Comparison of Schools and Libraries Programs

(July 27, 1998)  The e-rate bills filed last Thursday by Sen. Burns, Rep. Tauzin, Rep. Weller, and Rep. Hulshof would continue the existing FCC run program for subsidizing schools' and libraries' efforts to connect to the Internet. However, the bills would make some major changes in the way the program is run.

Currently, the Federal Communications Commission runs the program.  It has based its program on a controversial interpretation of the universal service provision of the Telecommunications Act of 1996, 47 USC 254.  It established a subsidy program, commonly known as the e-rate, under which schools and libraries receive partial reimbursement for costs of telecommunications services, Internet access, and computer networking.  The program is funded out of universal service contributions which the FCC assesses from phone companies, who in turn, pass on the charges to their customers.

The Tauzin-Burns proposal, HR 4324 and S 2348,  would continue support for wiring schools and libraries to the Internet, but it would not use universal service as the funding mechanism, and would end FCC management of the program.  Identical bills were introduced last Thursday by Sen. Conrad Burns (R-MT), Rep. Billy Tauzin (R-LA), Rep. Jerry Weller (R-IL), and Rep. Kenny Hulshof (R-MO).

The Tauzin-Burns proposal would pay for the program out of the existing excise tax on phones.  It would transfer administration of the program to the National Telecommunications and Information Agency, which would distribute money to the states in the form of block grants.  Also, the program would end after five years, when the excise tax would be terminated.

The following is a more detailed analysis of the bill, by topic.  It is a first draft, and will be revised.

Under the FCC program, secondary schools, libraries, and rural health clinics are covered.  The education coverage is broad, applying to public schools, religious schools, and secular private schools.  Only schools with huge endowments and home schoolers are excluded.  The Tauzin-Burns proposal essentially perpetuates the scope of coverage.

The Tauzin-Burns proposal would terminate the FCC role in the Schools and Libraries program.  It would be replaced by the NTIA.  The FCC has repeatedly outraged many members of Congress who believe that it has not followed the intent of the 1996 Act in administering the program, that it created the Schools and Libraries Corporation (SLC) in violation of another statute, and that it has used shell corporations to evade congressional oversight and the appropriations process.

Rep. Tauzin had originally suggested in a "Dear Colleague" to other Representatives last month that the Department of Education be given the job.  However, the proposal now names the NTIA.  It is an agency with expertise in computer and telecommunications matters, but not education.  It is also known for advocating policies favorable to the development of the computer and Internet industry.

The State education agencies would then administer the block grants given to them.   They would not be allowed to spend more than 2% on administration.

The FCC program raises money from universal service mechanisms.  The money is collected from phone companies.  They are free to pass on the charges to their customers, and do so.  It is this method of indirectly taxing phone users to support the schools and libraries program that critics have called the "Gore Tax."

The Tauzin-Burns proposal would not use any universal service funds.  Universal service would continue to support high cost rural and lower income telephone service.   However, the schools and libraries program would be paid for out of an existing excise tax on phones.  The 3% tax, which was instituted as a luxury tax to help pay for W.W.I, has remained in effect.  It presently raises $5 Billion per year.   The rate would be immediately reduced to 1%, and collect $1.7 Billion which would fund the schools and libraries program.

The effect would be to reduce, and after five years, eliminate, the excise tax on phones.  Tax cutters have long sought to eliminate this tax.  Rep. Tauzin is the sponsor of another bill to eliminate this tax, HR 3648.

The most recent version of the FCC (which is contained in its June 12, 1998 Order) would fund the schools and libraries program at $1.275 Billion in 1998, and rural health care providers at $100, for a total of $1.375 Billion.  In contrast, the Tauzin-Burns proposal would fund the combined program at $1.7 Billion per year.   Thus, the Tauzin-Burns proposal would fund $325 Billion more.

Of course, prior to June 12, the FCC had planned to fund schools and libraries alone in the amount of $2.25 Billion per year.  Furthermore, one might speculate that that amount would have risen over time.

One of the least debated though most important differences between the two programs is how long they last.  The FCC program creates a permanent entitlement, while the Tauzin-Burns proposal would create a five year block grant program and then terminate.

Neither Section 254, nor any FCC Order or regulation, places any sunset date on the schools and libraries program, thus leaving it in existence perpetually.  Sen. Jay Rockefeller (D-WV), the leading proponent of the FCC program in the Senate, has argued publicly that the 1996 Act provides for spending "several billion dollars plus every year in perpetuity."  The Tauzin-Burns proposal, in contrast, is set up to connect schools, libraries and rural health care providers, and then terminate.

Many of the items covered under the FCC program are perpetual in nature, such as plain old telephone service.  Moreover, news contruction will take place, and schools, libraries, and clinics will be continually repairing, expanding and upgrading their computer networking.

Section 254 of the 1996 Act extended universal service support for
"telecommunications services" to schools, libraries, and health care providers.  But, in implementing the program, the FCC extended coverage far beyond "telecommunications."   It included Internet access and computer networking (wiring, routers, hubs, switches, network servers, server software), as well as old fashioned phone service.

FCC Chairman William Kennard, ever the lawyer, continued to refer to the coverage in his frequent public speeches as "telecommunications".   In contrast, Al Gore, the politician, described it in his speeches as wiring schools to the Internet.   A recent SLC study found that the majority of money applied for was for networking.  A major part of the debate between the Congress and the FCC has of how far the federal government should go in providing "installation of internal wiring."

Yet after all the debate, the Tauzin-Burns proposal is only slightly more limited in what is covered.  It is also vague.  While the bill is titled the "Schools and Libraries Internet Access Act," the word "Internet" does not appear again in the 11 page bill.  The key part of the bill titled "Provision of Telecommunications Services to ..."    This has a section titled "Provision of Advanced Telecommunications Services".   Thereafter, the bill states in five places that what is covered is "telecommunications and related services". 

What is meant by telecommunications services, related services, advanced telecommunications services, and advanced technologies, is not not made clear in the bill.  

However, the word "advanced" is probably a reference to Section 706 which defines "Advanced telecommunications capability" as "high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications ..."

The Tauzin-Burns proposal does contain two clauses which limit specific coverage.   First, there is a ban on reselling "network capacity."   This apparently prohibits a school or library from using federal money to set itself up as an ISP, and then sell Internet access or other services.  Nevertheless, banning resale implies that a covered entity is covered for costs related to establishing itself as an ISP.  It just cannot sell its services.

Second, states receiving block grants are required to write rules that provide that funding used for "installation of equipment ... is essential ... to have access to advanced technologies."  "Installation of equipment" sounds like the "installation of internal wiring" that many Congressmen have complained about.

The bottom line, however, is the most of the discretion regarding what is covered, and what is not, is left to the state education agencies.

There are several other material differences between the FCC program and the Tauzin-Burns proposal.  One difference is that the FCC set up separate programs, and separate funding levels, for schools and libraries, and for rural health clinics. The Tauzin-Burns proposal would combine the two.  Moreover, it would require that the state education agency write the states' plans, receive the block grants, and administer them.  These agencies would likely favor schools over libraries and rural health clinics.

Another difference is in funding priorities. The FCC program gave priority in the form of subsidizing higher percentages of covered costs of schools and libraries on the basis of poverty (as measured by percentage of students on the school lunch program) and whether the applicant is rural.  For example, a poor school district could qualify for the maximum reimbursement rate or 90%, while an urban school district with fewer than 1% of students on the school lunch program would receive the lowest rate - 10%.

The Tauzin-Burns proposal would require that states administer their block grants "taking into consideration the relative economic need of eligible entities ... including the number of students ... from or part of a low income family (or) living in sparsely populated areas."  It thus perpetuates the FCC program's goal of showing preference for poor and rural areas.

However, the Tauzin-Burns proposal also adds a preference for very small population states.  It provides that "no State shall receive less than 1/2 of one percent"  For example, if Alaska were to receive a block grant which is proportion to its share of the total U.S. population, it would get .23%.  Thus, it would likely get about double the funding of most states under the Tauzin-Burns proposal, and even more than under the FCC plan (for five years).  Other states that would substantially benefit include, Wyoming (.18% of the U.S. population), Vermont (.22%), North Dakota (.25%), Montana (.33%), and Rhode Island (.38%).  All of these states, except Wyoming, have a Senator on the Commerce Committee, or Finance Committee, or both, thus making passage of the Tauzin-Burns proposal all the more likely in the U.S. Senate.

Conclusion: Winners and Losers Under the Tauzin-Burns Proposal

The following groups would be better off under the Tauzin-Burns proposal, than under the current FCC scheme.  (Based on the Tauzin-Burns proposal as contained in HR 4324, filed July 23, 1998, and the FCC Order of May 8, 1997, as modified by the FCC Order of June 12, 1998.)

• Phone users.  Users would pay less, both because they would not end up paying for universal service charges to support the FCC plan, and because the existing excise tax on phones would be reduced, and after five years, eliminated.
• Telecommunications industry.  With the reduction in charges and taxes, phone use would cost less, thus leading to higher levels of consumption of telecommunications services.
• People who favor lower taxes, since a $5 Billion per year excise tax on phones would be eliminated after five years.
• State education agencies, who would receive the block grants, write the rules for their states, and hand out the money.
• Schools (in the short run), since they would get much money under Tauzin-Burns.
• Small state schools (in the short run) are the really big winners.

The following groups would likely loose under the Tauzin-Burns proposal.

• Federal lawyers and bureaucrats at the FCC, SLC, RHCC, and USAC, who would lose control of a major program, and in some cases, their jobs.
• People who favor higher taxes.
• Private schools, libraries and rural health care providers would perhaps lose out, since the State education agencies would tend to show preference for public schools in their funding plans.
• Schools, libraries, and rural clinics (in the long run), since there would be no permanent entitlement.