[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
FCC'S E-RATE PLANS TO ASSIST GULF COAST RECOVERY: ENSURING EFFECTIVE
IMPLEMENTATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
OCTOBER 6, 2005
__________
Serial No. 109-54
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
24-253 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
Bud Albright, Staff Director
David Cavicke, Deputy Staff Director and General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Oversight and Investigations
ED WHITFIELD, Kentucky, Chairman
CLIFF STEARNS, Florida BART STUPAK, Michigan
CHARLES W. ``CHIP'' PICKERING, Ranking Member
Mississippi DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon JAY INSLEE, Washington
MIKE FERGUSON, New Jersey TAMMY BALDWIN, Wisconsin
MICHAEL C. BURGESS, Texas HENRY A. WAXMAN, California
MARSHA BLACKBURN, Tennessee JOHN D. DINGELL, Michigan,
JOE BARTON, Texas, (Ex Officio)
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Feaster, H. Walker, III, Inspector General, Federal
Communications Commission.................................. 9
Navin, Thomas J., Chief, Wireline Competition Bureau, Federal
Communications Commission.................................. 5
Rawson, Gary, State E-Rate Coordinator, Mississippi
Department of Information Technology Services.............. 18
Zaina, Lisa M., Chief Executive Officer, Universal Service
Administrative Company..................................... 15
(iii)
FCC'S E-RATE PLANS TO ASSIST GULF COAST RECOVERY: ENSURING EFFECTIVE
IMPLEMENTATION
----------
THURSDAY, OCTOBER 6, 2005
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Oversight and Investigations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:05 p.m., in
room 2123 of the Rayburn House Office Building, Hon. Ed
Whitfield (chairman) presiding.
Members present: Representatives Whitfield, Pickering,
Walden, Burgess, Blackburn, Stupak, and Inslee.
Staff present: Peter Spencer, majority professional staff;
Tom Fedo, majority counsel; Jaylyn Jensen, majority
professional staff; Mark Paoletta, chief counsel; Terry Lane,
deputy communications director; Jonathan Pettibon, clerk; David
Nelson, minority counsel; and Jessica McNiece, research
assistant.
Mr. Whitfield. I will call this meeting to order, and I
apologize for just a few minutes delay. Mr. Stupak, his plane
was delayed coming in from Michigan and we are delighted that
he is here. And I certainly want to welcome all of the
witnesses today. We appreciate your being here. And I will
begin the hearing with an opening statement, and then we will
go to Mr. Stupak, and then we will swear you all in and we will
go from there.
First of all, I want to welcome you. Today, the Oversight
and Investigations Subcommittee will hear about what is, to
this subcommittee, a familiar program, but a program that is
about to be tasked to operate in an unfamiliar situation. We
will find out about the Federal Communications Commission's
plans for E-rate Program relief to communities devastated by
Katrina. The goal of this hearing is to understand what
measures can be taken to assist those most in need, as they
work to recover from this devastating storm, and to begin to
determine whether such measures, as currently envisioned, can
be implemented effectively.
The effort to supply assistance effectively to Gulf Coast
entities and families can be equally challenging, especially
when working in an area with limited records, urgent needs, and
where the requirement of speed tests many of the established
safeguards against waste, fraud and abuse. Our responsibility
as members of the Energy and Commerce Committee is to oversee
the relevant operations in areas of our jurisdiction, to ensure
that the necessary assistance gets to where it is supposed to
go and to make a positive difference.
A few weeks ago, the FCC's chairman, Kevin Martin, proposed
a number of measures to assist the Gulf Coast rebuilding
effort. I applaud Chairman Martin for seeking to come to the
region's aid. An important piece of this initiative involved
plans for the E-rate Program, which is the universal service
funding mechanism that subsidizes telecommunications and
certain infrastructure in schools and libraries. As Chairman
Martin outlined, schools and libraries affected by the
hurricane would receive relief from the program's standard
rules and requirements to assist in the rebuilding or
restoration of E-rate covered services.
We will learn about the status of some of these proposals
today, and whether the proposed relief is what is needed to
meet the needs of affected communities as they seek to restore
schools and libraries. We will also seek to answer some
important questions surrounding the proposal. For example, what
effects will Katrina-related changes have on other program
funding; what new integrity challenges will arise; what
measures will be necessary to speed funding relief, while
guarding against the types of waste, fraud and abuse this
subcommittee identified in hearings over the past year and a
half?
With so much funding potentially involved in the Gulf Coast
relief initiative, the risk for waste, fraud and abuse is
great. This hearing is to help ensure that support goes to
those who need it. The FCC and USAC must do its best to guard
against waste, fraud and abuse. And we all want this effort to
succeed. Yet to do so, the FCC and USAC must confront the
weaknesses that exist in the program, and work to ensure its
integrity under the increased pressure from this Gulf Coast
relief.
You know, we are talking about a $2 billion plus program
each year, and we know from hearings last year that there was
some concern about some weaknesses in the program and between
the communication between the FCC and USAC. And without blaming
anyone, we want to explore ways to improve the program to make
it its most effective and certainly to explore today how those
weaknesses may interfere with this initiate established by
Chairman Martin.
We are going to hear from several government witnesses who
will be essential to the success of the initiative. We will
hear from the FCC, which sets the rules, and from USAC, the
administrator of the program, which is responsible for
implementing the program. We will also hear from the FCC
inspector general, who may help identify program weaknesses.
And finally, we will hear from the E-rate coordinator for the
State of Mississippi, Mr. Rawson. And I would like to extend
appreciation to all of you for appearing today, and I certainly
appreciate Mr. Navin, Chief of the Wireline Competition Bureau
at the FCC, for being here today. He has been on the job for
only 5 months and is currently working, I know, involved in
approving one of the largest mergers in telecommunications
history, so we know his time is valuable as well. And I already
welcomed Mr. Rawson, but we look forward to the testimony of
all of you today, Mr. Feaster, Ms. Zaina.
And at this time, I will turn it over the ranking member,
Mr. Stupak, for the purposes of an opening statement.
Mr. Stupak. Thank you, Mr. Chairman. I again apologize for
being a little bit late here this afternoon. But thanks for
convening this hearing regarding the use of E-rate funds to
help the schools devastated by Katrina return to Internet
conductivity as soon as possible. Understand that tomorrow will
vote to adopt a staff report on the E-rate investigation of the
past 2 years. Lessons detailed in that report ought to be
applied as we rebuild the education infrastructure devastated
by the hurricanes.
Let us be clear, while the FCC press release touts a $132
million in E-rate funds as a critical part of the $211 million
USF contribution to Katrina rebuilding, it is simply a mirage.
All the FCC is doing is opening the application window in 2005
and expanding it in 2006, with a broad assumption that all
schools in the affected counties will be eligible for a 90
percent Federal contribution. This is important help, but it is
merely the reprogramming of funds from other schools in the
country. This policy will simply take money away from schools
that were counting on the money and planning to implement their
programs.
There is no new money in the FCC's plan, even though there
should be funds available without raising the ratepayer
contribution. I am afraid this plan is yet another example of
the Bush Administration shifting funds from one region of the
country to pay for Katrina relief effort, leaving some of our
schools empty-handed.
Mr. Chairman, we need details regarding the available
funds, the shifting of the funds, and the uses of the funds.
Yet, today I expect that the invited FCC guests cannot or will
not comment on the so-called Katrina Relief program because a
final order has not been implemented. At a minimum, maybe
Chairman Martin should be testifying today.
The lessons of fraud, waste and abuse uncovered in this
subcommittee's investigation over the past 2 years should alert
us to two situations that cry for an oversight plan from the
FCC, a plan that I hope will but I am sure we probably won't
see today. The first involved the lesson of relying too much on
the assumption that telecommunication companies will always do
the right thing.
In the Puerto Rico case, we learned how Puerto Rico
Telephone charged the schools $1,500 per month for each of
hundreds of T-1 lines that they knew, or should have known,
were not being used because the internal connection and related
infrastructure were not operable. Still, the carrier
rationalized their billing, that they were not responsible for
the failure of the schools to actually use the T-1 lines, even
though they were never hooked up. I hope not a single telephone
bill for Internet or other services has been delivered to any
schools devastated by the hurricanes.
Unless the FCC and USAC are vigilant, we may have
executives claiming that their companies were prepared to
provide the services contracted for before the storms, and
there is no reason why they shouldn't be paid for now, even if
the school was completely destroyed by the hurricanes. If that
happens, Mr. Chairman, I hope you will see to it that they make
that argument in this room with the TV cameras rolling.
The second class of fraud that should be a particular
concern while we are expediting connections to the Gulf Coast
schools is what we called gold plating. In our investigation,
we should, and apparently in Atlanta, Cisco Systems convinced
local officials that individual elementary schools needed
servers large enough and expensive enough to operate some whole
school districts. In El Paso, IBM spent some $69 million of
Federal and local funds on extravagant gear and services, with
no noticeable effect on the education of the school children in
that city.
Mr. Chairman, the Atlanta and El Paso situations were
merely some of the worse examples of this problem that this
committee investigated, but it was a pervasive problem. The
same sales persons with the same ethics are undoubtedly already
plying the latest whiz-bang gadgetry to the school trade in the
Gulf Coast. They retain the irresistible selling point that
Uncle Sam, or in this case, maybe Uncle E-rate, will pay for
most of it, 90 percent. We have seen repeated examples of the
most outrageous FEMA contracts going to overpriced and under-
qualified companies in the wake of the storms. There appears to
be nothing in our E-rate record to suggest that the FCC or USAC
is capable of preventing a repeat of fraud and waste in the
rebuilding and reconnecting effort. I truly hope that we will
hear otherwise today.
With that, Mr. Chairman, I would yield back the balance of
my time, and thank you.
Mr. Whitfield. Thank you, Mr. Stupak. And at this time, I
recognize the gentle lady from Tennessee, Ms. Blackburn, for
her opening statement.
Ms. Blackburn. Mr. Chairman, I will waive the statement and
reserve my time for questions.
Mr. Whitfield. Okay, thank you. I know you were sorry to
hear there are no more opening statements for you to listen to,
but--so at this time, I want to formally introduce our
witnesses this morning, or this afternoon.
First of all, Mr. Thomas Navin, who is the chief of the
Wireline Competition Bureau at the Federal Communications
Commission. We also have with us the Honorable H. Walker
Feaster, who is the inspector general of the Federal
Communications Commission. We have Ms. Lisa Zaina, who is the
chief executive officer of the Universal Service Administrative
Company, and she is accompanied by Mr. Mel Blackwell, who is
the acting vice president of the Schools and Libraries Division
at USAC. And then our final witness is Mr. Gary Rawson, who is
the State E-rate coordinator from the Mississippi Department of
Information Technology Services.
As you all probably know, this is an Oversight and
Investigation's hearing, and it is our custom, when holding an
investigative hearing, to ask that witnesses testify under
oath. Do any of you have any objection to testifying under
oath?
The Chair would also advise you that under the rules of the
House and the rules of the committee, you are entitled to be
advised by counsel. Do any of you desire to be advised by
counsel during your testimony today?
In that case, if you would please rise and raise your right
hand, I will swear you in.
[Witnesses sworn.]
Thank you. You are now under oath, and we will start with
you, Mr. Navin. You may give a 5-minute summary of your written
statement. Be sure and turn your microphone if it is not.
TESTIMONY OF THOMAS J. NAVIN, CHIEF, WIRELINE COMPETITION
BUREAU, FEDERAL COMMUNICATIONS COMMISSION; H. WALKER FEASTER
III, INSPECTOR GENERAL, FEDERAL COMMUNICATIONS COMMISSION; LISA
M. ZAINA, CHIEF EXECUTIVE OFFICER, UNIVERSAL SERVICE
ADMINISTRATIVE COMPANY; AND GARY RAWSON, STATE E-RATE
COORDINATOR, MISSISSIPPI DEPARTMENT OF INFORMATION TECHNOLOGY
SERVICES
Mr. Navin. Thank you, Mr. Chairman and distinguished
members of the subcommittee. Again, my name is Tom Navin, and I
have served as the chief of the Federal Communications
Commission's Wireline Competition Bureau since the beginning of
May 2005. I thank you for this opportunity to appear before you
to discuss our plans to use the Universal Service Fund E-rate
Program to assist in Hurricane Katrina recovery.
Hurricane Katrina caused catastrophic damage and massive
flooding in areas of Louisiana, Mississippi, and Alabama. The
loss of life and damage to property is astounding, and our
thoughts and prayers go out to those people affected by this
disaster. AS I am sure that you are aware, most of the
communications industry sustained substantial damage to their
facilities in the affected areas, and the damage has had a
significant impact on consumers in those areas.
Hurricane Katrina knocked out more than 3 million customer
phone lines in the Louisiana, Mississippi, and Alabama. The
wireline telecommunications network sustained enormous damage
both to the switching centers that route calls and to the lines
used to connect buildings and customers to the network.
The work to restore communications services began almost
immediately. Despite the significant obstacles, like continued
flooding, lack of commercial power, dwindling fuel resources,
and security concerns, the companies in the region have made
meaningful progress to restore service in the disaster area.
Even with these efforts, given the enormity of the disaster,
many of the communication services in the affected areas remain
damaged. Today, we understand that more than 200,000 customer
lines remain out of service. More than 500 DS-3's worth of
interoffice facilities remain down. Although many cell sites
have been restored, hundreds are still not operational in the
affected area. More than 50 radio and television stations
remain off the air.
On August 30, Chairman Martin established an internal task
force consisting of senior executives in management from within
the commission. The task force activity centered around three
major goals: first, regulatory relief for industries; second,
industry outreach and coordination with other Federal agencies;
and third, assistance to consumers and evacuees. The task force
has been working on these assignments continuously since August
30th, and the commission was open throughout the Labor Day
weekend, as well as the past several weekends. To date,
hundreds of commission employees have assisted in this effort.
On September 15, 2005, Chairman Martin announced his
intention to propose to the other members of the commission
action intended to address the damage caused by Hurricane
Katrina. To enhance the commission's planning and response
efforts for times of crisis, Chairman Martin announced his
intention to propose a new Public Safety/Homeland Security
Bureau to consolidate the public safety, Homeland Security, and
disaster management functions currently housed in multiple
bureaus and offices throughout the commission. Chairman Martin
also announced his intention to establish an independent panel
to review and improve the disaster preparedness of the agency.
Chairman Martin also announced his intention to establish an
independent panel to review the impact of Hurricane Katrina,
and to make recommendations on ways to improve disaster
preparedness, public safety operations, and network
reliability.
To provide immediate relief to the Hurricane Katrina
disaster areas and to the disaster victims, Chairman Martin
proposed to work through the existing USF programs to target
approximately $211 million in universal service support to
consumers, schools, libraries, health care providers, and
telecommunication service providers affected by Hurricane
Katrina. Chairman Martin proposed to work through the existing
low-income, rural health care E-rate and high-cost universal
service programs to make this temporary support available.
Chairman Martin proposed to use the E-rate Program to help
reconnect schools and libraries throughout the region. This
would consist of three measures. First, we would open a new
funding year for 2005, for the 2005 window, for schools and
libraries damaged by the hurricane. This action would allow the
approximately 600 schools and libraries damaged by the
hurricane, and in need of funds for this funding year, to
revise their requests for support in light of the dramatically
changed circumstances caused by the hurricane. Second, we would
treat schools and libraries struck by the hurricane at the
highest level of priority, 90 percent, for the funding years of
2005 and 2006. And finally, we would also allow schools and
libraries serving evacuees to amend their 2005 applications to
account for the unexpected increase in population. We estimate
that these E-rate measures could provide approximately $132
million to schools and libraries in the disaster areas that
were damaged by Hurricane Katrina.
We are committed to making sure that these USF monies are
used well and that program is protected from potential waste,
fraud and abuse. For that reason, applicants for this temporary
support, including the E-rate supported noted earlier, would
have to comply with all existing program requirements. This
includes, for example, competitive bidding requirements,
certification requirements, document retention requirements,
strengthened technology plan requirements, and potential audit
requirements. The existing program's application processes and
procedures, including the Universal Service Administrative
Company's program integrity assurance review procedures and
selected review procedures, which subject applications for E-
rate monies through heightened scrutiny, will continue to apply
to applicants for the Hurricane Katrina-specific support. All
other safeguards established in the program will continue to
apply, including the E-rate Program's existing $2.25 billion
annual funding cap.
Finally, we are examining potential additional safeguards
for the Hurricane Katrina initiatives. These include relying
the Federal Emergency Management Agency determinations, that
households are eligible for disaster assistance, or that a
school or library is located in the disaster-struck county. We
also are considering additional audit and certification
requirements as part of this temporary package.
The damage wrought by Hurricane Katrina is tremendous and
its effects will be felt for months and possibly years to come.
The commission stands ready to work with Congress, our
colleagues at the Federal, State, and local agencies, and the
American public to do whatever we can to help the disaster
relief and restoration efforts.
I would be pleased to respond to your questions. Thank you.
[The prepared statement of Thomas J. Navin follows:]
Prepared Statement of Thomas J. Navin, Chief, Wireline Competition
Bureau, Federal Communications Commission
Good morning Mr. Chairman and distinguished members of the
Subcommittee. My name is Thomas Navin and I have served as the Chief of
the Federal Communications Commission's Wireline Competition Bureau
since the beginning of May 2005. Thank you for this opportunity to
appear before you to discuss our plans to use the Universal Service
Fund (USF) E-rate Program to assist in Hurricane Katrina recovery.
BACKGROUND
Hurricane Katrina caused catastrophic damage and massive flooding
in areas of Louisiana, Mississippi, and Alabama. The loss of life and
damage to property is astounding, and our thoughts and prayers go out
to those people affected by this disaster. As I am sure you are aware,
most of the communications industry sustained tremendous damage to
their facilities in the affected area, and the damage has had a
significant impact. The damage to the communications infrastructure
hampered the rescue operations of emergency responders. Relief efforts
and survivors are still struggling with the effects of the hurricane.
Survivors lack information about relief efforts. People displaced from
their homes do not have the means to contact their loved ones to let
them know they are safe. And of course, survivors remaining in the
affected area lack a reliable means of contacting the authorities and
getting help in lifethreatening situations.
Hurricane Katrina knocked out more than 3 million customer phone
lines in the Louisiana, Mississippi, and Alabama area. The wireline
telecommunications network sustained enormous damage both to the
switching centers that route calls and to the lines used to connect
buildings and customers to the network. Local wireless networks also
sustained considerable damage--more than a thousand cell sites were
knocked out of service by the hurricane. During this disaster, millions
of telephone calls were simply not able to get through. Of the 41
broadcast radio stations located in New Orleans and the surrounding
area, only two AM and two FM stations remained on the air in the wake
of the hurricane.
The work to restore communications services began almost
immediately. Despite the significant obstacles like continued flooding,
lack of commercial power, dwindling fuel resources, and security
concerns, the companies in the region have made meaningful progress to
restore service in the disaster area. Even with these efforts, given
the enormity of the disaster, many of the communications services in
the affected areas remain damaged. Today, we understand that more than
200,000 customer lines remain out of service. More than 500 DS-3
interoffice facilities remain down. Although many cell sites have been
restored, hundreds are still not operational in the affected area. More
than 50 radio and television stations remain off the air.
COMMISSION ACTIONS
On August 30th, Chairman Martin established an internal Task Force
consisting of senior executives and management from within the
Commission. The Task Force's activities centered around three major
goals: (1) Regulatory Relief for Industries; (2) Industry Outreach and
Coordination with Other Federal Agencies; and (3) Assistance to
Consumers and Evacuees. The Task Force has been working on these
assignments continuously since August 30th, and the Commission was open
throughout the Labor Day weekend to continue the work. To date,
hundreds of Commission employees have assisted in this effort.
On September 15, 2005, Chairman Martin announced his intention to
propose to the other members of the Commission action intended to
address the damage caused by Hurricane Katrina. To enhance the
Commission's planning and response efforts for times of crisis,
Chairman Martin announced his intention to propose a new Public Safety/
Homeland Security Bureau to consolidate the public safety, homeland
security, and disaster management functions currently housed in
multiple bureaus and offices throughout the Commission. Chairman Martin
also announced his intention to establish an independent panel to
review the impact of Hurricane Katrina and to make recommendations on
ways to improve disaster preparedness, public safety operations, and
network reliability. To provide immediate relief to the Hurricane
Katrina disaster area and victims, Chairman Martin proposed to work
through the existing USF programs to target approximately $211 million
in USF support to consumers, schools, libraries, healthcare providers,
and service providers affected by Hurricane Katrina.
Chairman Martin proposed to work through the existing Low Income,
Rural Healthcare, E-rate, and High Cost USF programs to make this
temporary support available. We estimate that approximately $79 million
would be made available through the Low Income and Rural Healthcare
programs to help the disaster area. Waivers, clarifications, and
temporary modifications of the Commission's Low Income rules could be
made to authorize support for a package consisting of at least 300
minutes of wireless service and a handset. Similar waivers of existing
Low Income program rules could provide support to help people who have
been cut off from telephone service to reestablish service. Our
proposal would provide public and non-profit healthcare providers a new
opportunity to apply for increased discounts for advanced
telecommunications and information services used in telemedicine
applications to treat victims of Hurricane Katrina.
Chairman Martin also proposed to allow high cost carriers
participating in the High Cost Program to prioritize rebuilding
facilities damaged by the hurricane. This initiative would allow
telephone companies greater flexibility to use USF support for
rebuilding wire centers affected by the hurricane.
Finally, Chairman Martin proposed to use the E-rate Program to help
reconnect schools and libraries throughout the region. This would
consist of three measures. First, we would open a new Funding Year 2005
filing window for schools and libraries damaged by the hurricane. This
action would allow the approximately 600 schools and libraries damaged
by the hurricane and in need of funds for this Funding Year to revise
their requests for support in light of the dramatically-changed
circumstances caused by Hurricane Katrina. Second, we would treat
schools and libraries struck by the hurricane at the highest level of
priority (90%) for Funding Years 2005 and 2006. Finally, we would also
allow schools and libraries serving evacuees to amend their Funding
Year 2005 applications to account for the unexpected increase in
population. We estimate that these E-rate measures could provide
approximately $132 million to schools and libraries in the disaster
areas that were damaged by Hurricane Katrina.
We are committed to making sure that these USF monies are used well
and that the program is protected from potential waste, fraud, and
abuse. For that reason, applicants for this temporary support,
including the E-rate support noted above, would have to comply with all
existing program requirements. This includes, for example, competitive
bidding requirements, certification requirements, document retention
requirements, strengthened technology plan requirements, and potential
audit requirements. The existing program's application processes and
procedures--including the Universal Service Administrative Company's
(USAC's) Program Integrity Assurance review procedures and selective
review procedures, which subject applications for E-rate monies through
heightened scrutiny--will continue to apply to applicants for the
Hurricane Katrina-specific support. All other safeguards established in
the program will continue to apply, including the E-rate program's
existing $2.25 billion annual funding cap. Finally, we are examining
potential additional safeguards for the Hurricane Katrina initiatives.
These include relying on Federal Emergency Management Agency (FEMA)
determinations that households are eligible for disaster assistance or
that a school or library is located in a disasterstruck county. We also
are considering additional audit and certification requirements.
CONCLUSION
The damage wrought by Hurricane Katrina is tremendous and its
effects will be felt for months and possibly years to come. The
Commission stands ready to work with Congress, our colleagues at
federal, state, and local agencies, and the American public to do
whatever we can to help with the disaster relief and restoration
efforts. I would be pleased to respond to your questions.
Mr. Whitfield. Thank you very much. Mr. Feaster, you are
recognized for 5 minutes.
TESTIMONY OF H. WALKER FEASTER III
Mr. Feaster. Mr. Chairman and members of the subcommittee,
I appreciate the opportunity to come before you today to
discuss the FCC's plans for participation in Hurricane
Katrina's rebuilding activities, and our plans to provide
oversight for these activities. I applaud the commission's
efforts to be a positive force in the post-Katrina recovery,
and I am supportive of all the agency can do to assist.
However, I am mindful that, in my role as inspector general, I
am responsible for ensuring that these relief efforts do not
present unacceptable risks to the agency and the taxpayers'
dollars. I would like to discuss my plans for oversight of the
Katrina-related efforts.
The FCC's financial contribution to the recovery is via the
USF. My concerns about the USF, and in particular, the E-rate
Program, have been the subject of numerous discussions with
agency management, several audit reports and semiannual reports
issued by my office, and previous testimony before this
committee. I will discuss concerns we have had about this
program, that they may generate higher audit risk associated
with the hurricane recovery efforts. Due to the materiality and
assessment of audit risk, we have focused much of our attention
on USF mechanisms for funding telecommunications and
information systems for schools and libraries, known as the
Schools and Libraries Program, or E-rate.
The audits and investigations performed to date indicate a
high-level risk for misuse of funds in the E-rate Program. We
have had specific concerns about these E-rate--about the E-rate
Program that will have a direct impact to disaster assistance
funding. These include but are not--excuse me. These include
but are not limited to a lack of clarity in the program's rules
being a catalyst for both inadvertent errors and deliberate
waste and fraud and abuse and weaknesses in the competitive
procurement requirements that use E-rate goods and--used to
purchase E-rate goods and services.
I am concerned that the programmatic weaknesses that we
have found will be compounded by the confusion of overworked
school and library administrators trying to rebuild shattered
information systems under less than ideal circumstances.
Additionally, I fear these rules, waivers, or exemptions will
be taken advantage of by unscrupulous E-rate service provides
that Federal criminal investigations have turned up time and
time again.
Our most significant effort to date to implement our E-rate
oversight program has been our ongoing work to establish a
three-way contract under which the OIG and USAC can obtain
audit resources to conduct USF audits. The project has been
delayed, but the chairman has recently expressed support for
this three-way agreement, and we are hopeful that the contract
will move forward in the very near future. In the interim, we
are working with USAC Internal Audit Department and a public
accounting firm under contract to USAC to conduct audits of E-
rate beneficiaries.
Because we have focused our limited resources on E-rate, we
have not been able to devote a great deal of attention other
USF mechanisms. The other large USF program is the High Cost
Program. At present, we are assessing risk in the High Cost
Program in anticipation of being able to institute an audit
program in the near future.
The proposed low-income disaster relief is very
interesting, in that it seems to represent an entirely new use
for the fund. To the best of my knowledge, the support
mechanism has not been used in the past to provide wireless
handsets and free minutes of service in the past. We will
include an audit in our fiscal year 2006 audit plan to
determine how eligibility for this help is determined and
verified, and measures the commission has taken to ensure that
the products delivered are in the hands of the people who need
the help.
The Office of Inspector General has been and remains
committed to meeting our responsibility for providing effective
independent oversight in the USF. My office will dedicate as
much of our resources as possible to ensure that the extra
measure of support provided by the commission is utilized in a
manner that best benefits the people whose lives have been so
horribly uprooted by Hurricane Katrina.
Thank you. I will be happy to answer any questions.
[The prepared statement of H. Walker Feaster III follows:]
Prepared Statement of H. Walker Feaster III, Inspector General, Federal
Communications Commission
Mr. Chairman and Members of the Subcommittee, I appreciate the
opportunity to come before you today to discuss the FCC's plans for
participation in Hurricane Katrina rebuilding activities and our plans
to provide oversight of these activities. Last week I participated in a
panel before this subcommittee, in which we discussed plans of several
Inspectors General for providing oversight of their agencies Katrina
related efforts. Today I will expand on some of the topics touched upon
in my testimony from that date, and provide additional information on
my Office's plans for oversight of the FCC's assistance in rebuilding
in the wake of Hurricanes Katrina and Rita. Since the majority of the
actual funds used by the FCC in the recovery efforts will come from the
Universal Service Fund (USF), I will place emphasis on the plans to use
the USF, and particularly the E-rate fund, in the rebuilding efforts.
FCC USE OF THE USF IN KATRINA REBUILDING SUPPORT
The Commission took the unprecedented step of holding an Open
Meeting in Atlanta, Georgia on September 15, 2005. At this meeting, the
Commission announced that it would use $211 million of funds from the
USF to assist recovery efforts in the disaster area. The FCC will use
the four existing support mechanisms of the USF to provide this
assistance, as follows:
The Low Income program will be used to provide evacuees and persons
in the affected areas still without telephone service wireless
handsets and a package of 300 minutes. This fund will also be
used to provide support for reconnecting consumers as the area
is rebuilt. The FCC has estimated this will amount to $51
million of Low Income support.
The Rural Health Care program will allow public and for-profit health
care providers to apply for assistance with the cost of
telecommunications services under relaxed participation
requirements. The FCC has estimated this will amount to $28
million of Rural Health Care support.
The Schools and Libraries program (or E-rate) will be used to
reconnect schools and libraries in the affected areas to
telecommunication and network services. Using a variety of
program rule waivers, the FCC will be able to authorize an
estimated amount estimated of $132 million in E-rate funds for
the 600 schools and libraries hit by the hurricane.
The High Cost program will allow greater flexibility for telephone
carriers to use high cost funds to prioritize facilities
affected by Katrina.
On September 21, 2005 the Commission issued an Order that provides
some details on how this support will be facilitated. In this Order,
numerous filings for various forms and information under the USF
support mechanisms were postponed for a period of up to 150 days,
including:
For the E-rate program, responses to information requests from the
Universal Service Administrative Company (USAC) relating to
funding applications, formal requests for extensions of service
delivery deadlines and service substitutions, and filings
related to actions seeking recovery of funds disbursed in
violation of program rules.
For the Low Income Program, numerous filings that provide information
related to the calculation and receipt of funding.
Filings that support carrier contributions to the USF.
These temporary waivers are in effect from August 29, 2005 to
January 26, 2006. In addition, the Commission has waived recordkeeping
requirements pertaining to those entities in the Katrina affected
areas.
The Commission has also stated that they will distribute additional
funds in the hurricane affected areas by setting all schools and
libraries in the disaster area at the 90% level of support, which is
the highest level of support available under the program, in FY 2006.
They will open a new 2005 funding window for schools and libraries in
the affected areas to request new or additional support, and they will
allow schools and libraries serving evacuees to amend their 2005
funding to account for increased student populations.
The Commission is currently drafting additional regulatory relief
that will be needed to implement aspects of the Commission's plans. My
Office has been requested to review and provide comment on the proposed
actions.
OTHER REBUILDING SUPPORT BY THE FCC
The Commission has also announced the creation of a new Bureau--the
Public Safety/Homeland Security Bureau. This Bureau will be comprised
of existing functions currently in other FCC bureaus and offices and
will have responsibility for the FCC's public safety, national
security, disaster management programs.
Additionally, the Commission has undertaken several actions that
allow the telecommunications industry regulatory flexibility in
rebuilding efforts. Through the issuance of temporary rule waivers and
special temporary authorities, the FCC is assisting in re-establishing
emergency communications, providing assistance and relief to television
and radio stations in getting back on the air, extending regulatory fee
payments, extending filing due dates for licensees, and performing a
host of activities to contribute to the recovery efforts. The FCC is
coordinating with the Federal Emergency Management Agency and the
National Communications System, as well as state and local governments
and organizations to communicate the FCC's flexibility in eligibility
standards and processes to aid in the Hurricane Katrina relief efforts.
AUDIT OVERSIGHT OF THE FCC'S KATRINA-RELATED EFFORTS
I applaud the Commission's efforts to be a positive force in the
post-Katrina recovery, and I am supportive of all that this agency can
do to assist. However, I am mindful that in my role as Inspector
General, I am responsible for ensuring that these relief efforts do not
present unacceptable risks to the agency and the taxpayer's dollar. I
would like to discuss my plans for oversight of the FCC's Katrina-
related efforts.
The myriad of rule waivers and special temporary authorities the
Commission is granting for such areas as the resumption of radio and
television broadcasting and regulatory licensing has only a small
impact on audits conducted by my office. I have received estimates from
agency management that indicate that efforts related to disaster
recovery will cost approximately $400 thousand in appropriated funding
for personnel costs and contracted efforts. The Commission does not
anticipate requesting additional budgetary resources for disaster
recovery efforts.
Our primary audit role in these functions is to ensure that
adequate internal controls are in place and operating effectively to
ensure regulatory compliance and that financial cost accumulation and
reporting is current, accurate and complete. While the reorganization
and formulation of a new bureau carries a higher level of risk, our
concerns are the same--are the financial and operational controls in
place to ensure that the agency's programs and functions are operating
in an effective and efficient manner and in compliance with applicable
laws and regulations. My financial statement audits for FY 2005 and
2006 are the best tools I have available to make this assessment. My
staff is coordinating with our contracted independent public auditors
to ensure that testing under our financial statement audit will address
any concerns.
One area of relief that impacts an area of audit concern for my
Office is the extension of filing deadlines for payment of annual
regulatory fees. The Commission has provided regulatees in the affected
areas an extended deadline for the payment of regulatory fees. My
Office currently has in progress an audit of regulatory fee collections
and we will incorporate additional tests into this audit to ensure
compliance with the deadline extension granted by the Commission.
Additionally, we are considering adding a review of the Emergency Alert
System to our FY 2006 Audit Plan to determine of it operated as
effectively as possible during the hurricane event.
OIG OVERSIGHT OF THE USF KATRINA FUNDING
The FCC's financial contribution to the recovery is via the USF. My
concerns about the USF, and in particular the E-rate program, have been
the subject of numerous discussions with agency management, and several
audit reports and semiannual reports issued by my Office. We have
testified before this Subcommittee on three occasions, as well as other
House and Senate committees, about concerns regarding the E-rate
program. I will summarize the four parts of the USF and our efforts to
provide oversight of the fund. In this discussion, I will focus on how
concerns we have had about this program may generate higher audit risks
associated with the hurricane recovery efforts.
Due to materiality and our assessment of audit risk, we have
focused much of our attention on the USF mechanism for funding
telecommunications and information services for schools and libraries,
also known as the ``Schools and Libraries Program'' or the ``E-rate''
program. The E-rate program has expended $10 billion since its
inception in 1998. Our involvement in E-rate audits and investigations
has highlighted numerous concerns with this program.
Our E-rate oversight program is designed around two corollary and
complementary efforts. First, we would conduct audits on a statistical
sample of beneficiaries large enough to allow us to derive inferences
regarding beneficiary compliance at the program level. Second, we would
establish a process for vigorously investigating allegations of fraud,
waste, and abuse in the program.
The primary obstacle to our implementation of effective and
independent oversight of the E-rate program has been a lack of adequate
resources to conduct audits and provide audit support to
investigations. Despite limited resources, the OIG has implemented an
aggressive independent oversight program. My oversight program
includes: (1) audits conducted using internal resources; (2) audits
conducted by other federal Offices of Inspector General under
reimbursable agreements; (3) review of audit work conducted by USAC;
and (4) active participation in federal investigations of E-rate
fraud.1To date One-hundred and fifty-eight (158) audits have been
completed by the OIG, USAC internal auditors, or USAC contract auditors
in which the auditors have reached a conclusion about beneficiary
compliance. Of the 158 audits, auditors determined that beneficiary
were not compliance in 34% of the reports issued. Recommended fund
recoveries for those audits where problems were identified total nearly
$18 million. Additionally, we are providing audit support to 26
investigations into E-rate fraud allegations and monitoring another 13
investigations. There have been successful criminal prosecutions for E-
rate fraud and settlement recoveries in excess of $30 million.
The audits and investigation performed to date indicate a high
level of risk for misused funds in the E-rate program. We have specific
concerns about the E-rate program that will have a direct impact the
disaster assistance funding, and I would like to highlight some of
these issues.
For example, we have cited a lack of clarity in the program's rules
as being a catalyst for both inadvertent errors and deliberate fraud,
waste and abuse. We believe that it is critical that participants in
the E-rate program have a clear understanding of the rules governing
the program and the consequences that exist if they fail to comply with
those rules. In circumstances under which additional rule waivers are
laid on top of existing ambiguities, the potential for either
accidental or intentional noncompliance with the rules and abuse of the
Fund is dramatically increased.
We believe that it is possible under the current structure that
applicants may not have a clear understanding of program rules. We are
concerned that the Commission has not determined the consequences of
beneficiary non-compliance in many cases and that, in those instances
where the Commission has addressed the issue of consequences for non-
compliance, the consequences associated with clear violations of
program rules do not appear to be consistent. In some cases, USAC has
implemented numerous policies and procedures to administer the E-rate
program that the Commission has not adopted these USAC operating
procedures and therefore, there is no legal basis for recovery of funds
when applicants fail to comply with these procedures. To further
complicate matters, we have been advised that, in some cases, USAC may
have exceeded their authority in establishing program requirements.
We have also described weaknesses in the competitive procurement
requirements used to purchase E-rate goods and services and the
ineffective use of purchased goods and services. Program rules require
that applicants use a competitive procurement process to select
vendors, to preclude instances where prices charged to schools and
libraries are needlessly high and the Fund is unable to provide support
to eligible schools and libraries.
Although the programs competitive bidding requirements were
intended to ensure that schools and libraries are informed about all of
the choices available to them, we have observed numerous instances in
which beneficiaries are not following the program's competitive bidding
requirements or are not able to demonstrate that competitive bidding
requirements are being followed. We question whether the rules are
adequate to ensure a competitive process is followed. In addition, weak
recordkeeping requirements to support the procurement process, as well
as other aspects of the E-rate application, offer little protection to
the program.
Since our involvement in this program, I have become increasingly
concerned about efforts to resolve audit findings and to recover funds
resulting from E-rate beneficiary audits. It has been our observation
that audit findings are not being resolved in a timely manner and that,
as a result, actions to recover inappropriately disbursed funds are not
being taken in a timely manner. While it appears this situation may be
slightly improved in the past year or so, I remain concerned about the
Commission's support to resolving audit findings. In September 2004, I
issued three draft reports on E-rate compliance at private schools in
the Virgin Islands. The Commission did not provide timely responses to
these drafts, and in fact, never formally responded to these draft
reports. On August 18, 2005, I issued these reports in final without
agency comments. Given the planned increase in the number of E-rate
audit reports over the next several weeks and months, I have strong
concerns at the Commission's ability to provide comment on draft
reports and resolve audit findings.
Site visits are conducted during most E-rate beneficiary audits.
Site visits are conducted for several reasons including to evaluate the
eligibility of facilities where equipment is installed, to verify that
equipment is installed and operational, and to verify that equipment is
being used for its intended purpose. Examples of concerns identified
during audits and investigations are as follows:
Goods and services not being provided.
Unauthorized substitution of goods and services.
Goods and services being provided to ineligible facilities (e.g.,
non-instructional building including dormitories, cafeterias,
and administrative facilities).
Equipment not being installed or not operational. Program rules
require that nonrecurring services be installed by a specified
date. However, there is no specific FCC rule requiring
beneficiaries to use equipment in a particular way, or for a
specified period of time, or to full efficiency. Commission
staff have provided guidance stating that if the equipment was
uninstalled (i.e., still in a box) that would represent a rule
violation. However, Commission staff has also provided guidance
stating that the rules do not require that beneficiaries
effectively utilize the services provided or that the
beneficiaries maintain continuous network or Internet
connectivity once internal connections are installed.
In addition to the concerns listed above, we have on-going concerns
regarding the program's over reliance on self-certification by
participants, weaknesses in technology planning, discount calculations
and beneficiary payment of their share of the costs. I am concerned
that the kinds of programmatic weaknesses I have described will be
compounded by the confusion of overworked school and library
administrators trying to rebuild shattered information systems under
less than ideal circumstances in the hurricane affected areas.
Additionally, I fear these rule waivers or exemptions will be taken
advantage of by unscrupulous E-rate service providers that federal
criminal investigations have turned up time and again. Since the
inception of the E-rate program in 1998, over $184 million has been
expended in Louisiana, and over $79 million in New Orleans alone. As
well as E-rate funds, the High Cost program has expended $555 million
in the state of Louisiana since 1998. Rebuilding the shattered
infrastructure is critical. The financial needs will be huge and the
risk of misspent funds must be taken into account. This level of
funding will certainly attract the less honest service providers to the
area who might hope to take advantage of the additional funds being
expended under relaxed rules.
I have mentioned the lack of resources my Office has struggled with
in our work to provide effective and independent oversight of the E-
rate program, as well as the other USF support programs. We have
requested appropriated funds in our last three budget requests to
Congress and have been supportive of efforts to provide the Commission
with access to the USF for oversight funding. In addition, we are
working with USAC Internal Audit department (IAD) and a public
accounting firm under contract to USAC to conduct audits of One-hundred
(100) E-rate beneficiaries. This project was initiated in August 2004
and is expected to be completed in FY 2006.
The round of 100 audits is being conducted under a relationship
with USAC and the public auditors that could be described as semi-
formal, at best. OIG is not a party to the contract between USAC and
the contracted auditors and our participation is documented only in the
engagement letter. We believe that our participation in this process
would be enhanced by a more formal partnership between the Commission,
USAC and the contracted auditors.
Our most significant effort to date to implement our E-rate
oversight program has been our on-going work to establish a three-way
contract under which the OIG and USAC can obtain audit resources to
conduct USF audits. Under this contract, we intend to conduct the body
of audits necessary to assess fraud, waste, and abuse at the program
level by conducting a statistically valid sample of audits for each of
the four USF funding mechanisms. An additional objective is to identify
improper payments as defined by the Office of Management and Budget to
estimate error rates for the Improper Payments Improvement Act of 2002
(IPIA). Unfortunately, this project has been delayed. A Request for
Proposal for this contract was issued in November 2004. The proposal
evaluation process was completed, a contractor was selected and USAC
submitted the proposed contract for Commission approval in April 2005.
The proposed contract was held up in the transition between the former
FCC Chairman and Chairman Martin, as the Chairman wanted to give this
procurement detailed review prior to approval. Recently, we were
provided a memorandum that lists concerns that the FCC Office of
General Counsel has regarding the contractor selection process. Given
the issues raised by the General Counsel, I have agreed, along with the
Managing Director of the FCC, the Chief of the Wireline Competition
Bureau and the General Counsel, that recompeting this contract is
necessary to protect the interests of the fund and the integrity of the
procurement process. The Chairman has recently expressed support for
this three-way agreement and we believe that the contract will move
forward in the very near future.
USAC is contemplating further audits to meet their oversight
responsibilities, and we may be invited to participate in the same
manner as we are in the current round of 100 audits. While this
arrangement is less than ideal, it does allow for E-rate compliance
audits to continue. Our auditors will incorporate appropriate steps in
the audit work programs currently in use to ensure the Katrina rule
waivers are considered in audit planning and fieldwork. We will
continue to work in close coordination with USAC internal auditors,
independent auditors under contract to USAC, and other federal auditors
conducting E-rate audits under interagency memoranda of understanding.
We will ensure that the special risks that the FCC's proposed rules
bring are addressed in the conduct of future audits.
However, the current working relationship we have with USAC IAD and
the three-way contract are both solutions that could be described as
second best. As we have stated previously, limited resources have
precluded our ability to implement our planned oversight of the USF.
Our preferred method of providing oversight of the USF program is for
OIG to have direct access to the Fund for our use in implementing an
independent oversight program. Any oversight program of the magnitude
encompassed by the three-way agreement presents management challenges
for our office. The audit supervision and quality assurance necessary
for an audit program of this size is a major effort, and I do not have
adequate staff to perform this work. I have requested funds in my 2006
and 2007 budget requests for additional staff and contract resources to
assist in the management of this audit program; however, I would
reiterate my support for enabling OIG to use the USF as the source of
funds for this work.
Because we have focused our limited resources on the E-rate
program, we have not been able to devote a great deal of attention to
the other USF mechanisms. The other large USF program is the High Cost
program. This program provides support to telecommunication carriers to
ensure that consumers in all regions of the United States have access
to and pay rates for telecommunications services that are reasonably
comparable to those services provided and rates paid in urban areas.
This program has averaged over $2.5 billion in annual expenditures and
my office is aware that we need to expand our oversight in this area.
However, we have not had the resources to establish an effective
oversight program. In the breakdown of the $211 million of Katrina
relief there does not appear to be additional funds contemplated for
High Cost and I believe that the primary effect of the Katrina support
will be the redistribution of existing support. At the present, we are
assessing risks in the High Cost program in anticipation of being able
to institute an audit program in the future and will ensure our plans
address any considerations brought by the Katrina relief.
The proposed Low Income disaster relief is very interesting, in
that it seems to represent an entirely new use of this Fund. The Low
Income program assists eligible low-income consumers to establish and
maintain telephone service by discounting services provided by local
telephone companies. The USF reimburses the telephone companies for the
discounts under the Low Income program. This program provided $759
million in support in 2004 and is considered to be of lower audit risk
than the E-rate or High Cost programs. To the best of my knowledge,
this support mechanism has not been used to provide wireless handsets
and free minutes of service in the past. We will include an audit in
our FY 2006 Audit Plan to determine how eligibility for this help is
determined and verified and measures the Commission has taken to ensure
the products provided are in the hands of the people who need the help.
The Rural Health Care program is the smallest USF program, having
disbursed $38 million since 1999. The FCC's proposed $28 million of
disaster assistance to emergency health care providers in the affected
region will represent a dramatic increase in Rural Health Care
expenditures. This is being accomplished by increasing the discount
rate, which is the portion of costs covered by the support mechanism to
50% for qualified providers in the affected areas and for health care
providers providing assistance to disaster victims nationwide.
Additionally, the FCC will allow health care providers to file new or
amended applications for funds in the current year. We are still
assessing the requirement for oversight represented by the additional
disaster relief funds.
CONCLUSION
The Office of Inspector General has been and remains committed to
meeting our responsibility for providing effective independent
oversight of the USF. My office will dedicate as much of our resources
as possible to ensure that the extra measure of support provided by the
Commission is utilized in a manner that best benefits the people whose
lives have been so horribly uprooted by Hurricane Katrina.
Thank you. I will be happy to answer any of your questions.
Mr. Whitfield. Thank you, Mr. Feaster. Ms. Zaina, you are
recognized for 5 minutes.
TESTIMONY OF LISA M. ZAINA
Ms. Zaina. Thank you, Mr. Chairman. Good afternoon, Mr.
Chairman and members of the subcommittee. My name is Lisa
Zaina, and I am the chief executive officer of USAC, which
administers the Federal Universal Service Fund. Thank you, Mr.
Chairman, for convening this hearing today.
I appreciate the opportunity to come before you today to
discuss USAC's role in administering the fund and how USAC can
assist the FCC with its Hurricane Katrina rebuilding
activities. As we all know, the Gulf Coast was devastated by
Hurricane Katrina and then Hurricane Rita. Our hearts go out to
all of the survivors who are now struggling to put their lives
back together. I would like to say at the outset of the hearing
that USAC stands poised to assist the FCC in implementing its
hurricane-related efforts.
USAC looks forward to working closely with the commission
to implement Chairman Martin's September 15 proposals to use
$211 million from the fund for immediate relief to the program
participants affected by Katrina. In anticipation of
implementing Chairman Martin's proposals as quickly,
efficiently and effectively as possible, USAC review its
operations to better prepare it to carry out the necessary
functions. USAC staff identified critical issues to the
commission.
Today, I will discuss USAC's role in administering the
fund. With me today is Mel Blackwell, Acting Vice President of
the Schools and Libraries Program at USAC. We are happy to
answer any questions you may have.
USAC is the private not-for-profit corporation that
administers the USF's support programs, pursuant to the
commission's Part 54 Rules. The four support programs are High
Cost, Low-Income, Rural Health Care, and Schools and Libraries.
USAC is governed by a board of directors that includes a broad
representation of USF stakeholders. USAC anticipates support to
be approximately $7 billion this year in universal service
funds, with the High Cost Program receiving $4 billion, the
Schools and Libraries Program, $2.25 billion, the Low-Income
Program, $800 million, and the Rural Health Care Program, $44
million.
USAC and its dedicated professional staff are intimately
familiar with the operations of the many aspects of the USF.
USAC was very pleased to be able to assist the commission by
providing the information it requested regarding USF support in
the affected areas. USAC looks forward to working closely with
the FCC to implement as quickly, efficiently and effectively as
possible the emergency provisions the commission adopts. We
recognize the proposals as an effort to ensure that people can
begin putting their lives back together after the devastation
of this disaster, and that we must work quickly to ensure that
help gets to where help is needed.
We applaud Chairman Martin and the commission for the quick
response to the horrible devastation caused by Katrina. In
addition to working with the commission to implement Chairman
Martin's relief proposals, we support the commission's efforts
to quickly address any emergency situation that implicate the
USF in the future. With stakeholders, including schools and
libraries, rural health care providers, telecommunications
providers, we believe USAC can and will play an important role
in providing information and assistance.
As the administrator, one of the greatest concerns for USAC
is protecting the integrity of the fund. To echo Mr. Feaster's
concerns in his testimony, USAC wants to make certain that it
has the operational controls in place to ensure that USF
programs and functions are operating in an effective and
efficient manner, and in compliance with laws and regulations.
We are prepared to work with the commission and the inspector
general to identify additional ways to protect the integrity of
the fund, in addition to the many measures USAC already
employs. USAC will have a dedicated team to resolve any
administrative issues regarding the chairman's proposal.
At the same time, USAC wants to ensure that the process for
program participants is streamlined and easy to use. This is a
point that Chairman Martin made in his statement at the open
meeting September 15. USAC stands ready and is prepared to
offer additional information to assist the commission on the
operational aspects as well on the implementation of Chairman
Martin's proposals, and to work for a future streamlined and
more systematic way to address disaster situations, whatever
their cause and wherever they may occur.
Once again, thank you for having me here today to testify
on these important issues.
[The prepared statement of Lisa M. Zaina follows:]
Prepared Statement of Lisa M. Zaina, Chief Executive Officer, Universal
Service Administrative Company
INTRODUCTION
Good afternoon Mr. Chairman and members of the subcommittee. My
name is Lisa M. Zaina and I am the chief executive officer of the
Universal Service Administrative Company, or USAC, which administers
the federal Universal Service Fund (USF or Fund). Thank you, Mr.
Chairman, for convening this important hearing today.
I appreciate the opportunity to come before you today to discuss
USAC's role in administering the Fund and how USAC can assist the
Federal Communications Commission (FCC or Commission) with its
Hurricane Katrina rebuilding activities. As we all know, the Gulf Coast
was devastated by Hurricane Katrina and then Hurricane Rita. Our hearts
go out to all of the survivors who are now struggling to put their
lives back together. I would like to say at the outset of this hearing
that USAC stands poised to assist the FCC in implementing its
Hurricane-related efforts.
USAC looks forward to working closely with the Commission to
implement Chairman Martin's September 15th proposals to use $211
million from the Fund for immediate relief to the program participants
affected by Hurricane Katrina. In anticipation of implementing Chairman
Martin's proposals as quickly, effectively, and efficiently as
possible, USAC reviewed its operations to better prepare it to carry
out the necessary functions. USAC staff identified initial critical
issues to the Commission.
Today, I will discuss USAC's role in administering the Fund. With
me today is Mel Blackwell, Acting Vice President of the Schools and
Libraries program at USAC. We are happy to answer any questions you may
have.
USAC is the private, not-for-profit corporation that administers
the USF support programs pursuant to the Commission's Part 54 rules.
The four support programs are High Cost, Low Income, Rural Health Care,
and Schools and Libraries. USAC is governed by a Board of Directors
that includes a broad representation of USF stakeholders. USAC
anticipates support to be approximately $7 billion this year in
universal service funds with the High Cost Program receiving $4
billion, the Schools and Libraries Program $2.25 billion, the Low
Income Program $800 million, and the Rural Health Care Program $44
million.
USAC and its dedicated professional staff are intimately familiar
with the operations of the many aspects of the USF. USAC was very
pleased to be able to assist the Commission by providing the
information it requested regarding USF support in the affected states.
USAC looks forward to working closely with the FCC to implement as
quickly, efficiently, and effectively as possible the emergency
provisions the Commission adopts. We recognize the proposals as an
effort to ensure that people can begin putting their lives back
together after the devastation of this disaster and that we must work
quickly to ensure that helps gets to where help is needed.
We applaud Chairman Martin and the Commission for the quick
response to the horrible devastation caused by Hurricane Katrina. In
addition to working with the Commission to implement Chairman Martin's
relief proposals, we support the Commission's efforts to quickly
address any emergency situation that may implicate the USF in the
future. With stakeholders including schools and libraries, rural health
care providers, and telecommunications providers, we believe USAC can
and will play an important role in providing information and
assistance.
As the Administrator, one of the greatest concerns for USAC is
protecting the integrity of the Fund. To echo Mr. Feaster's concerns at
a hearing before this subcommittee September 28, USAC wants to make
certain that it has the operational controls in place to ensure that
USF programs and functions are operating in an effective and efficient
manner and in compliance with laws and regulations. We are prepared to
work with the Commission and the Inspector General to identify
additional ways to protect the integrity of the Fund in addition to the
many measures USAC already employs. USAC will have a dedicated team to
resolve any administrative issues regarding the proposal.
At the same time, USAC wants to ensure that the process for program
participants is streamlined and easy to use. This is a point that
Chairman Martin made in his statement at the open meeting September
15th.
USAC stands ready and is prepared to offer additional information
to assist the Commission on the operational aspects, as well as on the
implementation, of Chairman Martin's proposals--and to work for a
future streamlined and more systematic way to address disaster
situations, whatever their cause, and wherever they may occur.
Once again, thank you for having me here today to testify on these
important issues.
Mr. Whitfield. Thank you, Ms. Zaina. At this time, I will
recognize Mr. Rawson for his opening statement.
TESTIMONY OF GARY RAWSON
Mr. Rawson. Thank you. I am Gary Rawson----
Mr. Whitfield. Do you have your microphone on?
Mr. Rawson. Is that better? I am Gary Rawson, State E-rate
Coordinator for Information Technology Services in the State of
Mississippi. I have been the E-rate coordinator for 8 years
since the beginning of the program. I am also chair of SECA,
which is State E-rate Coordinators Alliance, and I support this
program with all the enthusiasm that I can communicate to you.
As you all know, Katrina was and continues to be the single
most devastating natural disaster to strike the United States.
Recovery goes well beyond the cleanup of debris, beyond
rebuilding of roads and buildings. Recovery will take years.
Recovery starts with the communities and the people who make up
those communities.
So what do we do first? First, we provide homes for these
folks. FEMA and many other groups are working on that issue.
Second, we get the kids back into school. If these kids
miss out on the remaining school year, then they must repeat
the school year. No child wants to repeat a school year. If
these kids have to move up to another community or to another
State to stay in school, they will. Parents will follow the
kids. Once these kids get into another school, another
community, and the parents find new jobs, new homes, and a new
life, they may never move back. Communities die because their
life-source, the people, have moved on; some because they
simply couldn't find a school. We need to do everything we can
to get these kids back into school in the shortest time period
possible. By today's date, many schools are back in operation.
Some may have fewer teachers, some may have fewer students,
some may have less of the resources that they need to do an
effective job of teaching, but what matters is that the kids
are in school and are learning again. And what matters most is
that these kids are getting some level of normalcy back into
their lives.
We have several stages of devastation related to schools
and libraries in the affected areas; little or no damage and we
are able to open back up soon thereafter; minor damage and
opened--reopened several days or even a few weeks later;
sustained significant damage, and repair will take weeks or
months, but will be able to reopen before the school year is
out; sustained major damage or total destruction and will have
to be demolished or rebuilt. The rebuilding may take several
years.
In some of these cases, schools were able to relocate in
some other facility and resume classes. I have heard of one
school that is now located in an empty Wal-Mart building. Other
schools merged with another school that had the space and
resources to accommodate. Other schools simply closed and
students relocated to parts unknown.
What can the FCC and the E-rate Program do to help these
schools and yes, these libraries get back into operation? E-
rate can only serve a very small need in a situation of many
needs. What comes first? Buildings, lights, books, teachers,
pencils, paper, buses, fuel, or Internet access. I think the
answer is obvious. But we need to get these kids back to where
they were before, as disadvantaged as they may be.
Put yourself into the seat of fourth grade student. You
used to live in Biloxi, Mississippi. Today, you are sitting in
a class in Tupelo, Mississippi. All of your friends are
scattered and you have no idea where. You haven't seen any of
your teachers since August the 28th when you and your family
drove north to escape Katrina. Suddenly, your teacher in Tupelo
calls you over to one of the computers in the back of the room,
and right there in front of you is the face of your English
teacher from Biloxi smiling at you from a video conferencing
classroom in Greenville, Mississippi. Imagine the job.
Interactive video between classrooms to connect the student to
a teacher, that, good people, is what the FCC and the E-rate
Program can do.
Time is critical. We need all the help we can get. We hope
that all of this help is close to what we will ultimately need.
We know that Chairman Martin issued a statement on September 15
that promised 90 percent discount for those affected schools,
and that a special Katrina window would be forthcoming. A
special window is needed because the current funding year
window for services, July 1, 2005 through June 30, 2006, is
closed. Thus the need for a new window to give the affected
schools and libraries the opportunity to apply for discounts E-
rate eligible services to replace services and equipment lost,
or to better serve the students that they have retained or
absorbed. But how are we, meaning the FCC, USAC, SLD, and the
E-rate coordinators, service providers, and the schools and
libraries gong to manage this process?
Under current rules and normal circumstances, the
technology plan is the foundation from which the applications
are based. Contracts are based upon a documented procurement
process. But what if all school and district documentation is
now scattered northward through the countryside or floating
somewhere out in the gulf? How can we be sure if schools and
libraries only apply for what they need to get back to where
they were before Katrina struck?
We cannot base post-Katrina needs on pre-Katrina
applications because many schools, due to their discount level,
have never been funded for internal connections equipment or
wiring. Now, under Katrina rules, those schools are eligible to
replace equipment and wiring they purchased outside of E-rate.
How long should this special Katrina relief effort take before
we are done? Well, how long does it take to demolish,
disinfect, rebuild, and repopulate a community?
How will monies set aside for this special Katrina relief
affect the other schools and libraries across the country? It
has been proposed that FCC use--that they use rollover funds,
funds that were committed but not spent in previous years, but
are still available, to be used for the special Katrina window.
This would provide $365 million to pay for services requested
by the affected schools and libraries during the period of
September 1, 2005, just after Katrina, through June 30, 2006,
the remainder of this funding year. If this funding mechanism
were chosen, the current demand estimate and the current
funding request would not be affected.
Are there any other sources of funding, outside of what the
other applicants have requested? Yes. Many of the affected
schools and libraries will be unable to use the funding they
have already been approved for, and funding they have not yet
been granted. The services referred to here are those for
funding period July 1, 2005 through June 30, 2006. Those
dollars should be identified, and can be identified, and used
to help fund the Katrina window.
What should happen after this special Katrina window closes
and the schools and libraries have not been rebuilt? An
affected entity should be granted this relief until they are
back to where they were before August 29, no matter how long it
takes. Those affected schools and libraries should apply during
the regular funding year window, just as everyone else does.
Don't create a new process, but do provide priority application
review and funding to those entities.
If this becomes known as a special Katrina window or
special Katrina relief effort, then where is the special
oversight going to come from? As complex and confusing as the
Katrina situation is, it would not be fair to the other schools
and libraries in the country to be adversely affected by
prioritizing limited resources of USAC and FCC with the Katrina
relief. Special circumstances call for special considerations.
We all want this special E-rate process to stay within the
current rules and regulations the E-rate Program where
possible. We know there must be some special considerations due
to the lost documentation and lost equipment, but the SLD
application process should not be compromised. The affected
States fully recognize the need for additional scrutiny. We
have committed--we the States have committed to provide a level
of oversight that has never been available before. The State E-
rate coordinators will verify which entities fit the criteria
as an affected entity, will verify that they seek only services
that will restore them back to the level they were before, and
will verify the procurement process that led to the service
contract within legal confinements of State law, and will
assist in the posting of needed SLD application forms,
specifically the Form 471. Specific hands-on training and
support will be provided to each applicant, and we submit that
no application should be approved without the certified
verification of the State E-rate coordinator.
Should schools and libraries that have not applied
previously for E-rate discounts be allowed to participate in
the Katrina relief? Absolutely. Don't further penalize them
because they didn't have the resources or the needed discount
level that would allow them to participate now.
My main point is, I don't want you to call me back up here
in 3 years and ask me why the Katrina relief effort failed.
Thank you.
[The prepared statement of Gary Rawson follows:]
Prepared Statement of Gary Rawson, Mississippi E-rate Coordinator,
Mississippi Department of Information Technology Services
I have been the e-rate coordinator for Mississippi since the
program began in 1998. I also serve as the Chair for the State E-rate
Coordinators Alliance (SECA) which is made up of approximately 90 e-
rate professionals representing 39 states.
As you all know, Katrina was, and continues to be the single most
devastating natural disaster to strike the United States. Recovery goes
well beyond the cleanup of debris, beyond rebuilding of roads and
buildings. Recovery will take years. Recovery starts with the
communities and the people who make up those communities. So, what do
we do first?
First, we provide homes for these folks. FEMA and many other groups
are working on that issue.
Second, we get the kids back into school. If these kids miss out on
the remaining school year then they must repeat the school year. No
child wants to repeat a school year. If these kids have to move to
another community or another state to stay in school, they will.
Parents will follow their kids. Once these kids get into another
school, another community, and the parents find new jobs, new homes,
and a new life, they may never move back. Communities die because their
life source, the people, have moved on; some because they simply
couldn't find a school.
We need to do everything we can to get these kids back into school
in the shortest time period possible. By today's date, many schools are
back in operation. Some may have fewer teachers; some may have fewer
students; some may have less of the resources they need to do an
effective job of teaching. But what matters is that kids are in school
and are learning again. And what matters most is that these kids are
getting some level of normalcy in their lives.
We have several stages of devastation related to schools and
libraries in the affected areas.
1) Sustained little or no damage and able to reopen as soon as power
was restored.
2) Sustained minor damage and was able to reopen after a few days of
repair work.
3) Sustained significant damage and repair will take weeks or months,
but will be able to reopen before the school year is out.
4) Sustained major damage or total destruction and will have to be
demolished and rebuilt; the rebuilding may take several years.
In some of these cases schools were able to relocate in some other
facility and resume classes. I have heard of one school that is now
located in an empty Wal-Mart building. Other schools merged with
another school that had the space and resources to accommodate. Other
schools simply closed and students relocated to parts unknown.
What can the FCC and the e-rate program do to help these schools
and yes, these libraries get back into operation?1E-rate can only serve
a very small need in a situation of many needs. What comes first . . .
buildings, lights, books, teachers, pencils, paper, buses, fuel . . .
or internet access. I think the answer is obvious. But, we need to get
these kids back to where they were before, as disadvantaged as they may
be.
Put yourself in the seat of a 4th grade student. You used to live
in Biloxi Mississippi. Today, you are sitting in a class in Tupelo
Mississippi. All of your friends are scattered and you have no idea
where. You haven't seen any of your teachers since August 28th when you
and your family drove north to escape Katrina. Suddenly, your teacher
calls you over to one of the computers in the back of the room, and
right there in front of you is the face of your English teacher smiling
at you from a video conferencing classroom in Greenville Mississippi.
Imagine the joy.
Interactive video between classrooms, to connect a student to a
teacher. That, good people, is what the FCC and the e-rate program can
do.
Everyone in the country is asking the same questions: ``Why don't
those Katrina folks let the FEMA money, and the insurance money and
those billions of dollars Congress has approved fix everything?'' That
is a very good question. Here is my response:
1) FEMA pays a percentage (75% last I heard) of the depreciated value.
2) FEMA takes a very long time to pay.
3) Insurance pays the depreciated value, less the deductable, IF the
insurance company decides the losses were covered under the
policy.
4) Often, insurance has a cap on what it will pay. Here, we are talking
large dollars that simply go beyond the scope of some
insurance.
5) Congress has approved the funding, but where is the money?
Time is critical. We need all of the help we can get. We hope that
all of the help, and we have been blessed with a lot of help, is close
to what we will ultimately need.
We know that Chairman Martin issued a statement on September 15th
that promised a 90% discount for those affected schools and that a
special Katrina Window would be forthcoming. A special Window is needed
because the current funding year Window, for services July 1, 2005
through June 30, 2006 is closed. Thus, the need for a new Window to
give the affected schools and libraries the opportunity to apply for
discounts on e-rate eligible services to replace services and equipment
lost, or to better serve the students they have retained, or absorbed.
But, how are we, meaning the FCC, USAC, SLD, the e-rate
coordinators, service providers, and the schools/libraries going to
manage this process?
Under current rules, and normal circumstances, the technology plan
is the foundation from which the applications are based. Contracts are
based upon a documented procurement process. But, what if all school
and district documentation is now scattered northward through the
countryside, or floating somewhere out in the gulf? How can we be sure
schools and libraries only apply for what they need to get back to
where they were before Katrina struck?
We cannot base post-Katrina needs on pre-Katrina applications
because many schools, due to their discount level, have never been
funded for internal connections equipment or wiring. Now, under Katrina
rules those schools are eligible to replace equipment and wiring they
purchased outside of e-rate.
How long should this special Katrina relief effort take before we
are done? Well, how long does it take to demolish, disinfect, rebuild,
and repopulate a community?
How will the monies set aside for this special Katrina relief
affect the other schools and libraries across the country? It has been
proposed to the FCC that rollover funds (funding that was committed,
but not spent, in previous years, but is still available) be used for
the special Katrina Window. This would provide $365 million to pay for
services requested by the affected schools and libraries during the
period September 1st, 2005 thru June 30th, 2006. If this funding
mechanism were chosen the current demand estimate, and the current
funding requests, would not be affected.
Are there any other sources of funding, outside of what the other
applicants have requested? Yes. Many of the affected schools and
libraries will be unable to use the funding they have already been
approved for, and the funding they have not yet been granted. The
services referred to here are those for funding period July 1st 2005,
through June 30th, 2006. Those dollars should be identified and used to
help fund the Katrina Window.
What should happen after this Special Katrina Window closes and the
schools and libraries have not been rebuilt? An affected entity should
be granted this relief until they are back to where they were before
August 29th, no matter how long it takes. Those affected schools and
libraries should apply during the regular Funding Year Window just as
everyone else does. Don't create a new process. But, do provide
priority application review and funding to those entities.
If this becomes known as the Special Katrina Window, or Special
Katrina Relief Effort, then where is the ``Special Oversight'' going to
come from? As complex and confusing as the Katrina situation is, it
would not be fair to the other schools and libraries in the country to
be adversely affected by prioritizing the limited resources of USAC and
FCC with Katrina relief. Special circumstances call for special
considerations. We all want this special e-rate process to stay within
the current rules and regulations of the e-rate program, where
possible. We know there must be some special considerations due to lost
documentation and lost equipment, but the SLD application process
should not be compromised. The affected states fully recognize the
needs for additional scrutiny. We have committed to provide a level of
oversight that has never been available before: the state e-rate
coordinators will verify which entities fit the criteria as an
``affected'' entity, will verify they seek only services that will
restore them back to the level they were before, will verify the
procurement process that led to the service contract (within the legal
confinements of state law), and will assist in the posting of the
needed SLD application forms (specifically the 471). Specific hands-on
training and support will be provided to each applicant. We submit that
no application should be approved without the certified verification of
the state e-rate coordinator.
Should schools and libraries that have not applied previously for
e-rate discounts be allowed to participate in the Katrina Relief?
Absolutely. Don't further penalize them because they didn't have the
resources or the needed discount level that would allow them to
participate now.
If this special relief were granted today, how long before schools
and libraries felt the benefit? If the relief were granted today, and
the Special Katrina Window opened tomorrow morning, 471s would be filed
tomorrow evening, and those applicants would anxiously wait for a
Funding Commitment Decision Letter (FCDL).
Will the existing e-rate process work in this special case?
Absolutely.
I don't want you to call me back up here in three years and ask me
why the Special Katrina Effort failed.
I want to sincerely thank you for the opportunity to speak with you
today.
Mr. Whitfield. Thank you, Mr. Rawson, and I thank all of
you for your testimony.
Ms. Zaina, I want to just start of questions with you this
afternoon. Mr. Stupak, in his opening statement, mentioned the
fact that the requirement for expenditures to reconnect these
schools and libraries may be such that it may be required to,
for other schools and libraries around the country, that they
may not receive the funding that they expected because of the
special needs in the Katrina area. I think there is something
referred to as an overflow fund, and I would ask you, is Mr.
Stupak's concern a legitimate concern for us, or how do you
decide when to use the overflow fund and so forth?
Ms. Zaina. Sir, the overflow fund, it is the rollover fund
and it would be used at the recommendation of the FCC.
Essentially, the rollover fund is basically the residual left
from the contingencies that we build into the program, whether
or not there will be appeals monies available and the like. And
currently, that rollover fund is at $365 million. So whether we
use the rollover fund, affects the magnitude of the effect on
the other schools and libraries in the country, as compared to
those in the gulf States. The $2.25 billion, if we were to take
it out of that and not use the rollover fund, they would be
immediately directly affected. If we use the rollover funds,
the magnitude might be different, depending upon how the
commission tells us to use the rollover funds.
Mr. Whitfield. Okay. And that would be the decision of the
FCC?
Ms. Zaina. Yes, sir.
Mr. Whitfield. Okay. Now, on September 21, 2005, you sent a
letter to the chairman and the commissioners at FERC, and I
think everyone has a copy of this, in which identified certain
areas of concern that would have to be addressed as we try to
respond to the needs created by Hurricane Katrina. Have your
concerns been met that you express in this letter?
Ms. Zaina. Mr. Chairman, we sent that letter on September
21 in order to allow the commission to deliberate about all of
the concerns we felt would be necessary for them to consider as
they transferred or created this proposal and turned it into an
order that could be operationalized. We asked questions about
eligibility. We asked questions about programmatic issues. We
asked questions about implementation. And to date, we have not
had any discussions with the commission regarding those issues
that we raised. We have, however, had discussions with the
commission on the September 28 order, the September 28 letter
that we sent pursuant to their waiver order about--with the
deadlines.
Mr. Whitfield. And without objection, I am going to ask
that this--your letter be placed into the record. Yes, all
three of you. All three of them. Thank you.
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Mr. Whitfield. Mr. Rawson, the FCC states that it is
considering relying upon FEMA determinations to identify
schools and libraries that should be eligible for Katrina-
related relief. Does every school in the FEMA zone need E-rate
assistance, or have you been able to assess that?
Mr. Rawson. Yes, we have assessed that. No, every school in
the FEMA-defined region does not need E-rate support or even
rebuilding. There is minor damage and considerably lesser
chance of damage to E-rate-eligible services. There may be
schools that are fairly close to the coast that sustained very
minor damage. And then you go 150, 200 miles inland and you
will have another school that was damaged considerably by trees
or wind damage to the roof or flooding or whatever it might be.
So no, we have already surveyed all school districts who, in
turn, let us, the State, the State Department of Education,
know the level of damage for all entities.
Mr. Whitfield. And what percent of the schools in that--in
the FEMA-designated area would you say needed assistance?
Mr. Rawson. We haven't done a calculation of the
percentage. It is--it is just various schools and with various
damage.
Mr. Whitfield. Okay.
Mr. Rawson. And some minor, some major.
Mr. Whitfield. Have you come to the conclusion on the
amount of money that may be needed in the schools that do have
needs?
Mr. Rawson. No, we have not, because the needs vary and
certainly within the E-rate application, the data provided
through that, that is--that doesn't provide the information we
need, either, because many of the schools haven't used the E-
rate funds to provide their infrastructure.
Mr. Whitfield. And how would explain or define or describe
the coordination between the FCC, USAC, and your colleagues
following the Katrina relief proposals?
Mr. Rawson. Well, up to this point, there is not really a
Katrina proposal that we know of, that we have been told about,
we, being the applicants. So we are waiting on an order from
the FCC, and then we will react accordingly.
Mr. Whitfield. Okay. Okay.
Mr. Rawson. May I add one more thing, though? We, being the
tri-State area, Alabama, Mississippi, and Louisiana, did submit
a proposal for Katrina relief to the FCC. And I think----
Mr. Whitfield. Yes. Would you elaborate on that? When did
you do that?
Mr. Rawson. Oh, goodness. I have forgotten the date, but it
is--it was about the 18th of 20th of September. As a matter of
fact, the day that he came out with the original order on the
15th, we were scurrying to get our Governors to sign the
letter. And the 15th was a Thursday, and the following Monday
is when we submitted to the FCC.
Mr. Whitfield. Yes. Mr. Navin, let me ask you, when you all
formulated this relief plan, which all appreciate your doing
very much, how did you, for example, determine that there would
be 600 schools that might be affected?
Mr. Navin. At the time that the chairman announced his
intention to present an item to his fellow commissioners about
a relief package, we had been contacted at that point by the
Governors of Mississippi and also Louisiana, and in addition, I
believe, the superintendent of schools for the State of
Alabama. They were all asking for some special consideration by
the commission relating to E-rate funding. I believe that using
historical data, we were able to come up with a figure of
approximately 600 schools, and we looked at the type of
priority to funding that those schools demanded or requested in
earlier years.
Mr. Whitfield. Now, do you have any idea of when the final
order will be completed?
Mr. Navin. I know that the chairman has sent a proposal to
the other commissioners. I know that they are continuing to
debate some of the finer points of that proposal. For me to put
a timeframe on it, I think it would be unfair to those
deliberations, but I will say that they have certainly engaged
on the finer details of the order, and they recognize the
urgency of getting the order out as soon as possible so that
the relief in the order gets to the affected areas as soon as
possible.
Mr. Whitfield. Ms. Zaina, have you had any discussions with
them on timeframe for the final order?
Ms. Zaina. No, sir, we haven't.
Mr. Whitfield. Okay. So, Mr. Navin, since the announcement
of the program, have you consulted or been in pretty detailed
discussions with USAC about possible implementation of the
program or not?
Mr. Navin. My staff is in daily contact with USAC on a
variety of issues. We also, having received the letters from
USAC raising various questions, have tried to incorporate those
issues into the draft item where possible--where it was
possible to do so. So we certainly have recognized those
issues. The chairman has requested that, to the best of our
ability, we address those issues in the item.
Mr. Whitfield. Okay. Well, my time has expired, so I will
recognize Mr. Stupak for 8 minutes.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Navin, you testified that you are committed to making
sure that USF monies are used and are well spent and the
program is protected from potential fraud, waste and abuse. Yet
our subcommittee's investigation found a program rife with
waste, fraud and abuse, and the FCC IG remains concerned that
Katrina rebuild will result in more abuse, especially when you
testified that there will be regulatory relief which, in my
mind usually means less controls and more possibility to open
up for fraud. So what is the status of the planned 700 audits
that were promised? It is my understanding that the they were
at the chairman's office from March until August 15, and where
have they gone now? Who is holding those things up?
Mr. Navin. That might be a question better put to the FCC's
IG. One of the things Chairman Martin has tried to do early in
his----
Mr. Stupak. Okay. Well, let me go to Mr. Feaster, then. Do
you know the answer, of who has the audit reports now?
Mr. Feaster. Yes, sir. Excuse me. The plan was held up, the
three-way plan you are referring to----
Mr. Stupak. Right.
Mr. Feaster. [continuing] and audits, was held up during
the transition from Commissioner--Chairman Powell to Chairman
Martin. During that time, the general counsel's office found
that the way that the people were selected for--the contractors
were selected, there were two flaws in the selection process.
This was presented to me in consultation with the chief of the
Wireline Bureau and the commission's managing director. We felt
it was best to re-complete the thing, re-complete the contract
application. And we expect to have a final contract within 90
days in place to start on those audits.
Mr. Stupak. This final order that the chairman is trying to
get done and have the commissioner sign on how they are going
to rebuild, shouldn't we have a good understanding of what is
in those audit reports before you do a final order, because
aren't we bound to repeat the same errors?
Mr. Feaster. I think we have some background based on about
150 audit reports that we have done to date. And any changes in
the processes and procedures, we would apply to those new
audits so we--they would be in our audit plan to look at those
type of situations.
Mr. Stupak. And I don't mind them helping to rebuild, but I
don't want to build on a program that we have had a lot of
problems or discussions on, if we are just going to do another
rebuilding on flawed foundations. So let me ask this question,
Mr. Navin, if I can. Puerto Rico Telephone I mentioned in my
opening statement, about $1,500 per month they charged for
hundreds of lines, even though they weren't used. Have you or
the commission been put on notice that telecom or other
Internet service providers are priority one services; that they
will not be paid for connections that are unusable during this
time they have been down due to the hurricane, or are we still
paying $1,500 a month for these lines? Do you know?
Mr. Navin. I don't know the answer to that specific
question. What I can say is that one of Chairman Martin's first
priorities when I became bureau chief was to take a look at the
Universal Service Program and consider fundamental structural
reform of the program, for purposes of addressed both Congress'
and the IG's----
Mr. Stupak. Sure. But in your opening, you mention all this
stuff about you were immediately getting things back in repair
and all this, and did anyone check to see, are you still paying
for lines that aren't being used?
Mr. Navin. During the outreach, it is my understanding from
some of the personal outreach that I did, that carriers were
asked for consideration on that issue. I don't have any
statistics in front of me right now that I can I provide you
concerning the number of carriers who agreed to stop billing
and the number of carriers who said no, we were under a
contract and we are gong to continue to bill.
Mr. Stupak. So they could, under contractual obligations,
continue to charge $1500 and we really have no recourse other
than they are good heartedness. Will that be changed in the
new--in this final order that is coming up? I mean, that is
just one example of just waste, if the thing goes down, and not
to any fault of theirs, but I mean, should we continue to pay?
Mr. Navin. We are certainly aware of that issue, and I do
not know whether the final order will specifically address that
or not.
Mr. Stupak. Well, I hope you express our concerns. Of the
600 libraries and schools you have identified, are all these
schools and libraries going to be rebuilt, or are some of them
not going to be rebuilt? Do we know that yet?
Mr. Navin. I think the answer is, we don't know that, and I
think what is important on this point is that, what our order
proposes, or what the chairman's proposal does, is to make
these schools and libraries eligible. It doesn't guarantee them
support, and to the extent a school or library is not rebuilt,
then they will not be filing for additional support under
priority two for internal connections.
Mr. Stupak. You know, we mentioned a little bit about the
rollover rate there, that $360 million that rolls over. I am
not quite sure how disadvantaged--disadvantaging, I should
say--other schools nationwide is the best policy to pursuing--
to be pursued here. Isn't there any other place we can subtract
money from? For instance, won't there be an E-rate money from
200? And then that is the rollover money. Why couldn't we just
use those--that money instead of obligating other school
districts' promised money to rebuild the gulf?
Mr. Navin. I think it is difficult for any of us to say
what the exact impact is going to be at this point in time
because of the cash management system that is used at USAC. It
is----
Mr. Stupak. So then, why won't we start with the rollover
money so we don't impact other promised money?
Mr. Navin. Well----
Mr. Stupak. Use that first until we know.
Mr. Navin. [continuing] there is currently enough money in
the fund today to cover all priority one requests.
Mr. Stupak. Including those in other parts of the country?
Mr. Navin. Correct. Yes, for priority one requests, that is
true. For priority two requests----
Mr. Stupak. Correct.
Mr. Navin. [continuing] what our order proposes to do is to
recognize that those schools and libraries in the disaster area
are now some of the neediest schools in the country.
Mr. Stupak. Sure.
Mr. Navin. And therefore we treat them as such.
Mr. Stupak. But before you commit that money, we should
probably determine how many schools and libraries there are,
when they are going to open, and the extent of the damages. It
sounds like Mississippi has done some of that, Mr. Rawson, and
I am sure there has got to be some of them there that just
aren't going to open because of lack of population and other
things, and putting an expensive system in a school that may or
may not open, or even doing the basic wiring wouldn't be worth
it right now. Is that fair to say?
Mr. Rawson. Well, we don't know. We have to go back and
build the schools and see who comes back.
Mr. Stupak. Sure.
Mr. Rawson. You know, right now, the people in the
communities aren't there because there is little community
left, in some cases. But you build the school back and then
hopefully your teachers come back, and the students come back
when you get some semblance of normal community life.
Mr. Stupak. But I am sure that Mississippi and others
aren't going to build a school and hope they come. I mean, you
are going to have some kind of foundation that people are going
to be returning. And again, I am sure we all want them back as
soon as possible, but some of these areas, it is going to take
a long time before they get back. So I don't want to be
committing funds for a school that may or may not ever come
back, and then the rest of the priority two or someone gets
pushed back for another year. See, that is what I am concerned
about. We all want to help out, but this is what, about our
fourth or fifth hearing, and it seems like everyone is
promising money and no one knows where it is going or when it
is going to be spent, and we are asking everyone else to step
back. And I have no problem with that, I just want to make sure
there is a plan, that there is a proposal, that we really know
what we are talking about instead of just throwing money at it.
That is why I am a little perplexed why we wouldn't have the
audit report, which shows all the problems we have, before we
startup a program again in a massive area, in which we are
waving regulations. I just think we are throwing good money
after bad at times.
Mr. Rawson. That is a good point, sir, but you know, which
comes first, the chicken or the egg? But you go back and you
build Gulfport back. If you don't put the school back, then the
people aren't going to come back to Gulfport, or Biloxi or any
of the other places that are devastated. The school is part of
the restructure and it has to be.
Mr. Stupak. Absolutely. For many communities, it is the
heart and soul of that community. But at the same time, there
has to be some plan on areas we are going to rebuild and not
rebuild, too.
Mr. Rawson. That is true. And while I have got your
attention, could I give you some statistics related to what you
just----
Mr. Stupak. Sure.
Mr. Rawson. [continuing] asked a minute ago? The libraries
that were destroyed and the schools that were destroyed, you
were asking that question.
Mr. Stupak. Right.
Mr. Rawson. In Alabama there was one library and one school
destroyed. In Louisiana there were four libraries destroyed, 82
schools destroyed, 70 libraries damaged, and 229 schools
damaged. In Mississippi there were six libraries destroyed, 28
schools destroyed, 29 libraries damaged, and 280 schools
damaged. And recognize that when we wrote this, when we came up
with these statistics, we couldn't get into Louisiana and
couldn't get into New Orleans to do an assessment there.
Mr. Stupak. Sure.
Mr. Rawson. But there is another 212 schools and 13
libraries that were not part of this assessment.
Mr. Stupak. Well, I agree. And you know, the President says
we are going to rebuild New Orleans, and we have an opportunity
to make it the new modern city, but that doesn't mean those
same libraries will be in those same locations, and those same
schools will be in those same locations. So before we start
committing and obligating funds that we may not have and impact
the rest of the Nation, maybe we ought to figure out where the
places the libraries and schools are going to be before we make
these commitments and withhold funds from other parts. And I
certainly appreciate the answers from everybody on this panel.
Thank you, Mr. Chairman, for your patience.
Mr. Whitfield. And I might also add that it is our
intention to offer everyone a second round of questions as
well. So at this time, I recognize Ms. Blackburn for 11
minutes.
Ms. Blackburn. Thank you, Mr. Chairman, and I want to thank
all of you for being here today. And, Mr. Chairman, I thank you
for holding the committee and convening this for us today,
because we all do have concerns about the E-rate Program, and
we know it has some problems with waste, fraud and abuse.
Mr. Rawson, I will tell you, I was in Jackson and Meridian,
Mississippi this week, on Tuesday, and I will tell you, it
makes me proud, for you all, for how you are approaching this
issue of recovery, cleanup, reconstruction, and I am
appreciative for the thoughtful approach that the Mississippi
citizens are using as they move forward, and a lot of
commonsense that they are bringing, and that is reflected in
your remarks and I thank you for that. I will tell you, there
is a little bit of head scratching going on down there, as to
why FEMA would do some of the things they are doing, like
buying trailers for portable schools from Alaska and hauling
them down to Mississippi. You know, it doesn't make a whole lot
of sense. And I learned a lot being there on the ground.
Let me ask you this. The E-rate Program money, is that
going to be used for Internet connectivity in these portable
school buildings? And also, you mentioned putting the students
and teachers together via the Internet. How much money are you
designating for wireless connectivity? I know, as you look at a
lot of what has happened in Mississippi, and the hard-line
phones are not up, the cell service is sporadic, this is an
opportunity to rebuild and rebuild it right. And, Mr. Navin, I
certainly wish that the FCC, in your points, you have three
points of things that Chairman Martin, in his aggressive
agenda, is putting forth, but you don't mention anything about
rebuilding it right. And I think all of us would have liked to
have seen something about innovation and doing it right. While
you have the opportunity to do it right, for goodness sakes,
let us do it right.
But back to my point, Mr. Rawson. What are you all doing
with wireless technology as you rebuild?
Mr. Rawson. Well, we leave that up to the individual school
districts and schools to request whichever they want. Yes,
there has been much talk about going back now, because we are
starting from scratch in many cases, and putting wireless,
particularly in the situation where we have temporary services
set up, so that Wal-Mart that I mentioned in my write-up, they
put in wireless there at the Wal-Mart, then when they move back
to the renovated building or repaired building, they can take
that wireless technology back with them, rather than hardwiring
the temporary locations and then abandoning it when they leave.
Ms. Blackburn. Okay. That sound great. Now, Ms. Zaina,
looking at wireless versus a traditional hardwired system, has
USAC performed any cost benefit analysis on the hardwired
system versus the wireless system? Have you done any of that
work?
Ms. Zaina. We have not done any analysis, Congresswoman,
but we do look at the cost of the proposal as one of the most
important issues for an entity to be looking at when they do
ask for schools and libraries' funding.
Ms. Blackburn. Okay. Mr. Feaster, thank you for being with
our committee again. I know we have kind of worn you out over
the last few weeks. We have lots of questions and you have lots
of answers, and we appreciate your time. Are you going to be
putting any full-time staff into Louisiana or Mississippi for
onsite audits and use of the E-rate funds?
Mr. Feaster. No, I have no plans to do that. You need to
remember that my staff totals--my total staff is 10 people, and
there is four people working in the four areas of the USF, so
we have quite a small staff. We do have one of my staff on
almost continuous travel to assist the U.S. attorneys in
investigations.
Ms. Blackburn. So you have one staff member, basically,
that is designated?
Mr. Feaster. Yes.
Ms. Blackburn. Well, maybe we need to look at taking some
of those USF funds and re-designating some of those to cover
the expenditure----
Mr. Feaster. That would be an excellent idea.
Ms. Blackburn. [continuing] of those funds so that we are
auditing that money as we go. I think that is probably, for the
record, the third time you have made us aware----
Mr. Feaster. Yes.
Ms. Blackburn. [continuing] on the size of that staff. I
think it is beginning to sink in, sir. And then let me ask you
this. There again, bearing in mind that we are aware that you
have a small staff, what kind of up-to-the-minute review or
ongoing auditing are you going to do on uses of the equipment
that is being purchased through the E-rate Program, and then
putting that into facilities and being certain that the
equipment is going into facilities that actually exist, and
that they are in the facilities where students are actually
sitting, that these aren't ghost facilities or misdirected
facilities?
Mr. Feaster. Well, right now we are working with USAC. They
are conducting 200 audits of various beneficiaries. In our
three-way proposal, or three-way plan, where we will do 710
audits, we will have 250 audits of the beneficiaries. What I
would plan to do in the next 6 months is that we would ask USAC
auditors to, as we do a statistical survey based on the 700, to
do some focused audits in some of the areas down in the New
Orleans area. And in our typical audit, we always look at how
the equipment is being utilized, whether it is hooked up and
whether there is people there using it, and that is pretty much
in all our audits.
Ms. Blackburn. Let me ask you this. As you go through the
bid process, is there a part of the contract that requires a
description of how the beneficiary is going to use that
equipment and for how long?
Mr. Feaster. The tech plan, and, Lisa, stop me if I am--I
should give this one to you, really.
Ms. Blackburn. Sir, would you prefer for Ms. Zaina to
answer that?
Mr. Feaster. I would think she could answer it better than
I could.
Ms. Blackburn. Okay, I will be happy to redirect the
question. Ms. Zaina?
Ms. Zaina. You asked a question about whether or not an
entity is going to be using equipment in a certain fashion.
Ms. Blackburn. Right. If you require a description for how
the beneficiary plans to use that equipment, details on where
it is going to be used, how much detail you are asking for in
the bid process on the front end, so that you have got
something in your audit, your working----
Ms. Zaina. Yes, we ask a very comprehensive set of
questions about how the--how that equipment is going to be
used, how the funding is going to be used. We have a very
comprehensive application process, a very comprehensive
invoicing process on top of that. In addition, we started an
initiative this year, Congresswoman, that we are visiting a
thousand schools and libraries, determining whether or not
these schools and libraries are using the funds appropriately.
Ms. Blackburn. Okay. That is great. Thank you for your
answer on that. I have just a little bit of time left. Mr.
Navin, I want to come back to you, and it is not really a part
of the E-rate Program, but I have continued to hear some
questions about these handsets, the wireless handsets and the
300 minutes, and some questions on that program and how you all
went about that. And I would like to know a little bit about
what kind of oversight is in place on that, and monitoring the
use for that, and how you are qualifying the residents. I think
there are still a lot of questions that are out there. And I
would also like to know what other alternatives you all might
have considered, other than that handset program.
Mr. Navin. I will once again try to answer your question as
specifically as I can, while respecting the ongoing
deliberations at the agency. You were referring to the
commission's proposal, or the chairman's proposal under the
Low-Income Program to provide consumers in the disaster-
affected area with a wireless handset, and I believe what we
announced is that it would be a minimum of 300 minutes and the
handset for $130. And what we have done, or as the idea has
evolved, is, I think, that we have provided some additional
flexibility in the order for carriers to provide these low-
income consumers with other types of plans.
As it relates to the auditing or, you know, particular
safeguards that we have adopted, relating to that particular
plan, I would point out that we are, in the first instance,
relying on FEMA's disaster designations and application
processes to determine the eligibility for the temporary
support, and the checks and balances that are build into FEMA's
internal controls and procedures, to ensure that parties are
either eligible or ineligible for FEMA support. Similarly, we
targeted the temporary support to the counties and parishes and
individuals that have suffered the most from the disaster, and
I believe that we will be able to identify the counties in the
order that are affected.
Ms. Blackburn. Thank you, sir. Mr. Chairman, I yield back.
Mr. Whitfield. Thank you. At this time, I will recognize
the gentleman from Washington, Mr. Inslee, for 8 minutes.
Mr. Inslee. Thank you, Mr. Rawson, and I am sorry I wasn't
here for your whole testimony. But I just wonder if you can
address this issue of using rollover funds. Apparently, there
is $365 million available, and I just wondered if that makes
sense to use that and what affect it would that have on other
potential recipients.
Mr. Rawson. Yes, that does make sense because, if the $365
million rollover funds, which is funding that is left over from
previous years, if that were used, it would not affect any of
the FCDLs or funding commitment decision letters, that are in
place now for the other applicants throughout the country, and
also future commitments that are under review at this point. It
would totally separate the Katrina window and the Katrina
window funding from what is not in process, and life goes on
for the rest of country.
Mr. Inslee. And forgive me for this layman question, but I
assume there are other potential recipients of those rollover
funds who would not be getting it because they went to the
Katrina relief effort. It is not a zero-loss situation, I
assume.
Mr. Rawson. Absolutely. If you take them from somewhere,
you know, somebody has got to give it up. But that is true, if
the funds are not used, then it rolls back into the general, or
to the--added to the $1.25 billion, so yes, that is correct.
Mr. Inslee. Okay. And could you give us any flavor for what
percentage other districts can anticipate reduction or foregone
receipts as a result of this relief effort through E-rate?
Mr. Rawson. The only way to do statistics is to know the
overall requests that will come from this, and we have no way
of knowing that at this time. But I would think, out of $2.25
billion available to commit, then what we are talking about
here would hardly be missed.
Mr. Inslee. By individual districts?
Mr. Rawson. That is correct.
Mr. Inslee. Okay. Now, this is maybe the--not the most
welcome question, but let me ask it anyway. Does it--if we want
to make this commitment to the Nation's system that are
benefited by the E-rate Program, is there argument that we
should really--instead of using E-rate funds for this, use
general appropriations out of disaster relief so that we don't
diminish, even to a small amount, the commitment to the other
function?
Mr. Rawson. I have been asked that question many times, and
my response has always been, yes we have FEMA funds, but there
are problems with FEMA, about delays in getting funding and
FEMA only pays a certain percentage after you take depreciation
into consideration. Then there is individual school district
insurance, the same thing there, depreciated value, the delays
in getting funding. We are trying to get these schools back in
operation now, or as soon as possible. E-rate, as convoluted as
some of you may think, it is still a clean process. And if we
can use the E-rate funds to get that small portion of the needs
of the school back in place, we could do that much sooner than
we can going through any of these other vehicles that we have
available. And speaking of all the billions of dollars
committed, I don't know about you, but I haven't seen an
armored truck yet go south with any money in it.
Mr. Inslee. So I may have missed this. You may have talked
about this. But do you have any kind of brackets at all about
the numbers we would be talking about to have sort of an
extraordinary response?
Mr. Rawson. The numbers of what?
Mr. Inslee. Of the amount that we would be putting in from
E-rate dollars to Katrina response.
Mr. Rawson. We don't know yet. We have done an assessment
of some of the damage, but we don't know what it is going to
cost to put those services back in yet. We know a lot about the
equipment, we know the connectivity they had, but we have not
done individual school site assessments of what it is going to
take to get them back to where they were before.
Mr. Inslee. And I will be happy if some of those E-rates
are used to provide people access to the NOAA site, from the
National Fluid Dynamics Laboratory that predicts a one-half
increase in intensity of hurricanes in the next several decades
due to global warming. So I will hope you will plug these
students into that, in fact, maybe some Members of Congress,
too. Thanks a lot.
Mr. Rawson. Well, actually, we have been doing that.
Mr. Whitfield. Thank you, Mr. Inslee. At this time, I will
recognize the gentleman from Oregon, Mr. Walden, for 8 minutes.
Mr. Walden. Thank you very much, Mr. Chairman. And I
appreciate our panelists today testifying on this very
important issue and, Mr. Chairman, your leadership on this
issue as well. As you know, this subcommittee, over the last 2
years, has investigated the E-rate Program. Some of you are
painfully aware of that. And we will be putting into the record
tomorrow in a meeting the report that is now in draft form
regarding the E-rate Program and concerns that we have. And
obviously, a lot of what we have found over the years in
investigating is just this lack of communication and maybe even
a relationship between the FCC and USAC.
I am a bit concerned, as I look at how this program was
rolled out, that it seemed to come out by press release first
with communication second. And I understand to a certain extent
the desire of all Federal agencies to step up and respond to
this very horrific hurricane and the tragedy that has ensued
thereafter, and to do everything possible and kind of cut
through the red tape to get things done.
But, Mr. Navin, maybe you can explain. How did the FCC come
up with the numbers that it came up with, $132 million that is
referenced in the news release? How reliable do you think that
number is it? Was that done in close coordination with USAC?
Why don't we start there.
Mr. Navin. We certainly obtained the historical data from
USAC, and what we did is we looked at the schools and libraries
in the disaster-affected area.
Mr. Walden. Right.
Mr. Navin. And based upon historical demand, under priority
two, we made the estimate of $132 million. But it is just an
estimate.
Mr. Walden. How confident are you in that number?
Mr. Navin. Again, I think, because of the cash management
system at USAC and the way we fund priority one and priority
two services, it would be difficult to specify today exactly
how much is going to be--you know, how much is going to be
requested. We make them eligible to request. We don't know----
Mr. Walden. Okay.
Mr. Navin. We know that it will not exceed the $2.25
billion cap.
Mr. Walden. Well, I would, yes, hope not, just in the wake
of Katrina. There are other schools out there in need as well,
and I guess that raises the next set of issues, which is, we
have been supplied with the letters USAC wrote to the
commission on, I guess, perhaps the 16th of September and then
again on the 21st, raising a lot of questions about--pardon
me--the FCC roll out of the news release, saying, here is what
we are going to do, and waive all these things. And then USAC
has come forth with a long laundry list of questions. And I
know you have already been asked about this to a certain
extent. Do you have answers for these yet?
Mr. Navin. What I can tell you for certain is that we have
reviewed those questions, and to the best of our ability tried
to reflect, in the order, answers to those questions.
Mr. Walden. Now, following the issue of the order, I
believe there was yet another letter from USAC detailing
additional issues of concern and questions. Before you issued
the order, does the FCC sit down with USAC and talk about this
stuff, or do you guys just share letters back and forth? How
does this work? Maybe, Ms. Zaina, do you want to talk about
that? What is this relationship?
Ms. Zaina. Sir, under these circumstances, as per the
Katrina situation, we were asked by the commission on September
1 and 2 to provide the commission with some data, which
included deadlines for the program----
Mr. Walden. Okay.
Ms. Zaina. [continuing] included recipients of the
program----
Mr. Walden. All right.
Ms. Zaina. [continuing] in the affected areas. And then we
became aware of the chairman's proposal on September 15, when
we were monitoring the open meeting, and on September 16, sent
the letter saying we have, you know----
Mr. Walden. A lot of questions.
Ms. Zaina. [continuing] ideas for you so that you can
consider them as you deliberate, as you move this proposal and
turn it from a proposal into an order. And because of the--
knowing that this wanted--this was something that the
chairman----
Mr. Walden. Right.
Ms. Zaina. [continuing] wanted to move quickly, we thought
it would be expedient if we were to provide a letter with the
list of issues that we have, hoping to have a discussion about
them. We did not have a discussion about the letter from
September 21 with the commission, but the September 28 letter,
sir, that you have mentioned, is a letter that was in response
to the commission's waiver deadline order, and we have had a--
we have had a couple of conversations with the commission
regarding that order, but we have not discussed the September
21 issues.
Mr. Walden. All right. I have only got a couple of minutes
here, so let me try and be brief. Mr. Navin, okay, the
commission says, in the wake of Katrina, we are going to waive
these rules and expedite this help to schools and lord knows,
they need the help. How about Rita victims? I mean, I hear from
people that there is a problem in Texas with schools. We know
the problems of hurricanes that have occurred in Florida. We
don't get many of them up in the northwest in Oregon,
fortunately, but all this will impact what is in the fund and I
assume delay other projects in other schools elsewhere. Does
this set a precedent that now it will be used, and how are you
going to deal with Rita victims? Has the commission reviewed
that?
Mr. Navin. Fortunately for the FCC, unfortunately for the
folks in Texas and western Louisiana, we were very well
prepared for Rita, and we started our outreach related to Rita
very early in the process. We called public safety answering
points and made sure that they had contingency plans in place.
We called all the carriers.
Mr. Walden. Right.
Mr. Navin. This was all before the disaster struck. We have
continued that outreach effort. We have continued the outreach
effort to western Louisiana----
Mr. Walden. Good.
Mr. Navin. [continuing] as well as to Texas. And I am sure
that there are individual carriers who have been----
Mr. Walden. But what about----
Mr. Navin. [continuing] harmed substantially, but we have
not--what I was just going to say is, to contrast the two
situations, in the wake of Katrina, we received letters from
several public officials in Louisiana, Mississippi, and
Alabama. In the wake of Rita, we did not receive similar
inquiries or similar proposals related to that.
Mr. Walden. You will after this hearing. But in all
seriousness, if you are waiving these rules and expediting the
application process and moving money around to deal with broken
schools or missing schools in Mississippi and Alabama and
Louisiana or wherever, I want to make sure I understand it. Are
you saying you are not expanding that to schools that are
similarly destroyed in the wake of Rita, or were there none?
Maybe there weren't any. I don't know.
Mr. Navin. Congressman Walden, what I can tell you is, if
someone brings a proposal to the FCC, or someone presents
evidence to us to show that that is a remedy that we should be
considering as it relates to Rita, I am sure that Chairman
Martin would deliberate that proposal and present it to his
colleagues. I can tell you that the order that they are
currently considering does not include disaster areas related
to Rita.
Mr. Walden. But wouldn't you say it sets a precedent for
similar areas that are similarly--I mean, nobody has been
similarly destroyed as in the wake of Katrina, but if you are
in Small Town, Mississippi and your school is out in the gulf
now, and you are in Small Town, Texas and your schools is
washed up the road somewhere, it is the same effect.
Mr. Navin. And perhaps the difference is, in the wake of
Katrina, the disaster was so widespread, some global order
resolving the situation for all schools was perhaps more
appropriate. The agency does have a waiver process for
individual circumstances, like the circumstances that you are
suggesting. So schools would be free to use that waiver process
to bring any damage or special circumstances to the
commission's attention.
Mr. Walden. Why couldn't they have used that waiver
process, then, if it is functional and effective in Mississippi
and Louisiana?
Mr. Navin. I think, because of the number of entities
involved, carriers----
Mr. Walden. Right.
Mr. Navin. [continuing] schools, customers, that it would
have been very difficult to use that waiver process, which is
really for individual or unique circumstances. And the
circumstances in the aftermath of Katrina were common among all
of these parties. So----
Mr. Walden. All right.
Mr. Navin. [continuing] it lent itself to a more global
resolution.
Mr. Walden. All right. Thank you, Mr. Chairman. I know my
time has expired.
Mr. Whitfield. Thank you. At this time, I will recognize
the gentleman from Mississippi, Mr. Pickering, for 8 minutes.
Mr. Pickering. Thank you, Mr. Chairman. I want to welcome
Mr. Rawson from Mississippi up here, and all the panel. And I
do want to put everything into context, that we need to have
these schools rebuilt, and a critical component of that is the
communications capabilities, the Internet access; of having a
good functioning school in an area that has been devastated,
that lost its critical infrastructure; that lost, in many of
the schools, not only the school buildings, but all the
documents. And so what we are talking about today is very
important. People will come home when they can send their
children to school. Rebuilding their school needs to be a
critical first priority. There needs to be a sense of urgency
about it. It is appropriate, in times of crisis, to waive rules
that make sense in normal circumstances, but do not make sense
in a crisis circumstance and disaster.
The second context is that you need to coordinate and
communicate with the people most affected, as you develop your
rules or your waivers, or we find a more streamlined way to get
help to the schools in the rebuilding effort, but to do it in a
way that you maintain the accountability standards. And I think
that we can achieve those things, and I want to talk to Mr.
Rawson, and then the other members of the panel, to see what is
the most effective way for us to achieve these objectives.
Mr. Rawson, since Katrina, have you had any communication
coordination from the FCC or from any other Federal entity, as
it relates to your proposals on E-rate?
Mr. Rawson. No, I have not.
Mr. Pickering. No communication?
Mr. Rawson. No direct communication from them. We have
submitted a proposal to them, which you have a copy of, but
nothing from them coming back to us.
Mr. Pickering. Okay. No one initiated communication with
you, and no one has responded to your communication to them?
Mr. Rawson. That is correct.
Mr. Pickering. That is correct. And this is a disaster, and
we have an urgency here, and it is unacceptable not to
communicate and not to coordinate with the most affected
parties first. Do you think that the FCC estimate of $132
million is accurate, is inaccurate? What are the needs based
on, the schools in Mississippi, and as you talk to your
colleagues in Louisiana and Alabama?
Mr. Rawson. We don't know what the accurate figure would
be. It would take a considerable amount of assessment at the
individual schools to see what they had before and what they
need now, and there is so many variables, temporary services,
the kids moving to another school, will they come back? There
are many, many variables involved. We cannot put a dollar
figure on it now.
Mr. Pickering. My understanding is that the $132 million
estimate is based on last year's applications, is that correct?
Mr. Rawson. I believe it is.
Mr. Pickering. Now, $132 million is based received
applications, based from in a stable situation with whole
schools, under normal circumstances. I would assume that the
$132 million, when you have lost everything, is not an accurate
projection. Would that be a fair assumption, Mr. Rawson? So you
would say that the needs would probably be greater than $132
million?
Mr. Rawson. I would expect, me, I would say that I would
expect $132 million for the three States would not be enough.
One factor about the estimate that was provided, that is a
verifiable number and that is a good thing. We always want
verifiable numbers. But the variable to that is, there were
many schools, especially along the coast and various other
places, that did not apply for internal connections last year
because their discount was too low. Or it could be, you have a
90 percent school in central Mississippi that was destroyed.
They didn't apply for internal connection last year because
they already had what they needed. The wiring is in place, the
equipment is in place. So last year's application figures
really have nothing to do with what it is going to take to put
those schools back starting from zero.
Mr. Pickering. Now, the underlying service providers,
BellSouth, the other regional communication companies, they
have had their complete infrastructure wiped out, is that
correct?
Mr. Rawson. That is correct.
Mr. Pickering. And the capacity of what they have been able
to restore, on a percentage basis, is still very low,
especially in the coastal counties along Mississippi.
Mr. Rawson. That is correct.
Mr. Pickering. So to have comparable capability to what you
had prior to Katrina is going to require significant
investment, not only from the private sector, but for the E-
rate to give functional equivalencies to your schools, is that
correct?
Mr. Rawson. That is correct.
Mr. Pickering. Before--Mr. Navin, before the FCC revises
its estimate, it seems to me that you should talk to the
affected people in Mississippi, Louisiana, and Alabama, before
you can make accurate projections so that we as policymakers
know what is going to be needed to help rebuild the
capabilities that existed prior to Katrina.
The other thing is that the failure to communicate and
coordinate shows a lack of urgency. Now, I have been dealing
with FEMA a good bit, and I can tell you that the people in the
States are very frustrated because it takes so long to get what
is needed, because you have to go through so many regulatory
red tape, bureaucratic hurdles. And I would hope that the FCC
would want to take lessons learned from sister agencies and try
to streamline this process as quickly and as effectively as
possible, while maintaining accountability. But let us get help
to the people in a quick way, in an effective way, without a
lot of red tape, so that these schools can get up and running
and that the parents will bring their--not only their families
back, the children back to the schools, but the economy of
those regions. The economy needs the parents for the jobs, and
the parents need the schools for their children, and we have
got to do both.
Three hundred and sixty-five million dollars now exists in
a rollover fund, is that correct? Would it make sense--if we
are trying to do this quickly, would it make sense to send that
directly to the affected States, to an appropriate entity,
whether it is the E-rate coordinators or to the State
Departments of Education, and let them spend it as quickly as
possible without all the red tape? Mr. Rawson? Or some portion
of that $365 million. It wouldn't compete with any other
States, but we could take the $365 million or some number that
people can agree to, whether it is $132 million or $200 million
or $250 million or $300 million, send it to the States that are
affected, send it to the State Departments of Education or the
E-rate coordinators, and let you all certify, do your
accounting, your documentation, with FCC consultation, but let
us cut to through the red tape, get the money and let you
rebuild your school and hook up to the Internet. Would that be
quicker? Wouldn't that be better?
Mr. Rawson. It would be quicker. The oversight, the
management of that would be a significant and a tremendous
burden on the State to do so. Then the other part you have to
consider is making sure you don't make it competitive between
the States or among the States; that is fair to all the
entities that were involved. So there would be some issues, but
I will be honest with you, I thought I thought of everything,
but you floored me on this one.
Mr. Pickering. If we did it that way, who would do the
oversight? Who would do the monitoring so that everybody in the
country could say, this money went quickly, it went
effectively, but there was no fraud and abuse? Who would do the
backend accountability under that proposal?
Mr. Rawson. If you keep it under the guidelines of the
current system, as far as electrical service is concerned and
what is eligible for E-rate discounts, then there would have to
be a mirroring between the State and FCC and USAC. We
couldn't--I don't think we could divorce ourselves from that.
What good is it to steal E-rate funds? But as far as oversight
of managing the funding and who is eligible and how much they
get and what they replace, then the States could do that. They
could certainly do that.
Mr. Pickering. Would it be quicker, then, to, through the
next supplemental appropriation bill, take from the $365
million, give it to the States, but do it based on current FCC
guidelines and standards, and FCC accountability at the end?
Mr. Rawson. It would be quicker, but what is the audit
process in the back of that to make sure the funds were used
appropriately?
Mr. Pickering. That would give you both----
Mr. Rawson. Yes.
Mr. Pickering. [continuing] quick, efficient, compassionate
release of the funds, with accountability assured by everybody.
Mr. Rawson. Correct.
Mr. Pickering. Thank you, Mr. Rawson.
Mr. Whitfield. Thank you, Mr. Pickering. Your testimony and
the questions asked, I am sure, raised some additional issues
with members of the panel. And so, Mr. Inslee, would you have
any additional questions you would like to ask at this time?
Mr. Walden, do you have any additional questions?
Mr. Walden. I do, Mr. Chairman.
Mr. Whitfield. You are recognized for 5 minutes.
Mr. Walden. Mr. Chairman, I would like to ask a question of
Mr. Feaster. In your discussion, in your testimony here, sir,
page 15, you talked about this process and the audits, and you
know that is obviously something this subcommittee has been
very interested in over the last couple of years since we have
done our investigation, and I wonder if you can detail for me,
what was it that caused Chairman Martin to put a halt to the
contracting process when he took over? Because, you know, there
had been discussions before this subcommittee about how this
was online and ready to go and all of that. Can you speak, or
maybe Mr. Navin can, as to why?
Mr. Feaster. What I was told during that, the 3-month
process that was held, it was under review by the chairman's
office. Then I was later presented with a memorandum from the
general counsel's office that listed some problems they had and
concerns that they had with the regional procurement.
Mr. Walden. Is there not a procurement process in place----
Mr. Feaster. Well----
Mr. Walden. [continuing] for this sort of contracting?
Mr. Feaster. This was, as we keep referring to it as three-
way, is between----
Mr. Walden. USAC.
Mr. Feaster. [continuing] my office, USAC, and a
contractor. And USAC's process does not exactly duplicate the
FCC's procurement----
Mr. Walden. I see.
Mr. Feaster. [continuing] process. And you may want to ask
Lisa, again, if she agrees with that or not.
Mr. Walden. Do you agree with that?
Ms. Zaina. Congressman, I am not completely familiar with
our procurement process. All of the steps that we take, we try
to follow as many of the procurement process. And for instance,
in the FAR requirements, as the Federal acquisition
requirements, as we can. So we mimic that, in a sense. And I
understand, from what I hear Mr. Feaster saying, possibly, is
that there were bidding issues regarding the involvement of the
FCC as per the FCC and not necessarily in the process itself. I
don't know if that is what I am hearing or not.
Mr. Walden. Mr. Navin, can you speak--is it Navin or Navin?
I am sorry.
Mr. Navin. Navin is the actual correct pronunciation.
Mr. Walden. Navin.
Mr. Navin. But one of my ancestors determined to turn to it
to Navin for some reason.
Mr. Walden. Oh, so it doesn't matter.
Mr. Navin. So it won't sound like an Irish name.
Mr. Walden. Yes, all right. Can you speak to this? I am
just perplexed. I mean, that was several months ago. We have
been pushing hard, as you know----
Mr. Navin. Sure.
Mr. Walden. [continuing] about getting these audits going.
This is a program that has what, $2 billion-plus allocated
every year and 158 audits. That is about 20 a year that get
done. And 34 percent of them, according to your own data, show
there is problems. I mean, we have had recoveries of $30
million or something. What is the hiccup?
Mr. Navin. Well, much of this occurred before I came into
my current position.
Mr. Walden. All right.
Mr. Navin. I started in May of 2005, thereabouts. It is my
understanding that the memo that was presented to Inspector
General Feaster was--those concerns were memorialized in a memo
fairly recently, but that the concerns were raised sometime
earlier in the process. So that very well may explain why it
got held up.
Mr. Walden. And when was that? When was it held up, Mr.
Feaster?
Mr. Feaster. Well, March through----
Mr. Walden. June?
Mr. Feaster. Later than that. Actually, the memo was dated
August 16, I believe. So it was being held at least until that
period.
Mr. Walden. When did that process start to recruit an
auditor among the three of you? How long does this take to get
done right? I mean, I am starting to feel a little frustrated.
Mr. Feaster. The answer to that question is 90 days. That
is the choice we made, thinking that----
Mr. Walden. I know, but how far back does this go? When did
you start this three-way audit process under the prior
chairman?
Mr. Feaster. It was 2004.
Mr. Walden. When in 2004?
Mr. Feaster. The spring, late spring, I believe.
Mr. Walden. Do you see why I am frustrated----
Mr. Feaster. Yes, sir.
Mr. Walden. [continuing] and why this committee is?
Mr. Feaster. I am frustrated, also.
Mr. Walden. I mean, I am not up here to preach at you, but
you know, this stuff is hard to explain at home, it really is.
Mr. Feaster. I understand that.
Mr. Walden. And you know, to have started just figuring out
how to get an auditor hire, the contract, in the spring of
2004, it is October of 2005 and you are telling me it is 90
days 3 months from now, right?
Mr. Feaster. As we have said several--as I have said
several times to the committee, we had to go through a second-
best process. I have said on several occasions, that we need to
do, aggressive oversight, is direct access to the USF, the
fund.
Mr. Walden. And I don't disagree with that and----
Mr. Feaster. And somehow keeps not happening each year.
Again, in 2006, it was eliminated from our budget request.
Mr. Walden. By the Congress?
Mr. Feaster. By the Congress, yes, sir. And that forced us
into a little convoluted situation with the development of this
three-way plan.
Mr. Walden. My time has expired. Sorry.
Mr. Whitfield. Mr. Pickering, do you have an additional
round of 5 minutes?
Mr. Pickering. I do. Mr. Navin, if we wanted to the regular
order, when would the $211 million announced by the
commissioner, the chairman, when do you think that that order
will be done, and the rules for establishing a Katrina fund and
the processes by which that is going to be done, when do you
think that will be complete at the FCC?
Mr. Navin. As I mentioned before, the order, some of the
finer details of the order are still being debated among the
chairman and his fellow commissioners. So I don't want to give
a specific time period. What I can tell you is, we are late in
the process. We have dotted many I's and crossed many T's, but
at the same time, for me to set a specific period of time would
really infringe upon their deliberative process and I don't
want to do that today.
Mr. Pickering. Two weeks, 4 weeks, 6 weeks? A frame of
reference that----
Mr. Navin. I personally would be--given the speed with
which we put the order together, given the speed with which the
chairman and his colleagues were able to come to a unanimous
consensus on agreement in principle, which in part explains why
there was not a lot of back and forth with Mr. Rawson, was
because the four commissioners, or the three commissioners and
the chairman agreed with his position. So hopefully you will
see that reflected in the item. But I think that we are very--
we are close.
Mr. Pickering. And so once that order is completed and is
close, then the schools in the States would apply, and you
would see disbursements by when?
Mr. Navin. I think I defer the disbursement question to Ms.
Zaina. But I can tell you that the order will be effective upon
release, if the Office of General Counsel allow us to do that.
Mr. Pickering. Ms. Zaina? So once they did their order, how
long would it take you to help the schools in Mississippi?
Ms. Zaina. Mr. Pickering, we want to be able to disperse
those funds as quickly and efficiently and as effectively as we
can, with a mind toward program integrity. And I have not had
an opportunity to review anything beyond the press release from
the chairman on September 15. So questions about eligibility,
programmatic aspects, and implementation are critical for us to
be able to answer and have answered, and I was very pleased to
hear Mr. Navin say that they took our September 21 letter and
they worked very closely from it, in order to establish and
craft an order based on this. But decisions made on those sorts
of things, programmatic, the eligibility, and implementation
issues are critical for us to be able to move this money out to
the people who are in the greatest need.
Mr. Pickering. If we were to do a supplemental
appropriation in the first 2 weeks of November, do you think
that you all will have the program up and running and
dispersing funds by the first 2 weeks of November, given where
you are in the regulatory process, and given what you need for
program integrity?
Ms. Zaina. Mr. Pickering, it would depend on, first of all,
what the details of the commission's proposal is, because we
can't make policy. That is something USAC can't do. What we do
is administer the program. So the commission would first have
to make the policy, we would first have to understand what that
policy is, and then we would be able to craft something to
disperse those funds.
Mr. Pickering. Let us say the FCC complete its work in 2
weeks, so you have your policy guidelines within 2 weeks, would
you then be able to disperse to the people and the schools in
Mississippi before Thanksgiving?
Ms. Zaina. I can't answer that question, Mr. Pickering,
because I don't know if all of the answers have been given to
the questions we raised for purposes of deliberation of the
commission.
Mr. Pickering. You know, this--Mr. Chairman, this is the
same type of answers we get on getting our people help through
FEMA, and it is just--and there is nothing wrong with the
current process or the current agencies. Good people and a good
process in normal times. But the Federal Government and rapid
response don't go together. And so that just creates a lot of
frustration for people who need immediate help to rebuild their
communities. And the communities all along the Mississippi
coast, the Gulf Coast, they don't have any tax base. It was
completely wiped out. And so they are going to have to depend
on getting the Federal resources to rebuild our infrastructure,
schools, highways, and our communication capability. And what
we are trying to do is to have some degree of certainty as to
when this is going to happen so that we can plan the
rebuilding.
And so I hope that you all would all coordinate closely
together, the policy side, the administrative and implementers
of the policy, and the recipients and those who are going to be
doing it at the local and State level. And that coordination
really needs to be improved. I appreciate the commissioners'
quick announcement in trying to move this regulatory process.
But if we could have better coordination and greater certainty,
that helps the emotional well-being as well the recovery of the
people most affected, and I would urge you all to do that.
Mr. Whitfield. Mr. Pickering, thank you very much. And I
would, after listening to all of this today, one thing that is
clear is that all of us have the best intentions, but we know
that the school systems in Mississippi, Alabama, and Louisiana
are now going to be rebuilt without assistance from this
program, and not going to be reconnected. And I think Chairman
Martin acted with all good intentions, but I think it is very
clear from this hearing today that there has been--there is no
final order. We don't know when the final order is going to be.
There has been a lack of communication between the FCC and
USAC, and vice versa, and certainly there has been a lack of
communication between Mr. Rawson, as the contact person for the
government of Mississippi, and I guess he submitted a report
and request for Alabama and Louisiana as well.
And so despite all of these good intentions, it appears
that we are not very far down the road when it comes to really
offering relief to the needed school systems, and recognizing
that some of the schools have already been destroyed, some of
them are in makeshift schools, temporary schools, where they
are meeting now, and I recognize the complexity of the issue,
but it is quite clear from the hearing that we are a long way
from delivering much of anything, to be truthful about it. And
I would hope that within the next 2 weeks, that Chairman Martin
and others, Mr. Navin, maybe you could get this information to
them, that we would like an opportunity, Mr. Pickering and
others on the Oversight Committee, and other affected members
on the Energy and Commerce, to have a meeting and maybe you all
could give us a more precise update on what is taking place,
when do we expect some action on it? So if you all would take
that back and get back in touch with us, we would appreciate
it.
I would also say that we are going to leave this record
open for 30 days. Mr. Stupak may have some additional
questions. We found out that there was an avian flu briefing
going on by Secretary Leavitt. It started at 3:15 and he had to
get up for that. So we are going to leave it open for any
additional questions that someone may have for the panel.
And I do thank you for being here. We appreciate your
sincerity, and I think you would agree with us that we are a
long way from being very effective at fulfilling the commitment
that we have made to the people and school children of
Mississippi, Louisiana, and Alabama.
With that, the hearing is adjourned.
[Whereupon, at 4 p.m., the subcommittee was adjourned.]