I've been rolled over

I feel like a curmudgeon. The FCC has declared that all Priority Two funding requests for 2010-2011 will be funded. Everyone is celebrating. I’m grumbling.

My first complaint: the FCC’s own rules say that the rollover should take place in the second quarter of each year. We’re past the middle of the third quarter. A couple of months delay doesn’t really bother me, but it’s allowed the FCC to snag funds from USAC’s August 2nd projections, which basically means taking something like $250 million from next year’s rollover and putting it into this year’s.

What’s really got my goat is the rollover of funds into a funding year that is already over. I’ve already said that rolling funds into the current year (in this case, FY2011) doesn’t allow applicants to plan properly; funds should be rolled into the next funding year (FY2012). But to roll them into FY2010 two months after the end of the funding year is just terrible.

Look at the experience of a 79% applicant. In January they got their denial for FY2010, so now they have to scale back their project, or drop it all together, or scramble to post a Form 470 for FY2011, if state rules will allow such last-minute bidding. Then two months after the funding year is over, they find out that they are going to get funded. Well, maybe they’re going to get funded; they haven’t been through PIA yet. I’m guessing PIA will put pending FY2011 applications on the back burner, but there is often a lot of back-and-forth about Priority Two requests, so I’m guessing it will be the end of September before most of the FRNs are approved. Now most Priority Two projects work on a SPI basis, so the service provider won’t want to lift a finger until the 486 is approved, so now we’re looking at October. But for a disruptive project, it will have to wait until Summer 2012, or maybe until Winter Break if it’s not too big a project.

Is it any wonder applicants feel whip-sawed by this program? Even when your funding is approved, it feels like you’re being punished. Back in December 2009, you had the foresight to apply for funding for a project starting in July 2011. Others said you were foolish to lock into a contract 18 months before the start of the project, but you had faith. Then you get denied for funding, and then that gets reversed 21 months after you started the project, so you’re going to have to wait until next Summer and start the project 31 months after you bid it out. You’ll certainly have to change every part in the project, and the way integrators are going belly up, maybe have to change service providers, too. But you can’t rebid the project, so how are you going to comply with state law when you’re buying completely different equipment from your original RFP, maybe from a different vendor?

And it just seems fantastically unfair that without warning, 40% applicants are going to get Priority Two funding this year. Since the Form 470 process increases costs and reduces functionality on projects, I have advised clients at the 40% level not to apply for E-Rate funding. Why is it that the FCC could so easily fund all applications below 80%? Because 80% is like an electric dog fence: for years, anyone who applied for Priority Two funding with less than an 80% discount had an unpleasant experience. Now the FCC doesn’t have to turn on the dog fence; applicants have learned to stay in the yard.

So maybe you could discount all the above as sour grapes. If I’d been that stubborn dog who kept throwing himself painfully into the electric fence, I’d have that Priority Two squirrel in my mouth right now. I didn’t, and now I’m grumbling. But here’s a complaint that has nothing to do with the fence: the E-Rate program is running out of money. There will be enough money to cover Priority One for a lot of years, but the ability to cover Priority Two requests from 90% applicants is likely to run out in a few years. So this rollover seems to me like the Social Security Administration saying, “Hey, we have a lot of money right now, so let’s make a rule that anyone who’s over 50 and unemployed at the moment gets to go on Social Security starting right now.” Yes, it would be wonderful for 53-year-olds who can’t find a job and could live on Social Security. But it would be fantastically irresponsible, since we know the program will run out of money down the road.

So why did the FCC do this? The three reasons I can think of:

1. “Hey, we got some money lying around, let’s throw it at those people. It’ll be like one of those hilarious slapstick scenes where someone begs and begs for a pie, and then they get it thrown in their face.” Sorry, I just had to get that out of my system.
2. It’s good PR for the program to be able to say that FY2011 was fully funded.
3. It will cause an increase in Priority Two applications, as 40% applicants start to think, “Hey, you never know.” The increase in funding demand will show how desperately needed the program is, and keep the anti-E-Rate wolves at bay.

What should the FCC have done?

1. Fund FY2010 requests at 81% and above.
2. Roll enough into FY2011 to fund requests at 83% and above.
3. Take the rest of the money and roll it into FY2012.
4. Start setting the denial threshold at the start of the filing window.