USAC Accounting Still Under Fire; USF In More Trouble?

Telecom Policy Report, Nov 3, 2004

Last month at a Senate Commerce Committee hearing, Sen. Olympia J. Snowe (R-Maine) "voiced her concern" that schools and libraries could lose important access to the FCC's E-Rate funds, designated for broadband and other telecom technology updates, due to new accounting rule changes governing the E-Rate program. Snowe co-authored the E-Rate program along with Sen. John Rockefeller (D-W.V.) as a part of the 1996 Telecommunications Act.

"A recent decision by the FCC and the Office of Management and Budget (OMB) to alter the accounting rules for E-Rate could imperil a program that helps countless communities around the country. As a result, no school or library in the country has received any funding, nor even a commitment for funding, since Aug. 3," she told committee members.

The E-Rate program is funded in part by the Universal Service Fund (USF), and it is administered by the Universal Service Administrative Company (USAC). In early August, USAC suspended issuance of Funding Commitment Decision Letters (FCDLs) for schools and libraries and rural healthcare providers for all funding years. USAC says it has "worked closely" with the FCC since then, and it now has come up with some "unobligated cash" to cover new commitments. As such, USAC will begin issuing new FCDLs within the next two weeks.

Snowe's office says E-Rate funding during FY2004 "provided more than $2.1 billion in discounts to tens of thousands of schools, with the costs being covered by the Universal Service Fund. The E-Rate's first funding priority is for telecommunications services and Internet access, and the second funding priority is for internal connections and wiring at schools and libraries --beginning with the neediest applicants first."

Despite that good news, problems continue. Snowe pointed out the FCC "directed USAC to liquidate all of its assets, thereby depriving E-Rate of $30 million in anticipated annual interest income. Further complicating this problem is the fact that USAC was first given notice of this change in July, yet forced to completely overhaul its internal procedures by Sept. 30...What concerns me the most about this latest development is the apparent inconsistent application of government rules to the E-Rate program. Even though E-Rate is part of the Universal Service Fund, these changes were particularly targeted at E-Rate, not at the USF as a whole. Why was this change not applied across the board to the entire USF?"

GAAP To GovGAAP

The FCC directive stipulated that by Oct. 1, USAC was supposed to abandon applying Generally Accepted Accounting Principles (GAAP) to the USF in favor of the federal government's accounting methodology, called GovGAAP. According to the National Telecommunications Cooperative Association (NTCA), "While insinuations have been made that the mandate was to help root out potential misuse of certain USF funds, the apparent reality is that it was for little more than the convenience of federal auditors."

But there's more. According to a letter sent by NTCA CEO Michael E. Brunner this week to "key lawmakers," he urges them to "take immediate legislative action" regarding these accounting changes.

"Of particular concern is the potential application of the Anti-Deficiency Act to the high-cost program. Under the terms of that act, funds connected with the federal government are precluded from incurring 'obligations' in advance of the funds actually being available," he writes.

He continues, "In the aftermath of the FCC directive, federal auditors concluded that the schools and libraries, and rural health care programs are subject to the Anti-Deficiency Act due to the manner in which their funds are committed. That decision led to a forced conversion of interest earning funds to U.S. Treasury securities, which is expected to result in a recurring annual loss of $25 million to $30 million. This is a cost that consumers will now be forced to bear in the form of escalating universal service fees. Indeed, as a result of this action alone, the universal service contribution factor is expected to shoot from 8.9 percent in the fourth quarter of 2004 to 13.25 percent or more in the first quarter of 2005."

Brunner adds that USAC officials "now report growing concern that federal auditors may be set to subject the high-cost and the low-income programs to the Anti-Deficiency Act. USAC estimates such an action would either skyrocket the contribution factor to 25 percent or more or that rural telephone companies could be bankrupted should support payments be withheld in order to avoid such an escalation."

Sen. Snowe says she is working with Commerce Committee Chairman John McCain (R-Ariz.) to set up meetings with the FCC regarding "why and how the accounting rule change occurred." In his letter to the Hill, NTCA's Brunner writes, "We are confident that you will agree this truly is an initiative that requires action prior to the adjournment of the 108th Congress." >>Sen. Olympia Snowe, 202/224-5344; Michael Brunner, NTCA, 703/351-2000; USAC, 888/641-8722<<

What Is The Anti-Deficiency Act?

In simple terms, The Anti-Deficiency Act of 1870 prohibits any officer or employee of the United States government from making or authorizing commitments, obligations or disbursements from an appropriation or fund in excess of the amount available, except as authorized by law. An Anti-Deficiency Act occurs when funds are over-obligated, over-disbursed or obligated in advance of appropriations.