House Hearing Focuses on Problems in E-Rate Program

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After seven years of operation and more than $8 billion in spending for telecommunications equipment and services for schools, the federal E-rate program appears to be at the starting gate of a congressional reform effort.

That conclusion arose last week from the long-awaited first hearing on the subject by a House investigatory panel.

The Energy and Commerce Committee’s Oversight and Investigations Subcommittee spent a full day June 17 discussing a growing list of "waste, fraud, and abuse concerns" in the E-rate program.

Front and center in the discussion was an E-rate-financed project in Puerto Rico to connect 1,500 schools to the Internet. The subcommittee’s chairman, Rep. James C. Greenwood, R-Pa., said the project there became a "quagmire."

After the program in the island commonwealth spent $100 million in federal money in 2001, only nine of 1,500 schools had received the promised Internet services, several witnesses at the hearing said.

What’s more, video recorded by congressional investigators, who traveled to Puerto Rico in February, shows piles of telecommunications and computer equipment sitting idle in warehouses. The school-owned equipment included 73,000 computer network cards that originally cost $300 each.

At the hearing, Rep. Greenwood called the E-rate program "overly complex and poorly managed," and said there "appears to be no oversight in a program where rigorous oversight should be paramount."

He suggested that some companies that provide telecommunications services through the E-rate program may urge beneficiaries to request technology that vastly exceeds their needs and even their capacity to make use of it. The companies, he said, may co-opt school or government officials into supporting wasteful projects.

"The incentive [of the contractors] is to overcapitalize on the system, to build in a way which suits the interests of the contractor, not necessarily the ratepayer," Mr. Greenwood said.

The "education rate" program, which was passed by Congress and signed by President Clinton as part of the Telecommunications Act of 1996, is financed through a surcharge on telephone bills. Individual schools or school districts pay a share of the costs, as low as 10 percent for those serving low-income populations, for the telecommunications equipment and services the program provides.

Government and education officials from Puerto Rico, testifying at the hearing, said the problems there were caused by vendors—some acting illegally—as well as the commonwealth’s previous administration, which held office in 2001. Two vendors testified that the government should share the blame.

Mr. Greenwood, who presided over the daylong hearing, noted that in Puerto Rico, the anticipated delay to resolve the past funding issues threatens to jeopardize previously funded E-rate work.

Oversight Problems

Members of the House also questioned witnesses, including officials of the Federal Communications Commission, which oversees the program, and the Universal Services Administrative Co., or USAC, which runs it, about their capacity to keep E-rate waste and fraud at bay. The program serves some 30,000 schools, districts, and state education departments, and other education agencies.

One witness, H. Walker Feaster III, the inspector general of the FCC, said regulators are hampered by a lack of resources. Only three FCC investigators are assigned to oversee the E-rate program, and Congress has not approved requests to increase funding for oversight, Mr. Feaster said.

Vol. 23, Issue 41, Page 31

Published in Print: June 23, 2004, as House Hearing Focuses on Problems in E-Rate Program
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