Schools and Libraries Corporation in Trouble on Hill

(June 8, 1998)  The Federal Communications Commission's handling of the schools and libraries universal service subsidy program, also know as the "e-rate," has come under strong criticism on Capitol Hill.  Several key Congressmen would like to shut down the Schools and Libraries Corp. and its funding mechanism.

In a rare display of both unity and firmness, the Chairman and Ranking Minority Members of both the House and Senate Commerce Committees sent a blunt letter to FCC Chairman William Kennard informing him that his handling of the subsidy program was "a spectacular failure."  "Consumers' phone bills are set to increase," the four wrote.  "This is not what we intended when Congress passed the Telecommunications Act of 1996,"

The Commerce Committees, which have jurisdiction over FCC matters, are led by Sen. John McCain (R-AZ), Sen. Fritz Hollings (D-SC), Rep. Tom Bliley (R-VA), and Rep. John Dingell (D-MI).  They wrote that:

"The evidence to date, however, leads us to the unmistakable conclusion that the Commission has ignored Congress' clear priorities with regard to universal service. As a result, the Commission's efforts to implement the universal service provisions of the Act have been a spectacular failure, and -- more importantly -- a raw deal for consumers."

The letter continued that,

"we believe it is too late for the Commission to rescue itself merely by tinkering with a fundamentally flawed and legally suspect program. Instead, it is time for you and your colleagues to put the mistakes of the previous Commission behind you, and start anew.   Accordingly, the Commission should immediately, suspend further collection of funding for its schools and libraries program, ..."

On Monday House Speaker Newt Gingrich (R-GA) stated in a speech that "it is wrong for five unelected appointed Commissioners to be able to establish a tax on every telephone line in the United States."  He also stated that "we'll probably block it in the next two weeks."  Gingrich spoke at the Supercomm'98 Conference in Atlanta.

Congressional opposition has been building for some time.  The Federal Communications Commission has done little to address Congressional concerns.  The first source of opposition arises from the FCC's creation of the Schools and Libraries Corporation (SLC) to administer the e-rate, subject to the FCC's instructions.  The FCC had no legal authority to form the corporation, according to a General Accounting Office report, and many key congressmen.  Moreover, the SLC is an "independent" corporation that operates without Congressional oversight.

The FCC's response to complaints that the SLC was illegal was to propose to roll it into another corporation, that likewise was beyond Congressional oversight authority.   See, 5/8/98 Report to Congress.

Another misstep by the FCC was to set first year funding for the program at $2.2 Billion, with the funds to be collected from the long distance phone companies, who in turn would collect it from their long distance customers.  Most Congressmen want to see the cost of phone service go down, not up.

Finally, when the phone companies let it be known that they would put statements on their customers' bills that the 5% or so charge on their long distance bills would pay for a government program, the FCC sought to muzzle the phone companies.  Nor did it help that the FCC that two of its five Commissioners let it be known that they opposed restricting the phone companies.  One applauded AT&T's announcement. (See, Dissent of Commissioner Powell to 5/8/98 Report to Congress, and Statement of Commissioner Furchtgott-Roth.)

The FCC's conduct also ignited a couple of other Congressional fears.  First, proponents of universal service for high cost rural telephone service worried that the phone companies' billing statement references to government programs might undermine public support for rural universal service support.  Second, some feared that with no limit on the size of the program, and no Congressional budgetary control, it would grow every year, and drive phone bills ever higher.

Two key legislators floated proposals last week that would significant alter the program.  Sen. Conrad Burns (R-MT) floated a proposal to scrap the "Gore Tax" on phone users, and provide  funding for a schools and libraries subsidy from an already existing federal excise tax on phone use.  Sen. Burns is Chairman of the Subcommittee on Communications.  See, Burns Press Release, 6/3/98.

On the House side Rep. Billy Tauzin (R-LA) has also proposed using the excise tax on phone use.  "Billy went to the leadership yesterday and offered a compromise," Billy Tauzin's staff assistant Ken Johnson said Friday.  The program "would be administered by the Department of Education" and be funded by "the federal excise tax on phone service."  "He suggested we repeal one half of that tax and use the other one half of the tax to fund a schools and libraries program," said Johnson.  The tax currently it raises $4.5 Billion per year.  The FCC plans to spend $2.25 Billion on its schools and libraries program in 1998.

"The FCC has no legal authority to pass on a tax to consumers in the way of a hidden telephone charge," said Johnson.  "This is about separation of powers.  The Constitution gives authority to raise taxes to Congress, not a bureaucratic agency."  "We would abolish the Schools and Libraries Corporation."

Asked about the proposals to use the federal excise tax on phone use, Michelle Richards of the National School Boards Association said, "We are certainly not wedded to one funding stream."

Until recently, the FCC has brushed off all Congressional criticism.  However, there are now many signs that things are changing.  First, the FCC had scheduled a meeting for Tuesday, June 9, to adopt measures for dealing with phone company plans to notify customers about the nature of the new charges, and to provide for the collection of more money.  The FCC abruptly cancelled that meeting on Thursday under brutal criticism from the hill.

For example, Rep. John Dingell, the Ranking Minority Member on the House Communications Committee wrote a letter on Thursday to FCC Chairman William Kennard that said:

"Had this announcement represented a realization that the Commission blundered badly in creating an extravagant, expensive, improper, and illegal entitlement program for schools and libraries, I would have been appreciative. ... To the contrary, the "solution" under discussion will only compound your problems by raising once again the telephone bill of every American.  ... This is asinine.  The new Commission should simply pull the plug on its discredited Universal Service program.   ...  Anything less may force the Congress to address this problem with a legislative remedy that would very sharply circumscribe your authorities in this area."

Second, Richard Riley, whose Education Department currently has no role in the program, is meeting with school groups and SLC supporters, perhaps indicating that his Department will be soon take over some or all of the program from the FCC and SLC.

Finally, President Clinton, in a speech at MIT on Friday, defended what he referred to as the "e-rate."  However, he referred to the size of the fund as "a billion of so", when in fact the FCC has said that it plans to spend $2.25 Billion this year, and reported last month that it had already received applications totaling over $2 Billion.  Moreover, he never mentioned the FCC or SLC.