E-Rate

E-rate (or education rate) is a program funded in part by one of those numerous little charges the phone company piles onto your bill under the heading of various taxes and fees. It’s a variation on the old universal service fee that to shift money down the power-law curve an assure that the poor and rural get phones.

FCC established the E-rate program using an organizational structure unusual to the government without conducting a comprehensive assessment to determine which federal requirements, policies, and practices apply to it. The E-rate program is administered by a private, not-for-profit corporation with no contract or memorandum of understanding with FCC, and program Since 1998, the Federal Communications Commission’s (FCC) E-rate program has committed more than $13 billion to help schools and libraries acquire Internet and telecommunications services.

13 Billion, hm. There are around 225 Million people in the US; so that’s $57.77 each. These days the program spends about 2.24 Billion a year, or about ten bucks per person per year.

The program has some serious oversight problems. The GAO has been poking the FCC, which administers the program, in the ribs about these for years. Last year it finally got some traction; at which point the entire program came to a halt. Apparently the program was running outside the usual rules for managing federal funds. It had money invested in unusual ways. It lacked required reserves. To get the program running again the Congress passed a special temporary exception to the rules in December 2004. Of course like all programs where Billions of dollars are going by you can also find some outrageous examples of fraud. The level here is probably worse do to the sloppy oversight structure the FCC setup for the program.

Recently the GAO releasted report (pdf) that summarizes this mess.

What to do? Some folks would like to kill the entire program. They stand on the GAO report and promise everybody ten bucks a year.

The program was set up in 98 as a way, in part, to get Internet into the schools and libraries. If you’ve participated in one of the volunteer events where you pull wires in a old school building it is likely that part of the equipment and the discounted service were paid for by this program. The funds are distributed in a very progressive manner. Rural and poor school districts get much deeper discounts.

The GAO report is very depressing. The laundry list of foul ups in the FCC’s setup for this thing is just plain ugly. They didn’t set goals. They didn’t measure efficiency. They didn’t manage the funds in compliance with the rules. They didn’t require appropriate record retention by the schools and libraries. They didn’t look for gold plating. They didn’t attempt to estimate the rate of bogus payments. All of this the GAO pointed out back in 2000.

Meanwhile I suspect there is whole tangled story to be told in the managerial structure of this thing. The 2.24 Billion is spent by a nonprofit (the USAC or Universal Services Administration Company) a subsidiary of the National Carriers Exchange Association (another nonprofit) thru a for profit organization called the National Carriers Exchange Association Services Incorporated. It looks like the FCC just handed the money over to the telecom industry and and said, you guys take care of this.

My default managerial reaction in a situation like this is to decide first I like the goals of the program. I do, Next question, can it be fixed? It can. It’s clear from the GAO report that just following the rules would fix much of the problem. Finally there is always a hostage problem. The beneficiaries of the program are held hostage by program managers. Punishing the incompetent program managers without doing harm to beneficiaries is difficult. But yeah, management isn’t easy.

The good news is that it appears that the GAO is doing it’s job. Let’s hope the FCC can be convinced to do theirs.

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