News of the Week

Funding Status

Wave 30 for FY 2014 will be released on Thursday, December 4, 2014. Funding for FY 2014 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2014 is $2.09 billion.

Wave 75 for FY 2013, announced in the previous week’s Schools and Libraries News Brief, will be released Monday, December 1st. Funding for FY 2013 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2013 is $2.13 billion.

E-Rate Modernization – Category Two Budget Strategies, Part 3

This is the third in a four-part series of articles on Category 2 budget and E-rate application strategies. Given what is known and unknown about the Category 2 funding rules and procedures, our objective is to explore how a Category 2 application (or applications) could or should be structured for maximum funding and flexibility.

Part 2 of this series, appearing in our newsletter of November 17, 2014, examined possible application strategies for a single large project for an individual school or library that exceeds that entity’s five-year Category 2 budget. The next two parts in the series will focus on multi-entity and multi-year applications. In Part 3 this week, we consider strategies for dealing with multi-entity applications such as would arise if a school district (or library systems) requests discounts for Category 2 products and/or services for two or more of its schools (or branches).

Under the new E-rate modernization rules, each school has its own maximum five-year Category 2 budget based on a pre-discount cap of $150 per student (with a minimum of $9,200 for small schools of less than 62 students). Since the budget limitations are on a school-by-school basis, this means that a district cannot request funding based on the total number of students in the district, and then simply split that funding as it sees fit among its various schools.  USAC will be tracking funding commitments attributed to each school. In the case of common equipment used by multiple schools, the associated costs must be allocated against those schools’ budgets.

Per school funding caps raise two specific application strategy questions, namely:

1. What is the best way to allocate the costs of common Category 2 products and/or services?
2. Should a funding request for multiple schools be filed as a single multi-school FRN or as separate FRNs for the individual schools?

Common Equipment and Service Allocations:

Historically, allocating common Priority 2 costs to different schools was most often appropriate when the schools had different discount rates. In such a case, an applicant would split the total cost into different FRNs in hopes that at least the higher discount FRN(s) would be at or above the Priority 2 funding threshold for that year. Typically, such a split was supported by a common Item 21 attachment listing the common equipment and services; only the total cost was allocated. Under the new rules, all of a district’s schools receive the same district discount rate. There is no longer any strategic need to split FRNs; doing so no longer creates differential discount rates.

Furthermore, with the revised Form 471, there is no separate Item 21 attachment. Instead, the Item 21 data is incorporated within the Block 5 data of each FRN. For a typical Category 2 project, the Item 21 fields require equipment and services to be listed and priced on a line item basis in one table, with the costs allocated to each school in a second table. It is not at all clear that you can split most common costs into separate FRNs, even if you wanted to.

But what can be important is how common costs are allocated against the individual school budget caps. It appears that the new Online Form 471 will permit the costs of multi-school FRNs to be allocated in one of three ways. Choosing either of the first two will lead to automatic calculations by the system; the third method will be user–defined. In particular:

1. A user can allocate costs on a straight line basis in which the same cost is assigned to each school.
2. A user can allocate costs in proportion to the number of students in each school. This method has the advantage of aligning allocated costs to the schools’ individual budget caps.
3. A user can define an alternative allocation as long as it is based on “tangible criteria” (such as the number of computers or WAPs) and yields a “reasonable result.”

The following is a comparative example of how the three allocation approaches might work on a project totaling $30,000. Assume a district with 250 students in School A, 500 students in School B, and 750 students in School C.

None of the allocated costs in this analysis approach the five-year budget cap. The pre-discount budget for the smaller School A, for example, is 250 x $150 = $37,500. What is important to note, however, is that the different allocation approaches result in different levels of charges against each school’s five-year Category 2 cap. In this example, the straight line approach preserves the highest remaining cap for School C; the proportional student approach preserves the most for School A; and the specific equipment approach benefits School B the most.

Moral:  Before choosing an allocation method for a specific funding request, it makes strategic sense to consider the five-year Category 2 needs of each school.

Single vs. Multiple FRNs:

The other key strategic consideration for multi-school Category 2 applications arises when specific equipment and services are to be purchased for individual schools. Assuming a single contract, the question is whether or not the applicant should file a single FRN for all the schools (and allocate the costs based on each school’s actual costs) or should file a separate FRN for each school?

In the past, it often made sense to file only a single FRN combining the estimated costs for all the schools. If approved, a single FRN provided the applicant with additional flexibility at the invoicing stage if final costs came in under the original budget on some schools, but over the estimate on other schools.

Going forward, this flexibility is missing. Each school has its own Category 2 budget against which specific funding amounts are committed. From an application standpoint, it may still be easier to file a single FRN for multiple schools. Doing so, however, may lead to difficulties down the line. As but one example, consider the implications of a single FRN covering projected installation work for three schools. If, a year later, work was only done on two of the schools, then the approved, but unutilized, costs for the third school would still count against that school’s five-year Category 2 budget.

Approved, but unused, funding for a specific school can apparently be removed from that school’s budget cap by filing a Form 500, but the current version of the Form 500 does not include any field(s) for identifying the school(s) to which a funding reduction applies. That would have to be worked out with USAC under procedures yet to be determined.

Alternatively, had the projected costs for the three schools been filed as separate FRNs, the Form 500 process for reducing or canceling approved funding for any particular school would be straight-forward. Separate FRNs may also simplify the ultimate invoice review process.

Moral:  Filing individual Category 2 FRNs for individual schools (or selected subsets of schools) may require more work at the initial application level, but may provide greater flexibility during the post-commitment period.

E-Rate Updates and Reminders

FCC Appeal Decisions Watch:

The FCC issued a set of precedent-based appeal decisions for November in Public Notice (DA 14-1721). The E-rate decisions in this October release included:

1. Appeal approvals for:
   1. Four applicants for untimely responses to USAC requests for information
   2. Nine applicants for late-filed Form 471 applications.
   3. One applicant for ministerial and/or clerical errors.
   4. Four applicants for no signed contracts when their applications were filed.
2. Denied appeals or petitions for reconsideration for:
   1. Three applicants for late-filed Form 471 applications.
   2. Three applicants for untimely filed requests for review, and one applicant for an untimely filed petition for reconsideration.

The approvals for the applicants that did not have formally signed contracts in place when they had filed their Form 471 applications are consistent with the change made in the E-rate modernization Order that now requires only that applicants have some documented form of contractual agreement at the time.

USDA E-Rate Guidance for CEP Schools:

The U.S. Department of Agriculture issued a memorandum last week containing Updated E-Rate Guidance for Schools Electing Community Eligibility. The memo summarizes the new E-rate modernization rule permitting the use of the CEP multiplier (currently 1.6x) to calculate the number of eligible students in a school, or group of schools, providing free meals under the Community Eligibility Provision (“CEP”).

The calculation is based on the percentage of students deemed eligible for free meals through direct certification, most commonly as the result of their families’ participation in their state’s SNAP program (previously referred to as the Food Stamps program). In USDA parlance, this direct certification percentage is called the Identified Student Percentage (“ISP”). For free meal reimbursement purposes — and now for E-rate discount rate purposes — total student eligibility is calculated as 1.6 x ISP, with a cap of 100%.

The 1.6x CEP multiplier serves as an estimated adjustment to the ISP, in recognition that the direct certification process does not identify all of a school’s eligible students. USDA rules permit the use of a CEP multiplier ranging from 1.3x to 1.6x. Over time, with improvements in the direct certification process, the CEP multiplier may be reduced, but the USDA “has no plans to do so at this time.”

School districts, with some CEP schools and some non-CEP schools, will have to calculate total student and total eligible student counts for both groups of schools, adding them together to get a districtwide student eligibility percentage that will determine the district’s discount rate. We encourage districts to share their discount rate calculations with the E-rate contacts at their local libraries for which this data may otherwise not be easily accessible.