Chairman Barton Suggests Ending E-Rate Program

March 16, 2005. The House Commerce Committee's Subcommittee on Subcommittee on Oversight and Investigations held a hearing titled "Problems with the E-rate Program: GAO Review of FCC Management and Oversight". Rep. Joe Barton (R-TX), the Chairman of the full Committee, appeared late in the hearing and questioned whether the program should be discontinued, whether it should be limited to low income schools, and whether its administration should be be transferred away from the Federal Communications Commission (FCC) to another government agency.

Rep. Barton (at right) added that the Committee will likely address this subject in the "Telecommunications Restructuring Act of 2005", "later this summer". Although, he conceded, "I don't know where the votes are."

This was a long hearing that initially focused on another in a series of Government Accountability Office (GAO) reports on the FCC's e-rate subsidy program for schools and libraries. Rep. Ed Whitfield (R-KY), the Chairman of the Oversight Subcommittee, and Rep. Bart Stupak (D-MI), the ranking Democrat on the Subcommittee. Few other members were in attendance.

The Subcommittee heard testimony from Mark Goldstein, who presented the GAO's latest report [21 pages in PDF], titled "Telecommunications: Concerns Regarding the Structure and FCC's Management of the E-Rate Program".

This report finds that the "FCC established E-rate as a multibillion-dollar program operating under an organizational structure unusual to the federal government, but never conducted a comprehensive assessment to determine which federal requirements, policies, and practices apply to the program, to USAC, and to the Universal Service Fund itself. As a result, FCC has struggled with determining which fiscal and accountability requirements apply to the E-rate program. We believe that issues exist concerning the applicability of certain statutes and the extent to which FCC has delegated certain functions for the E-rate program to USAC -- issues that FCC needs to explore and resolve."

The GAO also found that the "FCC has not developed meaningful performance goals and measures for assessing and managing the program. As a result, there is no way to tell whether the program has resulted in the cost-effective deployment and use of advanced telecommunications services for schools and libraries.

Finally, it found that the "FCC’s program oversight mechanisms contain weaknesses that limit FCC’s management of the program and its ability to understand the scope of waste, fraud, and abuse within the program. For example, FCC’s rulemakings have often lacked specificity and have led to situations where important USAC administrative procedures have been deemed unenforceable by FCC. There is also a significant backlog of E-rate appeals that adds uncertainty to the program and impacts beneficiaries."

Jeffrey Carlisle, the Chief of the FCC's Wireline Competition Bureau, then testified. He disputed some, but not all, of the findings of the GAO report in his prepared testimony.

Thomas Bennett, the Assistant Inspector General for the FCC, also testified.

The discussion between Subcommittee members and witnesses then focused on mundane issues such as the number of auditors at the FCC's Universal Service Administrative Corporation (USAC), competitive bidding procedures, and the applicability to the e-rate program of the Single Audit Act, the Miscellaneous Receipts Act, and the Cash Management Improvement Act. Previous hearings of the Oversight Subcommittee focused on specific instances of fraud and criminal abuse in the e-rate program.

After a break for floor votes, the hearing resumed.Several members who did not participate in the earlier part of the hearing arrived to offer their comments, and ask questions.

Rep. Marsha Blackburn (R-TN) asked whether the e-rate program will have "outlived its usefulness" when wireless broadband access becomes widely available.

Rep. Jay Inslee (D-WA) stated that he supports the e-rate program, but made the point that the FCC is a regulatory agency without expertise in administering grants and audits. He said that the GAO's report is "really disturbing", and asked the witnesses whether the e-rate program should be moved to another agency. Rep. Whitfield made the same point about possibly moving the program because of the FCC's lack of expertise.

Carlisle concurred that the FCC is a regulatory agency made up largely of regulators and economists. Carlisle said that "you are raising a very valid question whether the FCC is the appropriate agency".

Rep. Inslee asked Carlisle whether moving the e-rate program would "damage the ability to collect the funds". Carlisle said that it would not.

Then Rep. Barton spoke. He said that "I think that the e-rate program is broken. And I am not sure that it can't be fixed. I think that we should seriously look at significantly restructuring the program. We are going to have a Telecommunications Act this summer that we are going to put before the Committee. And, there will certainly be a component of it that deals with the e-rate program."

He asked the panel of witnesses, "was it an appropriate role of the Congress to expand the concept of universal service to require that we connect our schools and libraries to the internet. Is that a reasonable expansion of the definition of universal service?" He did not offer his own answer to this question.

Rep. Barton asked Jeffrey Carlisle, the Chief of the FCC's Wireline Competition Bureau, what are the penetration rates for broadband internet access at schools and libraries, and wireline telephones. Carlisle stated that about 94% of schools have broadband internet access, about 95% of libraries have broadband internet access, and between 93% and 94% of households have a wireline phone.

Rep. Barton noted that there has been universal service support for phones for about 60 years. He then stated, "Is there any reason to continue this program past where it is, if we are basically penetrating the market, what public good is to be served by continuing the program? We have done what we set out to accomplish, even though we did it very inefficiently and messily."

Carlisle responded that beyond the fixed costs of setting up internet access at schools and libraries there are recurring costs of maintaining the systems and paying internet access providers.

Rep. Barton continued on this subject. "But, now that we are at 94%, I really question whether we should do anything other than maybe have some subsidy for low income schools and libraries, to help them, you know, pay the ongoing costs. But above and beyond that, turn it over to the local and state communities, and let them do the upgrades, and the things that need to be done. We have done the major job, which is to get the connections. I am only one vote. So,  I don't know where the votes are."

Rep. Barton next asked the GAO witness, "If you had to make a decision to where to put this, if we decide to continue the program, is there a better place to have it than the FCC?"

"Congressman, I am not sure where you would put it", said Goldstein. "We haven't studied, specifically, options ..."

Carlisle also answered this question. "The only other logical place for it to go, and I won't make any friends over there for saying this, is the Department of Education."

In the past, other proposals have been made, including moving the program to the Department of Commerce, and providing grants to state governments.

Rep. Barton also asked Carlisle, "do you want to keep it?"

Carlisle responded, "I would only want to keep it if we can continue the progress that we have made within the last couple of years to improve oversight of the program, oversight and management of the program. If we can continue that pace of improvement, then I think we should keep it."

Rep. Barton asked Thomas Bennett, the Assistant Inspector General for the FCC, "Should the FCC be allowed to keep it given the absolutely dismal record until very recently of even caring about the program in terms of its management."

Rep. Barton said in closing that "Again, because of, in my opinion, the lack of direction that we gave to this program in the implementing legislation in the 1996 Telco Act, the Congress and the House and this Committee bear some responsibility for what has happened. I think that putting all of the responsibility on the executive branch. So that when we get to the Telecommunications Restructuring Act of 2005 over the summer, we are going to put more thought into this, and almost certainly give more direction, if the collective decision of the Committee is to maintain the program."

TLJ spoke with Rep. Whitfield, the Chairman of the Oversight Subcommittee, after the hearing. He stated that the Committee will consider these and other e-rate issues as a part of a broad telecommunications reform bill, rather than as a stand alone bill. He also said that "everything is on the table".

Rep. Whitfield (at left) stated that "I firmly believe that when the Telecommunications Subcommittee takes up the telecom bill, that this will be a part of it, and I think that there will be an open discussion of about what should be done with the e-rate program."

He added that "we are doing a bipartisan report, of the Oversight and Investigation Subcommittee, to Mr. Upton and Mr. Barton, about this one issue, the e-rate. And I think if anything is done, it might very well be done there there." Rep. Fred Upton (R-MI) is the Chairman of the Subcommittee on Telecommunications and the Internet.

He also discussed the possible scope and content of the e-rate related provisions of the forthcoming telecom bill. "I mean, we all value the program itself. The e-rate is an effective program. But, I think that there is going to be an open discussion about everything. I think everything is going to be on the table, including continuing the program, moving the program, putting more safeguards in for additional competitive bidding,  more goals that could easily be assessed in their effectiveness, the program's effectiveness. But there are a lot of shortcomings with this program, and its administration, as you well know, and we need to take steps to correct that, because when you have the convictions that we have had in this program, when you have had the waste and fraud and abuse of the dollars involved in this program, and equipment not being used. And they cannot even say for certain what impact this really has had in connecting the schools and libraries to the internet, what impact this really had, although we have spend a lot of money".

Rep. John Dingell (D-MI), the ranking Democrat on the full Committee, did not attend the hearing, but submitted a statement for the record. He wrote that there is waste, fraud, abuse and gold plating in the e-rate program, and that the Committee should enact "reforms that the FCC either cannot, or will not, implement."

Rep. Bart Stupak (D-MI), the ranking Democrat on the Subcommittee, was present for the entire hearing. He rebutted Rep. Barton's suggestions that the e-rate program should be terminated, moved, or limited to poor school districts.

Rep. Stupak (at right) made the argument that part of the e-rate funding goes to the fixed costs of installing inside wiring, and part goes to pay for the recurring the costs of telephone service and internet access service. Carlisle stated that the breakdown is about 50%-50%. Rep. Stupak stated that many school districts, without continuing support for the recurring costs, would cease to provide internet access to students. Hence, he criticized and opposed Rep. Barton's suggestion.

Rep. Stupak added that the e-rate program should be kept at the FCC.