News of the Week

FY 2008 and FY 2007 Funding Status

Wave 29 for FY 2008 and Wave 70 for FY 2007, initially scheduled to be released on October 28th and October 29th, respectively, have apparently been temporarily delayed. The most recent SLD News Brief indicates only that information on upcoming funding waves will be included in next week's issue.

Wave 69 for FY 2007 was released on Thursday, October 23rd. Funding in this wave was $4.8 million (of which $4.6 million was for the Puerto Rico Department of Education). Total FY 2007 funding is just under $2.5 billion.

SLD Fall E-Rate Training: Part 5 — Consortium Applications

Another of the advanced topics in this year's SLD training was a discussion of the E-rate rules and procedures regarding consortium applications (see Consortium Slides).

Since the earliest days of E-rate, the FCC has encouraged "...eligible entities to participate in consortia because such participation should enable them to secure the telecommunications and information services and facilities they need under terms and conditions better than they could negotiate alone." In theory, an E-rate consortium should provide, not only better pricing, but a more efficient mechanism for application processing. In practice, SLD procedures for reviewing consortium applications often require additional steps and can delay funding.

Structurally, there are two components of an E-rate consortium: the consortium leader and one or more consortium members. There are few restrictions on the nature of the leader. It can be a state, an educational service agency, a regional library system, or any formal or informal organization established as a consortium. The critical factor is that the leader is authorized to act on behalf of its members. Although there are a few exceptions, generally the consortium leader's role is to:

• Collect Letters of Agency ("LOAs") from the members
• Post the Form 470, conduct the competitive bidding, and select the vendor(s)
• Serve as the billed entity for the services covered (although the charges for such services can ultimately be apportioned to the members)
• File the Form 471 and respond to all PIA requests
• Collect Form 479s, indicating CIPA compliance, from the members
• Upon funding, file the Form 486
• File BEAR reimbursement form(s) as required
• Comply with FCC document retention rules

Consortium Discount Allocations:

Although not discussed in the training, another potentially important role for the leader may be to properly allocate discounts among the members. This requirement stems from the Item 10 certification on Form 486 which states:

I understand that the discount level used for shared services is conditional, for future years, upon ensuring that the most disadvantaged schools and libraries that are treated as sharing in the services receive an appropriate share of benefits from those services. I recognize that I may be audited pursuant to this application and will retain for five years any and all records, including Forms 479 where required, that I rely upon to complete this form and, if audited, will make available to the Administrator such records.

In a consortium that provides free services to its members, such as is the case with many state-funded networks, this is not an issue (i.e., the certification is essentially meaningless). But when services are procured by the consortium, and billed back to the members based on their usage, the total consortium discount must be appropriately allocated among the various members based on their respective discounts. Since the aggregate consortium discount rate is based on a simple average of the members' discount rates, this is not always a trivial process. To our knowledge, the SLD has never provided guidance on this issue. The following is our interpretation of the meaning of the Form 486 certification.

The basic problem is that, depending upon individual member usage, the total discount received may be more than, or less than, the "nominal" total (defined as the sum of each member's usage times each member's discount rate). As a rule, if the lower discount members use more services than the higher discount members, the consortium discount is greater than the nominal total. In the reverse situation, it is lower. Here's a simple example.

Assume a consortium is made up of only two members — Member A with a discount of 40% and Member B with a discount of 90%. The consortium would have a discount of 65% (the average of 40% and 90%).

Suppose also that the consortium uses $20,000 of eligible services. This would provide a total discount of $13,000 ($20,000 x 65%). The allocation of that discounted amount between the two members, based on their respective discount rates, depends upon their shares of services used. Here are three possibilities:

1. Each member uses the same amount (i.e. $10,000). In this case, Member A would nominally get $4,000 ($10,000 x 40%) and Member B would get $9,000 ($10,000 x 90%). This works out perfectly. The nominal total for A and B equals the total discount received of $13,000.
2. If, however, A uses more (say $12,000) than B ($8,000), then the nominal discounts would be $4,800 ($12,000 x 40%) for A and $7,200 ($8,000 x 90%) for B. This totals $12,000, but the consortium actually received $13,000. There is $1,000 extra to be distributed to the two members. This can be done by proportionately assigning 13/12th of the nominal discount to each so that A gets $5,200 and B gets $7,800 (or $13,000 total). Everybody gets a little extra.
3. Conversely, if A uses less (say $8,000) than B ($12,000), then the nominal discounts would be $3,200 ($8,000 x 40%) for A and $10,800 ($12,000 x 90%) for B. This totals $14,000, but the consortium actually received only $13,000. There is $1,000 less to be distributed to the two members. This can be done by proportionately assigning 13/14th of the nominal discount to each so that A gets roughly $2,971 and B gets $10,029 (again, the $13,000 total). Everybody loses something.

Consortium Funding Delays:

One other aspect not discussed by the SLD is that a funding decision on a consortium application may be held up as the result of Selective Reviews on the individual applications of one or more of the members. The premise appears to be that, if a member cannot demonstrate that it has sufficient resources to support its own application, it may just as well not have the resources to support its share of the consortium application.

The unfortunate aspect of this SLD review procedure, apparently first implemented for FY 2007, is that the consortium leader is not advised of the funding delay. The leader may have responded to any or all PIA inquiries of its own application, but no FCDL has yet been issued. There are several ad hoc ways to deal with this problem.

First, it is important to determine if the problem is related to member Selective Reviews. Often this can be ascertained by asking the SLD Ombudsman by sending an e-mail to ombudsman@usac.org.

If one or more members are under Selective Review — and you can determine which ones — there are several possible courses of action.

1. The consortium leader may be able to assist, or at least encourage, the member(s) to complete their Selective Review paperwork as expeditiously as possible, thus freeing up the consortium application.
2. If consortium services are being paid for by someone other than the members (e.g., by the state), it may be possible to so document this situation to the SLD, thus separating the consortium application from the individual member applications.
3. If the consortium/member applications cannot be separated, and if it appears that the member Selective Review(s) cannot be resolved quickly, the consortium leader can ask the SLD to split the funding request(s) into separate FRNs. This would permit funding decisions to be released on FRNs not associated with the Selective Review member(s), while the split FRN(s) remains "Under Review."

E-Rate Updates and Reminders

FY 2007 Recurring Service Invoice Deadline:

Only one day remains to file invoices with USAC for discounts on recurring services received during the 2007-2008 fiscal year. Tuesday's October 28th invoice deadline applies to both applicant BEARs (Form 472s) and service provider SPIs (Form 474s).

FY 2008 Form 486 Deadlines:

The deadline for filing a Form 486 (containing the necessary certifications on technology plan approval and CIPA compliance) is the later of 120 days from either the funding date or the start of services. For funding awarded in FY 2008 waves 1-10, a service start date of July 1, 2008, would mean a Form 486 filing deadline of October 29, 2008.

Fall E-Rate Training:

The SLD has now completed all of its seven scheduled 2008 applicant training sessions.

Those interested in shorter state-specific training should check with their State E-Rate Coordinators. Contact information by state can be found on the E-Rate Central Web site at State Information.

Schools and Libraries News Brief for October 24th

The SLD's News Brief for October 24, 2008, discusses the transfer of equipment purchased with E-rate funds. The general rule is that such equipment cannot be transferred for at least three years from the date of purchase unless the associated school or library is being closed. The SLD's News Brief reviews requirements covering the following topics:

• Transfers due to school or library closings
• Transfers after three years
• Impact of transfers under the Two-in-Five Rule
• Record retention
• Disposal or trade-in of equipment

The disposal guidance is new. It states:

You can dispose of outdated equipment or equipment that is no longer being used. We suggest that you do so in an environmentally responsible way. However, remember that — even though the equipment may be considered salvage — you cannot accept money or any other thing of value for that equipment.

 

Two important points should be noted concerning this equipment disposal guidance.

1. FCC rules are silent on the subject of equipment disposal. In September 2006, E-Rate Central filed an FCC Petition for Clarification or Waiver regarding the disposal of equipment. The FCC quickly put the filing out for public comment (with comments due January 2007), but has yet to rule on the Petition. In our view, therefore, the SLD's guidance should be treated as informal. If an applicant needs to dispose of equipment, we suggest that a copy of this News Brief be retained with the associated inventory records.
2. Equipment disposal by public entities may also be governed by state laws and regulations. The critical regulation for BOCES in New York, for example, states:

Periodically, a determination shall be made as to what equipment, supplies and/or materials are obsolete and cannot be salvaged or utilized effectively or economically by the BOCES. Such equipment, supplies or material shall be sold through bid procedures, if possible, for the highest possible price.

The auction of excess equipment, however, would violate the E-rate requirement that equipment not be transferred for anything of value. In states in which auctioning is required, care must be taken to make sure that E-rate equipment to be disposed of is deemed truly worthless. Otherwise, under current guidelines, disposal is not an option. Hopefully, the FCC will provide additional guidance on this matter in the future.