E-Rate Central News for the Week of September 7, 2009

· FY 2008 – FY 2009 Funding Status

· SLD Computer System Upgrade Status

· Major Change in Application Review Procedures

· E-Rate Updates and Reminders

· Schools and Libraries News Brief dated September 4^th — Training and IT Upgrade

The E-Rate Central News for the Week is prepared by E-Rate Central. E-Rate Central specializes in providing consulting, compliance, and forms processing services to E-rate applicants. Additional E-rate information is located on the E‑Rate Central Web site (http://www.e‑ratecentral.com). To learn more about our services, please contact us by phone (516-832-2881) or through our Contact Us Web form (http://www.e-ratecentral.com/contactUs/contactForm.asp).

FY 2008 – FY 2009 Funding Status

Wave 19 for FY 2009 was released last week on September 3^rd, for $195 million. Wave 20 is scheduled to be released on Tuesday, September 8^th, for $56 million. This will bring cumulative FY 2009 funding to $986 million. The $1 billion mark will not be broken for at least two weeks, following the SLD’s system upgrade process discussed below.

Both waves include Priority 2 funding at discount rates of 85% and above. Unlike past years, when Priority 2 funding was first announced, there has been no formal decision as to the discount level below which Priority 2 requests will not be funded (although there is an indication that 60% and below will be denied shortly). This should not be interpreted as an encouraging sign for those seeking Priority 2 funding below, or even at, 80%.

Wave 67 for FY 2008 is also scheduled to be released on Tuesday, September 8^th, for $4.7 million. Total funding for FY 2008 is still $2.34 billion. A decision has still not been made on the funding of Priority 2 services at 87%.

SLD Computer System Upgrade Status

As previously discussed, many of the SLD’s online interactive filing and database resources will not be available during the computer system update period. These resources became unavailable at 5:00 p.m. EDT on September 1, 2009, and are targeted to remain unavailable until 9:00 a.m. EDT on September 14, 2009. According to the SLD, this means that:

No Funding Commitment Decision Letters will be issued. [Note: to be more precise (since two funding waves will be released this Tuesday), no additional funding commitments can be finalized in preparation for FCDL releases.]
No payment files will be run.
No Form 470 may be posted ONLINE. However, you can still submit your Form 470 by mail ON PAPER, following the instructions in the form.
Service providers will be able to submit Form 498 and Form 499 online. The system that processes these forms is not affected by the upgrade. USAC will process these forms as usual.
Service providers will not be able to submit a SPI Form 474 online or approve a BEAR Form 472 online.
Program forms on paper (Form 486, 472, 473, 474, or 500) as well as electronic (email) invoices can be submitted. USAC will hold these forms until the upgrade is complete.
Most USAC website search tools are not available.
Client Service Bureau has no access to online system. They will not be able to create or update entity number and information or provide status information on program forms or requests.
You can submit any appeal as you would normally do. There is no impact on how appeals are submitted.
You cannot use Submit a Question. You can fax or mail your Service Substitutions, SPIN Changes, Good Samaritans and other requests. USAC will process your request after the upgrade is complete. You should retain a copy of your fax confirmation or proof of postmark for your records.

Additional guidance and resources on Form 470 and Form 471 Information during the SLD’s IT Upgrade is available on the E-Rate Central Web site (see http://www.e-ratecentral.com/2009_Special_Notice.asp).

Please note that E-Rate Central’s more comprehensive funding data and tools, normally available only to E-rate service providers and consultants on a subscription basis, have been made freely available to all — use “guest” for both the Subscriber ID and the Password — for the duration of the SLD’s system shutdown (see E-Rate Market Organizer at http://www.e-ratecentral.com/serviceProvider/default.asp). These resources provide:

· Summary and detailed funding data for all program years and for all states

· A search mechanism for Form 470 contact information

· A search mechanism for funding denial or change reasons

· Form 486 deadline warnings

Major Change in Application Review Procedures

One of the most important FCC appeal decisions in the history of the E-rate program was the Bishop Perry Order (see FCC 06-54 at http://www.e-ratecentral.com/FCC/FCC-06-54A1.doc) in 2006. Besides granting 196 appeals of funding denials resulting from “clerical and ministerial errors” in applications, the FCC directed USAC to change its procedures going forward to help prevent similarly unnecessary denials.

As a result of this directive, SLD application review procedures were changed drastically. By permitting changes — even if they increased the amount of funding requested — the E‑rate program became markedly more user-friendly. Changes were accepted, not only during the Receipt Acknowledgment Letter (“RAL”) period immediately following application submission, but later on during the Program Integrity Assurance (“PIA”) application review process.

Only recently has it become apparent that the SLD’s procedures have been drastically changed so as to no longer permit application corrections during the PIA process that would increase funding amounts. Under a stricter interpretation of the Bishop Perry decision, the SLD will accept increased funding changes only as a part of the RAL process.

Since this procedural change was made without any public notice or explanation, we can only speculate as to the underlying rationale. The two most important points are discussed below.

Bishop Perry Guidance:

With regard to PIA application review procedures, the critical paragraph of the Bishop Perry decision reads as follows:

23. Additional Processing Directives for USAC. As of the effective date of this Order, we require USAC to provide all E-rate applicants with an opportunity to cure ministerial and clerical errors on their FCC Form 470 or FCC Form 471, and an additional opportunity to file the required certifications. Specifically, USAC shall inform applicants promptly in writing of any and all ministerial or clerical errors that are detected in their applications, along with a clear and specific explanation of how the applicant can remedy those errors… Applicants shall have 15 calendar days from the date of receipt of notice in writing by USAC to amend or refile their FCC Form 470, FCC Form 471 or associated certifications. USAC shall apply this directive to all pending applications and appeals even if such applications or appeals are no longer within the filing window. The 15-day period is limited enough to ensure that funding decisions are not unreasonably delayed for E-rate applicants and should be sufficient time to correct truly unintentional ministerial and clerical errors. The opportunity for applicants to amend their filings to cure minor errors will also improve the efficiency and effectiveness of the Fund… If USAC helps applicants file correct and complete applications initially, USAC should be able to reduce the money it spends on administering the fund because fewer appeals will be filed protesting the denial of funding for these types of issues…

USAC’s initial interpretation of this guidance led to procedures permitting an applicant to correct — and increase, if necessary — funding requests at any time between application submittal and PIA review. Not surprisingly, we believe that most of these corrections were made during the PIA review process when both the SLD and the applicant focused more fully on the details of the funding request(s).

The new application review procedures are apparently based on a much stricter interpretation of the Bishop Perry guidance. Specifically, USAC now believes that the 15-day RAL correction process fulfills the requirement to notify an applicant in writing of its right to correct its application — even if the RAL does not actually inform the applicant of “any and all ministerial or clerical errors that are detected in their applications.” What is not yet clear is whether these new procedures apply to any errors found during PIA review, such as those leading the funding denials, or only to such errors that would increase funding.

To understand why the interpretation was changed, if only for increased funding, it is useful to examine the impact on funding engendered by the initial, more flexible, procedures.

History of Increased Funding Changes:

Prior to the Bishop Perry decision, there were virtually no circumstances under which an FRN could be changed in a manner that would increase the amount of funding awarded in excess of the initial application requests. In FY 2005, for example, the funding year that was just ending when the Bishop Perry decision was released, we can find only six instances in which any aspect of an FRN (such as a discount rate) was increased during PIA review. In five of these cases, there were offsetting changes made such that the actual FRN funding awards were reduced or remained the same. In only one case was a funding award actually increased by $57 thousand — in an application that was not approved until November 1, 2006, well after the Bishop Perry decision.

In FY 2006, the funding year that was midway through PIA review when the Bishop Perry decision was released, the number of “increased” FRNs rose to over 350, with a total increase in committed funds of almost $1 million. In general, the increases were based on upward revisions of pre-discount amounts and/or discount rates (usually supported by better NSLP data that becomes available later in the school year).

The number of “increased” FRNs and associated funding amounts rose sharply in FY 2007 and FY 2008 — a trend we would have expected to see continue into FY 2009 had PIA review procedures not been changed this summer.

One measure — albeit conservative — of the increased funding resulting from the original Bishop Perry procedures is shown in the following table. Please note that these numbers reflect only those funded FRNs for which the SLD’s DRT database shows committed amounts in excess of the original requested amounts and for which the associated FCDL text indicates “increased” funding. A broader analysis, more difficult to glean from SLD data, would undoubtedly show a greater Bishop Perry impact, including other FRNs that would otherwise have been denied or reduced. The trend, however, is clear.

Funded FRNs "Increased:" FY 2005–2009

		Summary of Actual Increases
Funding Year	No. FRNs		Amount of Increases
2005	1		$ 57,067
2006	359		900,975
2007	1,524		5,783,276
2008	5,154		6,671,243
2009	842		624,814
Total	7,880		$ 14,037,374

Most would agree that applicants should be able to correct mistakes in order to receive proper funding. The biggest challenge this presents to the SLD, however, is being able to accurately predict the total demand for funds in any given year, if only to set the discount level threshold for Priority 2 funding. Funding increases during PIA turn total demand into a moving target.

Although the SLD should be able to handle increases of the order of magnitude indicated in the table above, there are indications that some applicants were seeking post-filing changes in Block 4 discount rates sufficient to obtain large amounts of Priority 2 funding. This may have caused significant demand management problems for both USAC and the FCC. In the process of denying these change requests — currently under appeal — we believe a decision was made to deny all post-RAL increases. Unfortunately, in our view, this meant taking a sledgehammer, rather than a scalpel, approach to an otherwise beneficial application review procedure.

E-Rate Updates and Reminders

Fall E-Rate Training:

Updated training schedules and registration information for the eight one-day SLD workshops planned for this fall are included in the SLD’s News Brief referenced below.

Schools and Libraries News Brief dated September 4^th — Training and IT Upgrade

http://www.universalservice.org/sl/tools/news-briefs/preview.aspx?id=253

The SLD News Brief of September 4, 2009, provides an update on the SLD’s fall training workshops and reminders on the USAC computer system upgrade (discussed above).

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Disclaimer: This newsletter may contain unofficial information on prospective E-rate developments and/or may reflect E-Rate Central’s own interpretations of E-rate practices and regulations. Such information is provided for planning and guidance purposes only. It is not meant, in any way, to supplant official announcements and instructions provided by either the SLD or the FCC.