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In This Week's Issue
» Funding Status Update
» Priority 2 Funding Outlook for FY 2013, cont.
» E-Rate Updates and Reminders
» Schools and Libraries News Brief dated May 10 — FY 2012 Recurring Services Invoicing

E-Rate Central News for the Week
May 13, 2013


The E-Rate Central News for the Week is prepared by E-Rate Central. E-Rate Central specializes in providing consulting, compliance, and forms processing services to E-rate applicants. To learn more about our services, please contact us by phone (516-801-7804), fax (516-801-7814), or through our Contact Us Web form. Additional E-rate information is located on the E-Rate Central Web site.

Funding Status

The FY 2013 Form 471 application filing window closed March 14, 2013.  USAC released its preliminary estimate of FY 2013 demand showing an overall decrease from FY 2012 of 5%, but an increase of 17% in the total demand for Priority 1 and the 90% level for Priority 2.  By our estimates, full funding of Priority 2 applications at the 90% level would require roll-over funds of $1.5–1.6 billion, an unlikely amount.

The SLD is awaiting the FCC's approval to begin funding Priority 1 applications for FY 2013 at all discount levels, and hopes to release Wave 1 within the next few weeks.  As of last week, the SLD reported that it had 12,500 applications "ready to be funded."  One preliminary step was accomplished last week when the FCC approved the SLD's PIA review procedures.

The ultimate timing on Wave 1 may hinge on one small technical detail.  The preliminary demand estimate for Priority 1 funding for FY 2013 is $330 million above the inflation-adjusted cap of $2.38 billion.  USAC has already identified $450 million available for roll-over (see below), sufficient to cover any potential shortfall for Priority 1.  The FCC is reportedly prepared to commit enough of these funds to cover Priority 1 funding, but may have to formalize this decision.

Wave 43 for FY 2012 will be released on Tuesday, May 14, 2013, for $39.2 million.  Priority 2 funding is being provided at 90%, and is being denied at 89% and below.  Cumulative funding for FY 2012 will be $2.25 billion.  USAC recently reported that 2,219 "potentially fundable" applications remained in PIA review as of March 31, 2013.

Wave 92 for FY 2011 will be released on Wednesday, May 15, 2013, for $5.81 million.  Priority 2 requests are being funded at 88% and above, and denied at 87% and below.  Cumulative funding for FY 2011 will be $2.59 billion.  USAC reported that 288 applications remained in PIA review as of March 31, 2013.

Wave 112 for FY 2010 will be released on Thursday, May 16, 2013, providing $482 thousand for one California districts.  Priority 2 funding is being provided at all discount levels.  Cumulative funding for FY 2010 will be $3.06 billion.  USAC reported that 63 applications remained in PIA review as of March 31, 2013.

Priority 2 Funding Outlook for FY 2013, cont.

This is the third in a series of articles dealing with the funding demand for FY 2013, and most specifically on the outlook for Priority 2 funding at the 90% discount level.  In summary:

The likelihood — or, more accurately, the unlikelihood — of finding $1.5–1.6 billion in available roll-over funding became clearer last week with the public release of USAC's Federal Universal Service Support Mechanisms Fund Size Projections for Third Quarter 2013.

Each quarter, USAC prepares a detailed report on the Universal Service Fund ("USF") which includes a year-by-year true-up of E-rate funding showing the cumulative amount of funds authorized and collected, carried over from previous years, authorized for disbursement, and reserved for future disbursements.  The difference, if any, for any given funding year between total available funds and realized or potential disbursements is called the "Estimated Remaining Balance."  Over the course of the year, these balances may increase as the SLD resolves pending applications, appeals, and invoice deadline extensions, thus reducing reserves held for these purposes.  After the fourth quarter, the total remaining balances become available for roll-over into the next funding year.

The table below shows the quarter-by-quarter changes in Estimated Remaining Balances for all four quarters of last year and for the first three quarters of this year.

Since the FCC began rolling over funds on a consistent basis in FY 2007, it has generally rolled over the entire balance as of the fourth quarter into the next funding year (thus zeroing out the balance for the start of the following first quarter).  The one exception was for FY 2011 when the FCC retroactively applied a portion of the available funding into FY 2010 to permit Priority 2 funding at all discount levels (while, at the same time, limiting the FY 2011 Priority 2 threshold to 88%).

The fate of 90% Priority 2 funding for FY 2013 depends upon the total remaining balance as of the end of the fourth quarter of 2013.  Two points reflected in the table above are important, namely:

  1. Historically, the fund balance grows quarter-to-quarter with the most growth in the fourth quarter — presumably as reserve amounts are more carefully fine-tuned.  That's the good news.
  2. The bad news is that the 4Q12 increase was unusually large.  As discussed in our newsletter of August 13, 2012, it appeared that the majority of the additional $650 million in the fourth quarter can be attributed to major cuts in the reserve amounts for FYs 1998–2007.  There is simply no room to replicate cuts in these reserves again this year.  As we stated last summer, "A roll-over miracle, if there is to be one for Priority 2 funding in FY 2013, will have to come from elsewhere."
USAC Available E-Rate Funds Projections
Funding Estimated Remaining Balances ($ millions)
Year 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
1998       5        
1999       15        
2000       20        
2001       25        
2002       15        
2003   10 10 55        
2004   10 10 60        
2005   50 50 120        
2006   30 30 80        
2007   40 40 140   20 20  
2008   60 60 115 50 130 150  
2009 50 50 150 300 50 100 150  
2010     50 100   100 130  
Totals $ 50 $ 250 $ 400 $ 1,050 $ 100 $ 350 $ 450 ?

With a more normal fourth quarter increase, we would expect to see roughly $700-800 million available for roll-over this year.  This would be well short of the $1.5–1.6 billion we have estimated would be needed to fully fund Priority 2 at the 90% level.

If there is a shortfall, the FCC has limited options.  Our best guesses as to the available options are:

  1. Postpone a decision on roll-over funding for Priority 2 funding for one or more quarters, effectively reducing the availability of roll-over funding for next year.  Another way to dip into future funding would be to use the current Anti-Deficiency Act ("ADA") exemption to over-commit FY 2013 funding.
  2. Find additional funding from other sources (e.g., from projected savings from other USF programs) or eliminate funding of one of the two Priority 2 categories (e.g., Basic Maintenance of Internal Connections, as was suggested last year when Priority 2 funding was also in jeopardy).  These options would likely require a public notice process and are probably not being considered for the coming year.
  3. Prorate the available funds.  Proration is permitted under the current rules, but introduces a whole new set of problems.  Unless the shortfall is not too great (say under 25%), proration is unlikely.
  4. Don't fund Priority 2 at all, and carry any available funds (not needed for Priority 1) forward into the following year.

The next few months should be interesting.

E-Rate Updates and Reminders

Final FY 2013 Application Deadlines:

As reported in the  SLD News Brief for April 19, 2013, USAC issued two types of letters in late April — Notification of FCC Form 471 With No Certification letters and Item 21 Attachment Urgent Reminder Letters — to applicants who may not have fully completed their Form 471 applications for FY 2013.  To avoid application denials, all missing Item 21 attachments and certifications must be submitted by May 15, 2013.

SLD Fall Applicant Training Schedule:

The SLD's schedule for its 2013 fall applicant training is shown below.  This year's training sessions will be one-day only and will be held in the following eight cities (click on the individual links to register):

Washington, DC   September 30, 2013 Waiting list only
Newark, NJ   October 8, 2013  
Minneapolis, MN   October 15, 2013  
St. Louis, MO   October  22, 2013  
Atlanta, GA   October 24, 2013  
Houston, TX   October 29, 2013 Waiting list only
Los Angeles, CA   November 5, 2013 Waiting list only
Portland, OR   November 7, 2013  

SLD training sessions for service providers were held last week in Atlanta and Los Angeles.  Copies of the slides used are available in the Training and Outreach section (set the search filters for "Training Material" and the 2013 Year).

New Service Provider Audits:

Slide #5 of the Audit training slides from last week's service provider training (discussed above) indicated that USAC would be conducting narrowly focused audits of service providers beginning later this spring.  These will be "desk audits" (i.e., conducted remotely) of invoices submitted by randomly selected vendors.  Competitive bidding and discount rates will not be audited.  The sample size will be small — less than 20.

FCC Appeal Decisions Watch:

The FCC released one appeal decision (DA 13-999) last week denying a request by Henrico County SD which had been cited under the competitive bidding rules for not assigning the highest weight to price in the bid assessment process.  Specifically, the district had assigned 20 of 100 points to price while assigning 25 points to two other higher-rated factors, "functional requirements" and "implementation services."

In its appeal, the district admitted the problem, but argued that when the bids were subsequently reassessed assigning 30 points to price (and reducing the weighting of the other factors to 20 points each) the same bidder would have been selected anyway.  Although this argument has sometimes been accepted by the FCC in the past, when the winning bidder was clearly offering the lowest price, this was not the situation in this case.  The appeal decision stated the following:

The fact that Henrico can, with the benefit of hindsight, find one way to re-engineer its bidding process to reach an identical result using price as the primary factor does not demonstrate compliance with the Commission's rules. There is no way to know what weight Henrico would have assigned to price, if it had properly assigned the greatest weight to price in its bid evaluation process, nor is there a way to know what weight it would have then assigned to the other criteria. As a result, there is no way to know whether Henrico would have reached the same outcome. We note that, on occasion, we have waived the Commission's rules for applicants that failed to use price as the primary factor in its vendor evaluation process, but selected the lowest-cost provider. In this case, however, the record demonstrates that the winning vendor's cost proposal was higher than competing bids. We therefore find that Henrico failed to comply with the Commission's rules to assign the highest weight to price when evaluating bids and that there is no justification for a waiver of those rules.

Schools and Libraries News Brief Dated May 10 – FY 2012 Recurring Services Invoicing

The SLD News Brief for May 10, 2013, discusses the following topics regarding BEAR and SPI invoicing for recurring services for FY 2012:

  • Treating basic maintenance as a recurring service
  • Requesting service delivery deadline extensions (applicable for non-recurring services only)
  • Requesting SPIN changes
  • Reducing or canceling unused, but committed, funding with a Form 500
  • Returning funds disbursed in error

The nominal deadline for filing invoices for recurring services is 120 days after the last date to receive services, i.e., June 30, 2013, for FY 2012.  That would be October 28, 2013.  The SLD has advised service providers, however, that it has been instructed by the FCC to grant automatic invoice deadline extensions of one year to any party missing the nominal deadline, effective as of FY 2012 invoices.  This automatic extension policy — much less any mention of any invoice deadline — is not discussed in this News Brief.  An SLD announcement on the new policy is apparently pending the development of implementing procedures.

Disclaimer: This newsletter may contain unofficial information on prospective E-rate developments and/or may reflect our own interpretations of E-rate practices and regulations. Such information is provided for planning and guidance purposes only. It is not meant, in any way, to supplant official announcements and instructions provided by either the SLD or the FCC.