Witness Testimony

Mr. Nathaniel Hawthorne
General Counsel
Alpha Telecommunications, Inc.
27600 Chagrin Blvd. Suite 265
Cleveland, OH, 44122

Problems with the E-rate Program: Waste, Fraud, and Abuse Concerns in the Wiring of Our Nation's Schools to the Internet
Subcommittee on Oversight and Investigations
September 22, 2004
10:00 AM

I have been "invited" to testify regarding "Problems with the E-Rate Program:

Waste, Fraud and Abuse Concerns in the Wiring of Our Nation's Schools to the Internet". Specifically, I have been asked to explain the "relationship" between IBM and Alpha. This I will do; it is not complicated, it only seems complicated because that is the way people choose to see it based on their own economic agenda. However, there are other issues that need to be addressed.

A visionary Congress created a pot of money for American children in grades K-12. That "pot" was designed to incorporate technology into the classroom so that technology might be used to deliver education to the classroom; it was created so that all American children, poor and rich, black, white, red, and yellow, might have access to the Internet, so called "connectivity". But then something very strange occurred. Many, many people, corporate and otherwise, started to construct hurdles that that these American children had to run through, over and under to make use of the pot of money so that they could have access to a better education, indeed a better future, through technology.

The need for E-Rate is greater than ever. However, we now focus on "waste fraud and abuse" rather than the issue of what have we as a society received for the billions invested in the so-called "wiring" of America's schools and libraries", and providing access to the Internet. How has E-Rate incorporated technology into the education process? Although I have no personal knowledge of waste fraud and abuse, I do read the media reports of these events. There are abuses, just like in all other government programs, and we need to focus on any abuse. Wherever government and private funds are spent there will be those that will take advantage of the process. But we have a criminal process to prosecute those that engage in fraud. Yet, we spend an inordinate amount of time looking at this as a political issue. Why? How much political time has been spent to determine what benefits have been derived from the money invested? How much political time has been spent "Assessing the impact of Instructional Technology on Student Achievement."¹

The government has spent billions on E-Rate, and collected a lot if data from schools; however, I have yet to see any analysis, made public, of that data to demonstrate, either objectively or subjectively, what the impact is of the billions spent on America's children, in terms of learning.

My statement filed with this Committee is self explanatory; I am here to answer questions.

I. Background of Alpha Telecommunications, Inc.

Alpha Telecommunications, Inc. is an Ohio based company specializing in telecommunications/internal connections and Internet Access needs analyses, E-rate application preparation/processing, Program Integrity Assurance process (PIA), client representation with vendors, insuring that clients receive all funding from vendors, preparation/filing of all required E-rate forms, and SLD audits (Item 25 Reviews). Paul Karas and Nathaniel Hawthorne each own a 50% interest in Alpha.²

Alpha works with two distinct types of clients: (1) K-12 School Districts, public and private and public libraries and (2) vendors who provide services to K-12 School Districts. Alpha was incorporated during the first year of the E-rate program, and has been involved in all phases of universal service funding (USF/E-Rate). Attachment A is a contract used with School districts/libraries; Attachment B is a contract used with IBM. Attachment C is a contract used with other vendors.

Paul Karas

Electrical Engineer specializing in telecommunications

Twenty plus years experience in telecommunications including Fortune 100

Company; state government, school districts, and libraries

Seven years Universal Service Funding experience

Nathaniel Hawthorne

Member of the Ohio, Illinois, and District of Columbia Bar associations.

Legal counsel for Alpha Telecommunications, Inc.

Approximately thirty years (30) years of telecommunications experience with Fortune 100 telecom carriers, and smaller competitive local exchange carriers (CLECs), that includes, all aspects of regulatory matters, marketing and contracts; experience with Universal Services issues for approximately 25 years, and Universal Services Funding (E-rate, or education rate) issues since the Telecommunications Act of 1996 amended the Communications Act of 1934. Specifically, I have been involved in regulatory issues such as FCC regulations, Notice of Proposed Rule Makings, Orders and SLD regulations as they specifically relate to E-rate for the past seven years, or since the inception of E-rate, and otherwise. I first became aware of the Telecommunications Act of 1996 while working as retained Counsel for an Ohio CLEC, CBG. I observed that there would be tremendous marketing opportunities for CBG, however, CBG never showed any interest in the program.

II. Services Provided by Alpha Telecommunications, Inc.

Alpha has technical and administrative staff with the following skill set:

Telecommunications
Statistical analysis
Product sales and delivery
Creation of proposals and documentation
Follow-on customer care
Analysis and preparation of FCC/SLD forms and documents complying with the FCC/SLD rules and regulations
Program Integrity Assurance (PIA) process

Services provided:

System design, planning, systems integration, project management
Bid preparation, review, contract preparation, negotiation and review
Design and implementation of intranet/internet systems
Design and implementation of backbone network
Write specifications for hubs, routers, switches, servers
Design and implement video network
Evaluate and optimize the existing voice network
Integrate various communications technology plans
Produce all necessary plans, documents required to file for E-Rate
Project management and implementation
Alpha has not, and does not provide legal advice to vendors or school districts

Alpha handles all E-rate issues from beginning to end, including making sure vendors get paid, and, where there is a reimbursement due the school district, making sure that the school district gets paid.

Alpha's involvement in the E-rate process is a cooperative effort with the district and various vendors. With school districts, this process starts with the review of the district's technology plan and the conversion of the district's technology needs into specific products and services. FCC Form 470 is filed together with any RFPs and/or description of products and services desired. SLD approved evaluation criteria are utilized.

Alpha works with the school district's nutrition staff to obtain free and reduced data and convert enrollment and free and reduced school lunch data provided by the district into a correct and successful format for e-rate applications.

Form 471 is filed and attachments to Form 471 are created for submission to the SLD. During the SLD review the program integrity assurance (PIA) is responded to in a timely fashion and the application process is defended to assure successful funding.

If an Item 25 (selective review) is requested of the district by the SLD, Alpha assists the district in this comprehensive review. When the funding commitment decision letter is awarded, Alpha prepares the Form 486 and starts the implementation portion of the project. Alpha works with the district and the vendors to assure that only fundable products and services are delivered. In the case of the need for additional time to implement the products and services Alpha will file a Form 500 and contract extensions and obtain the additional time necessary for the implementation.

Alpha collects billable data and issues Form 472 or Form 474 (BEAR or SPIF) to assure payments to the district and/or vendors are received in a timely manner.

During these processes records are retained by Alpha to assure compliance with the FCC/SLD rules and guidelines. Since the SLD funding process may take 12-18 months from application to implementation, products and services often change; Alpha will process substitution requests to assure the district implements only the latest in technology available. Finally, during this process Alpha keeps records of any additional products and services that may be required in the next funding cycle.

If the districts require an appeal, I (a regulatory attorney experienced in both FCC and SLD appeals) will assist the district at their request. As the attorney, I work directly with the school district.

Currently, Alpha provides services to over 50 K-12 School Districts in the following states: Indiana, Kentucky, New Mexico, Ohio, Pennsylvania, Texas, New York and West Virginia.

Pending engagements are located in numerous other states. Our assistance/work is consistent with SLD rules and regulations set forth at: http://www.sl.universalservice.org/

These basic contracts summarize how Alpha serves its clients is attached. Attachment A is a contract that I prepared where Alpha is the agent for the district or library. When working with a vendor, Alpha most often use the vendor prepared contract, Attachment B.

III. Regulatory/Technology Requirements of School Districts and Libraries: Connectivity

My starting point for Alpha's business was:

1) The Telecommunications Act of 1996, (Conference Report),

2) a Report by McKinsey & Co.,

3) the Report by the Federal-State Joint Board on Universal Service (Recommended Decision),

4) The Federal-State Joint Board on Universal Service, FCC 97-157, and subsequent FCC orders on E-Rate.³ FCC 97-157 demonstrates the conflict between carriers and non-carriers, which still exist today.

The only companies that have been investigated are Internal Connections providers, not Telecom providers. Why is that?

I felt that it was important to have a complete understanding of the historical origins of E-rate so that we could understand the purpose of the Telecom Act, as it relates to "wiring" schools and libraries; in this manner we could better market Alpha's services, and direct compliance with the rules and regulations. It was also important to understand the relationship between the FCC, telecommunications providers (they contribute to the Universal Service Fund), and non-telecommunications providers who do not contribute to the Universal Service Fund but are permitted by FCC order to participate in the reimbursement process.

I think that most of this background has been forgotten, and we have lost focus of E-Rate's goal: that is, to use and apply universal service principles to schools and libraries to benefit learning by the nation's children.

How much time has been spent to determine what benefits have been derived from the money invested? "[W]aste fraud and abuse" is a red herring. Nothing can take away from the historical social concerns that brought about E-Rate. For example, one study, "Connecting K-12 Schools to the Information Superhighway," by McKinsey and Company, found that the funding need for the accomplishment of this critical goal was somewhere between $2 billion (5-year initial outlay) and $4.7 billion (10-year initial outlay) annually, with an additional annual amount between $4 billion and $14 billion necessary for maintenance.⁴ McKinsey & Company, Inc. http://www.uark.edu/mckinsey.

The technological needs for schools and libraries are well documented. As McKinsey & Co stated:

"Connecting all of America's public K-12 schools to the national information infrastructure (NII) would be valuable and is achievable. The NII, frequently called the "information superhighway," offers services and resources that help students not only to master technical and vocational skills, but also to achieve significant improvements in academic performance. In addition, connection to the information superhighway provides teachers access to a broad array of on-line curricular materials and innovative instructional approaches. It also opens up new communication channels between students and teachers, teachers and their peers, and schools and their communities.

The deployment process has to be "bottom-up" by nature, since without the commitment of teachers, principals, school boards, parents, and other community members, little change can take place in the classroom. The leadership required to encourage local deployment, spur courseware development, help teachers build new skills, and secure budget funds, grants, donations, and subsidies, will need to come from both the public and private sectors. To some extent, this process has already begun, and leaders are emerging. But without broader intervention, the process will likely be slow and inequitable. While no single blueprint for deployment can meet the diverse needs of every school district, it is equally true that individual schools will need help in marshaling resources and moving forward.

Strong leadership has been a key success factor in every case study we examined. Local leaders at innovative schools like the Ralph Bunche School in New York City, the Carrollton City School District in Georgia, and the schools in California's Hueneme District have pioneered the way, and students in those schools are already profiting from the educational benefits of technology. Actively encouraging experiments and initiatives in many more schools and districts around the country could result in widespread and significant improvements in American education."

http://www.uark.edu/mckinsey

There was an initial recognition of the high cost of the "wiring" America's schools.

Again, the McKinsey & Co Report:

"The funding challenge is substantial both because of the limited access most schools have today to the basic infrastructure, and because of the fiscal pressures at work in the current budgetary environment. Setting budget priorities among many competing demands for funds-and securing grants, donations, and subsidies-requires strong leadership at many levels and a clear, compelling vision, as well as a good dose of creativity and persistence.

Limited current infrastructure. When it comes to basic infrastructure, most schools are starting from a low base. While many schools have computers, as of 1994 over 85% of these computers were not equipped to support the latest multimedia courseware-in other words, they could not combine text with advanced graphics, video or sound. Neither could many connect to an internal or external network. Factoring in new computer purchases in the 1994-95 school year, there are now on average 14 multimedia-capable computers per K-12 school or approximately 38 students per multimedia-capable computer. However, averages are misleading: the computers are not evenly distributed across schools. Surveys conducted by Quality Education Data, Inc., reveal disparities across schools based on socioeconomic and racial/ethnic status, although the situation has been corrected to some extent through federal funds and special grants available to underprivileged areas. For example, public K-12 schools with less than 20% of students qualifying for Chapter 1 funds (i.e., students from low income families) average nearly 8.6 computers (of any type) per 100 students while schools with over 80% average only 7.2 computers per 100 students. Likewise, schools with no minority students average 9.9 computers per 100 students while schools with over 90 percent minority students average only 7.3 computers per 100 students."

There is no question that E-Rate is focused on poor urban and rural school districts. As recognized by a leading study, "[u]rban schools.tend to have greater concentrations of poor children and to be larger in size." "E-Rate and the Digital Divide: A Preliminary Analysis from the Integrated Studies of Educational Technology." U. S. Department of Education Office of the Under Secretary, Doc #00-17. [The data used in the analyses was provided the Universal Service Administrative Company, Schools and Libraries Division.]

And, [w]hile the US is in the forefront of the technological revolution, there are segments of our society - particularly poor and minorities - for whom access to computers [internal connections required] and the Internet is significantly lower." Id. E-rate was recognized as a means of assisting in eliminating the digital divide because "schools and libraries.are [the] primary means of gaining access to what.new technology has to offer.in the dramatic changes in the education of the nation's children." Id.

Although urban districts comprise only eight percent of all public school districts, they enroll 33 percent of all public school students. Id., at Tables A.1 and 2. In contrast, rural districts, comprising nearly half of all public school districts, enroll only about 14 percent of all public school students.

As stated by the Federal-State Joint Board "the gap between access to telecommunications services afforded to rich and poor students continues to widen." Recommended Decision, para. 525. Is this still true?

IV. IBM as Vendor, Alpha as Subcontractor to IBM

After Alpha's initial success locally, IBM asked Alpha for assistance with its national accounts. A Contract was executed along with Statements of Work for various accounts. IBM recognized, in my opinion, that it did not have the regulatory and telecommunications experience to incorporate E-Rate (the Eligible Services Lists) into its marketing program.

IBM would identify the prospective school districts and Alpha would explain the benefits of E-rate to the school districts. Alpha was available to not only initiate the E-rate process with the schools, but to also give IBM guidance in respect to the implementation period if IBM won the business.

Attachment B is an IBM Statement of Work (SOW) with Alpha. While executed by both parties for E-Rate Year 5 (2002), Alpha only recently received payment on September 15, 2004.

This payment was for Alpha's work performed almost two (2) years ago.

V. E-Rate Issues: Schools Districts, Libraries and Vendors

The issues before the Committee are fraud, waste and abuse, but the Committee should be aware of other concerns that impact E-Rate from school districts perspective. In preparing today's statement, I asked school districts about "some" of their issues. The following are some statements from various districts' we do business with:

The schools are penalized if they put too much on 470 (a grab bag of services). However, they are also penalized if they don't have a needed item on the 470, so if they are near the SLD filing date for the 471 and decide to apply for a product or service they can be disqualified because they don't have 28 days between the posting of the 470 and the filing deadline.
PIAs spend an inordinate amount of time looking and asking for documentation on funding requests for telecom services that are less than $3,000.00 monthly. Often after going through several answers and sending reams of paper to substantiate the funding request, bills once again must be sent when the BEAR is submitted to again substantiate the amount being requested. Creating a monthly dollar amount that can be used as a set point would be more beneficial and substantiation could still be done at the time BEAR forms are submitted.
State contracts with established allowable contract dates, contract award dates. This information is submitted to the SLD by several schools and often the state agency itself; it would seem that there would be some database or some way that these establishing 470's and contract dates could be tracked this way instead of a PIA on each one.
These same state contracts establish a set point for the cost of certain services, i.e., T-1s, 56kbs, installation charges for upgrades. These also could be kept in some type of database that could verify that a new T-1 in West Virginia under a state contract will be $1200.00 and unless the non-recurring charge is outside that box there would be no need to spend time asking that question for every school using that state contract.
It is not unusual to have a number of questions asked in a PIA, send in the answers and then 2 to 3 months later have the same questions asked by another interviewer because the initial interviewer has left and the paperwork cannot be found.

Another school districts states:

"It is far too complicated and consumes far too much time from our end of the equation. It was consuming 1/4 to 1/3 of all the time I worked (before we hired your company to handle it for us). It is much like income tax in that regard, except that it is worse. It would have been a lot simpler and less time consuming if we simply sent them our phone bills and they simply paid 75% of them. For most school systems that is essentially what happens anyhow since we are not eligible for hardware. In that way there would be virtually no room for the fraud that they keep citing. On the other hand, if it were that simple then your company would not have a business (much like a flat tax would probably put income tax preparers out of business). I'm also not sure why they pay for voice phone lines and other items like pagers and such since those have nothing to do with Internet access. Make it simpler if you want to eliminate fraud.

For our riverfront schools I can get broadband access much faster and cheaper through the cable company than through the phone company. However, there would be no state filtering or control by the state which is probably something that they do not want.

The premise that you should plan ahead for all hardware purchases is somewhat flawed because communication servers do not always work until the planned time for their upgrade. This results in eligible schools ordering a communication server every year in case their server "goes belly up" since otherwise E-rate would not pay for a replacement. This, in my opinion, is the source of the inflated requests and unused funds about which the E-rate people complain.

A school district in West Virginia states:

"It seems to me that they worry about fraud from the schools but in reality there is actually much more potential for fraud from the commercial companies that provide us with services and hardware. E-Rate is a wonderful source of funds to allow schools the opportunity to offer connectivity, resources, and support to assist in the education of the students who will be making up the next generation and one that has been invaluable to us in Hancock County Schools. This resource has become one that I cannot envision being deprived of in the future if we are to be able to continue to make educational progress and continue to leverage our local resources to utilize the ever expanding number of sources that are being offered online. In addition, collaborations have begun that are in their infancy and when allowed to become mature, will offer educational opportunities never before imagined in public education.

It is my personal opinion that in the effort to allow more disadvantaged schools and districts to have increased opportunity, school districts that are marginally above that level are in a position to not be able to take maximum advantage of resources. In addition, districts with a proven track record of getting things accomplished are not given many of the resources due to economic status, and as a result, opportunities for best practice models are being lost.

E-Rate gets an A - from me and we hope to be able to utilize it for the foreseeable future. We pledge to use it wisely for the betterment of our students.

My staff and I did our own E-rate for the first few years. Not surprisingly, a whole new and massive federal bureaucracy sprung up overnight; E-rate became more complicated by the month. We gladly engaged Alpha to take over the task, as we could no longer keep up with the regulations and complexity, and did not wish to lie awake nights worrying about the consequences of some innocent error on our part. I still fear an audit, and that should not be, because we, the WVDE, and our agent have all attempted to follow the letter and the spirit of the law since day one. Yet it is so intricate that I myself can't be sure.

In my opinion there is presently only one state-employed person who has anywhere near a comprehensive understanding of E-rate and that is Phyllis Justice in the WVDE Technology Department. I am convinced that if a County school system does not have a full-time dedicated E-rate employee who can keep up with the regulations, that they are probably not getting all the E-rate money to which they are entitled. I attribute this frustrating complexity . to two factors:

(1) The natural behavior of a bureaucracy to expand and perpetuate itself;

(2) The understandable desire by the Congress to ensure oversight.

However, the unfortunate end result is that a few abusers have caused E-rate to be too complex for most applicants to deal with. I am fond of saying that I think that Senators Snowe and Rockefeller would be appalled if they really understood what has been wrought from their Amendment.

A second comment:

The telecom vendors have, for the most part, defied the sprit of the law if not the letter, by still refusing to give real-time discounts. The hardware vendors, particularly those engaged through state contracts, are doing what they are supposed to do; but the phone companies continue to play games. The program is now eight years old, and we still have to file for reimbursements on our overpayments in order to get our money, which means another layer of complexity, paperwork, and delays. The vendors such as Verizon, then have the use of our money for that time. This represents an extremely large figure for which we receive no interest on money which is rightfully ours. Presumably they are realizing profits on the investment of our money while they are holding it. The government should put its foot down.

Comment three:

Because of the necessity of having to file for, and wait months for reimbursements, E-rate monies can never be counted on for budgeting, because we never know when an Approval letter will come, then when a check may arrive months after that. Yet, we are expected to plan years into the future for exactly how we are going to spend E-rate-eligible monies. The expectations by the SLD in this regard are not at all reasonable.

Final comment:

While E-rate remains politically controversial, and the reimbursement checks are always unexpected and sporadic, they are certainly welcome. I can definitely confirm that the benefits to our schools have been significant in terms of the core mandate of the program. Our schools have all benefited by receiving cabling infrastructure, networking equipment, and related technology which we otherwise could not have afforded. The real-time discounts from the hardware vendors for eligible goods and services have similarly enabled the purchase of more equipment.

If there is anything erroneous in the above statements, it is a result of my misunderstanding; but these are my perceptions."

There was a great outcry by the SLD when it discovered that school districts were concerned with "maximization" of E-Rate funding. Will the next buzzword to cause a problem be "optimization"?

In "E-Rate News for the Week - September 13, 2004" in an E-Mail entitled "Critical Period for Discount Rate Optimization" E-Rate Central states:

"This is the time of year that many school parents are returning application

forms for free and reduced-price lunches under the National School Lunch

Program ("NSLP"). Since E-rate discount levels are determined by the

percentage of students in each school whose family income levels qualify

them for free or reduced-price lunches, many applicants will find it well

worth their time to track the NSLP application process carefully and to

encourage maximum participation by eligible students.

Family income levels for NSLP eligibility are set each year by the U.S.

Department of Agriculture. The guidelines, based on family size and annual

income, can be found at

http://www.fns.usda.gov/cnd/governance/notices/iegs/IEGs04-05.pdf.

The two most important points to remember regarding E-rate discount levels

are as follows:

(1) In some cases, finding only a few more eligible students can

significantly improve a school's discount rate. As a dramatic example,

consider an urban school with a total of 500 students. If 247 students -

or 49.4% - are eligible, the school would have a discount rate of 60%.

With one more eligible student - bringing the eligibility percentage to

49.6%, which rounds to 50% - the school's discount would increase to 80%. Not only does this mean a one-third increase in the discount rate, but often may make the difference between an 80% discount on Internal

Connections requests and no discount at all. (The Priority Two funding

threshold for FY 2003 was 70%.)

(2) E-rate discounts are based on the number of students eligible for free

or reduced-price lunches, not on the actual number of students

participating in the NSLP program. Although the percentage of

participating students is the easiest way to establish an E-rate discount -

and is the number that the SLD will accept without additional documentation - it often significantly understates a school's true eligibility percentage (particularly at the junior or senior high school level).

There are several techniques that can be used to find and document

additional eligible students. Here, in order of the amount of work

required, are a few:

(1) Many schools will know or suspect that certain families have incomes

below the NSLP guidelines, perhaps based on the previous year's

participation. If they are tracking application returns, the schools can

tactfully encourage those families to apply. This is a critical time in

the year to track and encourage applications for eligible students.

(2) Although discount rates are established on a school-by-school basis,

districts with separate primary and secondary schools may find it

advantageous to collect NSLP applications centrally and to search

(so-called "sibling searches") for families enrolling only their younger

children in the lunch programs. Those same family applications can be used to document the eligibility of older, non-participating, students.

(3) Alternative measures are approved for documenting income eligibility

for E-rate purposes

http://www.sl.universalservice.org/reference/alt.asp. As indicated, these

include student participation in other school food programs (breakfast or

snack), eligibility for other Federal assistance programs, or school-wide

surveys."

Will there be a pointless public outcry over "optimization"? But is this truly the issue? Is this optimization or maximization? Dose it matter?

And, what about the impact on vendors? Congress deliberately did not funnel E-Rate funds to school districts/libraries. The funds were sent as a "reimbursement to vendors" that provided services and hardware. What are the consequences of this?

Many E-Rate vendors are small businesses. The following quote is from a letter to the SLD from a small vendor.

"Currently we [vendor] have right at $2,000,000.00 outstanding with SLC [sic] waiting for payment. Our total Yearly Revenue is around 8,000,000 so that is a quarter of what we are looking to do this year. I understand that you are going to try and get FRN xxxx and FRN xxxx to final review today. Please let the final reviewer know how desperate we are to get some of this coming in. My lines [of credit] are maxed and I am basically at a stand still until we get some money. The canceled check requirement really backed us up. [This was a new rule implemented by the SLD and not communicated with the vendors or the applicants, and caught many off-guard and not prepared for the extra work this step requires.] As I told you earlier we don't push our customers to pay right away, it may take them [the school districts] 30-60 days to pay and then we have to wait for the check to clear the bank. That whole process has held us up 4 weeks or more on some of these. Please do what ever you can to push these through as soon as possible.

Can you tell me who has FRN xxxxx, it was billed on 4/12 and I have not heard anything. And FRN xxxxxx was billed on 7/1/04 and I have not heard anything."

There was, of course, no response from the SLD. The statement is typical of the impact on businesses generally. The Committee should remember that under the Telecommunications Act of 1996 no funds are paid directly to schools and libraries; the money goes directly to vendors. The issue, of course, is the Congress did not trust school districts or libraries to use the fund appropriately. Now it appears that the SLD does not trust vendors either.⁵

Another Alpha client school district elaborated on its experience with E-Rate.

The school districts are, rather sarcastic:

"The following observations are based on the experience of the Director of Technology with e-rate. He has been responsible for preparation of e-rate applications, for responding to SLD questions and reviews, and for coordination with providers since the beginning of the program. This experience has provided him with the unique ability to make observations about the process.

E-rate process is time-consuming

The e-rate application process has been very time-consuming. During several years, the Director and his secretary worked full- time on the e-rate process for more than two-thirds of the year.

In one case, the Director had to miss the annual state-wide technology conference because of the press of last minute e-rate application requirements.

Staff is required to spend an inordinate time on arcane or bureaucratic trivia.

The process is convoluted: a 470 application followed by 471 - with its idiosyncratic requirements - must be submitted half a year in advance of the funding year, and be based on data (such as telephone bills) that are more than a year old. Prior to a decision by SLD, an Item 25 review asks for trivial, historical, and sometimes unavailable information. When funding is finally granted, the applicant must submit an acknowledgement - telling SLD what SLD has told the district, followed by the BEAR form, telling SLD again what was contained in the 471 submitted 18 months ago.

For a new school, the process has such a long lead time that there is no hope of obtaining e-rate funding for needed technology before the school has been completed. The SLD version of Catch 22: a new school is not eligible for e-rate funding until it exists, but after it exists it's too late because the 470/471 was not filed for this school on time.

SLD is ignorant of school district procedures

The SLD often requires responses-with short deadlines-to questions during school breaks, during the summer, or at other times when staff are unavailable or otherwise busy with the business of teaching students.

The questions on the Item 25 review persist, year after year, in asking for final budgets, when budgets - for all school districts in Texas - are finalized late in August. SLD should be aware of this by now, but the questions appear again and again.

SLD asks same questions repeatedly

SLD asks for the same information again and again. It appears that there is no systematic filing system or maintenance of historical data that would obviate the need for districts to keep providing the same answers to the same questions - often during the same Item 25 review.

These requests for redundant information contribute to the need for a small staff to spend more and more time furnishing information that has been provided in the past or that is publicly available elsewhere.

SLD staff often appear transient or unqualified

One possible cause of the repetitive questions and the ignorance of school procedures is the nature of the SLD workforce.

Over an eight year period, this Director has rarely talked with the same individual more than twice by telephone or responded to the same person with more than two consecutive requests for information. Frequently, the individuals at SLD give the appearance of being unqualified or untrained in e-rate procedures on in the business of public education.

This suggests that there is a very high turnover rate of employees within the SLD.

SLD does not follow its own instructions or rules change in mid-stream

Often, SLD changes its rules during the course of the application process, changes the requirements on the application forms, or staff conducting Item 25 reviews ignores SLD rules.

A good is example is the alternate procedure for calculating E-rate discounts using NSLP surveys. One district used the Student Nutrition survey data two years in a row and SLD disallowed some of the data--collected using their own rules. As a result, the district went back to using AEIS data, even though it meant the loss of a significant percent of student eligibility.

Suggestions for improvement

Make the e-rate program a formula grant program, similar to Title I. A ward block grants to the States, and let the state education agencies be responsible for distribution to the districts on a formula basis.

Shorten the time between application and award of the grant. Currently, there is a minimum of two calendar years between the submission of the application and the receipt of the money.

At the present time, the e-rate program appears to be designed to prevent schools from receiving the funds to which they are entitled - the orientation must be changed to one where SLD facilitates the distribution of these funds so that students can benefit. "

The Joint Explanatory Statement of the Committee of Conference states:

"The ability of K-12 classrooms.libraries. to obtain access to advanced telecommunications services is critical to ensuring that these services are available on a universal bases.This universal access will assure that no one is barred from benefiting from the power of the Information Age." [Emphases added.]

Conference Report, Report 104-230, p.132

However, the actions taken by those that administer the E-Rate fund insure that the Congressional mandate is nothing more than a pipe dream.

The real issue is whether or not the letter and intent of universal service funding (USF), as set forth in the Telecommunications Act of 1996, 47 U.S.C. Sections,151 et seq. (Telecom Act), is being met. Thirty percent (30%) of the nation's Hispanic students, 35% of the nation's African American students, and 25% of the nation's children .[are].living in poverty." In other words, what is the purpose of universal services if it is not to provide funds for the schools that these children attend so that they too can have access to technology as it is incorporated into a district's curriculum?

Section 254 (c ) (1) (A)-(D) mandates that the FCC "consider the extent to which.'telecommunications services' included in the definition of universal service:

(1) are essential to education.

(4) are consistent with the public interest, convenience and necessity."

In the Matter of Federal State Joint Board on Universal Service, Report and Order, Rel., May 8, 1997.

Is E-Rate nothing more than a cruel form of lip service to K-12 educational institutions? The process is so unbelievably complicated that you may want to consider doing away with the program altogether.

VI. SLD/FCC Appeals

In the legal profession there is saying that the wheels of justice grind slowly but grin exceedingly fine. While that may be true to protect the rights of various segments of this society, it should not be true with educational funding for Americas schools.

Currently, it takes approximately 18 months to determine an E-Rate appeal. This is entirely too long. The issue is not whether school districts have correctly filled out a Form; the issue is what about the children that are suppose to benefit from the use of technology to enhance the classroom learning experience. These children, specifically the ones in the upper grades move on. When technology funding is denied, these children move out into the employment world with fewer tools at their disposal to make a success out of life.⁶

Conclusion

The government should do an analysis, subjective and objective, to determine the benefits derived from current expenditures; this will determine waste, and abuse;
There is still a tremendous need for E-rate; but a real commitment must be made rather than give political lip service to something as important as America's educational system;
The process must be simplified, and expedited for both school districts and vendors;
A qualified and professional staff is required to administer the program, perhaps those with some educational background with some technology experience as a criterion;
To prevent fraud, rely upon the federal criminal justice system;
Expedite the appeal process.

1 - Article by Lorraine Sherry, Shelley, Billig, Daniel Jessie, and Deborah Watson-Acosta, February 2001, The Journal Online.

2 - Due to management conflict there is a petition to dissolve Alpha pending before the Common Please Court of Cuyahoga County, Ohio.

3 - For the first time, the 1996 Act includes schools and libraries among the explicit beneficiaries of universal service support. The legislative history indicated that Congress intended to ensure that eligible schools and libraries have affordable access to modern telecommunications and information services that will enable them to provide educational services to all parts of the nation.(1086)

425. We adopt the Joint Board's recommendation that all eligible schools and libraries (1087) should receive discounts of between 20 percent and 90 percent on all telecommunications services, Internet access, and internal connections provided by telecommunications carriers, subject to a $2.25 billion annual cap. We take this action pursuant to section 254(c)(3) and section 254(h)(1)(B) rather than section 254(h)(2)(A) on which the Joint Board relied. We note that the Joint Board did not suggest that these services are not covered by section 254(h)(1)(B), it merely chose to rely on section 254(h)(2). As to installation and maintenance of internal connections, the Joint Board explicitly rejected the argument that these services are ineligible for support under section 254(h)(1) because they are "goods" or "facilities" rather than "services."(1088) In addition, any funds that are not disbursed in a given year shall be carried forward and may be disbursed in subsequent years without regard to the cap. We agree with the Joint Board that schools and libraries should have maximum flexibility to purchase the package of services they believe will most effectively meet their communications needs. We also share the Joint Board's preference that we foster competition from non-telecommunications carriers. We, therefore, encourage those providers to enter into partnerships or joint ventures with telecommunications carriers. In addition, pursuant to sections 254(h)(2) and 4(i), we extend support for the provision of discounted services by non-telecommunications carriers, within the overall annual cap mentioned above. We also concur with the Joint Board and conclude that economically disadvantaged schools and libraries, as well as schools and libraries located in high cost areas, shall receive greater discounts to ensure that they have affordable access to supported services. Finally, we agree with the Joint Board's conclusion that schools and libraries should be required to comply with several self-certification requirements, each designed to ensure that only eligible entities receive universal support and that they have adopted plans for securing cost-effective access to and use of all of the services purchased from telecommunications carriers under section 254(h)(1) and non-telecommunications carriers under sections 254(h)(2) and 4(i).

We also reject the argument that providing support to non-telecommunications carriers would violate the competitive neutrality requirement of section 254(h)(2)(A) because non-telecommunications carriers could benefit from universal service support but only telecommunications carriers would be required to contribute to that support.(1528) In section XIII below, we conclude that contribution obligations will be based on revenues from telecommunications. Neither telecommunications carriers nor non-telecommunications carriers will be required, however, to contribute to federal universal service support mechanisms based on their provision of Internet access and non-telecommunications internal connections. Thus, telecommunications carriers' contributions will not place them at a competitive disadvantage as providers of supported non-telecommunications services. Permitting both telecommunications carriers and non-telecommunications carriers to collect universal service support based on discounts afforded to eligible schools and libraries on Internet access and internal connections, therefore, meets the competitive neutrality requirement of section 254(h)(2)(A).

598. We also reject the argument advanced by some commenters that providing support for non-telecommunications carriers would violate the Origination Clause of the United States Constitution,(1529) which states that all bills for raising revenue must originate in the House of Representatives.(1530) These parties assert that, because section 254 originated in the Senate, requiring telecommunications carriers to contribute to universal service support mechanisms from which non-contributors can draw violates the Origination Clause. This argument fails, however, because the fact that the statute allows discounts to be provided to schools and libraries for services provided by non-telecommunications carriers does not convert this valid statute into a revenue-raising measure within the meaning of the Origination Clause. The D.C. Circuit has held that "a regulation is a tax only when its primary purpose judged in legal context is raising revenue."(1531) The purpose of section 254(h)(2)(A), however, is to enhance access of schools and libraries to advanced telecommunications and information.

4 - This information can be found in the section titled "Infrastructure Options and Cost", under the heading "Models of infrastructure deployment (23)".

5 - Universal service (and the universal service fund) must be understood in its historical context. Historically, USF support is defined as "a public policy to spread telecommunications to most members of society and to make available directly or indirectly, the funds necessary to accomplish such a policy." Communications Law and Practice, Section 5.01[a]

Universal service funds are collected and distributed to telecommunications carriers in high cost areas, low income customers, and suppliers of "internal connections"* to schools, libraries and health care providers (in rural areas)*. No USF funds are directly paid to schools. The intent of universal service funding is to "encourage higher rates of application from the poorest communities and getting funds to the places with the greatest need." Findings, Doc #00-17; also, see conference report, 104-230, Joint Explanatory statement of the committee of conference, Page 132-133, stating that universal fund support will "help open new worlds of knowledge, learning and education to all.rich and poor, rural and urban."

6 - There is no question that E-Rate is focused on poor urban and rural school districts. As recognized by a leading study, "[u]rban schools.tend to have greater concentrations of poor children and to be larger in size." "E-Rate and the Digital Divide: A Preliminary Analysis From the Integrated Studies of Educational Technology." U. S. Department of Education Office of the Under Secretary, Doc #00-17. * And, [w]hile the US is in the forefront of the technological revolution, there are segments of our society - particularly poor and minorities - for whom access to computers [internal connections required] and the Internet is significantly lower." Id. E-rate was recognized as a means of assisting in eliminating the digital divide because "schools and libraries.are [the] primary means of gaining access to what.new technology has to offer.in the dramatic changes in the education of the nation's children." Id.