Tauzin to Introduce E-Rate Funding Bill; E-Rate Rapped at Hill Hearing

Rep. W.J. "Billy" Tauzin (R-La.) is expected to introduce legislation this week to block the Federal Communications Commission from levying a separate telecommunications tax to fund the Education Rate (E-Rate) program.

Instead, Tauzin, chairman of the House Commerce Committee's telecommunications panel, wants to reduce an existing excise tax that now feeds the nation's universal telephone service plan and use the balance to fund the billion-dollar E-Rate program.

"Rep. Tauzin is deciding between two different approaches," said a spokesman for Tauzin. "One cuts the excise tax in half, and the other would cut it by two-thirds. Either way, there would be direct savings on the excise tax, and there would be no need for the so called 'Gore Tax' to fund the E-Rate program."

Tauzin is expected to introduce the legislation this Thursday. Sen. Conrad Burns (R-Mont.) is considering a companion measure in the Senate.

Meanwhile, congressional lawmakers last week demanded that the FCC improve the way it reviews and awards applications filed by public school districts vying for funds under the E-Rate program.

Based on the results of a six-week General Accounting Office investigation, members of the Senate Commerce Committee urged the Schools and Libraries Corp. (SLC) to put in place a more rigorous set of internal controls to shield the program from abuse.

"I do support the goal of bringing advanced telecommunications services to our nation's schools and libraries," said Sen. John McCain (R-Ariz.). "I do not, however, support the program concocted by the FCC and implemented by the Schools and Libraries Corp." SLC is a not-for-profit corporation that the FCC established to administer the E-Rate program.

McCain accused the FCC of turning a "modest proposal" to wire the nation's schools into a "behemoth" that threatens to hike the nation's phone bills. He also criticized the FCC for leaving the program open to abuse from school districts looking to use E-Rate dollars to subsidize items such as carpeting, furniture, video cameras and TVs.

Last week's hearing marked the second time this summer that the E-Rate program has been attacked on Capitol Hill. In June the FCC reduced the overall value of the program from $2.5 billion to just more than $1 billion in response to congressional criticism. The June changes also included a cut in the salaries for SLC's top officials.

The FCC now might fold together three separate organizations that are responsible for administering separate pieces of the Universal Service program, which is the overarching system of subsidies from which the E-Rate program is funded. Specifically, the FCC last week solicited comments on a plan to merge SLC with Rural Health Care Corp., which administers a companion to the E-Rate program for telemedicine projects. The two then would be put under the authority of Universal Service Administrative Co.

SLC came in for other criticism for how it runs the program. For example, SLC had originally planned to review "high risk" E-Rate applications after it committed funds to the projects. "Should [SLC] find major problems at this time with the applications reviewed, it may have to reduce or withdraw funding commitments from applicants," said Judy England-Joseph, director of GAO's Housing and Community Development Issues, Resources, Community and Economic Development Division.

In response, SLC chief executive officer Ira Fishman vowed to adopt GAO's recommendations and amend internal control procedures to Congress' satisfaction before cutting any E-Rate checks.

SLC also had committed to an independent audit, the completion of which will likely delay any disbursement of E-Rate funds until early fall instead of the end of June, when the funds originally were scheduled to be in applicants' hands.

Sen. John D. Rockefeller (D-W.Va.) defended the progress that SLC has made in safeguarding E-Rate funds against abuse. "GAO has produced a roadmap for strengthening the E-Rate program, and SLC has agreed to make the changes GAO has suggested," he noted.

In response to the hearing, FCC chairman William Kennard circulated an open letter to SLC's Fishman taking up some of GAO's recommendations. Kennard instructed SLC to conduct random samples of applications to test their soundness. "Should these reviews reveal systemic weaknesses in program integrity procedures or their implementation, SLC should take corrective actions before committing any funds," he said in the July 16 letter. SLC also should finalize procedures and automated systems for detecting districts' plans to misuse funds.