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Press Release

    E-Rate: Prepared Statement of Kent Lassman before the Commerce Committtee's Subcommittee on Telecommunications, Trade, and Consu

    09/30/1999

    Introduction

    "For every old blackboard there are now hundreds of new electronic computers." So said President Dwight Eisenhower in his televised farewell address on January 17th, 1961. Of course, this speech is more famous for Eisenhower’s warning to "guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex."

    His early recognition of the growing role that technology might play in education seems even more relevant 38 years later, and informs the on-going policy debate about the E-Rate. And to paraphrase President Eisenhower’s earlier warning about government power, today we would do well to guard against the acquisition of unwarranted influence over the technology in our lives by misguided – albeit well intended – regulatory policy.

    Mr. Chairman, and members of the Committee, thank you for the opportunity to share my views on the E-Rate and public mechanisms to subsidize telecommunications services. I present these views on behalf of Citizens for a Sound Economy (CSE) Foundation’s members. At CSE Foundation, I am the deputy director for technology and communications policy.1

    More than a quarter of a million strong, CSE Foundation’s members are in every corner and congressional district of America. Our members distinguish themselves as policy activists. They constantly remind us that decisions made in Washington, D.C. are felt in places far away from here. And that is where CSE Foundation can be found. We fight at the grassroots level for lower taxes and less economic regulation. CSE Foundation members are also consumers. They understand from their own personal experiences how markets and competition – not government regulations – enable individuals to make better decisions about the products and services they want and need, including telecommunications services. Public policies we are here to discuss today should seek to increase, and not limit the choices, control, and information available to consumers.

    The E-Rate, and the taxes collected from consumers to support it, have long been interests for CSE Foundation. At the most basic level, the E-Rate is a part of a complex wealth transfer system where the units of value are telecommunications services. The E-Rate is based upon a policy that takes from one consumer in order to give to another consumer; the effect is to distort the marketplace and to be inherently unfair.

    The legislation before you today, H.R. 1746, correctly identifies a problem but presents a solution that would be – at best – a marginal improvement over the current situation. More likely, it would result in an unfunded entitlement that might actually limit opportunities for America’s children to learn from, and by, using technology.

    The Problem

    Too often policymakers take action based on the following premise: If not for government action – a new program, a new law or subsidy – an essential public need will not be met. This premise does not apply to the infusion of technology and telecommunications into American education programs.

    One week ago, on the 23rd of September, the Associated Press ran a story about a report featured in Education Week that detailed the prevalence of technology in American schools. All told, there are 5.7 students per instructional computer. 71 percent of our schools use the Internet in a classroom. It is simply incorrect to claim that computers and Internet access are not available to our students.

    Despite its overwhelming size and the speed by which the E-Rate has grown, growth of technology in the classroom has not been the result of this federal policy. Looking forward, it is more likely that local administrators and teachers working with parents and the local community will make the decisions for what will work in their schools. This suggests that any subsidy program should have clear goals and should be phased out upon their completion.

    A second problem with the E-Rate subsidy is that it does not address a critical – one might argue the most critical – aspect of education reform. If the promise of America’s future is in her children and their preparedness for the social, economic, and international challenges of tomorrow, then we would do well to provide the tools that they will need. Unfortunately, the E-Rate subsidizes the tools that are easy to provide – not necessarily the tools that would most add value to our students, society, and economy.

    Technology has wrought great change in America. An extensive review of these changes would not surprise or necessarily inform the members of this committee. Our jobs, workplaces, leisure, education, and social networks have responded to the advances of information technology.

    However, some things do not change. As much emphasis as we place on what is new and novel, we should also focus on education fundamentals. Can all of our children read? Do young people have sufficient writing and logical thinking skills? Are our schools teaching children to learn how to learn? And most important to the discussion before us today, is a federal subsidy for telecommunications services the best use of our resources? Can a computer or an Internet connection teach a child the habits of the mind to understand basic mathematics and science? Will tomorrow’s workers know how to communicate and think as a result of a new technology subsidy system today?

    I suggest to you that a computer is a poor substitute for concerned parents; a computer is a poor substitute for well-trained and caring teachers; an Internet connection with high-speed web access is of little good to a child that cannot read at a basic level.

    And if the recommendations that I present today are too challenging, consider the following thought experiment to help guide your decisions. Would it be better provide your own child with a mastery of today’s technologies without the skills that permit learning the next set of technologies? Or, would it be better for your daughter, or your son, to have the skills to maximize her own, or his own, flexibility in the workforce and in society?

    Obviously, it is the latter. Children must be taught how to think critically, to learn on their own, and to communicate with others. Technology can augment this process. It is not however, a stopgap or substitute for something else entirely, namely a basic education. The skills most attractive to employers are not centered on web-browsing. For example, computer programming requires a solid foundation in analytical skills – basic mathematics and science.

    A federal subsidy program for telecommunications services is the wrong way to address fundamental education reform.

    Principles for Reform

    All of universal service, and in particular the E-Rate program, is in need of a comprehensive overhaul. Following are a handful of principles to guide any such effort.

    It should be Constitutional. The 1996 Telecommunications Act did not give the Federal Communications Commission (FCC) the power to establish or increase taxes. In fact, had the act attempted to delegate that power, it would be clearly unconstitutional.

    A power delegated in the Constitution cannot be re-delegated. This is the starting point of a legal theory called the non-delegation doctrine. The non-delegation doctrine is not a musty relic from history. On May 14th, 1999 the 10th Circuit struck down air quality regulations promulgated by the Environmental Protection Agency (EPA) on the basis that the agency was implementing regulations not expressly approved by Congress. In American Trucking Association v. United States Environmental Protection Agency2 the court held that without a clear standard from Congress, the EPA could not constitutionally create and mandate rules and regulations. This need for a clear statutory standard is consistent with Supreme Court decisions such as Industrial Union Department v. American Petroleum Institute3and J.W. Hampton v. United States.4 As in these cases, there is no clear statutory standard by which the FCC can create or increase taxes to fund the E-Rate program. If Congress does not administer the E-Rate, then it is imperative that a clear statutory standard is established to provide guidance to, and legal authority for, the its implementation and administration.

    While the Supreme Court has not ruled on the question of a clear statutory standard for the E-Rate, a hint of the Court’s opinion might be gleaned from the opinion in AT&T Corp. v. Iowa Utilities Board.5 Justice Scalia, writing for the majority, declared that "It would be gross understatement to say that the Telecommunications Act of 1996 is not a model of clarity. It is in many important respects a model of ambiguity or indeed even self-contradiction."

    It should be limited. Federal support programs for telecommunications services should be consolidated and limited. The General Accounting Office has identified 40 subsidy programs to support telecommunications services. In addition, section 254 (h) (B) of the 1996 Telecommunications Act requires a discount to be provided to schools, libraries and the like for the services of a telecommunications provider. The current administration of the E-Rate is not limited to telecommunications services as contemplated by the law. Finally, reform of the E-Rate should include a sunset provision for the program. Without such a measure, the E-Rate will become an entitlement that hides and distorts budget decisions in local school districts.

    It should be targeted. A subsidy for the needy – students, rural health facilities, or local libraries – should be targeted to those in the most need. Pressure to better target the federal largesse of the E-Rate will grow as limits to the size, scope, and duration of the E-Rate are implemented.

    It should be transparent. Section 254 (b) (5) of the 1996 Telecommunications Act requires that universal service programs adhere to a principle of specific and predictable support mechanisms. Section 254 (e) of the 1996 Telecommunications Act requires all subsidies to be explicit. As a result, any reform to universal service – including the E-Rate – must rely upon a predicable source of revenue that is collected in an open manner from consumers. The current mechanisms to fund universal service do not meet this minimal standard. An improvement to this standard would be to require that in addition to making the costs associated with universal service explicit, the benefits (and beneficiaries) of universal service subsidies should also be made clear to consumers.

    It should be performance-based. Funding for the E-Rate should be directly linked to the performance of the program. This simple guideline would create an incentive to limit wasteful spending. If students were to learn more through additional appropriations for the E-Rate, then the program would likely thrive. If, however, students did not fare better despite extravagant expenditures for E-Rate funding, then America would be best served by spending those precious dollars on a more effective education program. In addition, this principle creates a means through which the merits of the program – if they exist – will be justified by an honest taxpayer assessment.

    A significant problem with funding a government program through an excise tax – either alone or funneled through a trust fund – is that it divorces the results of a program from the source of the revenue. Consider that as consumers spend more money on telecommunications services the amount of funding for the E-Rate will continue to climb regardless of need or efficacy of additional revenues.

    An assessment by taxpayers – most often through the Congressional oversight process – requires objective measures of success. Currently, we measure the amount of money that goes into the E-Rate program. However, it would be more helpful to know how much of the multi-billion dollar E-Rate program makes it into the classroom versus being spent on administrative costs. Is web access as good of a teaching tool as a local area network run by teachers trained in HTML? Does this question produce different answers at different grade levels? These questions, and not numbers about the quantity of applications for federal aid, would do more to help understand the merit and performance of this federal subsidy. In turn, better information about the performance of federally funded program can translate into a better use of scarce resources.

    Reforming Reform: H.R. 1746

    Common wisdom suggests that unless Congress, or the FCC, steps into the marketplace with a tax and regulatory system then our schools, libraries, and rural health care providers will not have adequate telecommunications services. If that were true, and if a federal subsidy were introduced, then we would certainly attempt to design the most efficient system to administer that subsidy. H.R. 1746 is a step toward a better subsidy system that the current E-Rate program. However, this proposed legislation can be significantly improved.

    The principles outlined above should guide any effort – including the development and refinement of H.R. 1746 – to reform the E-Rate program. Following are only a few examples of where this legislation can be improved.

    People use the Internet. Students, library patrons, and rural health care professionals are not the direct beneficiaries of the E-Rate. H.R. 1746 would make resources available to states, not to schools and certainly not to students. The closer a subsidy is moved to the ultimate beneficiary, the better and more accountable the subsidy system.

    The sunset provision in H.R. 1746 is very important. It, however, could be improved by repealing the remainder of the federal excise tax on telecommunications at the same time that the proposed trust fund expires. This excise tax was introduced to fund the Spanish-American War. The war lasted approximately three months and ended more than 100 years ago. It is time to get rid of this tax.

    By definition, a program funded by an excise tax is poorly structured. The excise tax – a tax on talking – should be repealed and the E-Rate should be funded out of general revenues. This structural change to H.R. 1746 would strengthen the proposal to reform the E-Rate.

    A criterion such as "living in a sparsely populated area" is not the same as an area in need of a subsidy. For example, some rural areas may be served by wireless telecommunications services at a lower cost – and therefore lower need for subsidy – than traditional landline services. A change of perspective from rural to high-cost would better target the resources made available by the E-Rate program.

    H.R. 1746 sends unexpended balances in the trust fund to the general treasury. At the same time, consumers are led to believe that the telecommunications taxes that they pay are putting computers in a classroom. Taking money for one purpose, putting it in a trust fund, and then spending it on another purpose is not good public policy. It is dishonest. Instead, any subsidy program should be funded out of general revenues, where it would have to compete with other priorities. If this change is not made, at the very least, unexpected balances should be returned to taxpayers, and not shifted into an already-bloated federal budget.

    Conclusion

    This impetus behind H.R. 1746 is well-intentioned. The current E-Rate is a case study in government waste, fraud, and abuse. However, the proposed reforms contained in this legislation should not go forward without substantial improvement based on the principles outlined above..

    As we move forward, I trust that we will heed the warning of President Eisenhower to "guard against the acquisition of unwarranted influence, whether sought or unsought."

    Thank you.

    Permission to reprint or quote from, in whole or in part, is expressly given provided Citizens for a Sound Economy Foundation and the author are credited.

    1CSE Foundation does not receive any funds from the U.S. Government.

    21999 WL 300 618 (D.C. Cir. 1999).

    3448 U.S. 607 (1981).

    4276 U.S. 394 (1928).

    5119 S.Ct. 721 (1999).