E-Rate Debate Continues

(June 22, 1998)  The FCC's announcement on June 12 that it would modify its "E-Rate" or "Gore Tax" subsidies for schools and libraries has not quelled the debate over the future of the program.  AT&T announced Friday that it would charge its residential customers 93 cents per month to support universal service programs.   Also, legislators will likely introduce two bills in Congress this week that would transfer control of the program to the Department of Education, and fund it with an already existing federal excise tax on telephones.

"Rumors are flying," said Rep. Bobby Rush (D-IL), one of the most active supporters of the e-rate in the House.   "Most people feel as though they want to eliminate it via an appropriations bill."  However, critics of the Federal Communications Commission, such as Rep. Billy Tauzin (R-LA), insist that they want to continue the program, with a different source of funding, and a different agency running the program.  "Newspaper reports would lead you to believe that Congress is against schools and libraries.  Nothing could be further from the truth," said Tauzin in a letter to House members.

Relate Page: Schools and Libraries Fund Summary Page.

AT&T announced on Friday that beginning in July, it will assess residential customers a 93 flat monthly fee to help recover the company's $1.3 billion annual Universal Service Fund payment.

"We've decided that a flat charge is a better alternative for our residential customers because it is more predictable and simpler to understand than a percentage charge," said Rick Bailey, VP for  Federal Government Affairs, in a press release.  This is a reduction for most residential customers; AT&T had previously announced that it would assess a 5 percent monthly residential charge.

AT&T said the flat charge is designed to recover only what the company owes for its contribution to the Universal Service Fund and no more.  Also, residential customers will pay 93 cents a month per account, regardless of how many phone lines they have.

Business customers, who have been paying a 4.9 percent assessment since January for the Universal Service Fund, will continue to pay a percentage assessment, which will drop to 4.1 percent.

AT&T spokesman Jim McGann said that AT&T has not yet decided on the "bill insert language" that would explain this charge for customers.

Carol Wacey, the Department of Education's leading e-rate policy person, stated last Thursday that "it is not the telecommunications industry that is suffering, even though they are claiming they are losing money ... It is the kids."

"Truth in Billing" Proposals

Rep Earl Blumenauer (D-OR) introduced a bill on June 9 dubbed "Truth in Billing" that is designed to dissuade phone companies from including any statement on their customers' bills that identifies that any charges are for government universal service programs.  Rep. Bobby Rush, and several others, are cosponsoring H.R. 4018.  The bill has been referred to the Commerce Committee.

This bill is similar to Sen. Jay Rockefeller's (D-WV) amendment to S. 1618, the Senate's anti-slamming and anti-spamming bill which passed the Senate last month.

The House version of the anti-spamming bill, H.R. 3888, parallels S. 1618 as enacted by the Senate, except that it lacks the phone company billing statement requirement.  Rep. Billy Tauzin is the lead sponsor of the House bill.  It has been referred to the House Commerce Committee, and its Telecommunications Subcommittee, of which Tauzin is Chairman.  The Subcommittee will hold a hearing on this bill on Tuesday, June 23, at 10:00 am.

"We are still under assault (on) the e-rate; the members who support the e-rate feel we have got to do something," said Rep. Rush in an interview on Friday.   "We have got to do something to make sure public opinion is on our side."

Rep. Rush, who is a member of the Commerce Committee, stated that there "is a strong likelihood" that he will try to attach the "Truth in Billing" provision to the House version of the anti-slamming and anti-spamming bill, H.R. 3888.

Proposals to Transfer the E-Rate to the Education Dept.

Rep. Billy Tauzin (R-LA) recently proposed scrapping the "Gore Tax," replacing the schools and libraries source of funding with an already existing excise tax on phones, and shifting control of the program from the FCC to the Department of Education.

In Dear Colleague letter sent to members of Congress to gain cosponsors, and win support for a proposal, Rep. Tauzin wrote, "I will soon introduce legislation that will abolish this new tax, cut existing taxes, and fund schools and libraries at the same time."   Rep. Tauzin's Press Secretary predicted on Friday that the bill could be introduced as early as Wednesday or Thursday of this week.

Rep. Tauzin described his proposal as follows:

Currently, the schools and libraries program is in total disarray. In my opinion, an illegal corporation has been set up to administer an illegal tax. My plan would abolish the so-called Schools and Libraries Corporation, along with its $200,000-a-year administrator, and remove the FCC as overseer. A new, legal program would be established by Congress - with appropriate institutional controls on the size and scope of the program -- and administered by the Department of Education in the way of block grants to the states.

Rep. Tauzin's letter also contained the following financial analysis.

Year

Projected
Revenues
(millions)

Current
Rate

Proposed
Rate
Reduction

Proposed
New Rate

Funding
Available
For Schools
& Libraries
(millions)

Savings to
Taxpayers
(millions)

1999 $5,129 3% 50% 1.50% $2,565 $2,565
2000 $5,394 3% 50% 1.50% $2,697 $2,697
2001 $5,691 3% 50% 1.50% $2,846 $2,846
2002 $6,015 3% 50% 1.50% $3,008 $3,008
2003 $6,356 3% 75% 0.75% $1,589 $4,767
Five Year Total: $28,585 $12,704 $15,882

The program as initially planned by the FCC would have subsidized computer networking, Internet access, and phone services, at $2.25 Billion in 1998.  Under harsh criticism from Congress, the FCC decided on June 12 to expand the first funding period to18 months, and spend at the rate of $325 Million per quarter.  The Tauzin proposal would thus increase the annual rate of funding for the program above the FCC's plans.

Related Stories

FCC Modifies E-Rate, 6/15/98.
Senate Subcommittee Berates FCC, 6/11/98.
SLC in Trouble on Hill, 6/8/98.
E-Rate Defenders Fight Back, 6/8/98.
Clinton Condemns "Digital Divide", 6/8/98.
Riley Waits in Wings to Run E-Rate, 6/8/98.
Debate Over "Gore Tax" Heats Up, 6/5/98.
AT&T's Universal Service Charges, 5/28/98.
FCC Reports to Congress on SLC, 5/11/98.
Congress Decries FCC, 3/31/98.
GAO Reports SLC Is Illegal, 3/31/98.

Sen. Conrad Burns (R-MT) is likely to introduce a very similar bill  in the Senate this week.

Rep. Rush, speaking about the Tauzin proposal, said that "I cannot say that I am opposed to that right now. ... I withhold judgment."

The Department of Education, which would be a beneficiary of these proposals, remains officially supportive of the FCC.

Carol Wacey stated that while the Department has not seen the Tauzin proposal, "we feel very comfortable with the e-rate mechanism set up (by) the FCC."   She continued that "the Secretary has never even hinted that it was his intention ... to take over" the e-rate.  "Kennard has provided excellent leadership," added Wacey.  "We anticipate them continuing to do so."

Unlike the FCC, the Department of Education has experience in both education issues, and in furthering computer technology in schools.  It runs programs such as the "Technology Literacy Challenge Fund" and the "Technology Innovation Challenge Grants"  The Department's Policy Division also has three technology people on staff.