Senate Committee Holds Hearing on Schools and Libraries Corporation

(July 20, 1998)  The Senate Commerce Committee held a hearing into waste, fraud, and mismanagement, and other problems, at the Schools and Libraries Corporation (SLC) on Thursday, July 16.  The SLC administers a program for funding subsidies to schools and libraries for computer networking, Internet access, and phone service.  The Committee heard testimony from SLC President Ira Fishman, and GAO representative Judy Joseph.

The July 16 hearing included contentious and adversarial episodes rarely seen in the Senate Commerce Committee room.  Committee Chairman John McCain (R-AZ) was both critical of the way the schools and libraries program is being administered, and aggressive in trying to obtain answers from the evasive SLC President, Ira Fishman.  Sen. Jay Rockefeller (D-WV) staunchly defended the FCC and SLC.

Senator McCain stated at the opening of the hearing that:

"This hearing is not about killing the schools and libraries program.  It is not about preventing schools and libraries from obtaining access to advanced telecommunications.  It is, however, about finding a way to get the benefits of access to advanced telecommunications services to schools and libraries in a way that is sustainable and supportable in the future.  It is about making sure that the people who ultimately pay this tax, that is, every user of telecommunications services in the country, gets value for their money they are forced to contribute to higher rates on all telecommunications services.  I do support the goal of making advanced telecommunications services to our nation's schools and libraries.  I do not, however, support the program concocted by the FCC and implemented by the School's and Libraries Corporation."  (See, Opening Statement of Sen. McCain.)

McCain also stated that the hearing was not about the policies behind the Schools and Libraries Program, but merely about its administration.  McCain stated that on May 22 he requested "that the Government Accounting Office initiate a formal investigation and audit of the operations of the Schools and Libraries Program and particularly its program integrity assurance program."  He also asked the GAO to recommend "any changes to the administrative structure" and to "give consideration to whether administration of the schools and libraries program might be better assigned to other federal agencies."

GAO Testimony

Judy Joseph of the Government Accounting Office testified regarding the results of this GAO investigation.  The GAO Testimony consisted mostly of a review of universal service, the 1996 statute, the history of FCC implementation, and the SLC procedures in place affecting program integrity.

The SLC did not give GAO access to any of the applications submitted to the SLC by schools or libraries.  And hence, the GAO did not audit the applications from schools and libraries.  Nevertheless, Ira Fishman defended the integrity of the process by pointing out that the GAO found no instances of schools or libraries having applied for uncovered items.

Also, while the GAO had been requested to make recommendations on the restructuring of the SLC, it deferred making any such recommendations.

Judy Joseph testified that there are many problems with the SLC process for reviewing applications.  The "program relies heavily on self-certification."   That is, the SLC trusts the schools and libraries to submit honest and accurate applications.  The SLC basic screening tests are not sufficient.  A "detailed review of applications not planned until after funds are committed."   That is, "in addition to these computer-assisted tests, the Corporation plans to conduct more detailed manual reviews of applications that it considers to be "high risk." However, according to current plans, these reviews will not be performed until after funds are committed to applicants and vendors."

Joseph also testified that "key program procedures have not been finalized."   "The Corporation has not yet finalized all the procedures, systems, and internal controls that it needs in order to make funding commitments and approve vendor compensation for the discounted services provided to applicants."

Joseph also testified that the "verification of soundness of internal controls not planned to be completed before funds are committed," and the "program lacks clear and specific performance goals and measure."

Questions by Sen. McCain

Fishman did not take issue with the GAO testimony.  He stated that he concurred with the GAO recommendations, and intends to implement them.

Sen. McCain questioned Fishman about his qualifications and salary.  He submitted no resume to the Committee, but testified that he went to law school, worked as an attorney for the FCC, and worked as an attorney for telecommunications companies.  The youthful Fishman testified that he had no experience as a corporate executive before being appointed to head the SLC.  He testified that he started out at a salary of $200,000 per year, but that it is now $151,800.  He also testified that six of the 14 employees of the SLC make over $100,000.  McCain also questioned why he made more than his superior, the Chairman of the FCC.  Sen. Rockefeller characterized this line of questioning as an "inquisition."  

Fishman refused to answer Sen. McCain's question regarding whether the SLC was illegally formed.  An earlier GAO Report, and many member of Congress, have stated stated that it was illegally formed in violation of the Government Corporations Act.

Fishman would not provide a date, or an estimate, for when the SLC's auditor's report which he ordered last December would be done.  He stated that the auditor's report could not be completed until the SLC procedures were in place, and he offered no date for when that would be done.

In response to questions from Sen. Rockefeller, he concurred that there is no waste, fraud or abuse because SLC has not spent one cent.  Sen. McCain sternly took issue with this assertion, later, citing other testimony by Fishman that $18.8 million had been spent.

McCain also pressed Fishman on when the SLC would start to make funding commitments.   Fishman would not provide at date, or an approximate date, but finally relented that: "Yes, I believe it will be sometime early this fall."

Sen. Rockefeller

Sen. Jay Rockefeller (D-WV), who is one of the leading proponents of the SLC in the Senate, vigorously defended Ira Fishman, the FCC, and the SLC.  In opening he said that "the startup of anything is always difficult," and "the e-rate program is fundamentally sound."  He expressed the opinion that "not one issue has been raised that has not or cannot be fixed."

"Action has already been taken to address many of the concerns.  Costs have been lowered, the program restructured, salaries reduced, fraud protections strengthened, and more," said Rockefeller.  "All of the changes that the GAO will outline here today ... have been agreed to the SLC."

Rockefeller also took up the again an accusation that he raised in his June 5 press conference that others in Congress were intimidating and threatening people at the FCC and SLC.  He asked, "Could you also talk about how you and your staff have dealt with the enormous amounts of criticism, in some cases threats of investigation, intimidation, that have come, frankly, from Congress." Fishman responded: "Senator, with all due respect, I would like to differ a little bit with you.  ...  Any Member of Congress has the right to ask any questions, and our job is to try to give the best possible answers we can give.   The scrutiny not only from Congress but from others help us to do a better job." 

After questioning the two witnesses Rockefeller concluded: "We have established now that no money has gone out, so we have established that there was no waste, fraud and abuse."

Sen. Burns

Sen. Conrad Burns (R-MT) is one of the leading critics of the "e-rate", which he has often called the "Gore Tax".  He is also working on legislation, along with Rep. Billy Tauzin (R-LA), that would transfer the program to the Department of Education, terminate the SLC, give money to the states in the form of block grants, and fund it out of an existing excise tax on telephone rather than universal service.

However, Sen. Burns played a minor role in Thursday's hearing.  While present for most of the hearing, he made no opening statement, asked few questions of witnesses, and refrained from voicing some of the more serious criticisms of the SLC that he has expressed in the past.

Sen. Burns did issue a press release which "criticized the use of universal service funds for wiring schools and libraries to the Internet," and and reiterated his proposal for "cutting the outdated 3 percent excise tax on telephones in half and using the remaining half to connect schools and libraries to the Internet."

Sen. Burns questioned Fishman regarding what he thinks his mission is, and when the costs of the program will go down.  Burns asked, "do you see that cost, the need for that much money, in the out years?"  Fishman responded by saying, "Senator, that is a very interesting question," and discussing giving notice to schools and libraries.

Burns pursued the point: "I am coming from the standpoint that wiring and infrastructure is a one time shot."  Fishman responded, "Now I understand the question a little better, Senator, yes, to the extent that the internal connections are dealt with those are largely are non-recurring costs."

"In other words, you think the cost of this program should go down in the out years after we get through."  Fishman answered: "Senator, I cannot reach that judgment, until we see the level of participation for the first couple of years.   But as a logical matter that is correct."

Rockefeller argued in a June 5 press conference that the 1996 statute contained a deal in perpetuity between the Congress and the phone companies.  "Part of the premise of which was, we will give you the deregulation that you want ... but in return you are going to spend several billion dollars plus every year in perpetuity to wire every classroom ..."

Burns concluded that the most important thrust of the program is providing "broadband access for distance learning," and the cost of this will decline, as schools become connected.

Sen. Brownback

Sen. Sam Brownback (R-KS) stated that "I want to see this program work, but what I know today from the GAO study doesn't show to me a program being administered in a workable fashion."  He continued that, "the system set up at the outset of this program, and how it is operated today, to me is just not acceptable."

"Even with the testimony that the GAO provides for us today, we simply don't know how many of the 30,000 plus applications received by the Schools and Libraries Corporation contain requests for ineligible services, or how many have requested discounts greater than the level authorized by the Corporation."

Sen. Brownback stated that he is glad to hear that the SLC has agreed to adopt the GAO recommendations, "but that doesn't still get at the waste, fraud and abuse issues that we don't know exist. ... I am afraid we are going to need to go further."

During questioning of witnesses, he stated that "none of us are going to tolerate a raise in residential or rural rates. ... I am not going to sit here and allow rural or residential rates to go up."  He added, "we want to catch this before that sort of thing happens."

Sen. Snowe

Sen. Olympia Snowe (R-ME), a staunch supporter of the SLC, stated that the SLC has done "remarkable job."

In response to a question from Sen. Snowe, Judy Joseph stated that, "We reviewed the forms but not the applications.  ...  They were still being processed and fed into the database, so we have not looked at any applications."

Sen. Dorgan

Sen. Bryan Dorgan (D-ND) discussed his views on the history of the statute and its implementation.  He stated that he supports the "schools and libraries fund"  and that "the FCC made some definitional judgments that dramatically expanded the program, and that gives me heartbreak."

"Let us be careful that we have not created an over expanding system and program and bureaucracy that allows us later, or requires us much later, to lament that we didn't get the definitional phase straight."

He also expressed concern that the operating budget was $18.8 Million.

Sen. Dorgan concluded: "I still support this.  I admire the, lots of work that was done to create it.  So the question is, how do we control this so that we are really doing what we intended to do and not create an open ended entitlement that seems to have no limits."

Other Senators

Sen. Richard Bryan (D-NV) spoke briefly to say that he wanted to "reaffirm my support for the program."

Sen. John Kerry (D-MA) participated briefly in the hearing.  He stated his stream of thought.  "This is a startup effort - clash of cultures - education - telecommunications.  It is not easy, and we ought to understand that.   But the difficulties that have arisen should not be allowed to diminish the fundamental purpose here - the goal - which is so important.  I want to stress also that I think Mr. Fishman comes to this with a strong reputation."

There were several other concurrent hearings which prevented some members of the Committee from attending.  For example, the Senate Finance Committee held a hearing on the Internet Tax Freedom Act.  The bill is under attack from many state and local governments, and at risk of not being brought to a vote in the Senate.