E-Rate Divide Follows Partisan Lines

(August 10, 1998) The political battle over the future of the e-rate is classic partisan contest which pits Republicans and fiscal conservatives against Democrats and social liberals. Democrats are digging in to defend the current FCC run program. Republicans are coalescing around a proposal by Sen. Burns and Rep. Tauzin to limit the e-rate to five years, shift administration from the FCC to the NTIA, and distribute money to the states as block grants.

While participants in the debate all claim that their ideas are best for the school children of America, and enjoy broad bipartisan support, a review of pending bills (and lists of cosponsors), speeches, letters, statements at hearings, and other items shows a strong correlation between a politician's political party, and where he stands on the e-rate. However, explaining this correlation is more difficult. Nevertheless, this article offers some explanations.

The e-rate is a new program which is scheduled to provide subsidies to schools, libraries,and rural health clinics for various telecommunications services and computer networking equipment. Most of the money would go to elementary and secondary schools. No money has yet been given away.

The program is currently based upon the 1996 Telecommunications Act. Section 254 of that Act codified the long standing practice of providing "universal service" support for telephone service in high cost rural areas. However, the Act also included a subsection which extended universal service support for any school, library and rural health clinic.

Controversy began to build when the regulatory agency with responsibility for implementing universal service, the Federal Communication Commission, issued an Order on May 8, 1997 which expanded universal service support for schools, libraries, and rural health clinics to include various types of networking hardware, including hubs, routers, network servers, and cable, and set an initial level of funding at $2.25 Billion per year.  Under intense Congressional criticism, in June the FCC reduced the subsidy level to $1.275 Billion for1998.

The FCC ordered that the subsidies be collected from long distance phone companies, who would in turn to recoup the costs from their customers. The FCC also caused to be created two corporations under its control to administer the subsidies, the Schools and Libraries Corporation (SLC) and the Rural Health Care Corporation (RHCC).  Congressional critics accused the FCC of illegally forming the corporations, and of attempting to evade Congressional oversight. (In response the FCC has since proposed merging the SLC and RHCC into the USAC.)

However, there are those who would provide even more subsidies. Secretary William Riley, of the Department of Education, for example, gave a speech on the e-rate on July 29 in which he said that schools ought to also be given "hardware, the software, the wiring, and the teacher training."  He also argued that the phone companies should not be allowed to bill their customers for this program!

There are also proposals in Congress to limit what the phone companies can say about universal service on their customers' monthly bills. HR 4018 and the Rockefeller amendment to the Senate version of the anti-slamming and anti-spamming bill, S 1618, would not limit the phone companies' collection of universal service costs from their customers. Rather, they would merely deter them from writing on the bills that the customers are being charged to support government social programs. Such statements would have the potential to erode public support for the e-rate, as well as other universal service programs

At the other end of the spectrum of e-rate alternatives are proposals to end it. Rep. Joe Scarborough (R-FL) introduced at bill (HR 4065) on June 16 that would terminate the e-rate's funding.  Rep. Sensenbrenner (R-WI) introduced at bill (HR 4032) on June 10 that would delete subsections of Section 254 pertaining to the e-rate.

However, the proposal which is winning more support is the Tauzin-Burns bill, "Schools and Library Internet Access Act," HR 4324 and S 2348, which was filed in both the House and Senate on July 23.  It would continue the e-rate, fund it at about $1.7 Billion per year for five years, replace universal service support with funding from the existing excise tax on phones, transfer control over the program from the FCC to the NTIA, and distribute the money to the states in the form of block grants.

Up to this point, the people who have weighed in on the debate can be easily characterized.  Democrats tend to want to either maintain the FCC run program, or increase its size and scope. Republicans tend to want to reform and limit it via the Tauzin-Burns proposal, if not outright scrap it.

Both sides claim broad bipartisan support for their positions.  However, on the Democratic side, bipartisan support means Sen. Olympia Snowe (R-ME) and Rep. Connie Morella (R-MD), and no more. Rep. Morella is just one of 435 Representatives, and does not sit on committee with jurisdiction over this issue. Sen. Snowe is on the Senate Commerce Committee, which will vote on any proposals to reform the e-rate.

On the other side, the bipartisan support might be said to include Sen. Fritz Hollings (D-SC) and Rep. John Dingell (D-MI), who signed a scathing letter to the FCC on June 4 about its handling of the e-rate. The two are the ranking Democrats on the Senate Commerce Committee and House Commerce Committee.   Both have also criticized the FCC e-rate policy in oversight hearings.

An examinations of sponsorship of bills, letters, statements at committee hearings, floor speeches, press conferences, and other items in the public record reveals the strong correlation between party affiliation and position on the e-rate.

HR 4065 has 33 sponsors, all of whom are Republicans.  HR 4032 has 7 sponsors, all of whom are Republicans.

The Tauzin-Burns bill has about a dozen sponsors in the House, and 2 in the Senate, all of whom are Republicans. Moreover, at a Ways and Means Oversight Subcommittee hearing e-rate funding on August 4, all of the Republican members who either testified or participated as committee members praised the bill, while all of the Democratic members who either testified or participated supported the FCC run program.

	Rep. Billy Tauzin

Rep. Tauzin has boasted about the support with the Tauzin-Burns proposal has. For example, at a press conference on July 23, he stated that "we have had extensive discussions with the leadership here in the House over this bill, with Chairman Bliley, with Speaker Gingrich, with Chairman Archer, and with other Chairmen, such as Education Chairman Bill Goodling and Hal Rogers and others from the Appropriations Committee."  He did not mention any Democrats.

Likewise, support for FCC program comes from Democrats. The FCC is governed by five Commissioners, who are appointed by the President and confirmed by the Senate, two of whom must not be from the President's party.   Presently, the Commissioners are divided 3 to 2 on the e-rate. The majority is comprised of the three Democrats (Kennard, Ness, and Tristani), while the minority are Republicans (Furchtgott-Roth and Powell).  Furchtgott-Roth particularly has criticized the FCC run program.

The FCC run program also is strongly supported by Clinton, Gore, and William Riley of the Department of Education.

The supporters of the FCC program in the Congress are mostly Democratic. While the 1996 Act, including section 254, did have broad bipartisan support in 1996, as the FCC has moved to implement the e-rate, Republican support has eroded. In March Rep. Earl Blumenauer (D-OR), who is the most active supporter of the FCC run program, collected signatures on a letter expressing support for the program.  He obtained 102 signatures on his March 27, 1998 letter.  Of these, only 8 were Republicans.

In June, Rep. Cal Dooley (D-CA) and Rep. Zoe Lofgren (D-CA) put together a similar letter. This June 11, 1998 letter one garnered fewer signatures -- 71, almost all Democrats.

HR 4018, the "truth in billing" proposal, is essentially a defense of the FCC run program. It has 33 sponsors. Only one is a Republican -- Rep. Connie Morella.

The correlation between party affiliation and position on the e-rate can be observed from the public record. However, the same public record does not reveal why there is a party relationship. Politicians all use the same lofty statements to support their positions. For example, statements such as, "it is what is best for the country," do not explain very much.

Nevertheless, there are several speculative explanations.

First, the FCC is controlled by its three person Democratic majority, and the SLC is controlled by the FCC.  As a quasi independent entity, with Commissioners with 5 year tenure, the FCC is largely beyond the oversight control of the Republican Congress. The SLC is largely immune from the Congressional oversight and budgetary process. In contrast, the NTIA is a part of the Department of Commerce, more dependent on the Congress, and more influenced by the Congressional budgetary and oversight processes. Hence, the Burns-Tauzin proposal would increase the influence of the Republican led Congress, while the FCC run program leaves the e-rate in the hands of Democrats.

Second, the FCC program provides that the SLC distribute money directly to schools and libraries, subject to the rules set by the FCC. In contrast, the Tauzin-Burns proposal would distribute the money to the states in the form of block grants. The FCC is controlled by Democrats, while most of the big states are led by Republican governors.

Third, the deregulatory minded Republican majority in Congress went out on a limb in passing the 1996 Telecom Act. There have been some mixed results so far. Rising cable rates and huge mergers give the appearance to some that deregulation is not working. However, the acid test is whether the cost of phone service goes down. So far, the FCC has been dragging its feet in implementing many aspects of the deregulation plan, but has found plenty of time to implement a new social program which adds to the cost of phone service.  The Republican Congress does not want to see anything that adds to the voters' phone bills.  These Republicans like the Burn-Tauzin bill because it would completely separate the e-rate from the FCC and universal service.

Fourth, there is the Gore factor. Vice President Al Gore has already been holding campaign style events boasting of the Clinton/Gore administration's plan to hook up schools to Internet. He never mentions where the money is coming from. The way the program is set up now, Gore gets the credit wiring the schools, and the Republican Congress gets the blame for rising phone rates.

Republicans neither want to hand Gore an easy ride to election in 2000, nor get stuck with the rap for a failed Telecommunications Act. Many Democrats, on the other hand, would like to see Democrats retain control of the White House, and Republicans get blamed for anything.

Finally, the FCC program is both permanent and subject to increase, while the Burns-Tauzin proposal is a 5 year temporary program, fixed at $1.7 Billion per year.   Democrats tend to favor more spending on social programs such as education.   Republicans tend to favor lower taxes.

The Burns-Tauzin bill contains many features which are likely to increase its chances for passage above and beyond the features that are likely to appeal to the partisan interests of Republicans which are discussed above.

First, by taking the e-rate out of universal service, it removes controversy from the concept of universal service.  Historically, western and farm states have benefited greatly from this subsidization of phone service in high cost, low population areas.   This program is critical to farm state Members of Congress, Republicans and Democrats alike. No farm state representative wants to see universal service dragged down or diminished by a debate over school subsidies. The Burn-Tauzin proposal could pick up support from across the aisle because of this.

Second, the Burns Tauzin bill contains a "1/2 of 1% rule." No state would receive less than one half of one percent of the total funding.  However, several states have significantly less than one half of one percent of the total U.S. population, and hence might see their share of the money increased. Two of the prime beneficiaries would be Sen. William Roth (R-DE) who coincidentally happens to be Chairman of the Senate Finance Committee, which has joint jurisdiction over this bill. Another is Sen. Bryan Dorgan (D-ND) who could provide11th vote for passage on the Senate Commerce Committee.  Others would include Commerce Committee members Ted Stevens (R-AK) and Conrad Burns, and Finance Committee member Frank Murkowski (R-AK).

Third, the bill would transfer administration to the NTIA, which is run by Larry Irving. Irving is a protege and former staff assistant to Rep. Ed Markey (D-MA), who happens to be the Ranking Minority Member of the key House Telecommunications Subcommittee.

Fourth, the bill would finance the e-rate out of the existing excise tax on phones. Actually, it would take one third of the tax and eliminate the other two thirds immediately. And then, after five years, the remaining one third would be terminated. Some members of Congress, particularly members of the Ways and Means Committee have wanted to do away with this this tax for years. For example, Rep. Jennifer Dunn (R-WA) is sponsoring legislation to terminate this tax. Way and Means has joint jurisdiction over the Burns-Tauzin bill.