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School House Shock

By Cynthia L. Webb
washingtonpost.com Staff Writer
Wednesday, October 6, 2004; 9:48 AM

It's a noble concept that was designed to bridge the digital divide: Offer public schools and libraries steep discounts on Internet access and phone service through a special government-mandated program. But reports of fraud and lackluster oversight have caused the program to be put on ice and now some educators and librarians are scrambling.

The New York Times reported on the halt to funding on Monday, noting that schools and libraries nationwide "have suddenly stopped receiving any new grants from a federal program that is wrestling with new rules on how it spends $2.25 billion each year to provide high-speed Internet and telephone service. The moratorium at what is known as the E-Rate program began two months ago, with no notice, and may last for months, causing significant hardships at schools and libraries, say state officials and executives at the company that runs the program."

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More from the article: "The suspension came after the Federal Communications Commission, in consultation with the White House, imposed tighter spending rules that commission officials say will make it easier to detect fraud and waste in the program. As much as $1 billion in grants the states say they expected to receive by the end of the year may be affected, one official estimate says. That has led state administrators to either take money from other educational programs or postpone paying their phone and Internet companies." Interestingly, the Web site of the Universal Service Administrative Co., the nonprofit organization which handles the program, does not have a notice about the stoppage of the program, nor does the FCC site.
The New York Times: Internet Grants to Schools Halted as FCC Tightens the Rules (Registration required)

The FCC's decision isn't going over well with some congressional lawmakers, who held a hearing on the issue yesterday. Members of the Senate Commerce Committee pressed the agency to institute tighter controls but not end the program, the New York Times reported today.

Tuesday's hearing "had originally been called to examine waste at the so-called E-Rate program, which administers telephone and Internet services for schools and libraries. But three of the four senators present focused instead on the FCC's decision to impose tighter spending restrictions. The fourth senator, John McCain of Arizona, the Republican chairman of the committee, pressed the witnesses about what steps were being undertaken to monitor the program in light of a series of fraud cases involving telephone companies and equipment makers over the last few years. He expressed irritation that Congress had not been notified about the suspension of the program. Frank Gumper, the chairman of [USAC] told lawmakers that the FCC's decision last week to order a quick sale of more than $3 billion of the program's investments had resulted in a loss of almost $5 million." The FCC did not send a representative to testify at the hearing, the New York Times reported, and despite the agency's offer to work with Congress on the issue, lawmakers told the paper there is not enough time in the session to resolve it.
The New York Times: Internet Grants Cut and FCC Scolded (Registration required)

The decision is causing problems for many schools. "The program is not in effect. Nobody is getting any money anywhere," Sen. Jay Rockefeller (D-W.Va.) said at the hearing, as quoted by Reuters. "I've heard from schools that the suspension of funding was causing significant disruptions." Reuters said USAC told the Senate committee that "about $300 million for schools and libraries and another $1.8 million for health care was on hold for a review of how the fund appears on government accounts."

Education Week reported that "USAC officials may decide as soon as this week to resume funding, but they have not set an exact date. Some of the accounting changes still need to be figured out, Mel Blackwell, the vice president for external communications for USAC, said last week. 'It's not as simple as a flip of a switch,' he said." More from the article: "To complicate matters, the funding suspension came on top of another delay. Earlier this year, USAC's schools and libraries division, which directly operates the $2.25 billion-a-year E-Rate program, reviewed funding applications from the largest school districts before reviewing those from the many smaller and mid-sized districts. For some smaller districts, that step has resulted in a slowdown or reduction in student access to the Internet, continued aging of technology networks, and, in some rural districts, no Internet access at all," the trade publication reported.

Reuters explained that E-Rate "is funded by companies that offer long-distance telephone service, like AT&T Corp. and Verizon Communications. They typically pass on those charges to customers. Congress has also been probing waste, fraud and abuse in the $2.25 billion annual E-Rate fund that goes to help wire schools for the Internet. The [FCC] said it was working with prosecutors, including supporting 22 investigations and monitoring 15 others."
Reuters via washingtonpost.com: E-Rate Encounters Flak in Senate (Registration required)
Education Week: Cash Freeze for E-Rate Hits Schools

Government Technology gave details on how the program has made a difference for recipients. "Todd Russ, director of technology for the Public Schools of Robeson County (PSRC), N.C., said when E-Rate began, his district still used dial-up access. 'Now we have a 90 meg connection to our school district. It's made a world of difference in our abilities to connect to the Internet and do different types of Web page access, as well as subscribing to different programs that have video streaming and things like that,' he said. 'There's no way we could have put in that kind of technology without E-Rate funding.'"
Government Technology: E-Rate Inspection

E-Rate Caution

Expect more to come from the FCC's decision to suspend the program. But also expect critics of the program to become more vocal as well. The Atlanta Journal-Constitution in September reported a series of articles on some cases of alleged fraud tied to E-Rate. Today in an opinion piece, the paper is critical of the program for being improperly managed (and gives itself a pat on the back for enterprising reportage):

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