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Lawmaker Wants to Ax E-Rate Program

U.S. Rep. Tom Trancredo (R.-Colo.) has introduced legislation (H.R. 1252) to terminate the Federal Communications Commission's (FCC) E-Rate program, the $2.25 billion fund designed to help schools and libraries connect to the Internet and financed by fees added to consumers' telephone bills.

Following the passage of the 1996 Telecommunications Act, telecoms were faced with the burden of finding a way to cover the costs of providing discounted services to schools and libraries. The telecoms convinced Congress was to pass the cost off to consumers by levying a surcharge in the form of a universal service fee on telephone bills.

Trancredo said the E-Rate is an "unfair, unauthorized tax" imposed on the American people.

"This surcharge amounts to nothing more than an additional hidden tax on the already overtaxed American people," Trancredo said.

Trancredo also pointed to alleged waste and abuse in the program.

"The e-rate is currently under investigation for waste, fraud, and abuse by the U.S. House Energy and Commerce Committee in addition to at least 30 federal and state investigations involving the use of E-Rate funds. These investigations are a testament for the need to eliminate this program," he said.

On March 14, Billy Tauzin (R-La.), chairman of the House Energy and Commerce committee, and Oversight and Investigations Subcommittee Chairman James Greenwood (R-Pa.) sent letters to the FCC, which has E-Rate oversight authority, and the Universal Service Administration Company (USAC), which actually administers the program, seeking information related to program funds, management and oversight.

The letters followed a January report by the Center for Public Integrity, a Washington-based non-profit "public service journalism" organization, claiming the program was "honeycombed" with fraud. The center's study is based on two FCC audit reports and independent interviews.

The FCC audits have discovered abuses ranging from simple paperwork and reporting errors to false billing and other fraud potentially involving hundreds of millions of dollars.

"Although the FCC and the USAC appear to have been taking positive steps to improve program oversight and auditing of fund disbursements, we are concerned that such efforts may not address the full extent of any problems," Tauzin and Greenwood write. "We come to this conclusion because we have learned that, to date, there has not been a systematic audit of the full program since its inception six years ago."

The E-Rate program is based on a competitive bidding process, and the fund's top service providers include IBM, SBC, Verizon, Bellsouth and Qwest. In December, USAC officials began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.

"If states and telecommunications companies believe that a program to subsidize internet capabilities is still necessary, they should fund it themselves rather than passing the cost along to hard-working, over-taxed Americans," said Trancredo.