With the reopening of the U.S. government and the threat of another shutdown in less than three weeks, E-rate eyes turn back to the FCC with a focus on several pending decisions affecting the FY 2019 application cycle. We view the next few weeks as a “race for certainty.” At this point, clear FCC decisions — any FCC decisions — would be better than none.
For applicants planning major Category 1 special construction projects for FY 2019, a critical issue is whether installation charges of $500,000 or more may be fully funded in the first year or whether such expenses for E-rate purposes must be amortized over a period of at least three years. Without FCC relief, freedom from the amortization requirement, which the FCC had suspended only for FY 2015 – FY 2018, would end as of FY 2019. As discussed in our newsletter of January 7th, the FCC is considering permanently or temporarily discontinuing the amortization requirement. Amortization or non-amortization dramatically affects not only the economics of large network projects, but the related aspects of bid proposals, contracts, state matching programs (where available), and E-rate application processing. An FCC amortization decision for FY 2019 is an E-rate priority.
Another key FCC E-rate decision still pending is the future of the five-year Category 2 budget mechanism. Technically, an FCC decision on this issue is not required until later this year in preparation for the FY 2020 competitive bidding cycle. But uncertainty as to Category 2 funding in FY 2020 and beyond is driving applicant plans to utilize remaining budget amounts by the end of FY 2019. We believe that the FCC will continue to fund Category 2 beyond FY 2019 but would welcome at least some formal hint supporting that belief. More specifically, applicants who began utilizing their Category 2 budgets after FY 2015 need to know whether their “five years” extend beyond FY 2019, or whether their entire budgets must be used by FY 2019.
One other important FCC decision that could be delayed by a resumption of a government shutdown in mid-February is the annual determination of the E-rate inflation factor for FY 2019. This affects both the funding cap for the Program in its entirety as well as the Category 2 budgets for individual applicants. Last year the FCC announced the E-rate inflation factor on February 20th. This year’s announcement, which will depend upon economic data prepared by other government entities, may already have been adversely affected by the earlier shutdown. Applicants seeking Category 2 funding at their inflation-adjusted caps for FY 2019 may have to estimate their Form 471 requests, fine-tuning them later via RAL corrections or during PIA review.