On Friday, the Supreme Court granted and combined two certiorari petitions filed by the FCC and the Schools, Health, and Libraries Broadband (“SHLB”) Coalition. The Court agreed to review a decision by the 5th Circuit Court of Appeals that held that the Universal Service Fund (“USF”) was unconstitutional. As discussed in our newsletter of July 29th, this decision was at odds with earlier decisions by 6th and 11th Circuit Courts of Appeal. The split between the Courts of Appeal on this issue formed the basis of the Supreme Court’s decision to hear the case. We expect that this hearing will take place in the Spring of 2025 with a decision as early as June or July.
USF funding is critical to the E-Rate and the other USF programs. Indeed, as indicated in the article below, USF funding represents the majority of the FCC’s annual budget. Replacing USF funding in the unlikely (in our view) event that USF is found unconstitutional would presumably mean that funding for E-Rate and the other USF programs would revert to annual Congressional appropriations, perhaps at different levels and with less certainty.
FCC Financial Report for FY 2024
The FCC’s Agency Financial Report for fiscal year 2024, released last week, is well over a hundred pages containing a wealth of information on the FCC’s operations. For those interested primarily in E-Rate, and more broadly the Universal Service Fund (“USF”), here are two highpoints:
- Just how important USF funding is to the FCC is shown in this pie chart of FY 2024 available funds. With the demise of ECF going forward, USF’s percentage will be even larger.
As an indication of how USF funds are distributed among the four USF programs, consider the following chart covering the preceding fiscal year:
- Based on the latest round of Payment Quality Assurance (“PQA”) audits on invoicing, improper payments for E-Rate (designated “USF S&L”) fell to 1.27%. This is important because any rate at or above 1.5% is defined as “significant improper payments.” With the rate now below 1.5%, PQA audits in E-Rate may be paused for three years.
The report also describes steps that USAC and the FCC have taken to prevent and reduce improper E-Rate payments. They include the use of “predictive data analytics to identify potential competitive bidding violations and flag applications for additional reviews prior to committing funding for the applications.” (For more detail, see pp. 102-103.) As is clear from the trend of improper E-Rate payments over the previous four years, these efforts are paying off (see E-Rate trendline in orange).
