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Friday, August 01, 2008

Uniting behind a bad idea

AT&T again led a bevy of big phone companies to the FCC to discuss changing the reimbursement system. And this time the ALA (American Library Association) went with them.

It looks like AT&T and the ALA found an idea they could agree on. As I blogged earlier, AT&T led the big telcos into the FCC a year ago to oppose the ALA's idea of forcing applicants to file BEARs. Then last September, AT&T again led the big telcos to the FCC with a bunch of proposals, including one to set up "E-Rate discount accounts."

The idea was to have all the approved funding for applicants go into an account from which applicants could pay for eligible services. And now the ALA has gotten behind it. AT&T mentions "an informal coalition of service providers and education associations" working on the proposal, but only the ALA sent representatives, and if anyone from the education side had been involved, they would likely have changed the wording, since "education association" is another way of saying "teachers' union."

It seems like a good idea, right? I mean, applicants get the funding up front, no one has to make an outlay up front, and it's less hassle for USAC, since they don't have to process multiple invoices.

Well, it's a terrible idea. Especially for applicants.

Are all the reps from the big telcos and the ALA new to the E-Rate program? Don't they remember August 2004? That was when USAC suspended funding commitments because of the Anti-Deficiency Act (ADA). Basically, the ADA says you can't commit funds until you have the funds on hand. And since USAC doesn't have all its funds for the fiscal year on hand at the beginning of the fiscal year, it had to stop making commitments for several months. The only reason things are back to normal is because Congress keeps exempting the E-Rate program from the ADA.

So along come these folks and try to turn a theoretical lack of funds into an actual lack of funds. Under their plan, "each applicant would have access to its committed E-Rate funds at the time of USAC commitment." But as was so painfully demonstrated back in 2004, USAC doesn't have the funds at the time of commitment. So it just can't work.

But let's say that they way the program was funded was completely overhauled, or maybe that USAC funded the accounts on a monthly basis (just ignore the skyrocketing number of checks USAC now has to cut and ignore those pesky non-recurring costs).

It still stinks.

First, it creates more work for applicants. There is a reason that so few applicants do a BEAR every month: it's too much work to sort out ineligible vs. eligible, then apply discounts every month. Most of the FRNs in the program are under $3,000 (as I mentioned earlier). That works out to less than $250 a month. So now some poor accounts payable clerk has to take time every month to deduct the $11.95 directory listing fee (or whatever) from the $247 phone bill, then take 40% (or whatever their discount is) of that and charge it to the special E-Rate discount account, then charge the rest to internal accounts.

I can see why the telcos want that: anything to push the accounting headache off onto applicants. But why does the ALA want it?

Second, there is the issue of only paying for what's eligible. As I mentioned earlier, the accounts payable clerk has to know the Eligible Services List well enough to know that the directory listing fee is ineligible. Compared to Internal Connections, the eligibility rules for telcom are pretty straightforward, but still, how can a bookkeeper be expected to know that the monthly maintenance fee for a cell phone is not eligible, but the monthly maintenance fee for internal wiring is, but only if it's on the regular phone bill, because otherwise it's a Priority Two Basic Maintenance of Internal Connections charge, which may not be covered depending on the district discount?

Now if the telcos were willing to send a bill in which they clearly stated what portion was eligible for E-Rate discount, this problem would be solved, but that is not part of any proposal I've seen.

Third, the conditioning of the government bookkeeper is going to result in more unnecessary expenditures. Ask anyone who works for the government: you spend all the money in your accounts before the end of the year. So if USAC sends an applicant $3,000 for telecommunications, then the business office is going to find a way to spend the whole $3,000.

Fourth, it will be a bookkeeping hassle for applicants. How do they close the books at the end of the year? Are applicants going to return unused funds? How is that going to work? And what about those nightmare Internal Connections projects that don't get approved until the end of the fiscal year, and don't get installed until 13 months after that? Public entities aren't supposed to carry funds over from year to year, but there will be this one account.... And I guess applicants would have to have separate accounts for each FRN in order to determine what gets charged where. USAC is going to have to stick its clumsy hands into applicants' accounting rules.

The "E-Rate discount account" is a dream come true for service providers: they only have to do one invoice, they don't have to think about eligibility, and there's no USAC review of invoices potentially slowing payment. But it's a nightmare for applicants.

I'm not worried, though, because the proposal simply isn't possible: USAC doesn't have enough funds at the time of commitment to fund the accounts.

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