicit intent, is casting a pall over many corporate donations and/or conference sponsorships.

E-rate applicants who are not yet concerned about the gift rules might do well to reflect on a recent FCC filing on behalf of the East Central Board of Cooperative Educational Services ("ECBOCES") which included the following point:

• ECBOCES believes that it is because ECBOCES employees accepted gratuities that total no more than $674 over a five-year period, USAC rescinded funding for FY2006, FY2007 and FY2008, and denied funding for FY2009 and FY2010 in the aggregate amount of $3,370,018.77.

An additional fear is that the E-rate gift rule conundrum may become worse under a proposed strict ban on lobbyists' gifts to federal employees which, if carried over to E-rate, would eliminate the $20 gift and widely-attended event exemptions.

Pending further clarification, applicants have been placed in an awkward situation.  As a cautious, but hopefully practical, approach to the confusion, we suggest the following:

1. Do not accept gifts of any value from any E-rate service providers.
2. Avoid conferences (and/or training sessions) hosted by specific suppliers.
3. Do not accept donations from potential service providers in and around any E-rate procurement activity.  As to donations at other times, we repeat the suggestions we made last year based on the premise that sunshine is the best preventative medicine.  In particular:
   1. Any donation should be formally accepted by the school or library board, and publicly disclosed.  Formal acceptance should include a clear statement that there is no explicit or implicit advantage to be gained by the donor as to future business.  As an example, consider a statement made by the FCC in 2010 when seeking equipment donations to its Technology Experience Center, reading in part:
      
      Donation to the Center is strictly voluntary and is not contingent on and does not imply any expected benefit to the donor. Acceptance of any donated device or item by the FCC does not constitute endorsement of the device, its manufacturer, vendor, or any company offering such device.

3. 2. A donor should be asked to formally certify that the donation:  (i) is being made without any explicit or implicit expectations of being awarded business, and (ii) is consistent with a company-sponsored program of donations to educational institutions independent of customer status.

E-Rate Updates and Reminders

FCC's Proposed Connect America Fund:

Last week, FCC Chairman Genachowski unveiled a proposal, long in the planning stages, to transition the Universal Service Fund ("USF") to the Connect America Fund.  As currently configured, the USF relies on surcharges, largely on interstate telephone service, to provide subsidies to four program funds.  The High Cost Fund, the largest of the four programs, was established over 75 years ago to subsidize the cost of providing basic telephone service to rural America.  The High Cost Fund was recently capped at $4.5 billion per year.  The three other programs are:  (a) the Low Income Fund, providing telephone service credits for low income families; (b) the Rural Health Care Program, providing telecommunications discounts to rural health providers; and (c) the Schools and Libraries Fund, the E-rate discount program.  As the demand for program funds grew, and revenues from long distance telephone services fell, the USF funding mechanism has become increasing untenable.  Equally important, the High Cost Fund's focus on universal telephone service seemed outdated in light of the nation's new focus on universal broadband deployment.

As described in the FCC's press release, the two core goals of the Connect America Fund would be:

1. Ensuring universal availability of robust, scalable, affordable broadband to homes, businesses and anchor institutions in unserved areas.  The Connect America Fund would begin near-term build-out to hundreds of thousands of consumers in 2012, and would ultimately help get broadband to the 18 million Americans who can't get it today.
2. Ensuring universal availability of affordable mobile broadband through a new Mobility Fund, which would be part of the Connect America Fund.  Deployment of state-of-the-art mobile broadband would be extended to more than 100,000 road miles where Americans live, work, and travel.  In addition to a one-time shot-in-the-arm effort to accelerate deployment of 4G networks in 2012, this Fund would provide significant ongoing support for rural mobile broadband.

The FCC's announcement included no direct changes to the E-rate program, but schools and libraries may find a growing role as community hubs for broadband services, and the focus on mobile broadband may support the expansion of 24x7 mobile learning initiatives.

Consultant Guilty of Appropriating BEAR Payments:

The Department of Justice announced that Jon Slaughter, president of E-Rate Consulting Services, LLC ("ERC" or "ECS"), pled guilty to the theft of nearly $900,000 in BEAR reimbursement payments between May 2006 and January 2009 that were intended for 20 school districts or private schools.  Mr. Slaughter is scheduled to be sentenced later this year for a term of up to 20 years imprisonment.  This case parallels another announced earlier this year of a school business official depositing E-rate and other school checks into her own account.

These cases highlight the importance of applicants checking that they are actually receiving all the discounts to which they are entitled.  The following points should be noted:

• USAC sends applicants Quarterly Disbursement Reports listing all BEAR and SPI invoices approved for disbursement during the preceding quarter.  If payments have been approved, applicants should follow up to make sure they were properly applied or received.
• In the case of SPIs, applicants should check that the service has actually been received and that the proper discounts have been applied against the applicants' bills.
• In the case of BEARs, applicants should check that the reimbursement payments, which USAC makes to the vendors, are forwarded on to them as required.
• Most important, applicants need to make sure that invoices for discounts, in one form or another, are actually filed.  Too often we find applicants whose funding was approved but never used, either because vendors didn't discount the bills or because the applicants didn't file for reimbursements.

 SLD Fall Training Status:

The first two of the SLD's fall training workshops have been conducted.  The agenda and slides for the SLD's 2011 training are available online.  Subsequent workshops are being held regionally on the following schedule:

                        October 10                  Minneapolis, MN
                        October 13                  Portland, OR
                        October 18                  St. Louis, MO
                        October 27                  New Orleans, LA
                        November 1                Los Angeles, CA
                        November 8                Orlando, FL

Applicants seeking other E-rate training opportunities should check for state-sponsored E-rate workshops.  Contact information for state E-rate coordinators may be found on the State Information pages of the E-Rate Central Web site.

Schools and Libraries News Brief dated October 7 – Eligibility

Last week's SLD News Brief for October 7, 2011, reviews the eligibility of schools, libraries, and service providers to participate in the E-rate program.