TR Daily FCC Releases NPRM on Overall USF Cap
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Friday, May 31, 2019

FCC Releases NPRM on Overall USF Cap

The FCC today released a controversial notice of proposed rulemaking over the dissents of Democratic Commissioners Jessica Rosenworcel and Geoffrey Starks seeking comments on whether it should establish an overall cap on the agency’s various Universal Service Fund (USF) programs.

Advocates for USF programs and the agency’s two Democratic Commissioners have said that such a cap is contrary to the FCC’s stated goals on deploying broadband, especially in light of major concerns that the FCC has not done a good job of measuring where broadband is still needed (TR Daily, March 27). But defenders of the proposed cap, including Republican Commissioner Mike O’Rielly, said it could be useful.

The FCC currently sets separate caps or budgets for the various components of the USF, which includes programs such as the Connect America Fund and Mobility Fund to subsidize service in high-cost areas with low population density and challenging topography; the Lifeline and Linkup programs to fund service discounts for low-income consumers; the E-rate program to fund service discounts for schools and libraries based both on population density and population incomes; and the rural healthcare or telemedicine program to fund discounted telecom service for hospitals and clinics serving rural communities.

The NPRM in WC docket 06-122, which was adopted on May 15, invites input on the possibility of setting an overarching cap for the combined USF program, on what the overall cap should be, and on methods for dealing with prioritizing funding among the programs if the overall cap were breached.

Comments on the item are due 30 days after “Federal Register” publication and replies are due 30 days after that.

“We believe capping the Fund overall will strike the appropriate balance between ensuring adequate funding for the universal service programs while minimizing the financial burden on ratepayers and providing predictability for program participants. Moreover, setting an overall cap will enable the Commission to take a more holistic view when considering future changes to the universal service programs and their impact on overall USF spending,” the NPRM says. “By explicitly linking the expenditures in multiple USF programs through the overall cap, we seek to promote a robust debate on the relative effectiveness of the programs. We seek comment on establishing an annual combined USF cap. For example, should we set the overall cap at $11.42 billion, which is the sum of the authorized budgets for the four universal service programs in 2018? Should we set it at a different amount? We seek comment on this proposal, as well as other methods for setting the appropriate level of an annual overall USF cap.

“To ensure the overall cap keeps pace with inflation, we seek comment on how to adjust the cap over time,” the item adds. “The Commission is currently using the Gross Domestic Product Chained Price Index (GDP-CPI) to adjust the E-Rate and RHC program caps, as well as the operating expense limitations for rate-of-return carriers, and has previously found it to be more accurate than some other measures in estimating price changes over time. We seek comment on whether there are other ways to adjust the overall cap for inflation that would be more appropriate. Should there be an index specific to each USF program and how should such program-specific indices apply to an overall USF cap? Would this process make a significant difference to the caps compared to the use of the GDP-CPI? How often should the caps be adjusted? Commenters should provide data to support their conclusions.”

The Commission also seeks views “on how to implement the cap. One method is to determine when disbursements are projected to exceed the overall USF cap and, in that event, to reduce projected universal service expenditures to stay within the cap. Another method, given the difference in some programs between the date of commitments and the date funding is disbursed, is to cap the commitments issued by USAC [Universal Service Administrative Co.]. We seek feedback on the best way to track and make public universal service demand levels to appropriately anticipate pending USF demand issues. In the event disbursements are projected to exceed the overall cap, we also seek comment on the appropriate way to reduce expenditures automatically consistent with the Commission’s universal service goals and consistent with the legal imperative to remain within the cap.”

Regarding “how to reduce expenditures if USAC projects that disbursements will exceed the overall USF cap,” the NPRM notes “that the program rules for each of the four universal service programs will continue to govern those programs, and therefore existing spending constraints in place would prevent some, but not all, of the universal service programs from exceeding their caps. The overall cap could be exceeded due to rising demand, or a future Commission decision to increase funding for a program or to institute a new USF program without any corresponding increase in the overall cap. We seek comment on ideas to reduce expenditures as needed under each of these scenarios. Should these reductions take place when commitments are expected to exceed the caps or should they only take place when disbursements are projected to exceed the caps? What criteria should be used in prioritizing reductions of one program against reduction in another?”

The Commission also seeks “comment on prioritizing the funding among the four universal service programs and other possible universal service pilots or programs” if such action is needed because “USAC projects that total disbursements will exceed the overall cap. Adopting clear prioritization rules and evaluating the tradeoffs associated with these funding decisions could make disbursements more specific and predictable. We seek comment on the best methods for prioritizing funding when faced with projected disbursements exceeding the overall cap. How should we prioritize among the programs? For instance, should we prioritize based on the cost-effectiveness of each program or the estimated improper payment rates? Should we instead prioritize based on the types of services to be funded or by rurality of the recipient? We also seek comment on whether to consider limits to any demand reductions.”

Another topic deals with “possible changes to the budget structures of the individual universal service programs in order to establish a maximum level of universal service support that can be disbursed annually, thus limiting contribution burdens and providing predictability to contributors and ratepayers. First, we seek comment on other changes to any of the universal service program rules that would assist the Commission in its efforts to achieve a more holistic and coherent approach to universal service support. For instance, consistent with previously-proposed rule changes, would self-enforcing caps on each of the programs provide more predictability to universal service spending? Are there other changes that would better align the four programs to reduce duplicative work or simplify the administration of the overall cap? Additionally, we seek comment on how best to balance program needs with the contribution burdens imposed on ratepayers. We also seek comment on combining the E-Rate and RHC program caps.”

“While the E-rate program has been substantially under its cap since its budget was increased to approximately $4 billion per year indexed to inflation in 2014, there has been significant pressure on the Rural Health Care budget in recent years, and the Commission in 2018 increased the Rural Health Care budget to $571 million indexed to inflation. Assuming current trends persist in future years, would a combined budget that allows support for participants in either program to come from a single fund improve the efficiency with which these programs could disburse funding? Would a combined budget effectively increase the budget on whichever program is closest to their cap?” the NPRM asks.

In a statement, Ms. Rosenworcel called the proposed overall USF cap “fundamentally inconsistent with this agency’s high-minded rhetoric about closing the digital divide. It is also at odds with our most basic statutory duty to promote and advance universal service. That’s because it suggests a course that could cut off broadband in rural areas, limit high-speed internet access in rural classrooms, shorten the reach of telehealth, and foreclose opportunity for those who need it most. Worse, it proposes unleashing a fight for support between connecting kids in schools and hooking up hospitals for telemedicine. I do not support an approach that fosters the universal service hunger games. I dissent.”

“The FCC’s Universal Service programs are among the most significant ‘tools in the toolkit’ possessed by the federal government to ensure that all Americans have access to voice and broadband services comparable to their fellow citizens,” Mr. Starks argued. “Without these communications services, we risk leaving behind millions of Americans as our country transitions to a fully connected society. The Universal Service Fund helps to address internet inequality by enabling service providers to build out or improve their broadband offerings in the areas that need it most. It also ensures that schools throughout the country have high-speed broadband connections so that students everywhere can access digital content and educational methods enabled by broadband. Universal Service also provides, through the Lifeline program, a critical connection for our most vulnerable — to emergency services in times of need, to jobs, and to family. Universal Service also helps rural communities realize the potential of telemedicine. Considering both the success of these programs and the Commission’s statutory mandate from Congress, a cap on the Universal Service program’s overall budget is not the right approach. That’s why I dissent here.”

The Commissioner added that “the cap is arbitrary because it has no relation to the actual nature of the internet inequality problem in this country. How can we cap the amount of money needed to support broadband when we don’t even know the number and locations of the Americans that still need to be connected? As I have outlined in another statement, the FCC’s data troubles raise serious questions about whether the agency understands the problem it seeks to solve. Instead of imposing an arbitrary cap, the FCC should be improving its data collection and analysis capabilities so it can understand the true nature of the problem and measure its progress. In short, the FCC should be focused on mapping not capping.”

But Mr. O’Rielly stressed the importance of the rulemaking.

“In my years working on communications policy, I have been tremendously focused on improving the effectiveness of our Universal Service Fund (USF) programs to bring broadband Internet to those without access. Part and parcel of that mission is to ensure the USF’s sustainability for years to come, and to protect the hard-earned investments of consumers who pay for our subsidy programs. I have advocated on behalf of ratepayers to address a perennial problem of public choice: while there’s never any shortage of special interest groups seeking additional spending, those who actually foot the bill are much less likely to spend time and resources to defend their own interests. Quite reasonably and appropriately, they’re focused instead on their everyday, busy lives,” he said.

“That is why I called on the Commission to begin this critical rulemaking. The Commission has time and again increased spending in each of the discrete sub-programs, often justifiably so,” Mr. O’Rielly added. “However, it has done so without the constraints of a topline budget, and in turn, without considering the effect of spending decisions for the whole USF enterprise and how to fairly and efficiently allocate scarce funds among the four programs. That is not a responsible way to run an $11 billion-plus fund, and not the way the vast majority of federal government programs — or American businesses and families, for that matter — operate.”

Mr. O’Rielly added that “this NPRM is about protecting ratepayers and demanding more thoughtfulness on the Commission’s part when it spends their money. Contrary to certain myths spread by knee-jerk opponents, this rulemaking is a first step in promoting better certainty and stability within the USF and will, in turn, help improve the viability of our broadband subsidies.”

He said that “it seems necessary to set the record straight on several misconceptions that were peddled in the wake of the draft’s circulation” (TR Daily, March 27).

For example, he said, the “NPRM initiates a dialogue and does NOT constitute a final order.”

“Some in Washington talk a good talk about promoting free expression and democratic dialogue. However, when it comes to considering policy ideas from my side of the political spectrum, they seem to throw those principles in the dustbin and seek to shut down debate. That is not a healthy way to determine public policy, and it is not the way I have chosen to conduct myself as a federal regulator. The bigger the marketplace of ideas the better, and, other than in a few limited circumstances, I have welcomed contrasting points of view,” he said. “Similarly, supporting this NPRM means welcoming healthy debate on how best to operate the USF. This is not a final order on adopting a budget, but a solicitation of public comment to provoke a dialogue on the way to final action. While I support the adoption of a budget as a general matter, even I am not sold on every idea contained in the draft — for example, the proposed budgetary amount itself and the proposal to combine the E-Rate and Rural Health Care budgets — but I am open to being convinced otherwise. My sincere hope is that we receive a robust record in response to the item, and I look forward to reviewing thoughtful comments submitted from all sides of the spectrum.”

He also said that the proposed budget in the NPRM “would NOT cut funding to Universal Service.”

“There is no ‘Hunger Games’ scenario to be played among potential USF recipients and it is disingenuous to suggest otherwise,” said Mr. O’Rielly, referring to a criticism that has been leveled by Ms. Rosenworcel. “On the contrary: the proposed budget of $11.42 billion is more than $3 billion above current program disbursements and would be indexed to keep pace with inflation. That leaves plenty of wiggle room for justified spending increases, should disbursement levels need to rise in the future. And, according to projections cited in the item, a substantial delta between the budget and disbursements should remain for many years to come.”

Finally, the Commissioner said, the rulemaking “is NOT a backdoor way to establish a budget on Lifeline.”

“As I have repeatedly made clear, I am more than willing to establish a cap on Lifeline directly, and without the USF cap proceeding as a surreptitious vehicle,” he said. “Further, while I support hard caps on the sub-programs as a matter of fiscal responsibility and predictability, having an overall USF budget serves somewhat of a different purpose. It requires the Commission to examine the USF at a more macro level and encourages debate about priorities and implications for the fund as a whole before more spending is authorized. It would also encourage the Commission to focus on eliminating inefficiencies, fraud, and duplicative spending to a much greater extent.”

The Benton Foundation criticized the NPRM in a statement released late this afternoon.

“The FCC once again proves that Friday is ‘take out the trash day’ in our national capital; its latest proposal is pure garbage,” said Benton Foundation Executive Director Adrianne Furniss. “Let's throw this NPRM in the wastebasket where it belongs.” —Paul Kirby, [email protected]

MainStory: FCC FederalNews UniversalServiceLifeline

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