Effective July 1st, EPC should be updated to permit filings of Form 470s for FY 2019 (see below). Applicants undertaking competitive bidding activities for Category 1 special construction and/or any Category 2 service in FY 2019 should be aware of two possible pitfalls.
Category 1 Special Construction:
Prior to the Second E-rate Modernization Order (FCC 14-189), an applicant could not receive E-rate discounts on all the costs of large Priority 1 network installations in a single year. The prohibition stemmed from the FCC’s Brooklyn Public Library Decision (FCC 00-354) which was designed to prevent funding demand spikes in an era of limited E-rate funding. For E-rate purposes, the resulting rules required that installation costs in excess of $500,000 be amortized over a period of at least three years. In 2014, with additional E-rate funding and an increased focus on broadband services, the FCC suspended the amortization requirement for four years, FY 2015 to FY 2018. Specifically, the FCC Order stated:
We therefore direct USAC to suspend application of its multi-year amortization policy for funding years 2015 through 2018 and to allow applicants to seek support for upfront or non-recurring charges without imposing any amortization requirements. In evaluating this USAC requirement, we considered a permanent end to the requirement instead of merely suspending its application. However, we are cognizant of the interest reflected in the Brooklyn Order of balancing the immediate needs of some E-rate applicants against the needs of all of the applicants. We therefore adopt the additional safeguard of suspending rather than eliminating USAC’s amortization policy for the limited duration of the next four funding years. We expect that USAC will keep the Bureau apprised of how many and to what extent applicants utilize this suspension for the deployment of infrastructure. We also direct the Bureau to revise our data collection to collect such information beginning in funding year 2016. We believe this balanced approach will provide us with sufficient data to determine the best course forward for subsequent funding years.
Unless the FCC proactively extends the multi-year amortization suspension, or eliminates the requirement altogether, the costs of large special construction projects must apparently be amortized for E-rate purposes as of FY 2019. This may be fine for projects designed to be phased-in over multiple years, which would require multi-year applications anyway. But it may be problematic for large projects otherwise expected to be completed — and paid for — in a single year.
Applicants in this situation must be careful to address amortized E-rate discounts in their funding plans and in their network construction contracts. Special care should be taken by applicants planning to use the extra E-rate discounts available under the state matching provision.
Category 2 Budgets:
The current five-year Category 2 budget process was first initiated on a two-year trial basis in the FCC’s First E-rate Modernization Order (FCC 14-99). In the Second E-rate Modernization Order (FCC 14-189), the FCC sought to ensure “certainty” of funding through 2019 by extending the trial to five years. In 2017, the FCC issued a Public Notice (DA 17-921) seeking comments on the level, structure, and application processing of Category 2 budgets for FY 2020 forward.
What is crystal clear at this stage is that applicants first funded for Category 2 in FY 2015 have until FY 2019 to fully use their budgeted funding. Because these budgets are indexed to inflation, this means that applicants funded at the maximum level in FY 2015 will have an incremental budget available (perhaps $8-9/student prediscount) through next year. Beyond FY 2019, these applicants must await the FCC’s decision (proactive or inactive) on future Category 2 funding.
What is not clear at this point is the status of the Category 2 budgets for applicants first funded in FY 2016 or later. Does a “five-year” budget apply on a rolling five-year basis from the first year of funding, or does “five-year” simply refer to the current budgeting mechanism expiring after FY 2019? Somewhat surprisingly this late in the game, applicants do not know the answer to this basic and immediate question:
If an applicant was first funded for Category 2 in FY 2016, does its “five-year” budget extend through FY 2020 or only though FY 2019?
Until recently, we had been assuming that “five-year” budgets worked on a rolling five-year basis, but have become concerned by USAC’s lack of guidance on this issue. Absent FCC or USAC clarification, or a new FCC order to the contrary, the safest course of action may be to address Category 2 planning for FY 2019 as if all current budgets are expiring.