updated 10/4/2004 8:17:10 PM ET 2004-10-05T00:17:10

More than $1 billion in federal aid to help schools and libraries connect to the Internet is being delayed by a bookkeeping change that has tied up the money.

In an effort to clean up the E-Rate program, dogged so far by embarrassing cases of fraud and abuse, the Federal Communications Commission has put the program under more stringent accounting rules. One consequence has been a temporary spending shutdown.

Financed through charges paid by telephone companies and typically passed along to customers, the $2.25 billion-a-year program provides discounted Internet access and internal connection gear such as wiring and adapters.

Under the new rules, the program must have enough cash on hand before it makes any new commitments to schools and libraries, even if bills won’t come due for many months.

The nonprofit that administers the program, the Universal Service Administrative Co., has liquidated more than $3 billion in assets, but it can’t count that as available cash because the money is committed to future projects. That means the program must accumulate monthly fees from phone companies before committing to any more spending.

“This puts school districts and their planning cycles into a tailspin,” said Anne Bryant, executive director of the National School Boards Association and member of the USAC board.
The subsided technology help from the federal government has become a budget fixture for schools, which use the savings to hire teachers or cover other critical costs, Bryant said.

Delay expected to last until Dec.
The impact on schools will vary by school district and depend on how phone companies respond to the temporary halting of funds. The delay began in August and is expected to last until perhaps December, affecting more than $1 billion, said USAC spokesman Mel Blackwell.

“Some schools may end up having to pay for their (Internet) service before they get paid from us, which may put them in a bind,” Blackwell said.

The FCC ordered the higher accounting standards for the program a year ago. But the delay began only recently as officials determined commitment letters were financial obligations.

Any project already approved will receive its money. Schools and libraries will eventually get money for other projects, too, but may not be able to do them as quickly, said Mark Wigfield, spokesman for the FCC bureau that oversees E-Rate.

“The agency is strongly supportive of this program,” he said. “This is simply an unfortunate consequence of implementing these new accounting standards.”

Bryant said the FCC compounded the problem by capping the amount of money phone companies must contribute, reducing the available funds by $550 million.

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