Feds hold E-Rate funds hostage

Schools in limbo

The Feds have clamped down on distributing funds intended to equip schools and libraries with Internet connections, as they scramble to correct a long corrupt program.

Word dropped this week that the US FCC (Federal Communications Commission) has applied tighter accounting policies to the E-Rate program. More than $1bn in funds have been held hostage as a result of this move. This means that schools and libraries already suffering from a series of government and private industry cock-ups will have to wait on Internet and telecommunications technology needed to bring them into the 21st century.

The E-Rate program started in the mid-1990s under the Clinton administration. It takes money raised from taxing consumer phone lines and puts it toward public communications upgrades. Cities apply for E-Rate grants and then have a specific window of time in which to spend the money.

The FCC is now asking Universal Service Administrative Co. - the nonprofit that oversees E-Rate - not to make any additional grants until it has free cash. This will require the firm to wait for monthly fees from telcos to roll in before new projects can be launched. Universal's cash pile of $3bn is already assigned to current projects.

Waiting on the monthly fees could seriously slow how cities plan for different technology rollouts.

The accounting changes come as the Feds try to pause the distribution of funds for what has been a grossly mismanaged fund. A string of no-bid contracts were discovered here in Chicago, along with failures in using E-Rate funds that could see the city forfeit $50m. In addition, IBM and other firms have been blamed for offering kickbacks to schools in exchange for E-Rate contracts.

The Senate Committee on Commerce, Science, and Transportation will be looking into E-Rate tomorrow during a hearing. ®

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