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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

March 2009: 

Telecommunications: 

Long-Term Strategic Vision Would Help Ensure Targeting of E-rate Funds 
to Highest-Priority Uses: 

GAO-09-253: 

GAO Highlights: 

Highlights of GAO-09-253, a report to congressional requesters. 

Why GAO Did This Study: 

The Federal Communications Commission’s (FCC) Schools and Libraries 
Universal Service Support Mechanism—also known as the E-rate program—is 
a significant source of federal funding for information technology for 
schools and libraries, providing about $2 billion a year. As requested, 
GAO assessed issues related to the E-rate program’s long-term goals, 
including (1) key trends in the demand for and use of E-rate funding 
and the implications of these trends; (2) the rate of program 
participation, participants’ views on requirements, and FCC’s actions 
to facilitate participation; and (3) FCC’s performance goals and 
measures for the program and how they compare to key characteristics of 
successful goals and measures. To perform this work, GAO analyzed data 
going back to the first year of the program, surveyed a sample of 
participating schools and libraries, reviewed agency documents, and 
interviewed agency officials and program stakeholders. 

What GAO Found: 

Requests for E-rate funding consistently exceed the annual funding cap, 
and increased commitments for telecommunications and Internet services, 
combined with significant undisbursed funds, limit funding for wiring 
and components needed for data transmission. Although still exceeding 
available funds, total amounts requested have generally declined since 
2002, largely due to declining requests for wiring and components. 
Funding commitments in recent years reflect this trend, with the amount 
of funding for wiring and components outweighed by funding for 
telecommunications services and Internet access. In addition, a 
significant amount of committed funds are not disbursed to program 
participants; for commitments made in 1998 through 2006, about one-
quarter of the funds have not been disbursed. Unused funds are 
reallocated for use in future years but are still problematic because 
they preclude other applicants from being funded. 

Participation rates and participants’ views on program requirements 
indicate difficulties in the E-rate application process, which FCC and 
the Universal Service Administrative Company (USAC)—the program’s 
administrator—are taking steps to address. The participation rate among 
the more than 150,000 eligible schools and libraries is about 63 
percent, but participation rates among groups vary, from 83 percent 
among public schools to 13 percent among private schools. According to 
nonparticipants, a key circumstance influencing nonparticipation is the 
complexity of program requirements, even though participants reported 
that participation is becoming easier. Still, E-rate program data show 
that some funding is denied because applicants do not correctly carry 
out application procedures. In recent years, FCC and USAC have made 
changes intended to ease the process of participation for schools and 
libraries, such as giving applicants an opportunity to correct clerical 
errors in their applications. FCC officials said they will consider 
further changes to facilitate participation, but their primary interest 
is in protecting funds from improper use. 

FCC does not have performance goals for the E-rate program, and its 
performance measures are inadequate. In 1998, GAO first recommended 
that FCC develop specific performance goals and measures for the E-rate 
program in accordance with the Government Performance and Results Act 
of 1993. FCC set forth specific goals and measures for some of the 
intervening years, but it does not currently have performance goals in 
place. Further, the performance measures it adopted in 2007 lack key 
characteristics of successful performance measures, such as being tied 
to program goals. Performance goals and measures are particularly 
important for the E-rate program, as they could help FCC make well-
informed decisions about how to address trends in request for and use 
of funds. Without them, FCC is limited in its ability to efficiently 
identify and address problems with the E-rate program and better target 
funding to highest-priority uses. FCC’s piecemeal approach to 
performance goals and measures indicates a lack of a strategic vision 
for the program. 

What GAO Recommends: 

To ensure targeted and efficient use of program funds, FCC should (1) 
report to Congress on its strategic vision for the E-rate program, 
including long-term goals, and (2) report annually in its performance 
plan on undisbursed funding associated with expired funding 
commitments. FCC took no position on GAO’s recommendations, and USAC 
noted it stood ready to work with FCC to develop and report performance 
goals and measures. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/products/GAO-09-253]. Additional data on 
E-rate participation are available at GAO-09-254SP. For more 
information, contact Mark Goldstein at (202) 512-2843 or 
goldsteinm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Requests for E-rate Funding Consistently Exceed the Cap, and Increased 
Commitments for Priority 1 Services, Combined with Significant 
Undisbursed Funds, Limit Funding for Priority 2 Services: 

The E-rate Application Process Poses Difficulties for Some Entities, 
Which FCC and USAC Are Taking Steps to Address: 

FCC Lacks Performance Goals for E-rate Program, and Recently Adopted 
Performance Measures Are Inadequate: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Federal Communications Commission: 

Appendix III: Comments from the Universal Service Administrative 
Company: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Discount Percentage That E-rate Applicants Are Eligible for 
Based on the Proportion of Students Eligible for the National School 
Lunch Program: 

Table 2: Summary of Past GAO Findings and Recommendations on E-rate 
Performance Goals and Measures and FCC’s Response: 

Table 3: Service Categories Used for Analysis and Reporting: 

Table 4: Sample Design for Survey of E-rate Participants: 

Figures: 

Figure 1: E-rate Application, Funding, and Reimbursement Processes: 

Figure 2: Amounts Requested, by Service Category, and Annual Funding 
Levels, 1998-2007: 

Figure 3: Requests for Telecommunications Services and Internet Access, 
by Number of Applicants and Amounts Requested, 1998-2007: 

Figure 4: Requests for Internal Connections, by Number of Applicants 
and Amounts Requested, 1998-2007: 

Figure 5: Amounts Committed for Telecommunications Services, Internet 
Access, and Internal Connections, 1998-2007: 

Figure 6: E-rate Applicants, by Percentage of Original Funding Request 
Received, 1998-2007: 

Figure 7: Percentage of Committed Funding That Was Disbursed, by 
Service Category, 1998-2006: 

Figure 8: Proportion of Entities Receiving Disbursements for 75 Percent 
or More of Funding Commitment, Less than 75 Percent of Funding 
Commitment, and None, 1998-2006: 

Figure 9: Disbursed Funds, by Percentage and Dollar Amount, 1998-2006: 

Figure 10: Participation of Public Schools, Private Schools, and 
Libraries in the E-rate Program, by Number and Percentage, 2005: 

Figure 11: Participants’ Views on Whether Participating in the E-rate 
Program Is Easier, More Difficult, or about the Same, Compared with 
2005: 

Figure 12: Percentage of Participants That Find Program Elements Very 
or Somewhat Difficult: 

Figure 13: E-rate Resources Rated Extremely Useful or Very Useful by 
Participants: 

Figure 14: Changes to the E-rate Program Strongly or Somewhat Favored 
by More Than Half of Participants: 

Abbreviations: 

ADA: Antideficiency Act: 

ALA: American Library Association: 

CCD: Common Core of Data: 

CIPA: Children’s Internet Protection Act: 

FCC: Federal Communications Commission: 

GPRA: Government Performance and Results Act of 1993: 

NCES: National Center for Education Statistics: 

NPRM: Notice of Proposed Rulemaking: 

OMB: Office of Management and Budget: 

PIA: program integrity assurance: 

PLS: Public Library Survey: 

PSS: Private School Universe Survey: 

STARS: Streamlined Tracking and Application Review System: 

USAC: Universal Service Administrative Company: 

USF: Universal Service Fund: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 27, 2009: 

The Honorable Joe Barton: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Greg Walden: 
Ranking Member: 
Subcommittee on Oversight and Investigations: 
Committee on Energy and Commerce: 
House of Representatives: 

The Federal Communications Commission’s (FCC) Schools and Libraries 
Universal Service Support Mechanism is a significant source of federal 
support for technology funding for schools and libraries, providing 
about $2 billion each year to help eligible entities procure 
telecommunications and Internet services—including the installation of 
wiring and components needed to transmit data. “Universal service” 
traditionally has meant providing residential customers with affordable 
nationwide access to basic telephone service. The Telecommunications 
Act of 1996 expanded the concept of universal service to include 
assistance to schools and libraries for the acquisition of 
telecommunications and Internet services. Created in 1997 pursuant to 
Section 254(h) of the act, the Schools and Libraries Universal Service 
Support Mechanism—also commonly referred to as the E-rate program 
[Footnote 1]—is similar to a grant program in that schools and 
libraries apply annually for support and, if approved, receive 
discounts for eligible services actually received. FCC designated a not-
for-profit corporation, the Universal Service Administrative Company 
(USAC) to carry out the day-to-day operations of the program and capped 
the amount of funding provided by the program at $2.25 billion a 
year.[Footnote 2] From 1998—the first funding year of the program—to 
2007, USAC made funding commitments of nearly $22 billion to schools 
and libraries across the country to help pay telephone bills and 
Internet access fees, and to install network wiring and components. In 
the years since the program was established, schools and school 
districts have come to rely heavily on telecommunications networks to 
deliver educational content and to administer student achievement 
tests. Public-access computer terminals in libraries, particularly 
those in economically disadvantaged and insular areas, are in high 
demand as the Internet becomes more integral to obtaining government 
services and participating in commerce. At the same time, FCC is re-
evaluating the purpose, management, and structure of the Universal 
Service Fund (USF) and its support programs[Footnote 3]—including E-
rate. The issues FCC is examining include whether USAC is administering 
the USF in an effective, efficient, and competitively neutral manner; 
what types of performance measures are appropriate for the universal 
service support programs; how to strengthen oversight of the USF and 
its support programs; and how to improve the support program’s 
application processes and reduce the administrative burden on 
applicants while still maintaining sufficient control over funds. 

In the interest of assessing certain fundamental issues related to the 
E-rate program’s long-term goals and determining whether FCC has the 
information it needs to properly manage the program and to use its 
resources efficiently, we were asked to address the following 
questions: 

* What are key trends in the demand for and use of E-rate funding and 
what are the implications of these trends? 

* To what extent do eligible entities apply for E-rate funds, how well 
do applicants navigate the E-rate program’s requirements, and what 
steps is FCC taking to facilitate program participation? 

* What are FCC’s performance goals and measures for the E-rate program, 
and how do they compare to key characteristics of successful goals and 
measures?[Footnote 4] 

To answer these questions, we analyzed data from USAC on applications, 
funding commitments, and disbursements for the first 10 years of the E-
rate program. We obtained from the Department of Education’s National 
Center for Education Statistics the most recent complete listings of 
public schools, private schools, and libraries, and compared these 
listings to the entities that applied for E-rate funding during a 
comparable time period. We used this comparison as a basis to determine 
the rates at which eligible entities participated in the E-rate program 
and characteristics of participants and nonparticipants. We determined 
that the data obtained from USAC and the Department of Education were 
sufficiently reliable for the purposes specified. We interviewed six 
nonparticipants chosen on the basis of their entity type—public school, 
private school, or library—and whether they were located in a rural or 
urban area to obtain anecdotal information on reasons eligible entities 
do not apply for support. We conducted a Web-based survey of 697 
beneficiaries selected by drawing a stratified, random sample from 
about 31,000 applications for funding year 2006 to obtain their views 
on program requirements and how to improve the program, among other 
things. This report does not contain all of the results from the 
survey; the survey and a more complete tabulation of the results, as 
well as detailed statistics on the results of our participation 
analysis, can be viewed at GAO-09-254SP. We reviewed FCC documentation 
on the agency’s performance goals and measures for the E-rate program 
and compared this information with literature on results-oriented 
management and effective practices for setting performance goals and 
measures. We interviewed officials from FCC’s Office of Managing 
Director, Office of Inspector General, and Wireline Competition Bureau 
to identify actions undertaken to address previously identified 
problems and plans to address issues of concern in the program; 
officials from USAC’s Schools and Libraries Division, Office of General 
Counsel, and Office of Finance to collect information on program 
operations and USAC’s actions to implement prior FCC orders on E-rate; 
and representatives of E-rate stakeholder groups. See appendix I for 
additional information on our scope and methodology. 

We conducted this performance audit from July 2007 to March 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

The Telecommunications Act of 1996 sets forth the nation’s goals for 
providing affordable telecommunications services to consumers 
nationwide, particularly to populations such as individuals living in 
rural, isolated, or high-cost areas, or those with low incomes; schools 
and libraries; and rural health care facilities. The act instructed FCC 
to establish a universal service support mechanism to ensure that 
eligible schools and libraries have affordable access to and use of 
certain telecommunications services for educational purposes.[Footnote 
5] In addition, Congress authorized FCC to “establish competitively 
neutral rules to enhance, to the extent technically feasible and 
economically reasonable, access to advanced telecommunications and 
information services for all public and nonprofit elementary and 
secondary school classrooms...and libraries....”[Footnote 6] Based on 
this direction, and following the recommendations of the Federal-State 
Joint Board on Universal Service,[Footnote 7] FCC established the 
Schools and Libraries Universal Service Support Mechanism, commonly 
referred to as the E-rate program. FCC designated USAC to carry out the 
day-to-day activities of the program,[Footnote 8] which is funded from 
statutorily mandated payments to the Universal Service Fund. FCC 
oversees USAC and the program through rule-making proceedings, 
enforcement actions, audits of participants, and reviews of funding 
decision appeals from participants. FCC also reviews USAC’s procedures, 
including its process for reviewing applications for funding; meets 
frequently with USAC staff; and provides guidance letters to USAC. A 
memorandum of understanding between FCC and USAC, first executed in 
June 2007 and updated in September 2008, as well as FCC orders and 
rules, set forth the roles and responsibilities of the two parties in 
the management, oversight, and administration of the program.[Footnote 
9] 

The E-rate program provides schools, school districts, libraries, and 
consortia[Footnote 10] with discounts on telecommunications services, 
Internet access, and data transmission wiring and components used for 
educational purposes—that is, activities that are integral, immediate, 
or proximate to the education of students or to the provision of 
services to library patrons, such as activities that occur on library 
or school property.[Footnote 11] Based on indicators of need, eligible 
schools and libraries qualify for a discount of 20 percent to 90 
percent on the cost of services and must show that they can pay for the 
undiscounted portion of services. Indicators of need include the 
percentage of students eligible for free or reduced-price lunches 
through the National School Lunch Program[Footnote 12] and whether the 
entity is located in a rural area.[Footnote 13] Table 1 shows the 
discount percentages entities are eligible for based on these 
indicators. Eligible entities may apply annually for program support. 

Table 1: Discount Percentage That E-rate Applicants Are Eligible for 
Based on the Proportion of Students Eligible for the National School 
Lunch Program: 

Students eligible for National School Lunch Program: Less than 1%; 
E-rate program discount for urban applicants: 20%; 
E-rate program discount for rural applicants: 25%. 

Students eligible for National School Lunch Program: 1-19%; 
E-rate program discount for urban applicants: 40%; 
E-rate program discount for rural applicants: 50%. 

Students eligible for National School Lunch Program: 20-34%; 
E-rate program discount for urban applicants: 50%; 
E-rate program discount for rural applicants: 60%. 

Students eligible for National School Lunch Program: 35-49%; 
E-rate program discount for urban applicants: 60%; 
E-rate program discount for rural applicants: 70%. 

Students eligible for National School Lunch Program: 50-74%; 
E-rate program discount for urban applicants: 80%; 
E-rate program discount for rural applicants: 80%. 

Students eligible for National School Lunch Program: 75-100%; 
E-rate program discount for urban applicants: 90%; 
E-rate program discount for rural applicants: 90%. 

Source: 47 C.F.R. 54.505(c). 

[End of table] 

Based on the broad direction in the act, FCC defined two general types 
of services that are eligible for E-rate discounts: 

* Priority 1 services, which include telecommunications services, such 
as local, long-distance, and wireless (e.g., cellular) telephone 
services, as well as data links (e.g., T-1 lines) and Internet access 
services, such as Web hosting and e-mail services—all of which receive 
priority for funding under FCC’s rules;[Footnote 14] and; 

* Priority 2 services, which include cabling, components, routers, 
switches, and network servers that are necessary to transport 
information to individual classrooms, public rooms in a library, or 
eligible administrative areas, as well as basic maintenance of internal 
connections, such as the repair and upkeep of eligible hardware and 
basic technical support. 

Lists of specific eligible services, including the conditions under 
which they are eligible, are updated annually by USAC, finalized by FCC 
after a public comment period, and posted on USAC’s Web site. Items 
ineligible for E-rate discounts include, among other things, end-user 
products and services such as Internet content, Web site content 
maintenance fees, end-user personal computers, and end-user software. 

All eligible and properly completed requests for Priority 1 services 
are funded up to the available amount of funding.[Footnote 15] Priority 
2 services, herein referred to as internal connections, are funded with 
what remains after commitments have been made for all approved requests 
for Priority 1 services in a given year. Requests for internal 
connections services are prioritized by the discount level of the 
applicant, with funding going first to applicants with the highest 
discount level—90 percent—and then to applicants at each descending 
discount level until the funding is exhausted; in 2007, for example, 
internal connections funding was provided to applicants with discount 
levels down to 81 percent.[Footnote 16] Because of this prioritization, 
available funding may be exhausted before all eligible and properly 
completed requests for internal connections are funded. According to 
FCC, the rules of priority equitably provide the greatest assurance of 
support to schools and libraries with the greatest level of economic 
disadvantage. The rules ensure that all applicants filing during a time 
period specified by USAC receive at least some support in the event 
that the amounts requested for support exceed the total support 
available in a funding year.[Footnote 17] 

The steps applicants must carry out to obtain program support—including 
the application, review, invoicing, and reimbursement processes—are 
illustrated in figure 1. This figure is followed by a more detailed 
description of each of these steps. 

Figure 1: E-rate Application, Funding, and Reimbursement Processes: 

[Refer to PDF for image: illustration] 

Applicant: Assesses technology needs to develop technology plan; 

Applicant: Files form describing products and services sought; 

USAC: Acknowledges receipt of form and posts to Web site; 

Service provider: Obtains service provider identification number and 
annually certifies it will comply with FCC rules; 

Service provider: Searches and responds to applicant requests; 

Applicant: Selects service provider; 

USAC: Publishes annual eligible services list 

Applicant: Calculates discount percentage and selects eligible 
services; 

Applicant: Submits application for program support; 

USAC: Acknowledges receipt; 

USAC: Reviews applications; may request additional information and/or 
documentation; 

Applicant: Responds to reviewer’s requests; 

USAC: Makes funding decision; issues funding decision commitment 
letters; 

USAC: Partially or fully denied; 
- Applicant: May appeal decision (Occurs only under certain 
circumstances); 
- Service provider: May appeal decision; (Occurs only under certain 
circumstances); 

USAC: Funded; 

Service provider: Consults with applicant to determine invoicing 
method; 

Service provider: Begins providing services; 
- May provide discounts on applicant’s bills and invoice USAC directly; 

Applicant: Begins receiving services; submits form confirming receipt 
of services; 

USAC: Acknowledges receipt of form; 

Applicant: May pay service provider full cost of services; with service 
provider, jointly requests reimbursement of discounted portion (Occurs 
only under certain circumstances); 
- USAC: Reviews invoices and reimburses service provider for discounted 
portion; may request additional information or documentation (Occurs 
only under certain circumstances); 
- Service provider: May remit discount amount to applicant, if 
appropriate (Occurs only under certain circumstances); 
- Applicant: May receive reimbursement from service provider (Occurs 
only under certain circumstances). 

Source: GAO analysis of FCC and USAC information. 

[End of figure] 

Prior to submitting an application for E-rate support, an applicant 
must complete several steps, including the following: 

* Prepare a technology plan. The applicant conducts a technology 
assessment and develops a technology plan to ensure that any services 
it obtains will be used effectively and that it can provide for the 
nondiscounted portion of services as well as for the goods or services 
that are ineligible for E-rate funding.[Footnote 18] 

* Open competitive bidding. The applicant identifies products and 
services needed to implement its technology plan and submits a form to 
USAC describing the desired products and services. USAC posts completed 
forms on its Web site so that service providers can view and consider 
bidding on these requests.[Footnote 19] To participate in the E-rate 
program, service providers must obtain identification numbers from USAC 
and certify compliance with program rules in each year that they 
provide services under the program.[Footnote 20] 

* Select a service provider and enter into a service agreement. At 
least 28 days after the applicant’s description of requested services 
is posted to USAC’s Web site,[Footnote 21] an applicant may enter into 
an agreement with a provider of eligible services.[Footnote 22] 

After completing these steps, the applicant submits its application for 
program support to USAC. USAC accepts applications during a filing 
window, the exact dates for which change somewhat each year but are 
generally from November to February.[Footnote 23] The information the 
applicant provides on this form, includes, but is not limited to, the 
following: 

* the discount percentage to which the applicant is entitled, 
calculated using a worksheet provided on the application;[Footnote 24] 

* detailed information about each requested service or product and its 
cost—some services have both eligible and ineligible components, in 
which case the applicant must calculate the portion of the service 
eligible for an E-rate discount, a process referred to as cost 
allocation; and; 

* certifications that, among other things, the applicant has adequately 
budgeted for the undiscounted portion of services, as well as related 
ineligible services—such as computers, training, software, and 
electrical capacity—needed to make effective use of the services 
ordered.[Footnote 25] 

USAC reviews requests for funding to determine whether applicants have 
properly complied with program rules and requirements; this process is 
known as the program integrity assurance (PIA) review. Reviewers may 
ask applicants to submit additional information, such as verification 
of a contract award date or enrollment and income data for newly 
constructed schools. Some applications undergo “selective” reviews, 
which require more detailed documentation that the applicant has 
complied with the rules. Applicants are chosen for selective review 
based on defined criteria to test compliance with specific FCC rules. 
Additionally, applicants that fail selective review in a given year 
must go through selective review the following year. 

Based on the outcome of the application review, USAC issues funding 
commitment decision letters stating how much funding the applicant may 
receive based on eligible services provided within the funding year 
deadlines. Funding commitments are conditional upon applicants meeting 
additional requirements as described later. Funding commitments may be 
for the full amount requested or less than the amount requested, or 
funding may be denied entirely for reasons such as competitive bidding 
violations or requests for ineligible services. Funding requests for 
Priority 2 services may also be denied if the applicant’s discount 
percentage falls below the annual discount percentage threshold for 
internal connections. 

After eligible services have been delivered, service providers or 
applicants submit invoices to USAC to request reimbursement for the 
discounted portion of services. Before seeking reimbursement for the 
discounted portion of services from USAC, applicants must confirm (1) 
that the services are planned to be or are being provided; (2) approval 
of their technology plans by a state or other authorized body, if 
required; and (3) compliance with the Children’s Internet Protection 
Act (CIPA) and the Neighborhood Children’s Internet Protection Act, if 
required.[Footnote 26] Under these acts, if required, schools and 
libraries receiving support for Internet access, internal connections, 
or basic maintenance must certify that they have in place certain 
Internet safety policies and technology protection measures. Funding 
requests for telecommunications services do not require certification 
of CIPA compliance. Service providers may apply the discount rate to 
the applicant’s bill before sending it to the applicant, in which case 
the applicant pays only the nondiscounted portion and the service 
provider invoices USAC directly to obtain reimbursement. Alternatively, 
applicants may pay for services in full and submit a form to USAC to 
request reimbursement. Regardless of which invoicing method is used, 
USAC reviews the invoices and disburses payments for universal service 
support to service providers; under the latter method, service 
providers remit the discounted amount to the applicant. To ensure 
compliance with FCC rules, both USAC and FCC’s Office of Inspector 
General periodically select a sample of participants to audit and 
conduct site visits of beneficiaries.[Footnote 27] 

Requests for E-rate Funding Consistently Exceed the Cap, and Increased 
Commitments for Priority 1 Services, Combined with Significant 
Undisbursed Funds, Limit Funding for Priority 2 Services: 

Each year from 1998 through 2007, the amount of funding applicants 
requested exceeded the amount available, but the amounts requested have 
generally declined since 2002, with most of the decline driven by fewer 
requests for Priority 2 services—the wiring and components needed for 
data transmission.[Footnote 28] Although requests for Priority 1 
services—that is, telecommunications and Internet access—have remained 
roughly level since 2002, commitments have increased, at least in part, 
because applicants received a greater proportion of the funds they 
requested. The increasing amounts committed for Priority 1 services has 
the effect of decreasing the amounts available for Priority 2 services, 
which are funded only after all eligible Priority 1 services requests 
are satisfied. Regarding disbursements, a significant proportion of 
committed funds are not paid out to beneficiaries. Funding that is not 
disbursed in the year for which it was committed is carried over to the 
next funding year and made available for new commitments, but 
undisbursed funding is still problematic because it prevents some 
applicants from receiving funding in a given year.[Footnote 29] 

Requests Consistently Outweigh Available Funding: 

From 1998 through 2007, applicants requested a total of about $41 
billion in E-rate funding—174 percent of the $23.4 billion in program 
funding available during that time. Further, in each of these years, 
the amounts requested exceeded the amounts available. However, the 
amounts requested have generally declined since 2002. Figure 2 shows 
the annual funding levels and the amount of E-rate funding requested 
for Priority 1 services and Priority 2 services for each year from 1998 
through 2007. 

Figure 2: Amounts Requested, by Service Category, and Annual Funding 
Levels, 1998-2007 (Dollars in billions): 

Year: 1998; 
Telecommunications services and Internet access (Priority 1): 
$703,827,136; 
Internal connections (Priority 2): $1,615,137,152; 
Annual funding level: $1,925,001,008. 

Year: 1999; 
Telecommunications services and Internet access (Priority 1): 
$962,829,120; 
Internal connections (Priority 2): $1,830,787,456; 
Annual funding level: $2,250,001,408. 

Year: 2000; 
Telecommunications services and Internet access (Priority 1): 
v1,185,169,536; 
Internal connections (Priority 2): $3,284,595,968; 
Annual funding level: $2,250,001,408. 

Year: 2001; 
Telecommunications services and Internet access (Priority 1): 
$1,460,093,952; 
Internal connections (Priority 2): $3,533,652,736; 
Annual funding level: $2,250,001,408. 

Year: 2002; 
Telecommunications services and Internet access (Priority 1): 
$1,815,132,800; 
Internal connections (Priority 2): $3,974,933,760; 
Annual funding level: $2,250,001,408. 

Year: 2003; 
Telecommunications services and Internet access (Priority 1): 
$1,785,017,728; 
Internal connections (Priority 2): $2,992,768,256; 
Annual funding level: $2,670,001,664. 

Year: 2004; 
Telecommunications services and Internet access (Priority 1): 
$1,596,062,848; 
Internal connections (Priority 2): $2,797,761,024; 
Annual funding level: $2,400,002,560. 

Year: 2005; 
Telecommunications services and Internet access (Priority 1): 
$1,548,793,344; 
Internal connections (Priority 2): $2,164,715,008; 
Annual funding level: $2,250,001,408. 

Year: 2006; 
Telecommunications services and Internet access (Priority 1): 
$1,685,786,752; 
Internal connections (Priority 2): $1,928,586,496; 
Annual funding level: $2,250,001,408. 

Year: 2007; 
Telecommunications services and Internet access (Priority 1): 
$1,795,144,448; 
Internal connections (Priority 2): $2,026,550,400; 
Annual funding level: $2,900,001,536. 

Source: GAO analysis of USAC data. 

Note: The funding level was higher in the years when USAC carried over 
unused funds from prior years. 

[End of figure] 

Since 2002, the number of applicants and the amounts requested for 
Priority 1 services have been stable. As figure 3 shows, the number of 
applicants for telecommunications services has been generally stable 
since 1998, and the number of applicants for Internet access, after 
showing an increase the first few years of the program, has been 
roughly level since 2002. From 2002 through 2007, the amounts requested 
for Priority 1 services have also been relatively stable. 

Figure 3: Requests for Telecommunications Services and Internet Access, 
by Number of Applicants and Amounts Requested, 1998-2007: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $0.7 billion; 
Number of applicants for Internet access (Priority 1): 5,908; 
Number of applicants for telecommunications services (Priority 1): 
19,969. 

Year: 1999; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $0.96 billion; 
Number of applicants for Internet access (Priority 1): 9,236; 
Number of applicants for telecommunications services (Priority 1): 
22,470. 

Year: 2000; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.19 billion; 
Number of applicants for Internet access (Priority 1): 11,353; 
Number of applicants for telecommunications services (Priority 1): 
20,040. 

Year: 2001; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.46 billion; 
Number of applicants for Internet access (Priority 1): 12,112; 
Number of applicants for telecommunications services (Priority 1): 
19,982. 

Year: 2002; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.82 billion; 
Number of applicants for Internet access (Priority 1): 13,201; 
Number of applicants for telecommunications services (Priority 1): 
22,197. 

Year: 2003; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.79 billion; 
Number of applicants for Internet access (Priority 1): 13,459; 
Number of applicants for telecommunications services (Priority 1): 
22,112. 

Year: 2004; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.6 billion; 
Number of applicants for Internet access (Priority 1): 12,751; 
Number of applicants for telecommunications services (Priority 1): 
21,765. 

Year: 2005; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.6 billion; 
Number of applicants for Internet access (Priority 1): 12,803; 
Number of applicants for telecommunications services (Priority 1): 
21,550. 

Year: 2006; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.69 billion; 
Number of applicants for Internet access (Priority 1): 13,192; 
Number of applicants for telecommunications services (Priority 1): 
21,427. 

Year: 2007; 
Amount requested for telecommunications services and Internet access 
(Priority 1): $1.8 billion; 
Number of applicants for Internet access (Priority 1): 13,560; 
Number of applicants for telecommunications services (Priority 1): 
21,619. 

Source: GAO analysis of USAC data. 

[End of table] 

In contrast, the number of applicants and amounts requested for 
Priority 2 services have declined for the past several years, 
accounting for most of the decline in the overall amount of funding 
requested. The amount of funding requested for Priority 2 services 
declined 50 percent from 2002 through 2007. (See fig. 4.) The ratio of 
funding requested for Priority 2 services to that requested for 
Priority 1 services has also shifted significantly. From 1998 through 
2002, funding for Priority 2 services was sought at a rate of 2.3 to 1 
over funding for Priority 1 services, while from 2003 through 2007, 
this ratio was 1.4 to 1. 

Figure 4: Requests for Internal Connections, by Number of Applicants 
and Amounts Requested, 1998-2007: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Amount requested for internal connections (Priority 2): $1.62 billion; 
Number of applicants for internal connections (Priority 2): 5,853; 

Year: 1999; 
Amount requested for internal connections (Priority 2): $1.83 billion; 
Number of applicants for internal connections (Priority 2): 4,832. 

Year: 2000; 
Amount requested for internal connections (Priority 2): $3.28 billion; 
Number of applicants for internal connections (Priority 2): 11,924. 

Year: 2001; 
Amount requested for internal connections (Priority 2): $3.53 billion; 
Number of applicants for internal connections (Priority 2): 10,594. 

Year: 2002; 
Amount requested for internal connections (Priority 2): $3.97 billion; 
Number of applicants for internal connections (Priority 2): 8,418. 

Year: 2003; 
Amount requested for internal connections (Priority 2): $2.99 billion; 
Number of applicants for internal connections (Priority 2): 7,006. 

Year: 2004; 
Amount requested for internal connections (Priority 2): $2.8 billion; 
Number of applicants for internal connections (Priority 2): 6,888. 

Year: 2005; 
Amount requested for internal connections (Priority 2): $2.16 billion; 
Number of applicants for internal connections (Priority 2): 9,236. 

Year: 2006; 
Amount requested for internal connections (Priority 2): $1.93 billion; 
Number of applicants for internal connections (Priority 2): 8,609. 

Year: 2007; 
Amount requested for internal connections (Priority 2): $2.03 billion; 
Number of applicants for internal connections (Priority 2): 8,037. 

Source: GAO analysis of USAC data. 

[End of figure] 

The following factors may help explain the decrease in requests for
Priority 2 services (internal connections). 

* In 1999, the second funding year, Priority 2 requests were funded down
to the 20 percent discount level, which means that all eligible requests
could be funded.[Footnote 30] As a result, according to USAC, many 
entities with lower discounts applied the following years, hoping that 
the Priority 2 cutoff point would be similarly low; this is consistent 
with the dramatic increase in the number of applicants and amount 
requested in 2000. But the cutoff point in the following 3 years was in 
the 80 percent range, and, as a result, according to USAC officials, 
there was a gradual drop-off in Priority 2 requests from entities with 
lower discounts. According to FCC, entities with low discount levels 
stopped applying for Priority funding because they knew that their 
requests would not receive funding. 

* A second factor is an FCC rule implemented in 2005 that limited 
applicants’ receipt of Priority 2 funding to 2 out of every 5 years, 
reducing the number of applicants for these services in a given year. 
[Footnote 31] FCC adopted this rule in order to make funding for 
internal connections available to more eligible schools and libraries 
on a regular basis. 

The emphasis on Priority 1 services is likely to continue, according to 
our analysis of survey responses on future information technology 
goals.[Footnote 32] We asked respondents about a number of goals 
related to telephone and Internet connectivity and equipment needed to 
make use of such connectivity; items in the survey included both those 
eligible for E-rate discounts and those not eligible.[Footnote 33] Our 
analysis of responses to this question shows that participants are 
somewhat more focused on goals related to maintaining existing 
information technology services than on those related to adding new 
capabilities. For instance, we estimate that providing telephone 
services is a goal for 96 percent of participants and providing access 
to the Internet is a goal for 91 percent to 94 percent[Footnote 34] of 
participants; in contrast, installing or upgrading wiring and 
components needed for Internet or network access is a goal for 73 
percent to 74 percent of participants.[Footnote 35] Similarly, when we 
asked what participants’ highest-priority information technology goals 
were, the E-rate-eligible expenses cited most often were providing (1) 
telephone services, (2) additional bandwidth to locations already 
equipped with Internet access, and (3) Internet access for student or 
library patron use. According to our analysis of survey responses, the 
highest-priority goal of participants is increasing the number of or 
replacing existing computers for student or library patron use but the 
E-rate program does not cover either. 

While the E-rate program’s statutory purpose is to help schools and 
libraries obtain advanced telecommunication services, it is not clear 
whether the growing emphasis on Priority 1 services and the 
corresponding decline in emphasis on Priority 2 services represent the 
most efficient and effective use of the program resources.[Footnote 36] 
As the Office of Management and Budget (OMB) noted in a 2005 assessment 
of the E-rate program, given the increase in schools’ and libraries’ 
level of Internet connectivity, it is no longer clear that the program 
serves an existing need.[Footnote 37] Similarly, it is difficult to 
determine whether the program’s funding structure—including the 
priority rules and the discount matrix, which contributes to the trends 
in funding—is the best way to distribute funding in a manner consistent 
with the program’s intent. As we discuss below, FCC does not have 
specific, outcome-oriented performance goals or long-term goals for the 
program, and therefore the agency does not have a basis on which to 
determine whether the growing emphasis on Priority 1 services is 
appropriate. FCC’s rule-making proceeding on universal service reform, 
which is discussed in more detail in the following section, has been 
ongoing since 2005, but FCC has not made a determination—either as part 
of this proceeding or otherwise—as to what changes, if any, should be 
made to the overall structure of the program to better achieve the 
goals of the act. 

Increased Commitments for Priority 1 Services Leave Less Funding for 
Priority 2 Services: 

Similar to the trend in funding requests, funding commitments also show 
a growing emphasis on Priority 1 services. During the first years of 
the program, more funding was committed for Priority 2 services than 
for Priority 1 services, but this trend reversed in 2004 and continued 
through 2007, as figure 5 shows. Although commitments for Priority 2 
services increased in 2007, they were outweighed by commitments for 
Priority 1 services by 64 percent. 

Figure 5: Amounts Committed for Telecommunications Services, Internet 
Access, and Internal Connections, 1998-2007: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Internal connections (Priority 2): $0.88 billion; 
Telecommunications services (Priority 1): $0.68 billion; 
Internet access (Priority 1): $0.13 billion. 

Year: 1999; 
Internal connections (Priority 2): $1.38 billion; 
Telecommunications services (Priority 1): $0.63 billion; 
Internet access (Priority 1): $0.15 billion. 

Year: 2000; 
Internal connections (Priority 2): $1.14 billion; 
Telecommunications services (Priority 1): $0.72 billion; 
Internet access (Priority 1): $0.22 billion. 

Year: 2001; 
Internal connections (Priority 2): $1.19 billion; 
Telecommunications services (Priority 1): $0.76 billion; 
Internet access (Priority 1): $0.22 billion. 

Year: 2002; 
Internal connections (Priority 2): $1.17 billion; 
Telecommunications services (Priority 1): $0.86 billion; 
Internet access (Priority 1): $0.25 billion. 

Year: 2003; 
Internal connections (Priority 2): $1.54 billion; 
Telecommunications services (Priority 1): $0.91 billion; 
Internet access (Priority 1): $0.28 billion. 

Year: 2004; 
Internal connections (Priority 2): $1.05 billion; 
Telecommunications services (Priority 1): $0.95 billion; 
Internet access (Priority 1): $0.26 billion. 

Year: 2005; 
Internal connections (Priority 2): $0.90 billion; 
Telecommunications services (Priority 1): $0.96 billion; 
Internet access (Priority 1): $0.26 billion. 

Year: 2006; 
Internal connections (Priority 2): $0.63 billion; 
Telecommunications services (Priority 1): $1.06 billion; 
Internet access (Priority 1): $0.29 billion. 

Year: 2007; 
Internal connections (Priority 2): $0.87 billion; 
Telecommunications services (Priority 1): $1.13 billion; 
Internet access (Priority 1): $0.30 billion. 

Source: GAO analysis of USAC data. 

[End of figure] 

From 1999 through 2007, the amounts committed annually for 
telecommunications services increased each year for a total increase of 
79 percent, and the amounts committed annually for Internet access 
nearly doubled. The increase in amounts committed for Priority 1 
services is a result of individual applicants receiving a greater 
proportion of the funding they request, and not a result of an 
increasing number of requests because, as noted earlier, the number of 
requests for these services has not been growing at a substantial rate. 
As figure 6 shows, the proportion of requested funding that applicants 
receive as a commitment has been increasing, with about half of 
applicants receiving 75 percent or more of the amount they requested in 
2000 and almost 80 percent of applicants receiving 75 percent or more 
in 2007. 

Figure 6: E-rate Applicants, by Percentage of Original Funding Request 
Received, 1998-2007: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Applicants that received 75% or more of their original request: 58.1%; 
Applicants that received less than 75% of their original request: 
34.5%; 
Applicants that received no funding: 7.4%. 

Year: 1999; 
Applicants that received 75% or more of their original request: 75%; 
Applicants that received less than 75% of their original request: 
17.4%; 
Applicants that received no funding: 7.7%. 

Year: 2000; 
Applicants that received 75% or more of their original request: 48.8%; 
Applicants that received less than 75% of their original request: 
37.6%; 
Applicants that received no funding: 13.6%. 

Year: 2001; 
Applicants that received 75% or more of their original request: 52.9%; 
Applicants that received less than 75% of their original request: 
32.7%; 
Applicants that received no funding: 14.4%. 

Year: 2002; 
Applicants that received 75% or more of their original request: 61%; 
Applicants that received less than 75% of their original request: 
25.2%; 
Applicants that received no funding: 13.8%. 

Year: 2003; 
Applicants that received 75% or more of their original request: 71.6%; 
Applicants that received less than 75% of their original request: 
18.8%; 
Applicants that received no funding: 9.5%. 

Year: 2004; 
Applicants that received 75% or more of their original request: 67.8%; 
Applicants that received less than 75% of their original request: 
20.8%; 
Applicants that received no funding: 11.4%. 

Year: 2005; 
Applicants that received 75% or more of their original request: 72.6%; 
Applicants that received less than 75% of their original request: 
17.4%; 
Applicants that received no funding: 10%. 

Year: 2006; 
Applicants that received 75% or more of their original request: 73.1%; 
Applicants that received less than 75% of their original request: 19%; 
Applicants that received no funding: 7.8%. 

Year: 2007; 
Applicants that received 75% or more of their original request: 78.5%; 
Applicants that received less than 75% of their original request: 
15.1%; 
Applicants that received no funding: 6.4%. 

Source: GAO analysis of USAC data. 

[End of figure] 

In addition to the proportion of dollars committed in each of these 
service categories, the proportion of participants that receive 
commitments in these categories is important, particularly when 
considering whether funds are being targeted appropriately. Based on 
our survey, we estimate that 99 percent of participants have used E-
rate to pay for telephone services, and around 75 percent have used E-
rate to pay for access to the Internet, whereas 36 percent to 38 
percent of participants have used E-rate to install or upgrade wired 
internal connections[Footnote 38] and 20 percent to 24 percent have 
used it to install or upgrade wireless internal connections.[Footnote 
39] USAC stated that it is likely that the lower usage levels for 
internal connections are due to the inherent limitations that the 
funding cap places on access to Priority 2 funding. 

The increasing success of applicants requesting Priority 1 services has 
implications for the amount of funding available in future years for 
Priority 2 services and, accordingly, for how FCC manages the E-rate 
program and whether the program’s existing structure is still suitable 
to best meet the current technology needs of schools and libraries. 
From 2002 through 2007, requests for Priority 1 services averaged 69 
percent of available funding; if a substantially higher proportion of 
such requests had been funded, a smaller percentage of funding would 
have been available for Priority 2 requests. As it was, from 1998 
through 2007, after eligible requests for Priority 1 services were 
satisfied, only about one-third of all requests for Priority 2 services 
were able to be funded. Without clearly defined, long-term goals, as 
well as specific short-term goals, FCC lacks a basis for determining if 
allocating funding in this manner is appropriate. 

A Substantial Amount of Committed Funding Is Not Disbursed: 

Of the $19.5 billion in E-rate funding committed to schools and 
libraries between 1998 and 2006,[Footnote 40] $5.0 billion—more than 
one-quarter—was not disbursed.[Footnote 41] Starting in 2003, funds 
that were not disbursed in a given year were carried forward to 
subsequent years to be available for commitment, thereby increasing the 
amount that could be committed beyond the $2.25 billion cap. The amount 
of committed funding not used includes $2.6 billion for Priority 1 
services and $2.4 billion Priority 2 services. Figure 7 shows the 
percentage of committed funding that was disbursed in each service 
category each year from 1998 through 2006. 

Figure 7: Percentage of Committed Funding That Was Disbursed, by 
Service Category, 1998-2006: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Internal connections (Priority 2): 90%; 
Telecommunications services (Priority 1): 75%; 
Internet access (Priority 1): 71%. 

Year: 1999; 
Internal connections (Priority 2): 81%; 
Telecommunications services (Priority 1): 71%; 
Internet access (Priority 1): 64%. 

Year: 2000; 
Internal connections (Priority 2): 91%; 
Telecommunications services (Priority 1): 67%; 
Internet access (Priority 1): 61%. 

Year: 2001; 
Internal connections (Priority 2): 85%; 
Telecommunications services (Priority 1): 70%; 
Internet access (Priority 1): 66%. 

Year: 2002; 
Internal connections (Priority 2): 69%; 
Telecommunications services (Priority 1): 71%; 
Internet access (Priority 1): 68%. 

Year: 2003; 
Internal connections (Priority 2): 70%; 
Telecommunications services (Priority 1): 72%; 
Internet access (Priority 1): 73%. 

Year: 2004; 
Internal connections (Priority 2): 61%; 
Telecommunications services (Priority 1): 72%; 
Internet access (Priority 1): 78%. 

Year: 2005; 
Internal connections (Priority 2): 65%; 
Telecommunications services (Priority 1): 78%; 
Internet access (Priority 1): 81%. 

Year: 2006; 
Internal connections (Priority 2): 66%; 
Telecommunications services (Priority 1): 79%; 
Internet access (Priority 1): 80%. 

Source: GAO analysis of USAC data. 

[End of figure] 

Underuse of committed funding is widespread among participants, but the 
proportion of participants using a higher percentage of the funds 
committed to them is rising. Thirty-five percent of participants in 
2006 received disbursements for less than 75 percent of the funds that 
were committed to them, including 9 percent that did not receive any 
disbursement, but the percentage of participants receiving 
disbursements for 75 percent or more of their committed funds increased 
each year from 2001 to 2006 (see figure 8). Similarly, the proportion 
of participants that did not receive any disbursement has been 
declining since 1999. Nonetheless, the overall disbursement rate has 
not increased because applicants that ultimately do not receive 
disbursements equal to their funding commitment are receiving 
relatively larger commitments. 

Figure 8: Proportion of Entities Receiving Disbursements for 75 Percent 
or More of Funding Commitment, Less than 75 Percent of Funding 
Commitment, and None, 1998-2006: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Entities that used 75% or more of committed funds: 56.5%; 
Entities that used less than 75% of committed funds: 31.3%; 
Entities that used none of their committed funds: 12.2%. 

Year: 1999; 
Entities that used 75% or more of committed funds: 52.1%; 
Entities that used less than 75% of committed funds: 30.4%; 
Entities that used none of their committed funds: 17.5%. 

Year: 2000; 
Entities that used 75% or more of committed funds: 46.8%; 
Entities that used less than 75% of committed funds: 35.9%; 
Entities that used none of their committed funds: 17.2%. 

Year: 2001; 
Entities that used 75% or more of committed funds: 51.2%; 
Entities that used less than 75% of committed funds: 34.3%; 
Entities that used none of their committed funds: 14.5%. 

Year: 2002; 
Entities that used 75% or more of committed funds: 53.2%; 
Entities that used less than 75% of committed funds: 31.3%; 
Entities that used none of their committed funds: 15.5%. 

Year: 2003; 
Entities that used 75% or more of committed funds: 54.4%; 
Entities that used less than 75% of committed funds: 31.5%; 
Entities that used none of their committed funds: 14%. 

Year: 2004; 
Entities that used 75% or more of committed funds: 58.1%; 
Entities that used less than 75% of committed funds: 28.1%; 
Entities that used none of their committed funds: 13.8%. 

Year: 2005; 
Entities that used 75% or more of committed funds: 63.7%; 
Entities that used less than 75% of committed funds: 26.9%; 
Entities that used none of their committed funds: 9.4%. 

Year: 2006; 
Entities that used 75% or more of committed funds: 65.3%; 
Entities that used less than 75% of committed funds: 26.1%; 
Entities that used none of their committed funds: 8.6%. 

Source: GAO analysis of USAC data. 

[End of figure] 

For a number of reasons, participants may not use the full amount of 
their funding commitment: 

* Participants’ expenditures are less than the amounts applied for.
Applicants may overestimate costs for Priority 1 services, such as
telephone bills and Internet access charges, to ensure sufficient
funding for the year. Based on our survey, we found that lower-than-
projected costs of Priority 1 services was a major reason for not using
all committed funds for an estimated 54 percent of participants 
[Footnote 42] and a minor reason for an additional 20 percent of 
participants.[Footnote 43] State E-rate officials we met with noted 
that there is no disincentive to “aim high” in the amount of funding 
requested. Additionally, some of these officials told us that 
participants may have planned for Priority 2 services projects or 
upgrades, but changes in their circumstances resulted in project delays 
or cancellations. For example, in the time between applying for funding 
and receiving the commitment decision, the local funds needed for the 
project may no longer be available or the construction of a new school, 
including the installation of network wiring, could be delayed. 

* Participants do not seek reimbursement for the full amount of E-rate 
eligible expenses because of the complexity of paperwork and lack of 
staff expertise. According to state E-rate officials we spoke with, 
bills and invoices from service providers are complicated, and 
participants do not always identify all items eligible for 
reimbursement in part because it can be unclear which items are 
eligible and which are not, particularly for Priority 1 services. 
Moreover, participants are commonly dealing with multiple applications 
covering 2 or 3 funding years at once. This complexity makes billing 
even more complicated because it can be difficult to determine which 
year’s funding commitment is associated with which bill. 

In addition, school and library staff responsible for E-rate 
administrative tasks face challenges associated with turnover and 
availability. Based on our survey, we estimate that about one-quarter 
of the individuals at schools and libraries responsible for E-rate-
related tasks have 3 years or less experience with the E-rate program. 
Several state E-rate officials we met with said that when new employees 
take over for someone who has left, they may not know it is necessary 
to apply for reimbursements for the prior year’s commitments. These 
officials also noted that most individuals who are responsible for E-
rate tasks have other primary job responsibilities, and E-rate is not 
their first priority. 

USAC officials also identified a number of factors that can affect the 
timeliness with which disbursements are made: 

* Priority 2 projects do not have to be completed within the funding 
year and are subject to a variety of automatic extensions for delivery 
of service, as well as extensions that can be requested by the 
applicant. 

* Larger funding requests may take USAC longer to review, which results 
in a later funding decision and later installation of the project by 
the applicant. Moreover, larger projects take longer for the applicant 
to complete than smaller projects. 

* Invoice reviews for larger projects may take longer for USAC to 
complete. 

* In some instances where heightened scrutiny on applications or law 
enforcement action is involved, disbursements may be held up for a 
period of time while the issues are resolved. 

As a result of these conditions, according to FCC and USAC officials, 
earlier funding years have incrementally more funds disbursed than more 
recent years. Finally, USAC noted that some committed funds are also 
not disbursed because when a service provider or beneficiary submits 
invoices for payment, USAC may identify services or uses that are not 
eligible for reimbursement. 

We reported in 2000 on the issue of undisbursed funds in the E-rate 
program, recommending that FCC take steps to identify factors affecting 
the rate at which funds are disbursed, and to address these factors. 
The following actions were taken in response to this recommendation: 

* FCC and USAC agreed to commit funds above the $2.25 billion cap and 
used this approach between August 2001 and September 2004. FCC then 
determined that the Antideficiency Act applies to the Universal Service 
Fund.[Footnote 44] Once this determination was made, funding 
commitments were considered obligations for the purposes of the act, 
and therefore USAC could no longer commit funds above the cap without 
larger budgetary resources being made available.[Footnote 45] 

* In 2003, FCC amended its rules to allow unused funds from prior 
funding years to be carried forward on an annual basis and be available 
for commitment the next funding year; previously, these funds were used 
to reduce the amounts telecommunications companies were required to pay 
into the Universal Service Fund.[Footnote 46] FCC has carried forward 
funding several times since this change was made, including $650 
million in June 2007 and $600 million in June 2008. 

* FCC implemented new policies to provide applicants with flexibilities 
that were intended to facilitate the use of funds, such as the ability 
to change service providers or modify the services originally 
requested. 

* FCC and USAC established new deadlines for notification of the 
receipt of services. 

Additionally, FCC required USAC to file quarterly estimates of unused 
funds from prior funding years when it submits its projection of demand 
for E-rate funds for the upcoming quarter. According to FCC, the 
estimates are used solely to determine how much funding to carry over. 
Despite these changes, the proportion of disbursed funds is now lower, 
on average, than it was when we made the recommendation. The proportion 
of committed funds that were disbursed from 1998 through 2000 averaged 
79 percent but averaged only 72 percent annually from 2001 through 2006 
(see figure 9). 

Figure 9: Disbursed Funds, by Percentage and Dollars, 1998-2006: 

[Refer to PDF for image: combination vertical bar and line graph] 

Year: 1998; 
Percentage of committed funding disbursed: 82.5%; 
Dollar amount disbursed: $1.40 billion. 

Year: 1999; 
Percentage of committed funding disbursed: 76.9%; 
Dollar amount disbursed: $1.65 billion. 

Year: 2000; 
Percentage of committed funding disbursed: 79.4%; 
Dollar amount disbursed: $1.65 billion. 

Year: 2001; 
Percentage of committed funding disbursed: 77.6%; 
Dollar amount disbursed: $1.70 billion. 

Year: 2002; 
Percentage of committed funding disbursed: 69.7%; 
Dollar amount disbursed: $1.59 billion. 

Year: 2003; 
Percentage of committed funding disbursed: 71.3%; 
Dollar amount disbursed: $1.94 billion. 

Year: 2004; 
Percentage of committed funding disbursed: 67.7%; 
Dollar amount disbursed: $1.52 billion. 

Year: 2005; 
Percentage of committed funding disbursed: 73%; 
Dollar amount disbursed: $1.55 billion. 

Year: 2006; 
Percentage of committed funding disbursed: 74.9%; 
Dollar amount disbursed: $1.48 billion. 

Source: GAO analysis of USAC data. 

[End of figure] 

Unused funding is problematic because it has the potential to reduce 
the number of participants that will receive commitments for Priority 2 
services in a given year, even when unused funds are carried over to 
subsequent years. Because Priority 1 services always receive priority 
for funding, commitments for Priority 2 services may or may not be 
made, based on the level of commitments for first-priority services. 
Carrying over unused funds may result in more funding for Priority 2 
services requests, but only if commitments for Priority 1 services 
remain stable or decline, neither of which is the current trend. Thus, 
some applicants for Priority 2 services, who would receive funding if 
aggregate requests and commitments were more consistent with actual 
disbursements, do not receive funding in the current environment. 

We recently reported on the long-standing problem of unused funds in 
federal grant programs, and although the E-rate program is not 
technically a grant program, it has features in common with grant 
programs that make some degree of comparison appropriate.[Footnote 47] 
Our report noted that unused balances in expired grant accounts, which 
may be caused by poorly timed communications with grantees, are 
noteworthy because they can hinder the achievement of program 
objectives. We found that when agencies made concerted efforts to 
address the problem, they were able to decrease the amount of 
undisbursed funding in expired grant accounts. 

The E-rate Application Process Poses Difficulties for Some Entities, 
Which FCC and USAC Are Taking Steps to Address: 

The overall participation rate among E-rate-eligible entities is about 
63 percent, with public schools participating at a substantially higher 
rate than private schools and libraries, based on 2005 data. We found 
that a key circumstance influencing nonparticipation was the burdensome 
nature of program participation. Among eligible entities that do 
participate in the program, our survey results show that program 
participation is generally viewed as becoming easier but that several 
program requirements are still difficult to complete, particularly 
those related to the application for funding. Moreover, we found that a 
substantial amount of funding is denied because applicants do not 
correctly carry out application procedures. In recent years, FCC and 
USAC have made changes intended to ease the process of participation 
for eligible schools and libraries, but the primary focus of FCC 
remains the prevention and detection of waste, fraud, and abuse in the 
program. 

Participation in E-rate Program Highest among Public Schools in 2005, 
but Obstacles Exist for Other Entities: 

The participation rate among all types of E-rate-eligible entities is 
about 63 percent, based on 2005 data.[Footnote 48] Public 
schools—which, at more than 100,000, constitute the largest group of 
eligible entities—have an overall participation rate of 83 percent, but 
different types of public schools participate at different rates. 
Magnet schools[Footnote 49] participate at a higher than average rate 
(90 percent), and charter schools,[Footnote 50] vocational schools, and 
special education schools all participate at lower than average rates 
(37 percent, 52 percent, 41 percent, respectively). Private schools 
have a participation rate of 13 percent, and library systems and 
library branches participate at a rate of 51 percent and 31 percent, 
respectively.[Footnote 51] Figure 10 provides the number of 
participants and participation rates for public and private schools and 
library branches and systems. 

Figure 10: Participation of Public Schools, Private Schools, and 
Libraries in the E-rate Program, by Number and Percentage, 2005: 

[Refer to PDF for image: stacked vertical bar graph] 

Public schools: 
Nonparticipants: 17,077 (17%); 
Participants: 85,377 (83%). 

Private schools: 
Nonparticipants: 25,838 (87%); 
Participants: 3,914 (13%). 

Library branches: 
Nonparticipants: 11,923 (69%); 
Participants: 5,376 (31%). 

Library systems: 
Nonparticipants: 4,465 (49%); 
Participants: 4,736 (51%). 

Source: GAO analysis of USAC and Department of Education data. 

[End of figure] 

In terms of characteristics, we found that participating public schools 
have a higher proportion of students eligible for the national school 
lunch program, averaging 45 percent, compared with nonparticipating 
public schools’ average of 36 percent. Participating private schools 
have more students per teacher (14.1) than nonparticipating private 
schools (11), but this ratio for public schools—16—is the same 
regardless of E-rate participation. Participating libraries tend to 
have more resources than those that do not participate. For example, on 
average, participating library systems have 18 full-time, paid staff 
members and operating revenues of $1.28 million, compared with 
nonparticipants’ average staff size of 11 and operating revenue of 
$816,000. Participating library systems also have larger service area 
populations, averaging about 37,000, than nonparticipating library 
systems, which average just under 26,000. GAO-09-254SP, an electronic 
supplement to this report, provides additional details on the 
differences between participating and nonparticipating groups. 

Through our analysis of responses from survey respondents who had not 
participated in the program every year, our interviews with a selection 
of nonparticipating schools and libraries, and information obtained 
from beneficiary stakeholder groups, we identified a number of 
circumstances that influence nonparticipation. These circumstances may 
not be applicable for all entities that do not participate, but they 
provide some insight into issues that some nonparticipants are facing, 
particularly the following: 

* Burdensome nature of program participation. Among the six 
nonparticipants we spoke with and the comments we received from survey 
respondents, the predominant reason for nonparticipation was that the 
application process is too complex, takes too much time, or requires 
too many resources. Four of the six nonparticipants we spoke with—two 
libraries and two public schools—cited the difficult or cumbersome 
nature of the application process as a reason for not participating. 
Among 28 survey respondents who responded to an open-ended question on 
reasons for nonparticipation, 5 stated that the program is too 
complicated or difficult or that their staff did not have enough time 
for the required tasks; another 4 stated that the amount of time 
required to participate in the program was not worth the return. 
Another 5 respondents said they intended to apply for funding but 
missed an application deadline. Additionally, a 2007 survey of public 
libraries by the American Library Association (ALA) estimated that 38 
percent of libraries did not participate in E-rate because the 
application process is too complicated.[Footnote 52] 

* Internet filtering requirements. Public libraries may be reluctant to 
participate in E-rate because of the requirement that recipients of 
Internet access or Priority 2 funding install Internet content filters 
in accordance with the Children’s Internet Protection Act. Both of the 
nonparticipating libraries we spoke with cited this as a reason for 
nonparticipation, and ALA, based on responses to its survey, estimates 
that 34 percent of libraries do not apply for E-rate because of this 
requirement. One library official we spoke with said that Internet 
filters inhibit access to free and open communication. Additionally, 
according to this official, if adult users want to access blocked 
information, library workers have to take the time to manually turn 
filters off and then back on, which creates an administrative burden. 

* Inability to prove discount percentage. As discussed previously, the 
primary mechanism participants use for calculating their discount rate 
is student eligibility for the National School Lunch Program. However, 
some private schools do not participate in this program and therefore 
use an alternative FCC-approved method, such as surveying families of 
children who attend the school to determine the family’s income. One 
nonparticipating private school we spoke with said it had been unable 
to collect this information because families may consider the 
information personal or sensitive and be reluctant to provide it. 
According to USAC officials, without this information, applicants are 
entitled to receive the lowest discount rate under the program—20 
percent. Representatives of the National Association of Independent 
Schools also noted the inability to prove discount percentages as one 
of the main reasons why private schools do not participate in E-rate. 

FCC has been aware for some years that a portion of eligible entities 
do not participate in the E-rate program. For example, in conducting 
research for our December 2000 report on the E-rate program, we learned 
from FCC officials that they had finalized a new performance plan for 
the E-rate program that included tactical goals for increasing 
participation by urban low-income school districts and rural school 
districts, as well as rural libraries and libraries serving small 
areas, all of which had below-average participation rates. During our 
2005 review of the E-rate program, when we asked FCC officials about 
the plan, we were told that it had not been implemented and that none 
of the FCC staff currently working on E-rate were familiar with the 
plan. 

Most recently, FCC, in its 2007 report and order on the Universal 
Service Fund, directed USAC to contact a sample of the economically 
disadvantaged schools and libraries that have not participated in the E-
rate program, determine why these schools and libraries do not 
participate, and assist them, if necessary, at the beginning of the 
application process.[Footnote 53] Although USAC has stepped up its 
outreach efforts, it has not taken steps specifically to target and 
assist nonparticipants. 

Participants’ Views of E-rate Requirements and USAC’s Data on Applicant 
Errors Highlight Difficulties: 

Among the schools and libraries that received E-rate funding, we found 
that many believe program participation has generally gotten easier, 
rather than harder. We asked survey respondents whether they found 
participating in the E-rate program easier, more difficult, or about 
the same as in 2005. Of those who had been participating in the program 
since that time, we estimate that 15 percent find the program more 
difficult, with the remaining respondents evenly split between finding 
the program easier and finding it to be about the same.[Footnote 54] 
(See figure 11.[Footnote 55]) 

Figure 11: Participants’ Views on Whether Participating in the E-rate 
Program Is Easier, More Difficult, or about the Same, Compared with 
2005: 

[Refer to PDF for image: vertical bar graph] 

Level: More difficult: 14.58%; 
Confidence level: 11-19%. 

Level: Easier now: 42.88%; 
Confidence level: 38-48%. 

Level: The same: 42.54%; 
Confidence level: 38-47%. 

Confidence interval: displays the upper and lower bounds of the 95 
percent confidence interval for each estimate. 

Source: GAO. 

[End of figure] 

While relatively few participants believe that the program has become 
more difficult, some aspects of the program pose difficulties for 
participants. When we asked survey respondents about the ease or 
difficulty of specific aspects of program participation, we identified 
nine program elements that one-third or more of participants consider 
to be very or somewhat difficult, as shown in figure 12. 

Figure 12: Percentage of Participants That Find Program Elements Very 
or Somewhat Difficult: 

[Refer to PDF for image: horizontal bar graph] 

Program element: Preparing appeals of funding decisions; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 53%; 
Confidence interval: 45-58%. 

Program element: Preparing the technology plan; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 40%; 
Confidence interval: 35-43%. 

Program element: Cost-allocating products, services, or locations; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 40%; 
Confidence interval: 35-43%. 

Program element: Preparing service substitution requests; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 40%; 
Confidence interval: 32-45%. 

Program element: The overall process of applying for funding; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 39%; 
Confidence interval: 35-41%. 

Program element: Participating in selective review; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 39%; 
Confidence interval: 32-42%. 

Program element: Participating in application review; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 37%; 
Confidence interval: 31-44%. 

Program element: Determining the eligibility of products/services; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 37%; 
Confidence interval: 30-40%. 

Program element: Complying with competitive bidding requirements; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 33%; 
Confidence interval: 27-35%. 

Program element: Preparing the Item 21 attachment; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 31%; 
Confidence interval: 25-35%. 

Program element: Entering information in USAC's online forms; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 28%; 
Confidence interval: 23-32%. 

Program element: Working with service providers to prepare requests for 
reimbursement; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 25%; 
Confidence interval: 21-29%. 

Program element: Receiving timely reimbursement; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 23%; 
Confidence interval: 18-28%; 

Program element: Calculating discount percentages; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 15%; 
Confidence interval: 12-19%. 

Program element: Determining eligibility of locations; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 15%; 
Confidence interval: 11-17%. 

Program element: Using committed funding within the time allowed; 
Percentage of beneficiaries that find the requirement very or somewhat 
difficult: 8%; 
Confidence interval: 5-11%. 

Confidence interval: displays the upper and lower bounds of the 95 
percent confidence interval for each estimate. 

Note: The Item 21 attachment is a required part of the application for 
funding in which applicants describe, in detail, the services for which 
they are requesting funding. 

Source: GAO. 

[End of figure] 

Several of the program elements identified by participants as difficult 
relate to the application process, including preparing the technology 
plan and allocating costs by use or location. Notably, a program 
element found to be among the most difficult was the overall process of 
preparing the application for funding. The question we asked on the 
overall process encompassed such elements as determining the 
eligibility of products and services and complying with competitive 
bidding requirements. 

Participating in the selective review process was found to be difficult 
by 39 percent[Footnote 56] of the participants who had experience with 
this process. Additionally, of participants who had knowledge or 
experience with preparing appeals of funding decisions, 53 percent 
[Footnote 57] found this aspect of the program to be difficult, making 
it the most difficult element, according to our survey responses. 
[Footnote 58] 

A number of survey respondents provided comments indicating that 
although individual program elements may not be overly difficult or 
time consuming, having such a large number of requirements to fulfill 
causes difficulty. Comments included the following: 

* “[The E-rate program is] very complex, lots of steps, lots of time 
lines to keep track of. A very labor intensive process.” 

* “I can’t stress enough the amount of time that it takes to do E-rate 
work. It is not just the applications, but the work-load required for 
the [application] reviews has been very high.” 

* “E-rate has been making the process simpler and easier to file the 
past few years. It is still a very exhausting process to ensure 
everything has been done correctly. It seems no matter what precautions 
you take, errors still exist.” 

Also illustrative of the extent to which applicants have difficulty 
navigating program rules is the rate of funding denials due to 
applicant error. Each year, applicant errors account for the denial of 
a substantial amount of E-rate funding.[Footnote 59] Of the 
approximately $33 billion in funding that was requested between 1998 
and 2007 but that did not result in a funding commitment, about 23 
percent was denied because applicants did not correctly carry out 
application procedures.[Footnote 60] However, the proportion of funding 
denied due to applicant error declined from 31 percent in 2002 to 4 
percent in 2007. 

FCC’s Office of Inspector General has examined participant 
noncompliance with program rules and, in 2008, reported that such 
noncompliance puts the E-rate program at risk of significant improper 
payments.[Footnote 61] The Inspector General audited funding requests 
from 260 E-rate participants that received funding in 2007 and found 
that two of the most frequently identified types of noncompliance 
resulting in improper payments were disregarding FCC program rules and 
inadequate documentation[Footnote 62] USAC noted that in the cases of 
noncompliance attributable to lack of documentation, there may not be 
actual noncompliance with the requirements. 

A number of resources exist to help participants successfully complete 
program requirements, both through USAC and through other sources. We 
asked survey respondents about the usefulness of a number of these 
resources, as shown in figure 13. The resource most frequently cited as 
useful was paid consultants, with an estimated 79 percent of 
respondents[Footnote 63] who expressed an opinion[Footnote 64] viewing 
this resource as very or extremely useful. We also found, however, that 
the use of a consultant had little impact on the reported ease or 
difficulty of completing required program elements. Other resources 
found to be most useful were state E-rate coordinators[Footnote 65] (67 
percent[Footnote 66]), USAC’s help desk (61 percent[Footnote 67]), and 
USAC’s training seminars (57 percent[Footnote 68]). Notably, for two of 
the resources applicants found most useful—USAC’s help desk and state E-
rate coordinators—a substantial percentage of participants—25 percent 
and 31 percent respectively—responded “do not know/do not use,” 
indicating that sufficient outreach may not have been made to inform 
applicants of these resources. 

Figure 13: E-rate Resources Rated Extremely Useful or Very Useful by 
Participants: 

[Refer to PDF for image: horizontal bar graph] 

Resource: Paid consultants; 
Percentage of beneficiaries who find resource very or extremely useful: 
79%; 
Confidence interval: 70-84%. 

Resource: State E-rate coordinators; 
Percentage of beneficiaries who find resource very or extremely useful: 
67%; 
Confidence interval: 60-72%. 

Resource: USAC's help desk; 
Percentage of beneficiaries who find resource very or extremely useful: 
61%; 
Confidence interval: 42-62%. 

Resource: USAC's training seminars; 
Percentage of beneficiaries who find resource very or extremely useful: 
57%; 
Confidence interval: 50-60%. 

Resource: Search tools on USAC's Web site; 
Percentage of beneficiaries who find resource very or extremely useful: 
49%; 
Confidence interval: 42-52%. 

Resource: USAC employees that review applications for funding; 
Percentage of beneficiaries who find resource very or extremely useful: 
45%; 
Confidence interval: 38-48%. 

Resource: Guidance provided on USAC's Web site; 
Percentage of beneficiaries who find resource very or extremely useful: 
45%; 
Confidence interval: 40-48%. 

Resource: School and library associations; 
Percentage of beneficiaries who find resource very or extremely useful: 
39%; 
Confidence interval: 30-45%. 

Resource: USAC's weekly e-mail newsletter; 
Percentage of beneficiaries who find resource very or extremely useful: 
38%; 
Confidence interval: 32-40%. 

Resource: Helping applicants to succeed visits; 
Percentage of beneficiaries who find resource very or extremely useful: 
37%; 
Confidence interval: 23-53%. 

Resource: Service providers; 
Percentage of beneficiaries who find resource very or extremely useful: 
32%; 
Confidence interval: 25-32%. 

Resource: Web sites of E-rate consulting firms; 
Percentage of beneficiaries who find resource very or extremely useful: 
23%; 
Confidence interval: 15-30%. 

Resource: Guidance from the Institute of Museum & Library Services; 
Percentage of beneficiaries who find resource very or extremely useful: 
20%; 
Confidence interval: 10-30%. 

Resource: FCC rules and orders; 
Percentage of beneficiaries who find resource very or extremely useful: 
20%; 
Confidence interval: 15-23%. 

Resource: Guidance from U.S. Department of Education; 
Percentage of beneficiaries who find resource very or extremely useful: 
19%; 
Confidence interval: 12-25%. 

Confidence interval: displays the upper and lower bounds of the 95 
percent confidence interval for each estimate. 

Source: GAO. 

[End of figure] 

FCC and USAC Have Taken Steps to Ease the Process for E-rate Applicants 
and Continue to Consider Program Improvements: 

In recent years, FCC and USAC have made changes intended to ease the 
process of participation for eligible schools and libraries, including 
the following: 

* In response to FCC’s finding that a significant number of 
applications for E-rate funding were being denied for administrative, 
clerical, or procedural errors, FCC adopted the Bishop Perry order in 
May 2006, which stated that USAC must provide all E-rate applicants 
with an opportunity to cure clerical errors and errors related to FCC 
rules and orders in their applications.[Footnote 69] FCC and USAC 
officials told us that the increased outreach between application 
reviewers and applicants that the order directed has made a substantial 
difference in the rate of funding denials. 

* USAC has increased beneficiary education and outreach efforts by, for 
example, increasing the number and location of training sessions it 
provides each fall. USAC officials also told us that they intend to 
increase the number of staff members dedicated to applicant outreach. 

* USAC has increased the number of program elements that can be 
completed online and has revamped the templates that application 
reviewers use to communicate with applicants to make them easier for 
individuals without technical backgrounds to understand. 

FCC issued a Notice of Proposed Rulemaking (NPRM) in 2005 to broadly 
examine many aspects of the Universal Service Fund, including the E-
rate program.[Footnote 70] Although this proceeding has been continuing 
for well more than 3 years, some matters remain open, including ways to 
improve the administration of the application process for E-rate 
funding. It is unclear when FCC will take final action on these 
matters.[Footnote 71] We reviewed comments submitted in response to the 
NPRM’s request for possible program improvements to determine what 
improvements were most commonly suggested and why. We then included 
questions in our survey to obtain participants’ views on whether they 
favor or oppose these improvements. Figure 14 shows the changes that 
were strongly or somewhat favored by more than half of participants. 
The improvements most favored by participants—each was favored by more 
than four out of five participants—are as follows: 

* Enable applicants to go online to update their applications, make 
service substitutions, correct service provider identification numbers, 
change providers, and cancel or reduce funding. 

* Streamline the application for Priority 1 services. 

* Allow the use of a multiyear application for Priority 1 services. 

* Establish set dates for submitting the application form. 

Figure 14: Changes to the E-rate Program Strongly or Somewhat Favored 
by More Than Half of Participants: 

[Refer to PDF for image: horizontal bar graph] 

Suggested change: Enable applicants to go online to update 
applications, make service substitutions, change providers, and cancel 
or reduce funding; 
Percentage: 95%; 
Confidence interval: 90-96%. 

Suggested change: Streamline the application for Priority 1 services: 
Percentage: 94%; 
Confidence interval: 87-95%. 

Suggested change: Allow the use of a multi-year application for 
Priority 1 services: 
Percentage: 90%; 
Confidence interval: 85-92%. 

Suggested change: Establish set dates for submission of the funding 
application: 
Percentage: 87%; 
Confidence interval: 82-89%. 

Suggested change: Reimburse beneficiaries directly for discounted 
portion: 
Percentage: 71%; 
Confidence interval: 65-73%. 

Suggested change: Create an advisory panel to USAC consisting of 
practitioners experienced with the E-rate application process: 
Percentage: 71%; 
Confidence interval: 65-73%. 

Suggested change: Increase training of employees who review 
applications: 
Percentage: 60%; 
Confidence interval: 55-63%. 

Confidence interval: displays the upper and lower bounds of the 95 
percent confidence interval for each estimate. 

Source: GAO. 

[End of figure] 

FCC continues to consider comprehensive Universal Service Fund (USF) 
reform proposals raised in, or in response to, the 2005 NPRM, including
ways to simplify the E-rate program; additionally, FCC issued a notice 
of inquiry in September 2008 to obtain new and refined information from
commenters on how to strengthen the management, administration, and 
oversight of USF programs.[Footnote 72] FCC officials told us in 
November 2008 that while they will consider commenters’ suggestions on 
streamlining the E-rate program, they cannot simplify the program if 
doing so would weaken internal controls aimed at preventing and 
detecting waste, fraud, and abuse. We agree that FCC should not 
simplify the program at the expense of a robust system of internal 
controls but continue to believe that FCC needs to take action to 
improve the program rather than simply continuing to gather data. 

FCC Lacks Performance Goals for E-rate Program, and Recently Adopted 
Performance Measures Are Inadequate: 

According to FCC officials, the E-rate program operates under the 
Universal Service Fund’s broad goal of providing telecommunications 
services to all Americans, but there are no specific goals for the E-
rate program. Performance goals and measures are particularly important 
for the E-Rate program, as they could help the agency make well-
informed decisions about how to address the trends described earlier. 
In 1998, we first recommended that FCC develop specific performance 
goals and measures for the E-rate program; however, although the agency 
developed such goals and measures for 3 fiscal years since that time, 
these goals and measures were inadequate, and FCC currently has no 
goals. In 2007, FCC adopted two types of performance measures for the E-
rate program, but these measures fall short when compared with 
characteristics of successful performance measures. 

FCC Has Made Efforts to Develop Performance Goals and Measures for the 
E-rate Program, but Has Not Been Successful: 

Since our first recommendation in 1998 that, in accordance with the 
Government Performance and Results Act of 1993 (GPRA), FCC establish 
performance goals and measures for the E-rate program, FCC has taken 
steps in this direction but still has not successfully met this 
fundamental requirement of results-oriented management. Table 2 
provides details on our past findings related to the E-rate program’s 
performance goals and measures, our recommendations, and FCC’s 
responses. 

Table 2: Summary of Past GAO Findings and Recommendations on E-rate 
Performance Goals and Measures and FCC’s Response: 

Year/GAO report number: 1998/GAO/T-RCED-98-243; 
GAO findings: FCC did not provide specific strategic goals, performance 
measures, or target levels of performance for the E-rate program, as 
GPRA requires. (See p. 15.) 
Recommendation: FCC should develop performance goals and measures for 
the schools and libraries program. 
FCC response to recommendation: FCC responded that our recommendation 
was reasonable and took measures to address it. 

Year/GAO report number: 1999/GAO/RCED-99-51; 
GAO findings: FCC still failed to provide well-defined goals, 
performance targets, and measures for the E-rate program. (See p. 13.) 
Recommendation: We reiterated that the recommendation we made in 1998 
for the development of performance goals and measures still needed 
implementation. 
FCC response to recommendation: FCC responded that it recognized the 
importance of our recommendation and intended to address it, but the 
agency did not indicate when it would do so. 

Year/GAO report number: 2000/GAO-01-105; 
GAO findings: After some false starts, FCC developed performance goals 
and measures for the E-rate program. (See pp. 33-34.)
Recommendation: Not applicable. 
FCC response to recommendation: Not applicable. 

Year/GAO report number: 2005/GAO-05-151; 
GAO findings: The goals and measures that FCC set for fiscal years 2000 
through 2002, which measured connectivity in public schools, were not 
useful in assessing the impact of E-rate program funding. In addition, 
FCC did not consistently set annual goals for the two other major E-
rate beneficiary groups—libraries and private schools. (See pp. 20-22) 
Recommendation: For the second time in 7 years, we recommended that FCC 
establish performance goals and measures for the E-rate program, 
consistent with GPRA. 
FCC response to recommendation: FCC responded that it concurred with 
our recommendation, noting that it was already taking steps to address 
the recommendation. 

Source: GAO. 

[End of table] 

In response to our 1998 recommendation that it should develop 
performance goals and measures, FCC included goals and measures in its 
annual performance reports, as GPRA required, for 3 fiscal years. But 
we determined that FCC’s goals and measures were not meaningful. For 
instance, in 1999 FCC set an annual performance goal of ensuring that 
30 percent of eligible schools and libraries would have Internet access 
by the end of fiscal year 2000, even though at that time well over 30 
of schools and libraries were already connected to the Internet. 
Further, FCC has not included annual performance goals in its 
performance reports since 2002. 

We reiterated our recommendation in 2005, and FCC, in response, issued 
an NPRM in which it sought comments on establishing useful outcome, 
output, and efficiency measures for each of the Universal Service Fund 
(USF) programs, including the E-rate program.[Footnote 73] After 
reviewing comments submitted in response to the 2005 NPRM, FCC in 
August 2007 issued an order in which it adopted performance measures 
for the E-rate program, although as we discuss below, these measures 
lack key characteristics of successful performance measures.[Footnote 
74] In the order, FCC said it anticipated adopting performance goals as 
it and USAC gained experience with the performance measures. 

When we met with FCC in November 2008 for a status update on their 
plans for establishing performance goals, officials did not have a 
clear timeline for establishing such goals, but FCC had issued a notice 
of inquiry in September 2008, as mentioned earlier, to obtain further 
stakeholder comments on performance goals and measures for the USF 
programs, among other things. The notice sought comment on whether FCC 
should establish additional performance goals and measures, whether FCC 
has the authority to set long-term goals for the USF programs, and if 
and when long-term goals are met, whether FCC has the authority to 
terminate or significantly modify the USF programs. Subsequently, in 
January 2009, FCC officials told us that the commission chairman at 
that time had circulated a draft NPRM on the E-rate program addressing 
performance measures, data collection, approaches for distributing 
funding, and allowed uses of the funding.[Footnote 75] However, even if 
the commission adopted the NPRM, this would not by itself establish 
performance goals but would instead present the commission’s proposal 
and request for comment on the proposal.  

FCC’s efforts to date in establishing performance goals and measures 
have progressed in a piecemeal manner, which indicates a lack of a 
coherent vision for the E-rate program. As we note, FCC has issued 
several notices, often in response to our recommendations. In these 
notices, FCC seeks stakeholder comment on proposals for performance 
goals and measures for the E-rate program and, in some cases, 
repeatedly seeks comment on the same topic. This pattern indicates that 
FCC does not have a clear strategic vision for what it intends the E-
rate program to accomplish within the broad statutory framework 
provided by Congress; for example, how can the E-rate program best 
serve schools and libraries? A coherent strategic vision for the E-rate 
program could lead to more effective performance goals and measures. 

The Performance Measures That FCC Adopted for the E-rate Program Lack 
Key Characteristics of Successful Performance Measures: 

In its August 2007 order, FCC adopted two types of performance measures 
for the E-rate program—one for Internet connectivity and the other for 
application processing.[Footnote 76] This order required that USAC 
measure, and report to FCC annually, data from program participants on 
broadband connections provided to program participants, including the 
number of buildings served by broadband services and the bandwidth of 
these services. According to FCC, the collection of these data—once 
analyzed collectively—will allow the agency to determine how the E-rate 
program can better meet the needs of applicants. With respect to 
performance measures for application processing, the order required 
that USAC collect, and annually report to FCC, performance data on a 
number of specific output measures, including the number of applicants 
served and the discount rate they received, and average dollar amount 
awarded per funding request number.[Footnote 77] A memorandum of 
understanding between FCC and USAC also requires USAC to report to FCC 
on performance data relative to funding applications. Subsequent to the 
2007 order, FCC determined that the performance measurement data would 
be used, in part, as one element of a performance-based evaluation and 
compensation program for USAC’s executives.[Footnote 78] FCC officials 
told us that these data would also be used to publicly demonstrate 
USAC’s performance in implementing the E-rate program. 

In addition to the performance measurements specific to the E-rate 
program, the 2007 order sets forth performance measures applicable to 
the administration of the Universal Service Fund programs, including 
the accuracy of billing and disbursements, administrative costs, and 
the amount of improper payments that are recovered, among other things. 
The memorandum of understanding further describes the data USAC is to 
collect related to these administrative performance measures and 
additionally describes service quality performance measures.[Footnote 
79] 

While FCC’s efforts to develop performance measures have the potential 
to eventually produce better information than is currently available on 
the E-rate program’s performance, these measures fall short when 
compared with the key characteristics of successful performance 
measures. In our past work, we have found that agencies that are 
successful in measuring performance strive to establish measures that 
demonstrate results, address important aspects of program performance, 
and provide useful information for decision making.[Footnote 80] 
Following is a discussion of these characteristics and the extent to 
which FCC has fulfilled them in developing measures for E-rate 
performance. 

* Measures should be tied to goals and demonstrate the degree to which 
the desired results are achieved. These program goals should in turn be 
linked to the overall agency goals. However, the measures that FCC has 
adopted are not based on such linkage because the agency does not 
currently have performance goals for the E-rate program. By 
establishing performance measures before establishing the specific 
goals it seeks to achieve through the E-rate program, FCC may waste 
valuable time and resources collecting the wrong data and, 
consequently, not develop the most appropriate measures for results. 

* Measures Should Address Important Aspects of Program Performance. For 
each program goal, a few performance measures should be selected that 
cover key performance dimensions and take different priorities into 
account. For example, limiting measures to core program activities 
enables managers and other stakeholders to assess accomplishments, make 
decisions, realign processes, and assign accountability without having 
an excess of data that could obscure rather than clarify performance 
issues. Also, performance measures should cover key governmentwide 
priorities—such as quality, timeliness, and customer satisfaction. The 
two types of performance measures that FCC adopted meet these 
criteria—particularly because the connectivity measure centers on the 
program’s statutory goal of providing eligible schools and libraries 
with access to advanced telecommunications services, and, by selecting 
just two types of measures, there are fewer chances of obstructing 
performance issues. Even though the application-processing measures are 
output oriented and not outcome oriented, they appear to take into 
account such priorities as timeliness and customer satisfaction. 
However, again, without first setting specific performance goals for 
the E-rate program, FCC cannot be sure it has adopted the most 
appropriate performance measures.  

* Measures Should Provide Useful Information for Decision Making. 
Performance measures should provide managers with timely, action-
oriented information in a format that helps them make decisions that 
improve program performance.[Footnote 81] According to FCC officials, 
the application-processing data that FCC is currently requiring USAC to 
collect will be used in making compensation decisions for USAC 
executives, and it will also be available in USAC’s annual report to 
provide the general public with information on E-rate’s performance in 
this regard. However, the application-processing data are output, not 
outcome, oriented, and the intended uses of the data do not include 
such program-management activities as allocating resources or adopting 
new program approaches if needed. As a result, these data may be of 
limited use in helping FCC improve overall E-rate program performance. 
Performance measures that do not provide managers with useful 
information are less likely to alert managers to problems or help them 
respond when problems arise. The limited use of these data, combined 
with the absence of specific program goals, raises concern about the 
effectiveness of these performance measures. 

Conclusions: 

In the Telecommunications Act of 1996, Congress said that access to 
advanced telecommunications for schools and libraries was one of the 
principles for the preservation and advancement of universal service.
[Footnote 82] In managing the E-rate program, FCC has been guided only 
by how well the program meets the broad, overarching goal of universal 
service, rather than strategic goals specific to the E-rate program. 
After 12 years of program operations and committing more than $20 
billion in funding awards, FCC has not developed adequate performance 
goals and measures for the E-rate program. Because we have repeatedly 
identified the lack of adequate performance goals and measures as a 
weakness in the E-rate program, we reiterate our 2005 recommendation 
that FCC define annual, outcome-oriented performance goals for the E-
rate program that are linked to the overarching goal of providing 
universal service. Moreover, we have identified several trends that 
raise questions about the direction of the program. Is it in the 
national interest, in an increasingly broadband-oriented world, that a 
substantial and growing portion of commitments is for 
telecommunications services such as local and cellular telephone 
service? Does the program’s high participation rate among public 
schools, but lower participation rate among private schools and 
libraries, lead to an acceptable distribution of E-rate funding among 
eligible entities? Without a strategic vision for the program, and 
accompanying performance goals and measures, it is difficult for FCC to 
make informed decisions about the future of the program and more 
effectively target available funding. 

Additionally, we have previously identified the program’s low 
disbursement rate as an area of concern. In response to a previous 
recommendation, FCC took steps to increase the disbursement rate. 
However, we found that rather than increasing, the disbursement rate 
has decreased further. In the current E-rate environment, where 
requests for funding consistently exceed the annual funding cap, many 
applicants seeking support for internal connections are denied funding, 
yet a significant amount of funding committed to applicants is not 
disbursed. If applications and commitments more closely tracked 
disbursements—that is, if the disbursement rate were higher—some 
applicants who were denied funding might have received funding for 
internal connection projects. Moreover, in light of the nation’s 
current fiscal constraints, it is appropriate to make the most 
effective possible use of available E-rate funding by minimizing the 
amounts of committed funds that are not disbursed. 

Recommendations for Executive Action: 

To better provide a foundation for effective management of the E-rate 
program and to ensure that program funds are used efficiently and in a 
manner to support desired program outcomes, we recommend that the 
Federal Communications Commission take the following two actions: 

* Review the purpose and structure of the E-rate program and prepare a 
report to the appropriate congressional committees identifying FCC’s 
strategic vision for the program; this report should include the 
program’s long-term goals, whether the vision can be achieved using the 
existing program structure (e.g., the priority rules and discount 
matrix), and whether legislative or regulatory changes are necessary. 

* Provide information in its annual performance plan on: 

- the amount of undisbursed funding associated with funding commitments 
that have expired and why these funds were not disbursed, and, 

- the actions taken to reduce the amount of undisbursed funding and the 
outcomes associated with these actions. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to FCC and USAC for their review and 
comment. FCC and USAC provided technical comments that we incorporated 
where appropriate. In addition, both FCC and USAC provided substantive 
comments that we summarize below and reprint in appendices II and III, 
respectively. 

In its comments, FCC reiterated the status of its performance goals and 
measures as well as the disbursement rate. In particular, FCC noted 
that it identified goals for the E-rate program when it first adopted 
the program, and recently requested comment on establishing new goals. 
Further, FCC noted that its performance measures do, or will, meet the 
three characteristics of successful measures that we identified. We 
acknowledge the efforts FCC has made to date and recognize the 
successes of the E-rate program that FCC identified in its letter. 
However, these efforts are not consistent with successful performance 
goals and measures. For example, agencies should establish explicit 
performance goals and measures, use intermediate goals and measures to 
illustrate progress, and identify projected target levels of 
performance for multiyear goals. Establishing effective performance 
goals and measures will help FCC guide the E-rate program going 
forward. Finally, FCC noted that it has taken action to address the 
disbursement rate, and also noted that our analysis may inaccurately 
portray a decrease in the disbursement rate since disbursements 
typically occur over several years and therefore the disbursement rate 
for more recent years will be lower than distant years. We agree that 
the disbursement rate in recent years could be lower than more distant 
years. However, the disbursement rate for every funding year (including 
2001 through 2004) remains below the level in 2000 when we made our 
initial recommendation on this issue. Thus, we modified the text to 
note that the disbursement rate remains low, but is not necessarily 
decreasing. 
 
In its comments, USAC noted that it stands ready to work with FCC in 
developing and reporting additional performance goals and measures. 
USAC also noted that it is aware of the issue of committed funds going 
unused, but noted that funding years 2005, 2006, and 2007 remain open 
(implying that the disbursement rate could increase) and that the gap 
between commitments and disbursements is attributable more to the 
structure of the program than to USAC’s administration of the program. 
We agree that the disbursement rate associated with commitments made in 
2005 through 2007 may increase, but, as mentioned above, the 
disbursement rate for every funding year remains below the level in 
2000 when we made our initial recommendation. Lastly, USAC noted that 
it intends evaluate the participant survey data to determine whether it 
can devise strategies to improve program participation. USAC’s full 
comments and our responses appear in appendix III. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees, the Chairman of the Federal 
Communications Commission, and the Chairman of the Universal Service 
Administrative Company. In addition, the report will be available at no 
charge on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you have any questions about this report, please contact me at (202) 
512-2834 or goldsteinm@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Contact information and major contributors to this 
report are listed in appendix IV. 

Signed by: 

Mark L. Goldstein: 
Director, Physical Infrastructure: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to address the following questions: (1) What are 
key trends in the demand for and use of E-rate funding and what are the 
implications of these trends? (2) To what extent do eligible entities 
apply for E-rate funds, how well do applicants navigate the E-rate 
program’s requirements, and what steps is the Federal Communications 
Commission (FCC) taking to facilitate program participation? (3) What 
are FCC’s performance goals and measures for the E-rate program, and 
how do they compare to key characteristics of successful goals and 
measures? 

The following sections describe the various procedures we undertook to 
answer these objectives. In addition, we conducted the following 
background research that helped inform each of our reporting 
objectives. We reviewed prior GAO reports on E-rate, FCC’s Universal 
Service Monitoring Reports on the E-rate program, and documentation 
from FCC and the Universal Service Administrative Company (USAC) on the 
structure and operation of the E-rate program. We interviewed officials 
from FCC’s Office of Managing Director, Office of Inspector General, 
and Wireline Competition Bureau to identify actions undertaken to 
address previously identified problems and plans to address issues of 
concern in the program; and officials from USAC’s Schools and Libraries 
Division, Office of General Counsel, and Office of Finance to collect 
information on program operations and USAC’s actions to implement prior 
FCC orders on E-rate. We also interviewed representatives of E-rate 
stakeholder groups, including the U.S. Bureau of Indian Education, the 
Council of Great City Schools, the National Association of Independent 
Schools, the American Library Association, the Education and Library 
Networks Coalition, the State E-rate Coordinators Alliance, and the E-
rate Service Provider Association, as well as individual school 
districts, libraries, and telecommunications companies. 

Analysis of E-rate Program Data: 

To determine trends in the demand for and use of E-rate funding, we 
obtained data from the Streamlined Tracking and Application Review 
System (STARS), which is used to process applications for funding and 
track information collected during the application review process. When 
analyzing and reporting on the data we took the limitations on how data 
can be manipulated and retrieved from STARS into consideration since 
this system was designed to process applications and not to be a data 
retrieval system. We assessed the reliability of the data by 
questioning officials about controls on access to the system and data 
back-up procedures; additionally, we reviewed the data sets provided to 
us for obvious errors and inconsistencies. Based on this assessment, we 
determined that the data were sufficiently reliable to describe broad 
trends in the demand for and use of E-rate funding. We obtained the 
following data—including annual and cumulative figures—for funding 
years 1998 through 2007:[Footnote 82] 

* the number and characteristics of applicants, including their entity 
type, discount level, and location; 

* dollar amounts of funding requests, commitments, denials, and 
disbursements, by service category; 

* dollar amounts of individual funding requests, commitments, and 
disbursements, for each applicant for each funding year; and; 

* reasons accounting for funding requests not being granted, by dollar 
amount and by service category. 

In order to provide these data, USAC’s subcontractor, Solix, performed 
queries on the system and provided the resulting reports to us between 
April 2008 and December 2008. Data from the STARS system can change on 
a daily basis as USAC processes applications for funding and 
reimbursement, applicants request adjustments to requested or committed 
amounts, and other actions are taken. As a result, the data we obtained 
and reported on reflect the amounts at the time that Solix produced the 
data and may be somewhat different if we were to perform the same 
analyses with data produced at a later date. 

For the purposes of analyzing and reporting on the amounts of funding 
for telecommunications services, Internet access, and internal 
connections that were requested, committed, and disbursed, we collapsed 
the six service categories in USAC’s database into three categories, as 
shown in table 3. 

Table 3: Service Categories Used for Analysis and Reporting: 

Category used for analysis and reporting: 
Service categories in original USAC data: 

Category used for analysis and reporting: Telecommunications services; 
Service categories in original USAC data: 
* Telecommunications services; 
* Dedicated services[A]. 

Category used for analysis and reporting: Internal connections; 
Service categories in original USAC data: 
* Internal connections; 
* Shared internal connections[B]; 
* Internal connections maintenance[C]. 

Category used for analysis and reporting: Internet access; 
Service categories in original USAC data: 
* Internet access. 

Sources: GAO and USAC. 

[A] The dedicated services category was used only in funding years 1998 
and 1999. 

[B] The shared internal connections category was used only in funding 
years 1998 and 1999. 

[C] Internal connections maintenance became a funding category in 
funding year 2005. 

[End of table] 

Survey of E-rate Beneficiaries: 

To obtain information on how well E-rate beneficiaries navigate the 
program’s requirements and procedures, the extent to which they use 
funds committed to them, and their views on how to improve the program, 
we conducted a Web-based survey of schools and libraries that 
participate in the E-rate program (see GAO-09-254SP). To develop the 
survey questionnaire, we reviewed existing studies about the program, 
including previous and ongoing GAO work, and interviewed stakeholder 
groups knowledgeable about the program and issues of concern to 
beneficiaries. We designed draft questionnaires in close collaboration 
with a GAO social science survey specialist. We conducted pretests with 
eight E-rate participants representing different types of 
applicants—schools, school districts, and libraries—and from rural and 
urban areas, to help further refine our questions, develop new 
questions, and clarify any ambiguous portions of the survey. We 
conducted these pretests in person and by telephone. 

We drew our survey sample from Form 471 applications for funding year 
2006 that received a commitment greater than zero dollars. For each 
such application, we obtained data from USAC that included the 
following: billed entity number (a USAC-assigned, unique identifier 
assigned to each applicant); entity type; whether the entity is located 
in an urban, rural, or mixed area; the amount of funds committed for 
Priority 1 services; and the amount of funds committed for internal 
connections. Based on these data, we created three stratification 
variables: 

* Entity type. The four categories of entities eligible to apply for 
funding are school districts, schools, libraries, and educational 
consortia. Educational consortia—which can be made up of any 
combination of schools, school districts, and libraries—constituted 
less than 2.5 percent of the applications in the data set we received 
and were treated as out of scope for this survey. The remaining three 
entity types were therefore used for our first stratification variable. 

* Urban/rural status. Applicants must report whether they are located 
in a rural or urban area because this information is used to determine 
their discount level. Three percent of the applications were for 
entities located in a mixed urban-rural area; we excluded this category 
of applications as out of scope for this survey. The remaining cases 
were divided between urban and rural for our second stratification 
variable. 

* Priority level of funding. The third stratification variable was the 
priority level for the funding commitments made for each application. 
To control the funding priority in our sample, we divided the 
applications into those associated with beneficiaries that requested 
(1) only Priority 1 services funding, (2) only internal connections 
funding, and (3) both. We combined funding priority categories (2) and 
(3) for analysis of survey results. 

Analysis of the application data that we received revealed that many 
beneficiaries filed more than one application with USAC for funding 
year 2006 and received funding commitments for these requests.[Footnote 
83] As a result, since our sample design was based on applications and 
not entities, some entities had more than one application selected. We 
sent these entities only one survey and weighted their responses 
accordingly. The number of applications in each of our sample strata 
and the sample size are shown in table 4. 

Table 4: Sample Design for Survey of E-rate Participants: 

Stratum: 1; 
Entity type: School district; 
Urban/rural status: Rural; 
Funding priority level: 1;
Population size: 8,164; 
Sample size: 155. 

Stratum: 2; 
Entity type: School district; 
Urban/rural status: Urban; 
Funding priority level: 1;
Population size: 7,297; 
Sample size: 139. 

Stratum: 3; 
Entity type: Library; 
Urban/rural status: Rural; 
Funding priority level: 1;
Population size: 1,766; 
Sample size: 34. 

Stratum: 4;
Entity type: Library; 
Urban/rural status: Urban; 
Funding priority level: 1;
Population size: 2,082; 
Sample size: 40. 

Stratum: 5; 
Entity type: School; 
Urban/rural status: Rural; 
Funding priority level: 1;
Population size: 2,010; 
Sample size: 38. 

Stratum: 6; 
Entity type: School; 
Urban/rural status: Urban; 
Funding priority level: 1;
Population size: 3,837; 
Sample size: 73. 

Stratum: 7; 
Entity type: School district; 
Urban/rural status: Rural; 
Funding priority level: 2;
Population size: 141; 
Sample size: 20. 

Stratum: 8; 
Entity type: School district; 
Urban/rural status: Urban; 
Funding priority level: 2;
Population size: 62; 
Sample size: 20. 

Stratum: 9; 
Entity type: Library; 
Urban/rural status: Rural; 
Funding priority level: 2;
Population size: 7; 
Sample size: 7. 

Stratum: 10; 
Entity type: Library; 
Urban/rural status: Urban; 
Funding priority level: 2;
Population size: 9; 
Sample size: 9. 

Stratum: 11; 
Entity type: School; 
Urban/rural status: Rural; 
Funding priority level: 2;
Population size: 150; 
Sample size: 20. 

Stratum: 12; 
Entity type: School; 
Urban/rural status: Urban; 
Funding priority level: 2;
Population size: 260; 
Sample size: 20. 

Stratum: 13; 
Entity type: School district; 
Urban/rural status: Rural; 
Funding priority level: 3[A];
Population size: 1,778; 
Sample size: 34. 

Stratum: 14; 
Entity type: School district; 
Urban/rural status: Urban; 
Funding priority level: 3;
Population size: 1,603; 
Sample size: 30. 

Stratum: 15; 
Entity type: Library; 
Urban/rural status: Rural; 
Funding priority level: 3;
Population size: 83; 
Sample size: 20. 

Stratum: 16; 
Entity type: Library; 
Urban/rural status: Urban; 
Funding priority level: 3;
Population size: 80; 
Sample size: 20. 

Stratum: 17; 
Entity type: School; 
Urban/rural status: Rural; 
Funding priority level: 3;
Population size: 431; 
Sample size: 20. 

Stratum: 18; 
Entity type: School; 
Urban/rural status: Urban; 
Funding priority level: 3;
Population size: 1,191; 
Sample size: 23. 

Total: 
Population size: 30,951; 
Sample size: 722. 

Source: GAO analysis of USAC data. 

[A] Funding priority level 3 includes applications for both Priority 1 
services and Priority 2 services. 

[End of table] 

We used a proportional allocation to assign sample units to strata with 
an adjustment for strata that had small populations. If the 
proportional allocation was less than 20, we used either the total 
number of applications in the stratum if it was less than 20 or set the 
sample allocation at 20. The stratum sample sizes for our survey were 
determined to provide a 4 percent overall precision for an attribute 
measure at the 95 percent level of confidence. 

Our goal was to survey individuals who were responsible for completing 
E-rate-related tasks—such as preparing forms and responding to 
information requests—for each sampled entity. Our data set included the 
name and contact information for the individual listed as the contact 
on Form 471; we sent these individuals the survey. Because some 
entities employ a consultant to fill out their application and others 
use a regional or state official who is responsible for multiple 
entities’ applications, our sample included different entities that 
shared the same contact person. We contacted these individuals to 
identify an alternate entity-specific contact to receive the survey. If 
no such alternate could be found, the original contact was sent one 
survey for each sample entity. We contacted such individuals to make 
arrangements for them to fill out the questions that pertained to all 
applications only once, then separately obtained the application-
specific information for each of their surveys. A total of 697 
individuals received questionnaires for our sample of 722 Form 471 E-
rate applications. The results from our sample are weighted to reflect 
the population of beneficiaries that use the E-rate program. 

We launched our Web-based survey on April 21, 2008, and closed the 
survey to responses on June 18, 2008. Log-in information was e-mailed 
to all sampled participants. We sent up to three follow-up e-mail 
messages to nonrespondents over the next 4 weeks. We then contacted by 
telephone those who had not completed the questionnaire. We received 
responses for 543 questionnaires, for an overall response rate of 78 
percent. 

Because we followed a probability procedure based on random selections, 
our sample is only one of a large number of samples we might have 
drawn. Since each sample could have provided different estimates, we 
express our confidence in the precision of our particular sample’s 
results as a 95 percent confidence interval (e.g., plus or minus 4 
percentage points). This is the interval that would contain the actual 
population value for 95 percent of the samples we could have drawn. 

In addition to sampling errors, the practical difficulties of 
conducting any survey may introduce nonsampling errors. For example, 
differences in how a particular question is interpreted, the sources of 
information available to respondents, or the types of people who do not 
respond can introduce unwanted variability into the survey results. We 
included steps in both the data collection and data analysis stages to 
minimize such nonsampling errors. As indicated above, we collaborated 
with a GAO social science survey specialist to design draft 
questionnaires, and versions of the questionnaire were pretested with 
eight members of the surveyed population. In addition, we provided a 
draft of the questionnaire to FCC and USAC for their review and 
comment. From these pretests and reviews, we made revisions as 
necessary. We examined the survey results and performed computer 
analyses to identify inconsistencies and other indications of error. A 
second, independent analyst checked the accuracy of all computer 
analyses. 

E-rate Participation Analysis: 

To determine the percentage of eligible entities that participate in 
the E-rate program and the characteristics of program participants and 
nonparticipants, we performed a matching analysis using data from the 
Department of Education and USAC. We obtained three databases from the 
U.S. Department of Education’s National Center for Education Statistics 
(NCES): 

* Common Core of Data (CCD). CCD is a program of NCES that annually 
collects data about all public schools, public school districts, and 
state education agencies in the United States. We used the most recent 
complete data set for individual public schools, which was for the 2005-
2006 school year. 

* Private School Universe Survey (PSS). The target population for PSS 
consists of all private schools in the United States that meet the NCES 
definition of private schools. Data from the 2005-2006 school year were 
used. 

* Public Libraries Survey (PLS). PLS is designed as a universe survey 
and provides a national census of public libraries and their public 
service outlets, as well as data on these entities. Data from 2005 were 
used. 

We assessed the reliability of these data sets by (1) reviewing NCES’s 
technical and methodological reports on these studies and (2) examining 
the data for obvious inconsistencies. We determined that the data were 
sufficiently reliable to use as sources of summary statistics about 
program participants and nonparticipants. 

We also used data from USAC’s STARS system for the 2005 funding year. 
USAC provided us with data on each entity that was included on 
applications for the 2005 funding year. We received two files from 
USAC—one for schools and one for libraries—that included the entity’s 
name, NCES identification number,[Footnote 84] address, city, state, 
and ZIP code. The school file also included information on whether each 
school was public or private; we used this information to separate 
public from private schools. We assessed the reliability of the STARS 
data system as discussed previously. Additionally, we examined the data 
set that we obtained for matching purposes to identify inconsistencies 
or obvious errors. We found that some of the data fields were not fully 
completed. For example, there were a number of records with missing 
data, incomplete data, and incorrect NCES identification numbers. 
However, we concluded that the incomplete nature of some of the records 
did not significantly affect our intended purpose of identifying 
program participants, and we therefore determined that the data were 
sufficiently reliable. 

We matched USAC’s public school data against CCD, USAC’s private school 
data against PSS, and USAC’s library data against the PLS from NCES. To 
identify which entities in the NCES data sets were E-rate participants, 
we used SAS, a statistical software application, to compare USAC 
records with NCES records, matching first on identification numbers, 
then on combinations of entity names, states, cities, ZIP codes and 
street addresses. When this procedure could find no exact match, we 
used an SAS function that measures asymmetric spelling distance between 
words (SPEDIS), to determine the likelihood that entity names from the 
two data sets did match and to generate possible pairs of matching 
entities. The possible matches for an entity were written to a 
spreadsheet, which we reviewed manually to select the best possible 
match. For both computerized and manual matches, we assessed a random 
sample of the matches to calculate error rates for the analysis. Based 
upon our sample results, we estimate the error rate for matching 
records between the USAC and the Department of Education’s databases as 
1.7 percentage points.[Footnote 85] Unless otherwise noted, all of the 
percentage estimates cited in the report, which are based upon matching 
of entity records, have an overall error rate of 3.4 percentage points 
or less at the 95 percent level of confidence. Having identified 
whether each entity in the NCES data sets participated in the E-rate 
program, we then ran summary statistics on data fields of interest for 
the groups of participants and nonparticipants. 

Nonparticipant Interviews: 

To better understand why eligible entities do not participate in the E-
rate program, we obtained anecdotal, nongeneralizeable information 
through interviews with six nonparticipants. These entities included 
library systems, public school districts, and private schools and were 
located in both urban and rural areas. We identified nonparticipant 
interviewees by asking the State E-rate Coordinators Alliance for the 
names of schools that they knew did not participate and by searching in 
USAC’s online database of program participants for entities that were 
not listed has having applied for funding. We asked interviewees about 
their reasons for not participating in the E-rate program, potential 
future changes to the program that could result in their participation, 
and sources of funding that they use to pay for information technology 
and telecommunications expenses. 

Document Review and Interviews with FCC and USAC on Performance Goals 
and Measures: 

We reviewed the Telecommunications Act of 1996 to determine what the 
performance goals and measures for the E-rate program are and how the 
measures compare to key characteristics of successful performance 
measures. We then reviewed our past products and other literature on 
results-oriented management and effective practices for setting 
performance goals and measures. We compared this information to the 
program goals and measures that FCC set forth in agency 
documentation—including an order, proposed rulemaking, strategic plan, 
and performance and accountability reports. We also reviewed the Office 
of Management and Budget’s Program Assessment Rating Tool 2003 report 
on the E-rate program’s effectiveness and its 2007 update to this 
report. In addition, we interviewed officials from FCC’s Wireline 
Competition Bureau, Office of Managing Director, and Office of 
Inspector General, and officials from USAC to obtain their views on and 
plans to implement E-rate performance goals and measures. 

We conducted this performance audit from July 2007 to March 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Federal Communications Commission: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

Federal Communications Commission: 
Office Of The Chairman: 
Washington: 

March 10, 2009: 

Mr. Mark Goldstein: 
Director, Physical Infrastructure: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Goldstein: 

Thank you for the opportunity to review the draft General 
Accountability Office (GAO) report regarding long-term goals, 
performance measures and participation rates related to the Schools and 
Libraries Universal Service program, also known as the E-rate program. 

I have been a long-standing supporter of the E-rate program and its 
goal of ensuring that schools and libraries have access to affordable 
telecommunications and advanced services. During its 11-year existence, 
the E-rate program has helped thousands of schools and libraries 
improve their technological capabilities. Pursuant to section 254 of 
the Communications Act of 1934, as amended (the Act), the Commission 
designated "telecommunications services" and certain additional 
services eligible for support under the E-rate program.[Footnote 86] 
Since the inception of the E-rate program, schools and libraries have 
received more than $23.7 billion in funding commitments.Footnote 87] 
E-rate funding has provided millions of school children, teachers and 
library patrons access to modern telecommunications and information 
services. In a study released in 2006, the National Center for 
Education Statistics (NCES) found that nearly 100 percent of public 
schools in the United States had Internet access, and 97 percent of 
these schools used broadband connections to access the Internet. 
[Footnote 88] Today, Internet access in public schools is nearly 
ubiquitous; before the E-rate program was established in 1997, only 78 
percent of public schools had any Internet access at all. In 1997, only 
27 percent of public school instructional classrooms had Internet 
access; that figure increased to 94 percent in 2005.[Footnote 89] A 
2006 study found that 99 percent of public library branches are 
connected to the Internet, 98 percent of which offer public Internet 
access.[Footnote 90] 

The Commission is dedicated to achieving the universal service goals of 
section 254 of the Act, and therefore welcomes suggestions on making 
additional improvements to the E-rate program. In its draft report, the 
GAO offers two major recommendations. First, the GAO recommends that 
the Commission report to Congress on its strategic vision for the E-
rate program, including the long-term goals for the program, and 
whether the existing structure of the program is suitable to achieve 
this vision or whether legislative or regulatory changes are necessary 
to help achieve this vision.[Footnote 91] Second, the GAO recommends 
that the Commission include in its annual performance plan a report on 
steps the Commission will take to reduce the amount of E-rate funding 
that is committed but not disbursed.[Footnote 92] 

In response to the GAO's first recommendation regarding a strategic 
vision for the E-rate program, it is vital for all of the Commission's 
universal service programs, including the E-rate program, to have 
established goals. When it first adopted a structure for the program, 
the Commission identified goals for the program and established 
priorities accordingly. As the Commission noted in its Universal 
Service First Report and Order, the E-rate program was intended to 
ensure that eligible schools and libraries have affordable access to 
modem telecommunications and information services that would enable 
them to provide educational services to all parts of the nation. 
[Footnote 93] To implement this goal, the Commission established 
funding priorities for the E-rate program, placing a higher priority on 
funding for telecommunications and Internet access (Priority 1 
services) than on internal connections (Priority 2 services).[Footnote 
94] The Commission also determined that schools with a higher poverty 
rate and schools located in rural areas would receive additional 
funding to assist them in meeting their telecommunications and 
information services needs.[Footnote 95] Accordingly, a greater portion 
of E-rate funding is allocated to Priority I services than to Priority 
2 services, and poor and rural schools receive more E-rate funding than 
more affluent and urban schools.[Footnote 96] [See comment 1] 

As evidenced by the fact that nearly all schools and libraries have 
Internet access, the E-rate program is meeting the goals established at 
the program's initiation: (1) providing access to modern 
telecommunications and information services; and (2) making these 
services affordable. The Commission, however, disagrees with the 
report's suggestion that the E-rate program may no longer serve an 
existing need.[Footnote 97] On the contrary, the continuance of the E-
rate program is absolutely essential to maintain the current level of 
Internet connectivity and to continue to provide schools and libraries 
access to improved telecommunications and information services as 
technology advances. [See comment 2] 

Given the pace at which society and technology move today, it is 
important to conduct periodic reviews of the Commission's goals to 
examine whether those goals remain valid or if adjustments are 
necessary. As the statistics above demonstrate, the program has been 
successful in getting schools and libraries connected to the Internet. 
Now, as those connections become obsolete or insufficient, we need to 
take the next step to ensure that American schools and libraries remain 
competitive and on the forefront of technology. The E-rate program will 
be an essential component, I am sure, of a national broadband strategy 
as our nation works towards greater access to, and adoption of, high-
speed broadband services. High-speed services are essential to handle 
the applications available today, including online distance learning 
and videoconferencing. Schools will need E-rate funding for both the 
initial implementation of high-speed broadband access, as well as for 
the on-going costs to maintain and continuously improve their networks. 
[Footnote 98] The Commission has taken the initial actions necessary to 
conduct this evaluation as part of its ongoing comprehensive review 
proceeding.[Footnote 99] Specifically, the Commission recently 
requested comment on establishing new goals, both short-term and long-
term, for the E-rate program.[Footnote 100] Once the Commission has 
developed these new goals, it will revise its policies as necessary to 
achieve them. 

The GAO is, of course, correct that performance measures can assist an 
agency in determining success in reaching its programmatic goals, as 
long as those measures are directly related to the goals of the 
program. The Commission established two performance measures for the E-
rate program in an August 2007 order: one for Internet connectivity and 
another for application processing.[Footnote 101] Although the GAO 
report does not recommend specific measures for the Commission to 
adopt, it states that the Commission's recent attempts to develop 
measures are inadequate. The GAO states that successful performance 
measures should be tied to goals; should address important aspects of 
program performance; and should provide useful information for decision 
making.[Footnote 102] According to the GAO, the Commission's E-rate 
performance measures address important aspects of program performance, 
but do not meet the other two characteristics of successful performance 
measures.[Footnote 103] We agree that the E-rate performance measures 
address important aspects of program performance, but believe they can 
meet the other two identified criteria as well, i.e., they will be tied 
to goals and will provide useful information for decision-making. 
[Footnote 104] We also note that the Commission has established 
measures for USAC administrative tasks as part of the memorandum of 
understanding between the Commission and USAC. [See comment 3] 

Permit me to inject one note of caution as we consider further 
performance measures for the E-rate program. Performance measures that 
are not directly tied to results that the program can produce could be 
distinctly unhelpful. For example, it would be difficult to directly 
establish the effect of E-rate funds on student learning because there 
are so many variables involved in educational achievement, such as 
course work, quality of teaching, and parental influence. Internet 
access is one of many educational resources for students and teachers, 
albeit a factor of growing importance in the digital era. The 
Commission has sought comment on additional measures in its recent 
notice of inquiry as part of its on-going comprehensive review 
proceeding.[Footnote 105] We should carefully consider the comments we 
have received to ensure that any measures the Commission adopts are 
meaningful and constructive. 

Another item the Commission is currently examining as part of the 
comprehensive review proceeding is the E-rate application process. 
[Footnote 106] We agree that reducing burdens on applicants is 
important. This has been something I have pushed for since I came to 
the Commission almost eight years ago. As the report's survey found, 
some applicants find the process to be complicated and difficult. 
[Footnote 107] The report implies that the application process, among 
other reasons, may result in a lower participation rate for some 
constituencies, specifically private schools.[Footnote 108] As the 
report notes, public schools' participation in the E-rate program 
directly correlates to their rate of participation in the National 
School Lunch Program (NSLP), with schools with more NSLP-eligible 
students participating in E-rate at higher rates. The non-participation 
of private schools in NSLP would therefore predict a lower E-rate 
participation rate as well. We also strongly concur in the GAO's 
conclusion that the program should not be simplified at the expense of 
waste, fraud and abuse controls.[Footnote 109] 

The Commission is pleased that the survey indicates that a majority of 
respondents believe the E-rate application process has become easier to 
navigate in the past three years. Furthermore, GAO's review of data 
indicates that only 4 percent of applications were denied due to 
applicant error in 2007 - a significant decrease from 31 percent in 
2002. We believe that this lower denial rate is the direct result of 
Commission actions taken in the Bishop Perry Order and other recent E-
rate orders in which the Commission directed the universal service fund 
administrator, the Universal Service Administrative Company (USAC), to 
assist applicants in correcting errors rather than deny funding in the 
first instance. For example, in the Bishop Perry Order, the Commission 
directed USAC to allow applicants to correct certain ministerial and 
clerical errors.[Footnote 110] In the Aiken Order, the Commission 
directed USAC to give applicants an opportunity to remove ineligible 
services from their applications, or to provide additional 
documentation to prove the eligibility of a service.[Footnote 111] 
These and other on-going directives to USAC should improve applicant 
access to E-rate funding. 

The GAO's second recommendation is that the Commission should report 
annually in its performance plan on reducing the amount of E-rate 
funding that is committed but not disbursed.[Footnote 112] It is 
important to note that the GAO report itself concedes that there are 
many legitimate reasons that the amount of committed funds are greater 
than the amount that is ultimately disbursed during any given funding 
year.[Footnote 113] Many applicants overestimate the amount of funds 
that they will use. Some applicants may not request full reimbursement. 
In addition, particularly with Priority 2 services, applicants 
frequently request extensions that may push their receipt of committed 
E-rate funds beyond the funding year in which the funds were committed. 

The report's contention that disbursements have been declining in 
recent years is not accurate. Disbursements may be delayed for a long 
period due to an applicant's extension request or appeal, which can 
sometimes take significant time to resolve. Therefore, simply comparing 
an older year's disbursement rate to a more recent year's disbursement 
rate, as GAO has done, can result in a flawed analysis because the 
later year's funds are undisbursed when they might be merely delayed. 
For example, a more accurate comparison would be to compare funding 
year 2002 disbursements four years later in 2006 to funding year 2005 
disbursements four years later in 2009.[Footnote 114] [See comment 4] 

That being said, I am pleased to report that the Commission has taken 
action to address gaps between committed funding and disbursed funding. 
One contributing factor to this gap is that, due to the requirements of 
the Anti-Deficiency Act, USAC cannot commit funding in excess of the 
funding cap, even though actual disbursements will be less than the 
amount committed. The Commission and USAC have established policies to 
help applicants better utilize their approved funding in a timely 
manner, such as allowing applicants to change service providers or 
substitute other services. At this time, the Commission does not 
believe that it should shorten the amount of time that applicants have 
to complete projects, especially given that many schools can only 
install wiring and other types of equipment when school is closed 
during the summer. The Commission would welcome, of course, any 
specific suggestions GAO may have based on methods that may have proven 
successful in other programs. 

Once again, we appreciate GAO's recommendations. We agree that the 
Commission should continue to examine the E-rate program's goals to 
ensure that it is achieving the important universal service goals of 
providing needed technology to the nation's schools and libraries. We 
look forward to working with you on this in the future. 

Sincerely, 

Signed by: 

Michael J. Copps: 
Acting Chairman: 

The following are GAO’s comments on the Federal Communications 
Commission’s letter dated March 10, 2009. 

GAO’s Comments: 

1. We acknowledge the efforts that FCC has made to develop performance 
goals; however, the goals FCC identified are not consistent with 
successful performance goals. For example, agencies should establish 
explicit performance goals and measures, use intermediate goals and 
measures to illustrate progress, and identify projected target levels 
of performance for multiyear goals. 

2. We are not suggesting that the E-rate program may no longer serve an 
existing need; this was the conclusion of the Office of Management and 
Budget (OMB). Rather, we note that without performance goals, FCC does 
not have a basis on which to determine whether the growing emphasis on 
Priority 1 services is appropriate. We cite OMB’s conclusion to 
emphasize that effective performance goals would help FCC guide the E-
rate program. 

3. We agree that FCC’s performance measures address one characteristic 
of successful measures—measures should address important aspects of 
program performance. However, FCC’s measures do not currently meet the 
remaining two characteristics, as FCC noted that the measures “will be 
tied to goals” and “will provide useful information to decision-
making.” [emphasis added] 

4. We agree that the disbursement rate for more-recent funding years 
may increase due to applicants seeking extensions, which can take time 
to resolve. As a result, we modified the report to note that the 
disbursement rate remains low but is not necessarily decreasing. 
However, the disbursement rate for every funding year, including 2001 
through 2004, remains less than the rate in 2000 when we made our 
initial recommendation to address the low disbursement rate. 

[End of section] 

Appendix III: Comments from the Universal Service Administrative 
Company: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

USAC: 
Universal Service Administrative Company: 
2000 L Street. N.W. Suite 200: 
Washington, DC 20036: 
Voice 202.776.0200: 
Fax 202.776.0080: 
[hyperlink, http://www.usac.org] 

Via Electronic Mail: 

March 6, 2009: 

Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 
U.S. Government Accountability Office: 
441 G Street, Room 2T23: 
Washington, DC 20548: 

Re: Response to Draft Report to Congressional Requestors on the E-rate 
Program Dear Mr. Goldstein: 

This letter responds to the draft Government Accountability Office 
(GAO) Report to Congressional Requestors on the federal Universal 
Service Schools and Libraries Program (commonly referred to as the E-
rate Program) administered by the Universal Service Administrative 
Company (USAC). USAC is pleased to submit its response and clarify 
certain report findings as they relate to USAC and its role as 
administrator of the E-rate Program. This response is divided into 
three sections, two of which respond to GAO recommendations and a third 
to address additional issues noted by the GAO. 

1. Lack of Performance Goals: 

GAO's first recommendation is that the Federal Communications 
Commission (FCC or Commission) "review the purpose and structure of the 
E-rate program and prepare a report to the appropriate congressional 
committees identifying FCC's strategic vision for the program.[Footnote 
115] GAO recommends that the FCC's report include long-term goals for 
the E-rate program, whether the existing program structure will result 
in achieving the strategic vision, and whether any legislative or 
regulatory changes are required.[Footnote 116] While the draft report 
acknowledged that the FCC has adopted performance measures for the E-
rate program, and noted that USAC reports on a number of performance 
measures as required by FCC orders and the FCC-USAC Memorandum of 
Understanding, the GAO found that the current performance measures 
established by the Commission do not align with GAO and Office of 
Management and Budget (OMB) standards used in developing successful 
performance goals and measures.[Footnote 117] The draft report states 
that the current measurements established by the FCC have the potential 
to result in enhanced information about the performance of the E-rate 
program, but states that these measurements arc inadequate.[Footnote 
118] USAC stands ready to work with the Commission in developing and 
reporting additional performance measures and goals. USAC notes, 
however, that reporting other performance measures may require 
collection and analysis of additional data that USAC is presently not 
authorized to collect. 

GAO's recommendation arises in part out of its analysis of trends in E-
rate program funding indicating that there has been a growing emphasis 
on Priority 1 (telecommunications services and Internet access 
services) funding requests and a decreasing emphasis on Priority 2 
(internal connections and basic maintenance of internal connections) 
funding requests over time. Based on its survey of program 
participants, the draft report states that GAO expects this trend to 
continue because the vast majority of program participants - 99% - 
stated that they used E-rate funding to pay for telephone service 
[Footnote 119] with 96% stating that providing telephone service was 
one of their information technology goals.[Footnote 120] USAC believes 
it is important to emphasize that the telecommunications services 
funded by USAC include a wide range of high-speed digital transmission 
services in addition to "telephone service."[Footnote 121] For example, 
school districts across America use these telecommunications services 
to tie their schools together, allowing for not only access to the 
Internet but also for distance learning, allowing students to access 
classes that would otherwise not be offered. These
telecommunications lines also are crucial for the collection of school-
based data used in mandatory local and state school reporting, 
including attendance and test scores. Schools and libraries in remote 
areas use satellite-based telecommunications to access the Internet in 
locations where traditional terrestrial broadband connections do not 
exist or the terrain makes such connections prohibitively expensive. 

With regard to Priority 1 funding, GAO reported that "although 
applicants are becoming more successful, about one quarter of the 
amount of funding originally requested for Priority 1 services from 
1998 through 2007 still was not funded because, among other reasons, 
applicants did not properly complete program requirements or reduced 
the size of their original request."[Footnote 122] USAC suggests that 
looking at the program as a whole over this period of time has the 
potential to result in misleading generalizations due to recent trends. 
Commission orders beginning with the Bishop Perry Order[Footnote 123] 
in 2006 have resulted in significant changes in the manner in which the 
Commission authorized USAC to administer the program, resulting in 
decreased funding denials. For example, in Funding Year 2007, USAC 
approved 88% of original dollars requested in Priority 1 funding 
requests, excluding denials because of the funding threshold. Excluding 
applicant-requested cancellations and funding threshold denials, USAC 
approved 95% of original dollars requested. For Funding Year 2008, 
current data indicates that USAC is approving 96.63% of original 
Priority 1 dollars requested, excluding applicant-requested 
cancellations and funding threshold denials. Thus, in recent years the 
rate of applicant success in securing Priority 1 funding commitments 
has increased substantially. USAC expects that a high percentage of 
Priority 1 applications will be funded. 

2. Undisbursed Funding: 

GAO reported that "an increasing amount of funding that is committed to 
participants is not disbursed."[Footnote 124] GAO's second 
recommendation is that the Commission include in its annual performance 
plan information regarding "the amount of undisbursed funding 
associated with funding commitments that have expired and why these 
funds were not disbursed, and the actions taken to reduce the amount of 
undisbursed funding and the outcomes associated with these actions."
[Footnote 125] 

USAC has long been aware of the issue of committed funds going unused. 
GAO acknowledged the actions taken by the Commission and USAC after its 
2000 report on the issue of unused funds in the E-rate program, 
[Footnote 126] but states that "despite these changes, the proportion 
of disbursed funds is now lower, on average, than it was when we made 
the recommendation."[Footnote 127] In particular, GAO noted that "the 
proportion of committed funds that were disbursed from 1998 through 
2000 averaged 79 percent but averaged only 71 percent annually from 
2001 through 2005."[Footnote 128] However, GAO noted that although 
"underuse of committed funding is widespread among participants...the 
proportion of participants using a higher percentage of the funds 
committed to them is rising."[Footnote 129] GAO concludes that "the 
overall disbursement rate is declining because applicants that 
ultimately do not receive disbursements equal to their funding 
commitment are receiving relatively larger commitments."[Footnote 130] 
The draft report identified the many reasons participants in the E-rate 
program may not use the full amount of the funding commitment based on 
GAO's survey of participants in the program, as well as information 
provided by the Commission and USAC during the course of the audit. 
[Footnote 131] GAO notes that if commitments were more consistent with 
disbursements, more applicants would receive funding for Priority 2 
services.[Footnote 132] 

GAO's conclusion that the overall disbursement rate is declining is 
based on a comparison of committed amounts to disbursed amounts for 
Funding Years 1998 through 2005. The data underlying this conclusion, 
however, as GAO explains, changes on a daily basis as USAC processes 
commitments, appeals and invoices.[Footnote 133] Funding Years 2005, 
2006 and 2007 remain in process from a disbursements perspective. For 
example, for Funding Year 2005, current data indicates that for 402 
funding requests with an associated amount of $51.8 million, applicants 
have until September 30, 2009, to receive delivery of services. Current 
data indicates that: for Funding Year 2005, USAC has disbursed 74% of 
the committed amount; for Funding Year 2006, USAC has disbursed 75% of 
the committed amount; and for Funding Year 2007, USAC has disbursed 61% 
of the committed amount. Each of these percentages will increase over 
time as applicants receive the goods and services, and as USAC is 
invoiced by their service providers. Given the percentage of funds 
disbursed for Funding Year 2007 at this point in time, USAC expects the 
gap between commitments and disbursements to become noticeably smaller 
for this funding year. [See comment 1] 

It is important to note that the conclusion that the overall 
disbursement rate is declining is unrelated to the rate at which USAC 
process invoices and makes payments. USAC's average time to pay 
eligible requests for reimbursement is less than 20 days from receipt 
of invoice. As a result, the issue identified by GAO is more a matter 
of USAC not receiving invoices to process for payment rather than USAC 
not processing invoices in a timely manner. [See comment 2] 

Structure of the E-rate Program: 

USAC's experience as administrator of the E-rate program suggests that 
despite the many measures the Commission and USAC have put in place in 
an effort to decrease the gap between commitments and disbursements, 
the structure of the program will continue to reflect a downward slope 
of commitments as compared to disbursements the closer each funding 
year is to the current date. Thus the gap is attributable more to the 
structure of the program than to USAC's administration of the program. 
It is vital, therefore, to fully understand how the structure of the 
program leads to this result. 

There are two major components to the E-rate program: the pre-
commitment stage and the post-commitment stage. While the post-
commitment stage necessarily flows from the pre-commitment stage, 
program compliance must be tested by USAC at each stage to ensure 
program integrity and prevent waste, fraud, and abuse. Pursuant to 
Commission rules, USAC commits funds on an annual basis for eligible 
services based on properly submitted and supported applications 
[Footnote 134] After services have been provided and invoices 
submitted, USAC must review the invoices to ensure that eligible 
services were provided to eligible entities within the proper timeframe 
under the Commission's rules. Priority 1 services must be provided 
within the funding year, but the provision of Priority 2 services is 
subject to automatic extensions as well as extensions upon applicant 
request. This can, and frequently does, result in the provision of 
Priority 2 services (and the resulting disbursements by USAC for those 
services) years after the funding year in which the commitment was 
made.[Footnote 135] Although FCC rules do not include invoice 
submission deadlines, USAC created administrative deadlines for the 
submission of invoices to more efficiently administer the program. 
[Footnote 136] 

This structure results in the possibility that, although funds were 
committed based on properly submitted and supported applications, they 
could not be paid by USAC. Such a situation would occur, for example, 
when USAC does not receive an invoice to pay, the services actually 
provided were not eligible for funding, the services provided were 
provided to an ineligible entity, the services were not provided within 
the time frame allowable under FCC rules, and/or the services provided 
were not the eligible services approved on the applications and are 
thus ineligible for a service substitution. To promote maximum 
flexibility for participants, the amount of time that applicants and 
service providers have to either deliver the products and services 
and/or to invoice for those products and services can be extended for a 
number of different reasons, so there is not a single deadline by which 
time all funding must be invoiced for each funding year. In addition, 
appeals to USAC and/or the Commission, as well as certain change 
requests, such as changing providers or the products and services 
requested, lead to automatic extensions of time to invoice, thereby 
naturally decreasing the percentage of funding requests that can be 
fully invoiced at any point in time. Because of the requirement that 
applications be submitted on an annual basis, taken together with the 
extensions possible for the implementation of Priority 2 services, 
those services may be provided and invoiced years after the funding 
year in which the commitment was made. This is inherent in the current 
structure of the E-rate program. 

Distinction Between the E-rate Program and Grant Programs: 

GAO states that "although the E-rate program is not technically a grant 
program, it has features in common with grant programs that make some 
degree of comparison appropriate."[Footnote [137] Specifically GAO 
explains that unused grant money can "hinder the achievement of program 
objectives" and that "when agencies made concerted efforts to address 
the problem, they were able to decrease the amount of undisbursed 
funding in expired grant accounts."[Footnote 138] The E-rate program's 
structure described above illustrates an important distinction between 
the E-rate program and typical grant programs: USAC does not play a 
managerial or supervisory role with regard to the actual provision of 
services to schools and libraries. Rather, after USAC makes funding 
commitments, USAC's role is to ensure that any payments made are 
consistent with the program rules described above to avoid improper 
payments, and not to ensure that all committed funds are disbursed. 
While USAC agrees that minimizing the gap between commitments and 
disbursements would result in more applicants receiving Priority 2 
funding in each funding year, because USAC does not have the authority 
or resources to manage or supervise the provision of services or the 
invoicing for those services, USAC's ability to take steps to close 
this gap through administrative measures will be limited. Finally, USAC 
has a routine procedure for "deobligating" unused funds in a timely 
manner for carry-over into subsequent funding years when directed to do 
so by the Commission. 

Reasons Schools and Libraries Do No Use the Entire Commitment: 

GAO reported that participants in the program gave the following 
reasons for why they have not used the entire funding commitment: 

* Applicant's actual expenditures are less than the amount they applied 
for and that was committed to them. 

* There is no disincentive to overestimate funding needs. 

* Changes in the applicant's circumstances after submitting their 
applications result in the need to cancel funding requests or delay 
project implementation. 

* Applicants do not submit requests for reimbursement for the full 
amount of eligible expenses because of the complexity of the 
requirements and lack of staff expertise. 

USAC agrees that under the current structure of the program, there is 
little reason for applicants to underestimate their funding needs. The 
GAO reports that "the overall disbursement rate is declining because 
applicants that ultimately do not receive disbursements equal to their 
funding commitment are receiving relatively larger commitments. 
[Footnote 139] The larger commitments that according to the GAO 
contribute to the decline in the disbursement rate may therefore be 
attributable to applicant's overestimating their needs. 

Consistent with the results of GAO's survey, USAC's anecdotal 
experience has been that commitments may not be used because of changes 
in circumstances, or are used years after the commitment was made. USAC 
has taken a number of steps to ensure participants are informed of 
impending deadlines including adding the deadlines to the FCC Form 486 
notification letters to applicants and service providers, creating a 
deadline calculator on the USAC website, verbal reminders on monthly 
calls with participant groups, news alerts on the USAC website, and 
notices in the weekly Schools and Libraries Newsbrief sent via e-mail 
to approximately 22,000 participants. USAC plans to use the results of 
GAO's survey regarding this issue to devise new targeted outreach and 
education efforts to assist participants in receiving the appropriate 
reimbursements. 

USAC Administrative Changes That May Have the Result of Increasing the 
Gap Between Commitments and Disbursements: 

With Commission approval, USAC has implemented many administrative 
enhancements over the years to make funding decisions as quickly as 
possible without adversely impacting program integrity. One such type 
of enhancement has been to streamline the review of certain categories 
of Priority 1 funding requests by, among other things, decreasing the 
documentation required to support the funding requests. While this 
approach results in faster funding commitment decisions, USAC's 
experience suggests that it could be a contributing factor to one of 
the reasons GAO specifically identified as causing the commitment-
disbursement gap - applicants overestimating their Priority 1 costs. 
Thus, implementing measures to reduce the amount of undisbursed funding 
such as requiring more detailed information to support funding requests 
could result in increased application review times and delayed funding 
commitments. 

With regard to GAO's recommendation that the Commission report on the 
reasons committed funds were not disbursed, USAC will be able to 
provide the Commission with internal data relating to the amount of 
funding denied at the invoicing stage and the amount of funding for 
which invoices were not received. However, reporting to the Commission 
on why USAC did not receive an invoice related to a committed amount 
may require collection and analysis of additional data that USAC is 
presently not authorized to collect. 

3. Non-participation in the Program and Participants' Views: 

Although not tied to a recommendation, GAO also reports on 
participation rates and schools' and libraries' experience of 
participating in the program. USAC welcomes this information, and plans 
to evaluate this information to determine whether it can devise 
strategies to target and assist eligible entities that are currently 
not participating in the program, to conduct additional outreach and 
training to address the challenges experienced by participants, and to 
make additional information technology enhancements to respond to 
participants' suggestions. USAC plans to use our enhanced Helping 
Applicants to Succeed (HATS) program to work with more applicants 
individually to resolve their issues and improve their success in the 
program. However, some of the improvements favored by applicants - such 
as streamlining the application for Priority 1 services, multiyear 
applications for Priority 1 services, firm application window dates, 
and reimbursing applicants directly - are not within USAC's 
administrative authority to implement. 

USAC appreciates the opportunity to submit its response to the draft 
report on the E-rate Program. Please contact me if you have questions. 

Sincerely, 

//s// 

Mel Blackwell: 
Vice President: 
Schools and Libraries Division: 

The following are GAO’s comments on the Universal Service 
Administrative Company’s letter dated March 6, 2009. 

GAO’s Comments: 

1. We agree that the disbursement rate for funding years 2005, 2006, 
and 2007 may increase as applicants receive delivery of services and 
submit invoices. However, the disbursement rate for every funding year, 
including 2001 through 2004, remains less than the rate in 2000, when 
we made our initial recommendation to address the low disbursement 
rate. 

2. We are not suggesting that USAC’s administration of the E-rate 
program is a significant contributing factor to the low disbursement 
rate. Rather, we identify several factors that appear to contribute to 
the low disbursement rate, including the incentives inherent in the 
program. For example, we note that under current program rules, 
applicants have an incentive to overestimate costs for Priority 1 
services. These and other factors that we identify in the report likely 
contribute to the low disbursement rate. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov. 

Staff Acknowledgments: 

In addition to the contact named above, Michael Clements and Faye 
Morrison, Assistant Directors; Eli Albagli; Carl Barden; Jennifer 
Clayborne; Elizabeth Curda; Abe Dymond; Elizabeth Eisenstadt; Michele 
Fejfar; Simon Galed; Heather Halliwell; Kristen Jones; Ying Long; John 
Mingus; Josh Ormond; Betty Ward-Zukerman; Mindi Weisenbloom; and 
Crystal Wesco made key contributions to this report. 

[End of section] 

Footnotes: 

[1] E-rate is short for education rate. 

[2] Because there was no historical record of what it would cost to 
provide support to schools and libraries, FCC based the funding cap on 
data from McKinsey and Company, the U.S. National Committee on 
Libraries and Information Services, and others that sought to estimate 
the cost of deploying and supporting the ongoing costs of a 
communications network for public schools and libraries. The cap has 
remained the same since it was established in May 1997. However, FCC 
did direct that no more than $1.925 billion be committed or disbursed 
for the Schools and Libraries Support Mechanism during 1998 and the 
first two quarters of 1999, and under current rules, unused funds may 
be carried forward for use in subsequent funding years. 

[3] Mandated payments from companies providing interstate 
telecommunications services are deposited into the federal Universal 
Service Fund, from which disbursements are made for the various federal 
universal service programs, including E-rate. 47 U.S.C. §254(d). The 
companies generally pass this cost along to customers by adding some 
form of universal service fee to customers’ bills. Other universal 
service programs under the Universal Service Fund are the High-Cost 
program, the Low-Income program, and the Rural Health Care program. The 
High-Cost program assists customers living in high-cost, rural, or 
remote areas through financial support to telephone companies, thereby 
lowering rates for local service. The Low-Income program assists 
qualifying low-income consumers through discounted installation and 
monthly telephone services and free toll limitation service. The Rural 
Health Care program assists health care providers located in rural 
areas through discounts for telecommunications services. For more 
information on other universal service programs, see GAO, 
Telecommunications: Federal and State Universal Service Programs and 
Challenges to Funding, [hyperlink, 
http://www.gao.gov/products/GAO-02-187] (Washington, D.C.: Feb. 4, 
2002). For more information on the High-Cost program, see GAO, 
Telecommunications: FCC Needs to Improve Performance Management and 
Strengthen Oversight of the High-Cost Program, [hyperlink, 
http://www.gao.gov/products/GAO-08-633] (Washington, D.C.: June 13, 
2008). 

[4] In our past work, we have found that agencies that are successful 
in measuring performance strive to establish measures that demonstrate 
results, address important aspects of program performance, and provide 
useful information for decision making. See, for example, GAO, Agency 
Performance Plans: Examples of Practices That Can Improve Usefulness of 
Decisionmakers, [hyperlink, 
http://www.gao.gov/products/GAO/GGD/AIMD-99-69] (Washington, D.C.: Feb. 
26, 1999); and Executive Guide: Effectively Implementing the Government 
Performance and Results Act, GAO/GGD-96-118 (Washington, D.C.: June 
1996). 

[5] Specifically, 47 U.S.C. § 254(h)(1)(B) provides: “All 
telecommunications carriers serving a geographic area shall, upon a 
bona fide request for any of its services that are within the 
definition of universal service under subsection (c)(3) of this 
section, provide such services to elementary schools, secondary 
schools, and libraries for educational purposes at rates less than the 
amounts charged for similar services to other parties. The discount 
shall be an amount that the Commission, with respect to interstate 
services, and the States, with respect to intrastate services, 
determine is appropriate and necessary to ensure affordable access to 
and use of such services by such entities. A telecommunications carrier 
providing service under this paragraph shall—(i) have an amount equal 
to the amount of the discount treated as an offset to its obligation to 
contribute to the mechanisms to preserve and advance universal service, 
or (ii) notwithstanding the provisions of subsection (e) of this 
section, receive reimbursement utilizing the support mechanisms to 
preserve and advance universal service.” 

[6] 47 U.S.C. § 254(h)(2). 

[7] The Federal-State Joint Board on Universal Service was established 
in 1996 to make recommendations to implement the universal service 
provisions of the Telecommunications Act of 1996. The board is composed 
of FCC commissioners, state utility commissioners, and a consumer 
advocate representative. 

[8] USAC, in turn, contracts out many tasks to contractors, including 
Solix Inc. (formerly known as NECA Services Inc. and Independent NECA 
Services), a private, for-profit company. Solix reviews applications 
for funding from schools and libraries, as well as requests for 
reimbursements from schools, libraries, and service providers. Solix 
performs these reviews based on procedures approved by FCC and USAC, 
guidance from FCC and USAC, and with the oversight and management of 
FCC. 

[9] In September 2008, FCC and USAC signed an updated memorandum of 
understanding, which will remain in effect for 4 years. 

[10] Only eligible schools and libraries may receive universal service 
funds under the schools and libraries universal service mechanism. To 
be eligible, a school must meet the statutory definition of “elementary 
school” or “secondary school” contained in the Elementary and Secondary 
Education Act of 1965 (Education Act), as amended in the No Child Left 
Behind Act of 2001 (No Child Left Behind Act). See 47 U.S.C. 
§254(h)(7)(A). Under the No Child Left Behind Act, an “elementary 
school” is defined as “a nonprofit institutional day or residential 
school, including a public elementary charter school, that provides 
elementary education, as determined under State law.” 20 U.S.C. 
§7801(18). A “secondary school” is defined as “a nonprofit 
institutional day or residential school, including a public elementary 
charter school, that provides secondary education, as determined under 
State law.” 20 U.S.C. §7801(38). The term “secondary school” does not 
include any education beyond grade 12. 20 U.S.C. 7801(38). Libraries 
that may participate in E-rate are those that are eligible to receive 
assistance from a state’s library administrative agency under the 
Library Services and Technology Act. See, 47 U.S.C. §254(h)(4); 20 
U.S.C. §9121 et. seq. Examples of entities not eligible for support are 
home school programs, private vocational programs, and institutions of 
higher education. In addition, neither private schools with endowments 
of more than $50 million nor libraries whose budgets are part of a 
school’s budget are eligible to participate. 47 U.S.C. §254(h)(4). Some 
education service agencies, as well as prekindergarten (such as Head 
Start), juvenile justice, and adult education student populations and 
facilities are eligible in certain states. Eligible schools, school 
districts, and libraries may also form consortia for the purposes of 
applying for E-rate funding. 47 C.F.R. 54.501(d). 

[11] See, 47 C.F.R. 54.500(b). When a product or service contains 
ineligible components or is to be used by both eligible and ineligible 
locations, an applicant may delineate between the eligible and 
ineligible portions of the cost and apply for discounts only for the 
eligible portion. 47 C.F.R. §54.504(g). 

[12] Need can also be measured based on a federally approved 
alternative mechanism such as a survey to collect family income data. 

[13] An applicant is classified as rural according to a definition 
adopted by the U.S. Department of Health and Human Services’ Office of 
Rural Health Policy. 

[14] According to USAC, Priority 1 services include a wide range of 
high-speed digital transmission services that facilitate, for example, 
distance learning, which allows students to access classes that would 
otherwise not be offered. 

[15] 47 C.F.R. 54.507(g). 

[16] Eligible entities are able to receive support for internal 
connections in 2 out of every 5 years (47 CFR 54.506 (c)). All requests 
for recurring services that have been found consistent with FCC rules 
through the application review process have been funded since the 
beginning of the program. 

[17] In the Matter of Federal-State Joint Board on Universal Service, 
Fifth Order on Reconsideration and Fourth Report and Order, 13 FCC Rcd 
14915 (1998). 

[18] Before services begin, the plan must be approved by a USAC-
certified technology plan approver. However, applicants that seek 
discounts only for basic local, cellular, personal communication 
service, long-distance telephone service, or voice mail are not 
required to prepare technology plans. 47 C.F.R. 54.504(b)(2)(iii)(c). 

[19] Applicants may additionally use a request for proposal (RFP) to 
solicit bids. 

[20] Pursuant to the commission’s rules, USAC must obtain the service 
provider name, address, telephone number, and contact names, as well as 
other information, in order for USAC to be able to perform its billing, 
collection, and disbursement functions. Therefore, the commission and 
USAC developed the Service Provider Identification Number and Contact 
Form, FCC Form 498, to collect this information from carriers and 
service providers that receive support. 

[21] And, if applicable, at least 28 days after an RFP is publicly 
available. 47 C.F.R. 54.504(b)(4). 

[22] Applicants may also choose vendors from a State Master Contract, 
execute multiyear contracts pursuant to a Form 470 (Description of 
Services Requested), and enter into voluntary contract extensions, but 
certain additional contract requirements apply. In all cases, 
applicants must comply with state and local procurement laws. 
Applicants may select a vendor for tariffed or month-to-month services 
or execute a contract for new contractual services. 

[23] Requests received during a filing window are treated as if they 
were received simultaneously. 13 FCC Rcd 14915. According to FCC 
officials, requests received outside the filing window typically do not 
receive funding because requests submitted during the window exceed the 
amount of funds available. 

[24] For the entities they represent, school districts, library 
systems, and consortia may calculate an aggregate discount percentage 
representing the level of need. For example, school districts applying 
for eligible services on behalf of their individual schools may 
calculate the districtwide percentage of eligible students using a 
weighted average. Alternatively, a district could submit separate 
applications on behalf of individual schools and use the respective 
percentage discounts for which the individual schools are eligible. 47 
C.F.R. 54.505(b). 

[25] 47 C.F.R. 54.504(c)(1)(iii). 

[26] Under the Children’s Internet Protection Act and the Neighborhood 
Children’s Internet Protection Act, Congress imposed new conditions on 
schools and libraries with Internet access that request discounted 
service under the E-rate program. 47 U.S.C. §§254(h)(5), (6); 254(l). 

[27] Program participants and service providers are expected to 
maintain records for at least 5 years after the last date of service 
delivered to be able to comply with audits and other inquiries or 
investigations. 47 C.F.R. § 54.504(c)(1)(x). They also are required to 
retain, for example, competitive bidding documentation, such as bid 
evaluation worksheets, winning and losing bids, and correspondence 
between the beneficiary and prospective bidders; executed contracts; 
National School Lunch Program eligibility documentation; purchase, 
delivery, and installation records; invoices; asset and inventory 
records; and all program forms. See Schools and Libraries Universal 
Service Mechanism, Fifth Report and Order, 19 FCC Rcd 15808 (2004). 

[28] We analyzed program requests, commitments, and disbursements on 
the basis of which funding year they were associated with rather than 
in which calendar year or fiscal year the action occurred. For 
instance, individual requests for funding year 2007 may have been 
submitted in calendar year 2006, and individual commitments for funding 
year 2007 may have been made in calendar year 2008. 

[29] Under program rules, on an annual basis in the second quarter of 
each calendar year, all funds that are collected and that are unused 
from prior years shall be available for use in the next full funding 
year in accordance with the public interest and not withstanding the 
annual cap. 47 C.F.R. 54.507(a). 

[30] In 1999, requests for E-rate funding exceeded the $2.25 billion 
cap. However, as a result of modifying and denying some funding 
requests during the PIA process, the fundable part of the requests did 
not exceed the funds available. According to USAC, in all other years,
requests (both before and after the PIA review) exceeded available 
funds. 

[31] In the Matter of Schools and Libraries Universal Service Support 
Mechanism, Third Report and Order and Second Further Notice of Proposed 
Rulemaking. 18 FCC Rcd 26912 (2003). 

[32] Unless indicated otherwise, survey estimates have an error rate of 
±4 percent at the 95 percent confidence level. 

[33] The complete list of information technology goals we asked about 
can be found in the electronic supplement that accompanies this report, 
[hyperlink, http://www.gao.gov/products/GAO-09-254SP]. 

[34] We estimate that providing Internet access for student or library 
patron use is a goal for 91 percent of beneficiaries and providing it 
for administrative or operational use is a goal for 94 percent of 
beneficiaries. 

[35] Specifically, we estimate that installing or upgrading components 
needed for network or Internet access is a goal for participants as 
follows: Wired access for administrative or operational use is a goal 
for 73 percent of participants; wired access for instructional or 
library patron use is a goal for 73 percent; wireless access for 
administrative or operational use is a goal for 74 percent; and 
wireless access for instructional or library patron use is a goal for 
73 percent. 

[36] The Telecommunications Act of 1996 sought to ensure that eligible 
schools and libraries have affordable access to and use of services 
within the definition of universal service under subsection (c)(3) for 
educational purposes at discounted rates. 47 U.S.C. §254(h)(1)(B). 

[37] See, [hyperlink, 
http://www.whitehouse.gov/omb/expectmore/detail/10004450.2005.html]. 
OMB’s E-rate assessment was last updated in August 2007. 

[38] The proportion of participants that we estimate to have used E-
rate for wired connections includes 36 percent who have used the 
connections for administrative or operational use and 38 percent who 
have used the connections for student or library patron use. 

[39] The proportion of participants that we estimate to have used E-
rate for wireless connections includes 20 percent who have used the 
connections for administrative or operational use and 24 percent who 
have used the connections for student or library patron use. 

[40] For the purposes of reporting on the disbursement rate for 
committed funds, we examined data through 2006 because, for many 
applicants, the deadlines for using 2007 funding have not passed. 

[41] Schools, libraries, and eligible consortia must use recurring 
services for which discounts have been committed within the funding 
year for which the discounts were sought. The deadline for 
implementation of nonrecurring services will be September 30 following 
the close of the funding year. An applicant may request and receive 
from USAC an extension of the implementation deadline for nonrecurring 
services if it satisfies one of the following criteria: (1) The 
applicant’s funding commitment decision letter is issued by USAC on or 
after March 1 of the funding year for which discounts are authorized; 
(2) the applicant receives a service provider change authorization or 
service substitution authorization from USAC on or after March 1 of the 
funding year for which discounts are authorized; (3) the applicant’s 
service provider is unable to complete implementation for reasons 
beyond the service provider’s control; or (4) the applicant’s service 
provider is unwilling to complete installation because funding 
disbursements are delayed while USAC investigates their application for 
program compliance. 47 C.F.R. §54.507(d). 

[42] The 95 percent confidence interval for this estimate is from 47 
percent to 62 percent. 

[43] The 95 percent confidence interval for this estimate is from 14 
percent to 27 percent. 

[44] The Antideficiency Act (ADA) prohibits an officer or employee of 
the U.S. government from making obligations in excess or in advance of 
available budgetary resources. See 31 U.S.C. §§ 1341, 1342 and 1517. We 
previously reported on the applicability of the ADA to the E-rate 
program. See GAO, Telecommunications: Greater Involvement Needed by FCC 
in the Management and Oversight of the E-Rate Program, [hyperlink, 
http://www.gao.gov/products/GAO-05-151] (Washington, D.C.: Feb. 9, 
2005). 

[45] An obligation is a definite commitment that creates a legal 
liability of the government for the payment of goods and services 
ordered or received, or a legal duty on the part of the United States 
that could mature into a legal liability by virtue of actions on the 
part of the other party beyond the control of the United States. 
Payment may be made immediately or in the future. An agency incurs an 
obligation, for example, when it places an order, signs a contract, 
awards a grant, purchases a service, or takes other actions that 
require the government to make payments to the public or from one 
government account to another. See GAO, A Glossary of Terms Used in the 
Federal Budget, [hyperlink, http://www.gao.gov/products/GAO-05-734SP] 
(Washington, D.C.: September 2005). 

[46] In the Matter of Schools and Libraries Universal Service Support 
Mechanism, Third Report and Order and Second Further Notice of Proposed 
Rulemaking, 18 FCC Rcd 26912 (2003). 

[47] GAO, Grants Management: Attention Needed to Address Undisbursed 
Balances in Expired Grant Accounts, [hyperlink, 
http://www.gao.gov/products/GAO-08-432] (Washington, D.C.: Aug. 29, 
2008). 

[48] We defined participation as entities that were included on a 
certified application for funding. Participation figures were based 
upon matching USAC entities with entities from U.S. Department of 
Education databases. Unless otherwise noted, all of the percentage 
estimates based upon matching of entity records have an overall error 
rate of 3.4 percentage points or less at the 95 percent level of 
confidence. 

[49] According to the U.S. Department of Education, magnet schools were 
originally introduced to increase racial integration and reduce 
minority group isolation; they continue to serve this purpose as well 
as to provide additional options to children whose current schools need 
improvement, and to serve as laboratories of successful educational 
practice. 

[50] According to the U.S. Department of Education, charter schools are 
public schools that operate with greater autonomy than many noncharter 
public schools. States vary in their charter school laws, but, in 
general, these schools are exempted from many state regulations in 
exchange for explicit accountability for results, spelled out in the 
terms of their charter or contract with a state-approved authorizing 
(i.e., oversight) agency. 

[51] FCC and USAC officials noted that the participation rate for 
private schools was lower than they expected. The data set we received 
from USAC listed 5,122 private schools that applied for E-rate funding 
for funding year 2005; the data set we received from the Department of 
Education listing all private schools in the United States showed 
29,752 private schools for the 2005-2006 school year. We were able to 
match 3,914 USAC schools with a school in the Department of Education 
database. We derived the private school participation rate by dividing 
the 3,914 matched schools by the 29,752 total private schools. 

[52] American Library Association and the College of Information’s 
Information Institute at Florida State University, Libraries Connect 
Communities: Public Library Funding and Technology Access Study 2006-
2007 (Chicago: Office for Research and Statistics, 2007). Estimates 
from the ALA survey are based on a sample, but GAO was not able to 
determine the margin of error associated with this percentage. In the 
ALA survey, respondents were allowed to select more than one answer in 
response to the question on why they do not participate; as a result, 
response categories total to more than 100 percent. 

[53] In the Matter of Federal-State Joint Board on Universal Service, 
Comprehensive Review of the Universal Service Fund Management, 
Administration, and Oversight, Report and Order, 22 FCC Rcd. 16372 
(2007). 

[54] The 95 percent confidence interval for the estimate of 
participants who found participating in the E-rate program easier is 
from 38 percent to 48 percent; for those who found participating about 
the same, the interval is from 38 percent to 47 percent. 

[55] Percentages and analyses are based on those expressing an opinion 
and exclude those indicating “don’t know or no experience within last 3 
years.” 

[56] The 95 percent confidence interval for this estimate is from 34 
percent to 44 percent. 

[57] The 95 percent confidence interval for this estimate is from 47 
percent to 59 percent. 

[58] Based on our survey, we estimate that 57 percent of participants 
have experience with the appeals process. 

[59] Denials can take the form of total funding denials, in which case 
no funding is awarded, or partial funding denials, in which a 
commitment is made that is less than the amount of funding that was 
requested. 

[60] Other causes of funding requests not resulting in commitments 
include, for example, reductions in the amounts originally requested 
and, in the case of applications for Priority 2 services, applicants’ 
discount rate not falling within the discount percentage range. 

[61] The Improper Payment Information Act of 2002 requires federal 
executive branch agencies to review all programs and activities, 
identify those that may be susceptible to significant improper 
payments, estimate and report the annual amount of improper payments 
for those programs, and implement actions to cost-effectively reduce 
improper payments. In implementing guidance, OMB defines significant 
improper payments as those that exceed both 2.5 percent of program 
payments and $10 million in 1 year. Pub.L. No. 107-300., 116 Stat 2350 
(Nov. 26, 2002). 

[62] FCC Office of Inspector General, Statistical Analysis of Audits of 
Universal Service Schools & Libraries Fund (Washington, D.C., Dec. 12, 
2008). 

[63] The 95 percent confidence interval for this estimate is from 72 
percent to 86 percent. 

[64] According to our survey, we estimate that about one-quarter of E-
rate participants use the services of a paid consultant. 

[65] State E-rate coordinators are typically state employees who serve 
as a resource to applicants in their state. Services that E-rate 
coordinators provide vary from state to state but include validating 
applicants’ technology plans and providing program training. 

[66] The 95 percent confidence interval for this estimate is from 62 
percent to 72 percent. 

[67] The 95 percent confidence interval for this estimate is from 56 
percent to 66 percent. 

[68] The 95 percent confidence interval for this estimate is from 51 
percent to 64 percent. 

[69] In the Matter of Request for Review of the Decision of the 
Universal Service Administrator by Bishop Perry Middle School New 
Orleans, LA, et. al., 21 FCC Rcd. 5316 (2006). 

[70] In the Matter of Comprehensive Review of Universal Service Fund 
Management, Administration, and Oversight, Notice of Proposed 
Rulemaking and Further Notice of Proposed Rulemaking, 20 FCC Rcd 11308 
(2005). 

[71] We reported in 2007 on FCC’s rule-making process, noting that 
dockets may remain open for a number of reasons—for instance, that the 
docket was intended to be broad with multiple rule makings, that other 
rule makings take precedence, and that the number of staff available to 
work on rule makings is limited. See GAO, Telecommunications: FCC 
Should Take Steps to Ensure Equal Access to Rulemaking Information, 
[hyperlink, http://www.gao.gov/products/GAO-07-1046] (Washington, D.C.: 
Sept. 6, 2008). 

[72] FCC, In the Matter of Comprehensive Review of the Universal 
Service Fund Management, Administration, and Oversight, Notice of 
Inquiry, 23 FCC Rcd. 13583 (2008). 

[73 According to the Office of Management and Budget, output measures 
describe the level of a program’s activity, whereas outcome measures 
describe the intended result from carrying out a program or activity 
and efficiency measures capture a program’s ability to perform its 
function and achieve its intended results. 

[74] In the Matter of Federal-State Joint Board on Universal Service, 
Comprehensive Review of the Universal Service Fund Management, 
Administration, and Oversight, Report and Order, 22 FCC Rcd. 16372 
(2007). 

[75] The proposal was placed on circulation on January 7, 2009, under 
docket number WCB 02-6. FCC’s circulation process involves 
electronically sending written items to each of the commissioners for 
approval; if approved, the item will be issued as a notice of proposed 
rulemaking. Items under circulation are not publicly available. 

[76] See 22 FCC Rcd 16372. 

[77] USAC assigns funding request numbers to individual funding 
requests submitted on applications for funding; funding request numbers 
are used to track the status of the request. 

[78] Other elements of USAC’s executive compensation program include 
the speed with which customer complaints are resolved and the success 
with which recommendations from financial statement audits are 
implemented. 

[79] Service quality performance measures include requirements that 
USAC provide notice to program stakeholders of how to file complaints 
with USAC and track all complaints to determine the response time for 
each. 

[80] See, for example, GAO, Pipeline Safety: Management of the Office 
of Pipeline Safety’s Enforcement Program Needs Further Strengthening, 
[hyperlink, http://www.gao.gov/products/GAO-04-801], (Washington, D.C.: 
July 23, 2004); Agency Performance Plans: Examples of Practices That 
Can Improve Usefulness to Decisionmakers, [hyperlink, 
http://www.gao.gov/products/GAO/GGD/AIMD-99-69] (Washington, D.C.: Feb. 
26, 1999); and Executive Guide: Effectively Implementing the Government 
Performance and Results Act, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: June 
1996). We have also identified specific attributes of successful 
performance measures linked to these characteristics. See GAO, Tax 
Administration: IRS Needs to Further Refine Its Tax Filing Season 
Performance Measures, [hyperlink, 
http://www.gao.gov/products/GAO-03-143] (Washington, D.C.: Nov. 22, 
2002). 

[81] See, for example, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-118] and GAO, Results-Oriented 
Government: GPRA Has Established a Solid Foundation for Achieving 
Greater Results, [hyperlink, http://www.gao.gov/products/GAO-04-38] 
(Washington, D.C.: Mar.10, 2004). 

[82] We analyzed program requests, commitments, and disbursements on 
the basis of which funding year they were associated with rather than 
in which calendar year or fiscal year the action occurred. For 
instance, individual requests for funding year 2007 may have been 
submitted in calendar year 2006, and individual commitments for funding 
year 2007 may have been made in calendar year 2008. 

[83] USAC encourages applicants to file separate applications for 
Priority 1 and Priority 2. 

[84] The NCES ID is a unique identifier assigned to all public schools. 
USAC collects this information on the Form 471 application for funding 
but does not validate the numbers that applicants report. 

[85] This estimate has a confidence interval from 0.3 percent to 3.4 
percent at the 95 percent level of confidence. 

[86] 47 U.S.C. § 254(c)(1), (c)(3); 47 C.F.R. §§ 54.502, 54.503. 

[87] See Universal Service Administrative Company, Schools and 
Libraries Division website, [hyperlink, 
http://www.sl.universalservice.org/furtding/y1/national.asp] (1998-2008 
data). 

[88] U.S. Dept. of Education, Institute of Education Sciences, Internet 
Access in U.S. Public Schools and Classrooms: 1994-2005, 4-5 (2006), 
[hyperlink, http://nces.ed.gov/pubs2007t2007020.pdf]. 

[89] Id. at 14,16. 

[90] Information Use Management and Policy Institute, College of 
Information, Florida State University, Public Libraries and the 
Internet 2006: Study Results and Findings, 1 (2006), [hyperlink, 
http://www.ii.fsu.edu/projectFiles/plinternet/2006/2006_plinternet.pdf].
 
[91] GAO Report at 49. 

[92] Id. 

[93] Federal-State Joint Board on Universal Service, CC Docket No. 96-
45, Report and Order, 12 FCC Red 8776, 9002, para. 424 (1997) 
(Universal Service First Report and Order). 

[94] Federal-State Joint Board on Universal Service, CC Docket No. 
96.45, Fifth Order on Reconsideration and Fourth Report and Order, 13 
FCC Red 14915,14938, pare. 36 (1998); 47 C.F.R. § 54.507(g). 

[95] Universal Service First Report and Order, 12 FCC Red at 9049-50, 
pares. 520.21. 

[96] In addition, the GAO notes that more funding for Priority 1 
services is being disbursed although the requested dollar amounts have 
not increased. See GAO Report at 13. The Commission is pleased that the 
increase in Priority 1 funding is a result of applicants receiving a 
greater proportion of their requested fielding. Given that the 
Commission has determined that Priority 1 telecommunications and 
Internet access services are the most crucial to schools and libraries, 
an increase in applicants' success rate in receiving these funds is a 
positive development. 

[97] GAO Report at 18. 

[98] See State Educational Technology Directors Association, High-Speed 
Broadband Access for All Kids: Breaking Through the Barriers, 22-23 
(2008), [hyperlink, 
http://www.setda.org/c/document_lbrary/getfile?folderld=270&name=DLFE-
211.pdf]. 

[99] Comprehensive Review of the Universal Service Fund Management, 
Administration, and Oversight, WC Docket No. 05-195, Notice of Proposed 
Rulemaking and Further Notice of Proposed Rulemaking, 20 FCC Red 11308 
(2005) (Comprehensive Review NPRM); Comprehensive Review of the 
Universal Service Fund Management, Administrations, and Oversight, WC 
Docket No. 05-195, Notice of Inquiry, FCC 08-189 (2008) (2008 NOI). 

[100] See 2008 NOI at para. 29. 

[101] Comprehensive Review of the Universal Service Fund Management, 
Administrations, and Oversight, Federal-State Joint Board on Universal 
Service, Schools and Libraries Universal Service Support Mechanism, 
Rural Health Care Support Mechanism, Lifeline and Link-Up, Changes to 
the Board of Directors of the National Exchange Carrier Association WC 
Docket No. 05-195, CC Docket No. 96-45, CC Docket No. 02-6, WC Docket 
No. 02-60, WC Docket No. 03-109, CC Docket No. 97-21, Report and Order, 
22 FCC Red 16372,16389-94, pares. 38-49 (2007) (Comprehensive Review 
Order). 

[102] GAO Report at 44. 

[103] Id. 

[104] At the time these measures were established, the Commission did 
not establish goals for these measures because current performance 
levels needed to be determined before establishing targeted performance 
levels. As the Commission noted in that order, we may adopt targets or 
establish a deadline for the processing of certain types of 
applications. See Comprehensive Review Order at 16392, para. 45. The 
Commission also believes that these measures will provide useful 
information for programmatic decision-making. The Internet connectivity 
measure will help the Commission to determine existing levels of 
Internet connectivity for E-rate program participants and whether these 
levels are sufficient given today's available applications. The 
application processing measure will help the Commission determine 
whether changes should be made to the application timeline so that 
schools can receive funding commitments far enough in advance of the 
school year to plan their telecommunications and information services 
expenditures. 

[105] See 2008 NOI at para. 25. 

[106] Comprehensive Review NPRM, 20 FCC Rcd at 11324, para. 37 (2005). 

[107] GAO Report at 31. 

[108] GAO Report at 28-30. We note that GAO's statement that only 13 
percent of private schools participate is flawed because GAO's 
calculations excluded approximately 1,200 private schools that were 
listed in USAC's database as participants in the E-rate program. 

[109] GAO Report at 40. 

[110] Request for Review of the Decision of the Universal Service 
Administrator by Bishop Perry Middle School, et al, Schools and 
Libraries Universal Service Support Mechanism, File Nos. SLD-487170, at 
al., CC Docket No. 02-6, Order, 21 FCC Red 5316 (2006) (Bishop Perry 
Order). 

[111] Request for Review of the Decision of the Universal Service 
Administrator by Aiken County Public Schools. et al., Schools and 
Libraries Universal Service Support Mechanism, File Not. SLD-487170, et 
al., CC Docket No. 02-6, Order, 22 FCC Rcd 8735 (2007) (Aiken Order). 

[112] GAO Report at 49. 

[113] GAO Report at 23-24. 

[114] The funding year 2002 disbursement rate after four years was 70 
percent while the funding year 2005 disbursement rate after four years 
was 74 percent. 

[115] United States Government Accountability Office Report to 
Congressional Requestors, Long-Term Strategic Vision Would Help Ensure 
Targeting of E-Rate Funds to Highest-Priority Uses, GAO-09-253, Draft 
Report March 2009, page 49 (GAO Draft Report) (revised draft provided 
to USAC on Feb. 17, 2009). 

[116] GAO Draft Report, page 49. 

[117] GAO Draft Report, pages 42-48. 

[118] GAO Draft Report, page 46. 

[119] GAO Draft Report, page 20. 

[120] GAO Draft Report, page 17. 

[121] See USAC Schools and Libraries, Eligible Services List, Schools 
and Libraries Support Mechanism for Funding Year 2009 at 2-5. 

[122] GAO Draft Report, page 19. 

[123] See Request for Review of the Decision of the Universal Service 
Administrator by Bishop Perry Middle School, et al., Schools and 
Libraries Universal Service Mechanism, File Not. SLD-487170, et al., CC 
Docket No. 02-6, Order, 21 FCC Red 5316, 5326-27, FCC 06-54, (2006) 
(Bishop Perry Order). 

[124] GAO Draft Report, page 21. 

[125] GAO Draft Report, page 49. 

[126] GAO Draft Report, page 25. 

[127] GAO Draft Report, page 26. 

[128] GAO Draft Report, page 26. 

[129] GAO Draft Report, page 22. 

[130] GAO Draft Report, page 23. 

[131] GAO Draft Report, pages 23-25. 

[132] GAO Draft Report, page 27. 

[133] GAO Draft Report, page 52. 

[134] See generally 47 C.F.R. § 54.501 et seq. 

[135] See 47 C.F.R. § 54.507(d). 

[136] See Universal Service Administrative Company, Schools and 
Libraries Program, Administrative Procedures at 24 (filed Oct. 31, 2008 
in CC Docket No. 02-6). 

[137] GAO Draft Report, page 28 citing GAO, Grants Management: 
Attention Needed to Address Undisbursed Balances in Expired Grant 
Accounts, [hyperlink, http://www.gao.gov/products/GAO-08-432] 
(Washington, D.C.: Aug. 29, 2008). 

[138] GAO Draft Report, page 28. 

[139] GAO Draft Report, page 23. 

[End of section] 

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