Congress takes a byte out of the FCC

By Faye Anderson
web posted August 1998

The millennium computer bug has bitten Vice President Al Gore.

I'm not talking about the Y2K programming crisis. Gore's gigabyte-size problem stems from his role as head cheerleader for the Clinton administration's plan to wire all schools and libraries to the Internet by the year 2000. Under the Federal Communication Commission's (FCC) e-rate (education rate) program, schools and libraries would receive Internet hookup discounts ranging from 20 percent to 90 percent. Since there's no free lunch -- even in cyberspace -- the administration's "virtuosity" will be paid through a new surcharge on consumers' phone bills.

When AT&T, MCI, radio host Rush Limbaugh and others dropped a dime on customers that the so-
called "Gore tax" would be added to their phone bills starting July 1, the switchboard at the U.S. Capitol lit up with complaints from constituents. These calls, in turn, created static when Senators John McCain (R-AZ) and Ernest F. Hollings (D-SC) and Representatives Tom Bliley (R-VA) and John D. Dingell (D-MI), the chairmen and ranking members of the House and Senate committees with jurisdiction over the FCC, sent a blistering letter to FCC Chairman William Kennard. They blasted the e-rate program, and called for the immediate suspension of "a fundamentally flawed and legally suspect program."

For decades, a principal goal of national telecommunications policy was to ensure that all Americans had access to affordable basic phone service. "Universal service" was achieved through a complicated system of hidden phone subsidies. Section 254 of the landmark Telecommunications Act of 1996 codified the principle of universal service. And, for the first time, universal support mechanisms were expanded to cover access to advanced telecommunications services for schools, libraries and rural healthcare providers.

While Congress charged the FCC with implementation of Section 254, it failed to give specific guidelines. As a consequence, a relatively obscure provision was morphed into a new $2.25
billion annual telecommunications entitlement. Indeed, the Congressional Budget Office estimates that outlays under the e-rate program will run $20 billion over the next 10 years.

To administer the e-rate, the FCC created the Schools and Libraries Corporation. Parenthetically, in a recent report to Congress, the General Accounting Office concluded the FCC overstepped its legal authority in creating the non-profit corporation. In any case, the Schools and Libraries Corporation has 13 employees in Washington, 84 independent contractors in Iowa and New Jersey and a chief executive officer who was paid $200 000 (with an additional $50 000 "performing bonus") -- more than any federal employee except the President of the United States.

Since crossing wires with Congress, however, the FCC cut funding for the e-rate program by 43
percent -- nearly $1 billion less than the original $2.25 billion. Funds will be also disbursed over an 18-month period instead of 12 months. The FCC also reorganized the administrative structure, and capped salaries at $161 000.

FCC Chairman Kennard said that by "reforming" the e-rate program, "We've made sure the neediest kids get Internet access." This begs the question: What were the funding priorities prior to the retooling? It appears that, until Congress took a bite out of the FCC, there was no assurance the money would have gone to schoolchildren on the wrong side of the "digital divide." These children, after all, are the ostensible beneficiaries of the administration's generosity with taxpayers' money.

The FCC's tweaking and trimming of the e-rate program did not end the controversy. The e-rate is now mired in the uncertainty of election-year politics, with supporters and critics alike booting up for battle. President Clinton has vowed to "steadfastly oppose any effort to pull the plug on the e-rate and our children's future." While Democratic representatives plan a "Save the E-Rate Week," Republicans have introduced bills to suspend collecting money from telecommunications companies, scale back funding or otherwise overhaul the program.

Senate Communications Subcommittee Chairman Conrad Burns (R-MT) and House Telecommunications Subcommittee Chairman W.J. "Billy" Tauzin (R-LA) plan to introduce legislation to earmark receipts from the federal excise tax on telephone service for the e-rate program. Currently, the federal excise tax is set at 3 percent of a customer's total monthly phone bill. Under their proposal, the federal excise tax would be cut in half to 1.5 percent, with the revenues redirected to fund the e-rate program. The remaining half would go the way of the rotary dial phone.

Congress first imposed this tax in 1898 to pay for the Spanish-American War, the battle cry of which was "Remember the Maine." One hundred years later, the tax survives as a general revenue
measure. In 1998, the tax will generate $4.8 billion. It is projected to generate up to $6.3
billion by 2003. At a rate of 1.5 percent, an earmarked federal excise tax would more than cover the costs of the e-rate program.

Reducing the federal excise tax would provide relief to American taxpayers and eliminate the need to add new surcharges to their phone bills. Further, redirecting these receipts would provide transparency and predictability in e-rate funding. It's time for Congress to remember Main Street and disconnect the FCC's tax-and-spend shell game. The Burns-Tauzin proposal provides a win-win proposition for consumers.

Faye Anderson is president of the Douglass Policy Institute and a member of the National Advisory Council of the African-American leadership network Project 21. This piece was originally published by the National Center for Public Policy Research.




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