Federal Communications Commission: Regulatory Fee Process Needs to Be Updated
Highlights
What GAO Found
The Federal Communications Commission (FCC) assesses regulatory fees among industry sectors and fee categories based on obsolete data, with limited transparency. The Communications Act requires FCC to base its regulatory fees on the number of full-time equivalents (FTE) that perform regulatory tasks in certain bureaus, among other things. FCC based its fiscal year 2011 regulatory fee assessments on its fiscal year 1998 division of FTEs among fee categories. It has not updated the FTE analysis on which it bases its regulatory fees, in part to avoid fluctuations in fees from year to year. FCC officials stated that the agency has complied with its statutory authority by dividing fees among fee categories based on FTE data—although the data is from fiscal year 1998—since the statute does not prescribe a specific time for FCC to update its FTE analysis. As a result, after 13 years in a rapidly changing industry, FCC has not validated the extent to which its fees correlate to its workload. Major changes in the telecommunications industry include the increasing use of wireless and broadband services and a convergence of telecommunications industries. Moreover, FCC’s practice is inconsistent with federal guidance on user fees. As a result of FCC’s use of obsolete data in assessing regulatory fees, companies in some fee categories may be subsidizing companies in others. FCC officials said it has become more challenging to align current FTEs to the 86 fee categories given the increasingly cross-cutting nature of FCC’s work, raising the potential that FCC’s fee categories may also be out of date. FCC’s regulatory fee process also lacks transparency because of the limited nature of the information FCC has published on it. This has made it difficult for industry and other stakeholders to understand and provide input on fee assessments. On July 17, 2012, FCC released a regulatory fee reform Notice of Proposed Rulemaking (NPRM) proposing changes to FCC’s regulatory fee program related to many issues raised in this report.
On average over the past 10 years, FCC collected 2 percent more in regulatory fees than it was required to collect. Prior to fiscal year 2008, FCC’s annual appropriations stated that any excess regulatory fees remained available until expended; since 2008, FCC’s annual appropriations have prohibited the use of any excess fees from the current year or previous years without an appropriation by Congress. As a result, $66 million in excess fees currently resides in an account at the Department of Treasury that cannot be used without congressional action. The account has increased by an average of $6.7 million per year for fiscal years 2006 through 2011. Congress has not provided for the disposition of these accumulating excess funds.
Approaches of other fee-funded regulatory agencies could be instructive as FCC considers reforms. For example, the Nuclear Regulatory Commission, Federal Energy Regulatory Commission, and Canadian Radio-television and Telecommunications Commission assess fees based on an annually or biennially updated analysis of costs by industry sector. Regarding excess fees, officials at five other fee-funded regulatory agencies stated that their agencies either apply excess fees as an adjustment to the subsequent year’s fees or refund them.
Why GAO Did This Study
FCC must by law assess annual regulatory fees on telecommunications entities to recover its entire appropriation—about $336 million in fiscal year 2011. The entities from which FCC collects fees fall into one of five main industry sectors (broadcast, cable, wireline, wireless, and international) and are assigned to one of 86 fee categories, such as paging services. Recently, FCC stated that it was planning to consider reforms to its regulatory fee process. GAO was asked to examine (1) FCC’s process for assessing regulatory fees among industry sectors, (2) FCC’s regulatory fee collections over the past 10 years, and (3) alternative approaches to assessing regulatory fees. GAO reviewed FCC data and documents, interviewed officials from FCC and the telecommunications industry, and, to identify alternative approaches to assessing regulatory fees, met with five fee-funded U.S. and Canadian regulatory agencies.
Recommendations
Congress should consider whether FCCs excess fees should be appropriated for FCCs use or, if not, what their disposition should be. FCC should perform an updated FTE analysis and require at least biennial updates going forward; determine whether and how to revise the current fee schedule, including the number of fee categories; increase the transparency of its regulatory fee process; and consider the approaches of other fee-funded regulatory agencies. FCC agreed with GAOs recommendations.
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress should consider whether FCC's excess fees (approximately $66 million through fiscal year 2011) should be appropriated for FCC's use, or, if not, what the disposition of these funds should be, and whether to change FCC's annual appropriations language to permit reconciliation of excess collections or to govern FCC's handling of any future excess collections. |
Closed – Implemented
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In the Ray Baum's Act of 2018, Congress implemented this recommendation by requiring that any excess regulatory fees be deposited in the general fund of the U.S. Treasury for the sole purpose of deficit reduction. This action by Congress provided clarity to FCC and stakeholders as to how any excess fees FCC collects during its regulatory fee process will be handled. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Communications Commission | The Chairman of the FCC, as part of FCC's effort to reform its regulatory fee process, should determine whether and how the current fee schedule should be revised--including an overall analysis of the appropriate number of categories and bases for calculating rates--to reflect the current telecommunications industry and FCC's regulatory activities, and in consideration of the processes of other regulatory fee-funded agencies that may be instructive, including, if appropriate, proposing to Congress any needed changes to its current statutory authority. |
Closed – Implemented
Federal Communications Commission (FCC) must by law assess annual regulatory fees on telecommunications entities to recover its entire appropriation about $336 million in fiscal year 2011. These fees are designed to recover FCC's operating costs, covering its enforcement, policy and rulemaking, international, and user information activities. The entities from which FCC collects fees fall into one of five main industry sectors (broadcast, cable, wireline, wireless, and international) and are assigned to one of 86 fee categories, such as paging services. We reported in 2012 that the Federal Communications Commission (FCC) assessed regulatory fees among industry sectors and fee categories based on obsolete data, with limited transparency. The Communications Act requires FCC to base its regulatory fees on the number of full-time equivalents (FTE) that perform regulatory tasks in certain bureaus, among other things. As of fiscal year 2011, FCC was basing its regulatory fees on 1998 FTE data. It had not updated the FTE analysis on which it based its regulatory fees, in part to avoid fluctuations in fees from year to year. As a result, after 13 years in a rapidly changing industry, FCC had not validated the extent to which its fees correlated to its workload. Also, FCC's failure to update its FTE analysis was inconsistent with federal guidance on user fees. Moreover, because FCC used obsolete data in assessing regulatory fees, companies in some fee categories may have been subsidizing companies in others. FCC officials said it had become more challenging to align current FTEs to the 86 fee categories given the increasingly cross-cutting nature of FCC's work, raising the potential that FCC's fee categories may also have been out of date. Therefore, we recommended, among other things, that FCC determine whether and how the current fee schedule should be revised including an overall analysis of the appropriate number of categories and bases for calculating rates to reflect the current telecommunications industry and FCC's regulatory activities. In September 2015, we confirmed that FCC implemented this recommendation. First, in fiscal year 2013, FCC determined that the current fee schedule should be revised, stating that our report had provided support for a fundamental re-evaluation of how to align regulatory fees more closely with regulatory costs and recognizing the need to re-examine the FTE data used to allocate regulatory fees among different industry sectors. FCC also found that it was consistent with its legal authority to collect these fees to better align, to the extent feasible, these regulatory fees with the current costs of FCC oversight and regulation of each industry group. Moreover, in fiscal years 2013 through 2015, FCC considered and in some cases implemented changes to its regulatory fee schedule in order to better align its regulatory fees with FCC's current regulatory activities or reduce costs. This included reconsidering the number of categories and the bases for calculating rates. FCC consolidated certain categories, eliminated several regulatory fee categories, and added a regulatory fee category, all to better align its regulatory fees with its current regulatory activities. FCC also requested comments on and considered combining wireless and wireline phone services into one fee category, using revenue as the basis of the fee. Since currently, wireless companies are assessed regulatory fees on a per-subscriber basis while wireline phone companies are assessed fees on a revenue basis, combining these categories would have required changing the basis on which wireless companies are assessed fees. In fiscal year 2014, after considering comments submitted on this issue, FCC decided not to adopt this change at this time. As a result of these actions, FCC has enhanced its regulatory process by better aligning fees to its division of FTEs by fee category and reflecting the current industry.
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| Federal Communications Commission | The Chairman of the FCC, as part of FCC's effort to reform its regulatory fee process, should perform an updated FCC FTE analysis by fee category and establish a process to assure that the FTE analysis be performed at least biennially, consistent with federal guidance on user fees. |
Closed – Implemented
TBPWe reported in 2012 that the Federal Communications Commission (FCC) assessed regulatory fees among industry sectors and fee categories based on obsolete data, with limited transparency. The Communications Act requires FCC to base its regulatory fees on the number of full-time equivalents (FTE) that perform regulatory tasks in certain bureaus, among other things. We found that FCC based its fiscal year 2011 regulatory fee assessments on its fiscal year 1998 division of FTEs among fee categories. FCC indicated that the agency had complied with its statutory authority by dividing fees among fee categories based on FTE data--although the data were from fiscal year 1998--since the statute does not proscribe a specific time for FCC to update its FTE analysis. FCC had not updated the FTE analysis on which it based its regulatory fees. As a result, after 13 years in a rapidly changing industry, FCC had not validated the extent to which its fees correlate to its workload in spite of major changes in the telecommunications industry. Moreover, FCC's practice was inconsistent with federal guidance on user fees. Because FCC used obsolete data in assessing regulatory fees, companies in some fee categories may have been subsidizing companies in others. We also identified alternative approaches of other fee-funded regulatory agencies that could be instructive as FCC considers reforms. For example, the Nuclear Regulatory Commission (NRC), Canadian Radio-television and Telecommunications Commission, and Federal Energy Regulatory Commission indicated that they assess fees based on an annually or biennially updated analysis of costs by industry sector. Therefore,we recommended, among other things, that FCC perform an updated FCC FTE analysis by fee category and establish a process to assure that the FTE analysis be performed at least biennially, consistent with federal guidance on user fees. In September 2015, we confirmed that FCC used current fiscal year 2012 FTE data to calculate regulatory fees by fee category for fiscal year 2013. In 2014, FCC established a policy to update its FTE analysis annually, beginning in fiscal year 2015, and to revise its regulatory fee assessments among fee categories biennially, based on these FTE counts. Furthermore, in May 2015, FCC published an updated FTE analysis as of October 1, 2014, thus implementing its policy change. As a result of these actions, FCC's regulatory fee process has (1) become better aligned with its current regulatory activities, and (2) includes a schedule for regularly updating its FTE analysis--which is consistent with federal guidance on user fees--and assessing regulatory fees among industry sectors to ensure that the two remain in alignment.
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| Federal Communications Commission | The Chairman of the FCC, as part of FCC's effort to reform its regulatory fee process, should increase the transparency of FCC's regulatory fee process by describing in each future year's NPRM and subsequent report, in sufficient detail for stakeholders to understand, the methodology and analysis used to divide fees among fee categories, including the year any FTE data used was collected, any additional information needed to explain the effect of other adjustments, and the amount of excess fees collected. |
Closed – Implemented
Federal Communications Commission (FCC) must by law assess annual regulatory fees on telecommunications entities to recover its entire appropriation, about $336 million in fiscal year 2011. These fees are designed to recover FCC's operating costs, covering its enforcement, policy, and rulemaking, international, and user information activities. Moreover, the Communications Act requires FCC to base its regulatory fees on the number of full-time equivalents (FTE) that perform regulatory tasks in certain bureaus, among other things. We reported in 2012 that FCC assessed regulatory fees among industry sectors and fee categories based on obsolete data, with limited transparency. With regard to transparency, we found that FCC's regulatory fee process lacked transparency because of the limited nature of the information FCC has published on it. In prior work, we had reported that the regulatory process is used to provide information on fees to Congress and stakeholders and to solicit stakeholder input. Therefore, when an agency has authority to adjust a fee through the regulatory process, as a first step towards improved transparency, it should make available to the public substantive information about recent and projected program costs and fee collections through its notices in the Federal Register. We found that while FCC's recent annual Reports and Orders on regulatory fees included FCC's fee rates, there was no discussion of FCC's current FTEs or costs related to each fee category. Moreover, FCC did not clearly explain in any of the Reports and Orders after fiscal year 2002 that the division of regulatory fees among fee categories was based on a fiscal year 1998 FTE analysis that was never updated. We found that this lack of information in FCC's regulatory-fee related Notices of Proposed Rulemaking (NPRM) and Reports and Orders had limited the ability of industry stakeholders to understand exactly how FCC had been determining its assessment of regulatory fees in recent years, and made it difficult for industry and other stakeholders to understand and provide input on fee assessments. In addition, we found a lack of transparency related to its collection of excess fees, in that FCC had not published the amount of excess fees collected in its NPRMs or Reports and Orders. As a result, some industry associations we spoke with were aware that FCC had collected excess regulatory fees, but most did not know the amount of these fees. We recommended that FCC Increase the transparency of FCC's regulatory fee process by describing in each future year's NPRM and subsequent report, in sufficient detail for stakeholders to understand, the methodology and analysis used to divide fees among fee categories, including the year any FTE data was collected, any additional information needed to explain the effect of other adjustments, and the amount of excess fees collected. In September 2016, we confirmed that FCC had implemented this recommendation. In fiscal years 2013 through 2016, in its NPRMs or subsequent reports, FCC described the methodology and analysis used to divide fees among fee categories, included the year of FTE data collected and used to divide the total fees among categories, and, at times incorporated additional information needed to explain the effect of other adjustments. Moreover, in fiscal years 2014 and 2016, FCC reported on the amount of excess fees collected and the year-to-date accumulated total of excess fees collected. FCC officials told us they plan to continue to report this information on excess fees regularly in coming years. As a result of these actions, FCC has significantly increased the transparency of its regulatory fee process, which should help stakeholders understand and have input into FCC's regulatory fee process.
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