School district extravagance jeopardizes E-Rate program

The Clinton administration's plan to offer discounted telecommunications services to school districts so they can connect students to the Internet may be jeopardized by school districts abusing the program and by too little oversight on the part of the federal government.

The administration's E-Rate, or Education Rate, program, funded in part by surcharges collected by telecom carriers, will provide schools and libraries with up to $2.25 billion annually in discounts on telecommunications services over five years. It will give schools inexpensive access to the Internet, network installation and telecom services, but it will not cover requests for PCs, modems, fax machines, software or professional development services.

But these restrictions have not stopped some school districts from attempts to use the E-Rate program to purchase cutting-edge services that go beyond the requirements of most general-purpose networks. Some applicants for E-Rate services also have attempted to use the program to obtain such free items from vendors as camcorders and pay-per-view cable services.

The federal government will begin this summer directing E-Rate funding to purchases made by schools and libraries.

The program is funded by consumers through a universal service charge, a percentage of users' bills that is added to their phone charges. Although long-distance carriers are adding the charges to bills for use of federal networks, such as FTS 2000, agencies—- including the General Services Administration and the Defense Department—- have refused to pay the charges. Some members of Congress have stated that the additional charges violate the intent of the Telecommunications Act of 1996, which they assert was enacted to reduce phone charges, not to increase them.

Although most vendors have praised the program and expect to obtain lucrative deals from school districts, others believe it will fail because of abuse by some school districts. These sources note that some of the applications for E-Rate discounts ask for gold-plated capabilities such as high-speed Asynchronous Transfer Mode (ATM) service—- in at least two cases to the desktop—- a service usually associated with cutting-edge applications such as real-time collaboration on projects involving complex graphics.

"I'm estimating that about 20 percent of all school systems are asking for things that don't qualify for E-Rate discounts," said one vendor, who requested anonymity. "It's raising the prices for everybody."

Officials at the Federal Communications Commission and the Schools and Libraries Corp. (SLC), the organization established by the FCC to oversee the E-Rate program, insist safeguards ensure that school districts will comply with regulations that guide what they may buy using E-Rate discounts. Opponents counter that the SLC does not have adequate mechanisms in place to review the 30,000 applications already submitted by schools, and they say the agency does nothing to ensure that schools will not overpay for E-Rate purchases.

In one obvious example of a school district indulging in technological extravagance, the request for proposals for the Ravenswood City Elementary School District in California calls for 25 megabits/sec ATM local-area networks and 155 megabits/sec wide-area network switching.

In addition, the Ravenswood solicitation calls on vendors to offer extras at no cost. This includes an assortment of PCs, printers, copiers, furniture, training, video cameras and televisions.

The Whittier City School District in California also specified ATM LANs and WANs and similar items and services added at no cost. A random sampling of 20 E-Rate applications on the SLC World Wide Web site produced two other examples of school districts requesting ATM service.

Officials from Ravenswood and Whittier could not be reached for comment.

The potential for problems has not eluded members of the Senate Committee on Commerce, Science and Transportation, who wrote to FCC Chairman William Kennard this month expressing concerns that "free" items requested by schools could inflate the cost of eligible services legitimately provided by E-Rate. Five members of the committee, including the chairman, Sen. John McCain (R-Ariz.), signed the letter.

"Our concern with these reports arises from the possibility that neither the FCC nor the SLC may be able to determine if the costs of eligible services are at reasonable levels or whether they are being inflated to cover the costs of ineligible services," the letter said.

The senators also wrote that they were concerned that the sophisticated equipment and service requested by some schools exceed the needs of students.

Kennard replied last week to the senators' letter, outlining steps the FCC has taken to ensure that the program only provides support for eligible services. He said the SLC "has taken a proactive stance to investigate allegations that some schools and libraries may be improperly considering the value of 'free' or 'no-cost' services when selecting a bidder for eligible services." He said some applicants have already been warned that they are not in compliance with FCC regulations.

In addition, the SLC posted on its Web site a notice that applicants may not factor ineligible services into their evaluations of bidders' proposals.

Kennard's letter also stated that schools and libraries must quantify the need for services and their ability to use them effectively, a requirement that would eliminate "gold-plating."

Kennard attached to his letter six other letters sent to different school districts—- including Ravenswood and Whittier—- instructing them that applications raise "some issues of program compliance."

A spokesman on the Senate committee staff had no comment on Kennard's letter but said McCain would continue to monitor the program's progress.

Critics of the program said they remain unconvinced that the FCC can effectively monitor all of the applicants requesting E-Rate discounts. An industry source said the SLC does not plan to review school districts' RFPs to determine compliance with FCC rules. He added that the SLC, an organization of only a few dozen employees, does not have the staff to analyze every document submitted by E-Rate applicants.

An SLC spokeswoman said schools and libraries must submit documents outlining what they are buying and from whom they are buying it. She said the SLC, with the help of contract employees from the National Exchange Carriers Association, will "carefully review" documents from every applicant for compliance with FCC rules.

She said she does not know how many people would be assigned the task of reviewing applicants' documents. "Our number [of contract employees] changes, so we can staff up and down as needed," she said.The spokeswoman said the SLC will not prescribe the types of solutions that school districts should pursue, and it will not set pricing benchmarks for services.

"The program is designed to let the schools and libraries make decisions that will best suit their needs," she said. "Most schools and libraries have very small budgets to start with, so they have to make sure they can come up with the rest of the money" owed to vendors after E-Rate discounts are applied.

--Lisa K. Arrendondo, a free-lance writer based in Alexandria, Va., contributed to this story.