[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
FUNDING MECHANISMS OF THE ``E-RATE''
PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
AUGUST 4, 1998
__________
Serial No. 105-108
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
63-683 WASHINGTON : 2000
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Oversight
NANCY L. JOHNSON, Connecticut, Chairman
ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
PHILIP S. ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Page
Advisory of July 24, 1998, announcing the hearing................ 2
WITNESSES
Federal Communications Commission:
Hon. Harold Furchtgott-Roth, Commissioner.................... 48
Christopher J. Wright, General Counsel....................... 65
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 14
Tauzin, Hon, W.J. (Billy), a Representative in Congress from the
State of Louisiana............................................. 10
Weller, Hon. Jerry, a Representative in Congress from the State
of Illinois.................................................... 8
SUBMISSION FOR THE RECORD
American Association of Educational Service Agencies; American
Association of School Administrators; American Federation of
Teachers; American Library Association; American Vocational
Association; Consortium for School Networking; Council of Chief
State School Officers; International Society for Technology in
Education; National Association of Elementary School
Principals; National Education Association; National Education
Knowledge Industry Association; National Grange; National Rural
Education Association; and National School Boards Association,
joint letter................................................... 84
FUNDING MECHANISMS OF THE E-RATE PROGRAM
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TUESDAY, AUGUST 4, 1998
House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:10 a.m., in
room 1100, Longworth House Office Building, Hon. Nancy Johnson
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
[GRAPHIC] [TIFF OMITTED] T3683A.001
[GRAPHIC] [TIFF OMITTED] T3683A.002
[GRAPHIC] [TIFF OMITTED] T3683A.003
Chairman Johnson of Connecticut. Good morning, and welcome.
Today, the United States is the most technologically
advanced country in the world, and it's our responsibility to
assure that continued technological strength. Since our
children are our future, we must ensure that they are given
every opportunity to thrive in the technology-driven global
economy.
As Congress has acknowledged, the best chance to teach the
most children the needed technical skills is to reach them in
primary and secondary schools. Congress recognized this when we
passed a provision in the Telecommunications Act of 1996 which
provides advanced telecommunications services, at discount, to
schools and libraries so that they can bring the most current
technology to their communities, at affordable prices. This
provision is now known as the e-rate program. Every school, in
rich districts and in poor, in cities and in remote rural
areas, should have access to the Internet and to the other
services that will increase the technical skills of its
students. I support the goals of the e-rate program, and I
believe that everyone on the subcommittee supports that
program's goals.
We are not here today to discuss the e-rate program's
purpose or goals. Rather, we are here to discuss how the e-rate
program is funded. We are focusing on this narrow issue because
it, separate and independent from the e-rate program, has very
significant implications for us as policymakers, as members of
Congress that have struggled hard to balance the budget, and as
many members who oppose tax increases.
When the drafters of the Constitution established the three
branches of government, they carefully delineated the duties
and powers of each branch. Congress, and Congress alone, was
entrusted with the power to levy taxes. Congress should not and
cannot delegate the authority to levy taxes.
That being established, we are here to determine whether
the e-rate program, as implemented by the FCC, is a fee or a
tax, because if it is, indeed, a tax, it has not been levied by
Congress, but by an executive branch agency; and, therefore, is
illegal.
A fee is a voluntary payment, or benefit conferred, on the
payor. And the amount of the fee paid correlates with the
benefit received. For example, campers often pay a fee to enter
national parks like Yellowstone National Park. If they do not
want to pay a fee, they can chose to camp elsewhere. If they do
chose to camp there, the fees are designed to approximate the
costs of running the park. A tax, on the other hand, is a
mandatory charge imposed on the payor for general or specified
governmental purposes. I am sure that we all too aware of
examples of taxes.
At first blush, I must admit that the charges that the FCC
has imposed on telecommunications carriers appear to be taxes.
They are mandatory. All telecommunications providers must
contribute to the e-rate program, whether they receive benefit
from the program or not. You may have seen these charges on
your phone bill last month. Also both the Congressional Budget
Office and the Office of Management and Budget agree that
contributions to the program are general revenues and that
disbursements for the program will be general outlays. This
sounds like a tax--mandatory contributions, which go directly
into the government's coffers.
But I do not want to jump to conclusions. Rather, I want to
hear from witnesses so that they can help us understand whether
this program is, in fact, a hidden tax.
This determination is important. We, as the representatives
of the people, are accountable for the taxes that they pay.
Raising taxes is serious business. And as we struggle to
balance burden and society's goals, we cannot have the
bureaucracy making a mockery of tax cuts by imposing fees that
are, in fact, hidden taxes that end up being paid by every one
of us.
The goals of the e-rate program are laudable. Finding the
funding for the program must be a priority. But we must follow
the constitutionally prescribed process.
In 1665, Colbert said, I quote, ``the art of taxation
consists in so plucking the goose as to obtain the largest
amount of feathers with the least possible amount of hissing.''
We have to set our sights a little higher than simply
minimizing the hissing. The Constitution speaks very clearly:
tax law is made by Congress. And money bills originate in the
House, in the Committee on Ways and Means.
I look forward to hearing from our witnesses today, and I'm
pleased to yield to our Ranking Democrat, Mr. Coyne.
Mr. Coyne. Thank you Madam Chairman.
We are here today to conduct an oversight hearing on an
issue that is very important to our children's educational
future. The issue we are focusing on today is the e-rate
program, which is designed to provide our schools and libraries
with state-of-the-art telecommunications services.
This program was created in the Telecommunications Act of
1996 as part of the Universal Service Program, which provides
low-income consumers and households in rural and high-cost
areas with telephone services at affordable prices.
The United States has been able to ensure access to
telephone services for all Americans regardless of their
location and wealth through this Universal Service Program. The
Universal Service Program has been in existence for decades and
was codified and expanded in the 1996 Telecommunications Act.
The Universal Service Program is a cross-subsidy system by
which telecommunications companies contribute to the Universal
Service Fund and then draw from the fund as reimbursement for
discounts and other subsidies that they have provided to
consumers.
The contributions from the telecommunications companies go
into a revolving fund which pays back the industry amounts
reflecting their Universal Coverage subsidies. The principal
expansion of the Universal Service Program in the 1996
Telecommunications Act was the provision to provide public and
non-profit elementary and secondary schools, public libraries,
and rural health providers with advanced telecommunications
services such as the Internet.
Since 1996, over 100,000 schools have applied for the
program, which the FCC has announced it will fund at about $2
billion. I am well aware of how important this program is,
because many schools and libraries in the district that I
represent have applied for the program, and all of them are
very pleased about the new educational opportunities they can
now offer their students. Soon, if all goes as planned,
Internet access for schools and libraries will be a reality.
The stated purpose of today's hearing is number one, to
review funding mechanisms for the e-rate program; and number
two, to determine whether it is a tax. If the Ways and Means
Committee's jurisdiction has been bypassed, this is a
legitimate matter for us to consider here today.
However, I am also aware that there has been a great deal
of political rhetoric surrounding the issue. For example, some
have called the e-rate program a tax, and named it after our
Vice President. I hope we all will focus on the substantive
issues and not engage in partisan rhetoric here today. First,
the 1996 Telecommunications Act passed by the House by a vote
of 414 to 16, a clear bipartisan endorsement. Further, it is my
understanding that in May of 1995, when the schools and
libraries provision was added to the Senate version of the
bill, the House parliamentarian was consulted to determine
whether the provision was a tax, for purposes of the House blue
slipping it as a revenue measure not originating in the House
of Representatives. The Senate bill was not blue slipped by any
member of the House at that time. Further, the Senate provision
was included in the final conference agreement approved by the
House and the Senate.
To the extent the e-rate program constitutes a tax, we
should assert jurisdiction on a possible amendment to the
Commerce Department's appropriation bill that is currently
before the House of Representatives, which would block funding
for the program.
On the other hand, it is the responsibility of the courts
to evaluate whether a new law is constitutional and
appropriately delegates authority to the executive branch. The
very issue we are discussing today is pending before the 5th
circuit court of appeals. The answer will be provided by the
court in the very near future.
In the past, the industry has supported this fund and built
contributions into its cost base. The contributions to the fund
have never been explicitly passed on to the consumer as a line
item charge. However, companies are now having to compete for
customers in the deregulated world created by the 1996
Telecommunications Act.
To get those customers, they need to advertise a very low
cost per minute. They have been aided in this goal by
reductions the 1996 Act caused in local access charges.
According to the materials I received from the FCC, this
reduction is now about one and half cents per minute. This
reduction should have more than offset the increased costs of
Universal Service, guaranteeing customers rates that were at
least a penny a minute less.
For a customer who makes an hour of long distance calls a
week, that savings is about $30 per year. Why, then, have phone
companies chosen to show the increase in Universal Service as a
separate charge and not part of the rate? It's not because
their costs have increased. It's because doing that allows them
to advertise a lower rate than they actually charge, and, as a
bonus, blame it on the government. For example, itemizing the
charge allows them to charge the hypothetical customer I was
just describing about half a cent more per minute than their
advertised rate, increasing the bill by about $15 a year.
I believe today's witnesses will help us better understand
whether the phone bills our constituents receive are actually
reflecting their phone company's underlying costs. I hope our
committee will not be a part to legitimizing any rhetoric which
prevents consumers from getting the full benefit of reductions
in long distance telephone costs mandated by Congress.
Thank you, Madam Chairman.
Chairman Johnson of Connecticut. Thank you, Mr. Coyne. You
opening statement was very helpful. Those of us who were very
supportive of the Telecommunications Act and of its funding of
this function at the time did believe that it would be paid for
through the savings that that Act allowed the industry to
realize. And I personally believe that that may be why it was
never blue slipped. But that is exactly the controversy we are
here to look into today, because the long-term implications of
the legislative branch allowing the executive branch to develop
revenue sources for specific functions is very serious and does
compromise our ability to control the tax burden on the people
of the Nation and to manage the relationship between revenues
and appropriations and the Nation's priorities.
So this is not a hearing about whether or not we support
hooking up the libraries and schools. We all clearly do support
that. It is a very important, though rather technical hearing,
on the means by which we plan to accomplish those goals.
I would like to first recognize Mr. Weller for his
testimony, a valued member of this committee and a member of
the Oversight Subcommittee.
Mr. Weller.
STATEMENT OF THE HON. JERRY WELLER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Weller. Well, thank you, madam Chair. And thank you,
Mr. Coyne, and members of the Oversight Subcommittee for the
opportunity to testify today. And I also want to commend Chair
Johnson for her leadership on today's issue. I'm particularly
glad to join my colleague, Mr. Tauzin, also my colleague and
friend, Mr. Blumenauer today to testify before the Oversight
Subcommittee on what I think we all agree on, and that is on an
effort to achieve the goal that we all share, which is giving
every child access to the Internet through our local schools
and libraries, to better prepare them for the economy and job
market of the 21st century.
Two years ago, when we passed the Telecommunications Act,
in 1996, it included a simple directive: that any
telecommunications carrier serving a particular geographic area
must make any of its services under the Universal Service Fund
available at reduced rates to schools and libraries.
Unfortunately, the FCC misinterpreted the Telecommunications
Act and now jeopardizes this goal that we all share, which is
providing Internet access for all of America's children.
Like you, Madam Chair, I want to work in a bipartisan way
to fix this problem.
First, if we look historically, the FCC determined that as
much as two and quarter billion dollars per year should be made
available to support Universal Service for schools and
libraries.
Second, the FCC expanded the scope of what was available
for schools and libraries from just discounted rates on the
telecommunications services and decided to include Internet
access costs and Internet connections, such as wiring.
Third, the FCC created a whole new bureaucracy known as the
School and Libraries Corporation to administer the e-rate
program without any authorization from Congress to do so.
Finally, with probably the most questionable of all the
provisions, the FCC determined that the funds supporting the e-
rate for schools and libraries should come from an assessment
or tax on all telecommunication service providers. This
controversial assessment, which is currently facing legal
challenges, and as Mr. Coyne pointed out, has commonly become
known as the Gore tax.
Here are the problems that we now face.
The FCC has taken unauthorized to create a new, ineffective
bureaucracy that has yet to provide any funding to 1,800
schools in Illinois that have applied for help in connecting
their students to the Internet.
And two, the FCC has taken the unconstitutional action of
imposing an unauthorized tax on telephone usage in order to
cover the expenses of this enterprise.
The FCC is incorrect in its contention that the so-called
Gore tax is a fee. A fee is a voluntary charge for a service
rendered. However, telephone customers are not receiving a
service. Thus, if a charge is levied and no direct service is
provided, then it is characterized as a tax regardless of
whether it shows up on your 1040 Form or your telephone bill.
And only Congress can impose a tax under our Constitution. The
FCC's actions are now being contest in court.
The result is that many schools across the country that
were depending on the e-rate have been left in the cold. Some
examples in the district I represent, in the 11th District of
Illinois, include Bradley-Bourbonais Community High School,
which has applied to get 38 computers connected; Steger High
School, in south Cook County, which applied to get 156
classrooms wired; Wilmington School District, which applied to
get 123 computers connected and 50 classrooms wired; Joliet's
Public Library District, which applied to get 20 computers
connected; and La Salle Catholic, which is a grade school,
which applied to get 36 computers connected and 14 classrooms
wired.
This is only a smattering of examples where the FCC and the
SLC have left the hopes and dreams of schools and students
hanging in the winds. We cannot let this continue. That's why
I'm glad to join with my colleague and friend, Mr. Tauzin, in
sponsoring the School and Libraries Internet Access Act of
1998, H.R. 4324.
The School and Library Internet Access Act would save the
technology assistance program for over 1,800 schools in
Illinois alone by slashing the World War I three percent
telephone excise tax, which currently goes to the general
revenue fund, to one percent, and earmarking the remaining
revenue to fund the important school and library Internet
access programs that through block grants to our States. In
addition to slashing the current tax, the School and Library
Internet Access Act repeals the so-called three percent Gore
Tax on telephone customers. Our legislation will save consumers
and estimated $5 billion, while providing $1.7 billion in the
first year to equip our schools and libraries with Internet
access.
This legislation effectively kills two birds with one
stone. First, the legislation preserves and expands funding for
this important Internet access assistance program for our
schools and libraries and places it appropriately under the
jurisdiction of the National Telecommunications and Information
Administration. Second, the legislation abolishes the FCC's
unconstitutional, what some call the ``Gore Tax'' funding
mechanism and reduces an antiquated World War I tax, which
disproportionately impacts the poor and senior citizens.
Let's do it right this time. The FCC and its illegal ``Gore
Tax'' created the problem. However, I support the bipartisan
goal of giving every child in school access to the Internet and
believe we need to solve this problem by enacting the School
and Library Internet Access Act. It is important to the
children of Illinois and the 1,800 schools which are pleading
for help. It is the right thing to do. Let's work in a
bipartisan fashion to get this job done.
Of course, Madam Chair, I ask my colleagues to give the
School and Libraries Internet Access Act, which helps solve
this problem, favorable consideration in this committee.
Again, thank you, Madam Chair and Mr. Coyne.
Chairman Johnson of Connecticut. Thank you, Mr. Weller.
Mr. Tauzin, the cosponsor of H.R. 4324.
STATEMENT OF THE HON. W.J. TAUZIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF LOUISIANA
Mr. Tauzin. Thank you, Chairman Johnson.
Let me I suppose go right to the heart of this issue. The
issue is not whether or not we ought to fund a decent schools
and libraries fund or whether we ought to carry out the
purposes of the e-rate program thoroughly, completely in
America. I think we all agree that it is a good public,
national goal to make sure that all the children of America
have access to Internet services and, in fact, have access to
what will become extraordinary new opportunities in long
distance learning. And it's also--the same is true for our
libraries and certainly true for rural hospitals in America.
That's not the question.
The question, as you correctly pose it, Madam Chairman, is
whether or not the e-rate tax itself is a tax or a fee. Is it
the fee that the parliamentarian said it was going to be? Or
has it become a tax?
To the quick: the 5th circuit is going to decide this. But
I think we can decide it rather quickly, too. The courts have
pretty well determined what is a fee and what is a tax. Now you
have great expertise in taxation. We've seen fees at the
Commerce Committee. A fee is simply a collection of a charge
for which there is a nexus in service. Someone pays and gets a
benefit for it directly.
A tax is something where you don't have a direct benefit.
You generally are putting in money for the good of other people
in our society.
This qualifies. This e-rate quickly qualifies as a tax, and
the question is how do we get from here to there? The answer is
that the Commerce Committee and other committees who worked on
the Telecommunications bill, and your committee included,
intended, I think, very quickly to make sure that the FCC
administered a properly discounted service plan to make sure
that the monthly charges to the schools and libraries of
America were discounted charges, that is, charges that could be
afforded by the schools and libraries and rural hospitals in
the same sense that we intended in the Universal Service fee
collection system that charges on a monthly basis to rural
individuals or poor individuals in our society would be
discounted. That is, the rest of us would subsidize the
connection of telephone service to those individuals so that
our telephone would be more valuable to us. Everybody would be
on the same system; and, therefore, poor and rural people would
not be left out of service on a monthly basis for telephone
service.
What the FCC did in interpreting that provision to include
a capacity to levy a tax on telephone users for the purpose of
construction grants to schools and libraries goes way beyond
the intent of Congress. And as you pointed out, Madam
Chairwoman, I think it calls into question the powers of the
executive side of our government. It is the power of Congress
to levy a tax for the purpose of providing a construction grant
program. And it is the purview of Congress to decide the level
of that tax and then also to oversee the spending of that
program.
Here's what the FCC did. It levied its tax, and it set up
corporations to administer the spending of the money after it
collected the tax, and decided then that these corporations
would decide, in fact, administer a grant program to schools
and libraries in America--corporations that are not subject to
congressional oversight. So, in effect, it avoided the
constitutional separation of powers. It avoided the oversight
of Congress through its Ways and Means Committee, and its
appropriation process in working this program through.
The bill that Jerry and I and others have filed does
several things at one time.
One, it legitimizes the program. It takes out of question,
the question of whether or not we ought to properly fund this
program with a properly funded tax. It funds it properly with a
tax we are already collecting since 1914, a tax that was
imposed--three percent on telephones--that was imposed in 1914
to fund World War I. If my history serves me right, that war is
over. We can find a new purpose for that tax.
Our bill repeals that tax over time, but leaves in place
one-third of it, the one cent, that will properly fund the
schools and libraries program. And then secondly, we repeal
clearly any authority the FCC thinks it has to levy a so-called
e-rate tax on telephone users. It repeals two taxes at the same
time, sunsets the balance of the 1914 tax, leaving enough in
place, $1.7 billion a year--in fact, escalating to $2.1 billion
in this last year, enough in place over five years for us to
carry out the program properly under congressional supervision
with a tax that's clearly authorized without corporations that
have been called into legal question by our own GAO.
I submit to you that this is a plan that's a win-win for
all of us. It gives great tax relief to Americans, repeals the
e-rate tax, repeals two-thirds of an old tax, provides a
funding mechanism for schools and libraries that is legally and
properly funded, and subjects it all to the proper legislative
oversight of this committee and the Appropriations Committee,
and other education committees of Congress, as well as the
Commerce Committee in its oversight of the NTIA. I suggest to
you this is a good approach. It solves a lot of problems at one
time, and gets rid of any legal questions about the sanctity of
this program.
[The prepared statement follows:]
[GRAPHIC] [TIFF OMITTED] T3683A.004
Chairman Johnson of Connecticut. Thank you, Mr. Tauzin.
Mr. Blumenauer.
Mr. Coyne. Madam Chairman----
Chairman Johnson of Connecticut. Welcome to have you.
Sorry.
Mr. Coyne. I wonder if I could make an observation relative
to what's been said here. To continue to refer to this tax as
the Gore Tax I think is misinterpreting what the purpose of
this hearing here today is. As the Chairwoman pointed out, the
purpose here today is find out whether or not it is a tax, or
it isn't a tax. But to refer to this as a Gore Tax I think just
brings some partisan rhetoric into this hearing that is not
becoming of the process here today.
We could just as easily be calling this the Weller Tax in
as much as Representative Weller voted, as I did, for this
legislation, and maybe we ought to refer to it as the Weller
tax instead of naming it after the Vice President.
Chairman Johnson of Connecticut. Mr. Blumenauer, it's a
pleasure to have you before our committee.
STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Madam Chair.
And I appreciate your courtesy in allowing me to join with
you. And the exchange that's been going on I think underscores
the importance of why you should have this oversight series of
hearings and testimony. I identify with the 1,800 schools in
Illinois. I have schools who have applied for the e-rate in my
district. You have them in yours. They are a part of the
100,000 schools and libraries that Mr. Coyne referenced who've
made application and who should, by rights, be receiving
benefit for it. And the longer that we continue to dilly dally
here in the Federal Government, we hold our children and their
future hostage. And I think it's inappropriate.
I want to state from the outset that I am a strong
supporter of the e-rate. I believe Congress, in 1996, made that
commitment, and it was with the clear expectation that the e-
rate was going to be funded out of the savings that were going
to accrue to the telecommunication industry. In section 254,
there was a notion that it would be part of the Universal
Service Program, which been in place administratively for over
60 years. Universal service provides services to high-cost and
rural areas, and it is something that has, in fact, been
litigated. The Federal Court District Court for the District of
Columbia did already settle earlier in the game that the
Universal Service program was not a tax. It was a fee because
it was used to ensure affordable rates for specified services
not designated primarily as a means of raising revenue. The
addition of a support mechanism for schools and libraries does
not change the fundamental nature of the Universal Service
Program. And as was referenced by Mr. Tauzin, when this issue
was under debate in the House, it was called before the
parliamentarian and a ruling was made in the House that it was
not a tax, it was a fee. And I think it is important for us to
keep that in perspective as we move forward.
Now we have these pesky little extra items that are being
added to phone bills. You referenced, I believe, the one that
AT&T has. There's a 93 cent surcharge for Universal Service
activities. However, only 19 cents of that is attributable to
the e-rate cost. The majority is for the Universal Service that
they have, in fact, been collecting for over 60 years.
It seems to me that it is important to allow the litigation
to go forward as been referenced. But I think the evidence is
clear from the legislative history, from what's happened with
the Universal Service in the past, that it's very likely that
it will be, in fact, determined to be a fee. It is important I
think for this committee, however, to look at proposals that
have been proposed by my colleagues to my left, because it may
well be at some point in the game that we do want to have an
alternative mechanism available, either because there are
politics that intervene, as they have intervened to this point,
or because there are better ways of going about it.
I remain open to alternatives frankly at some point if
they're necessary. But at this point, they aren't necessary. I
have grave reservations about starting over again. The FCC has
addressed what I think were legitimate complaints about the
administration and structure. They have implemented the
recommendations from the GAO report. They're ready to go,
albeit at a scaled down level. If we somehow get lost in the
rhetoric, the politics, try and score points, the children and
the commitment will be lost in the dust.
And I think that would be a mistake, because there are
these 100,000 schools and libraries that have made application
for e-rate discounts, as was envisioned earlier. They are ready
to go. We have the ability as a Congress to move forward in
cooperation with the administration and the FCC and do so. And
I hope that in the course of your deliberations, it will be
clear that that is the course that we should follow.
I do have a great deal of information that I'm not going to
bore you with that I would like to be made a part of the record
if I could submit it.
And I stand willing to answer any questions or engage in a
conversation as you see fit.
Chairman Johnson of Connecticut. So ordered. We will submit
your material for the record.
[The prepared statement and attachments follow. An
additional attachment is being retained in the Committee
files.]
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Chairman Johnson of Connecticut. I think it is important to
acknowledge that historically the Universal Service Charge has
been dedicated to goals that have benefitted everyone. At
times, it was used for the war effort. That certainly
benefitted everyone. Deficit reduction--has the same impact on
everyone. Universal connectivity of all the telephone lines
benefits everyone. It means that anyone can call into any
little rural remote area.
The way the FCC interpreted their responsibility under this
law has, I think, raised very fundamental questions. You point
out that there was the expectation and I think particularly
Congressman Tauzin on the Commerce Committee, it is my
understanding that, and it was my understanding as a legislator
voting for that bill, that our expectation was that this
responsibility would be funded from the savings that we were in
a sense giving to the industry. Is that not correct?
Mr. Tauzin. It's important to understand that there are
three things happening here, though.
The first is the collection--the administration, rather, of
a Universal Service Fee and helps us all have telephones.
The second thing we intended in the bill was the
administration of a second discount service, specifically
designed for schools and libraries, to come out of the
Universal Fee, to be funded by the savings. That's correct.
Nowhere did we intend that the FCC would add a third thing,
amounting to this grant program for construction inside the
school.
If I can maybe draw an analogy that helps us understand it.
When America decided on a Universal Service Fee system to
make telephones more affordable for rural people and poor
people, nowhere in that system did we provide a tax collecting
to go out and wire up the insides of houses, to put
communication centers, to put a telephone in every room of
every rural house, in the barn and in the tractor. This is such
a separate concept of actually providing construction grants to
go out and do the inside wiring and to put communication
centers in all the buildings and offices of a farm.
What the FCC did was to make that extension, that leap, if
you will, of interpretation. What they said was not only are we
going to provide discounted service for the monthly charges
that a school or library would be assessed for access to the
Internet, we're going to actually add another charge, a tax,
which we will collect and administer through a corporation to
grant money to the schools and libraries to do what?--to do
construction programs inside the schools, to build
communications centers, to put wiring into every class, to put
wiring in the offices of the administrators. There are even
applications to put them inside buses.
Now, here's my point. That's a separate concept from
Universal Service discounted rate that Congress never intended.
And no one in an administrative agency ought to assume they
have the power to tax and spend like that.
Now, I'm not quarreling with the goal. I think it's a good
goal. But it's our responsibility under the Constitution to
both levy that tax, and we have in 1914, and to spend it
properly, with congressional oversight and approval.
One final thought, Madam Johnson. I think this is critical.
For all of you who want to see schools and libraries wired up,
understand what happened in the last several months. The FCC
has now scaled back its program. It's trying now to decide
which schools and libraries are going to get this money as
opposed to which are not, in a scaled back program. The problem
with that is that when we wrote our bill, in 1996, we created
an entitlement. We did so on purpose. We didn't want politics
played with this program. So we said that any school that filed
a bona fide request for this discounted service had to get it.
The FCC couldn't deny it. Now, they've interpreted that section
to mean a grant of construction funds. Does that mean that any
school, the richest in the America, that applies for this money
has an entitled right to get that money if its a bona fide
request. Maybe so. Do you get where I'm going?
By interpreting it this one step further, the FCC may have
created not only a legal mess over whether they can tax, but a
legal mess over who's entitled to this money. Under the bill
that Jerry and I filed, Congress would oversight the spending
of this money. We could target it to the schools and the
libraries around America that most need it, under a five-year
program that would be administered properly through the State
education authorities of our country. And I suggest that's a
much sounder approach.
Chairman Johnson of Connecticut. And, Mr. Tauzin and Mr.
Weller, would your bill provide sufficient funding to meet the
entitlement nature of the original vision of this program?
Mr. Weller. Well, if you look at the projected funding
that's provided, Madam Chair. In the first year with the
funding mechanism, which is a legal funding mechanism that's
already established in the statutes. In fact, you know, that
telephone tax that was created in 1914, the one penny out of
every dollar that we earmark for the school and library
Internet access program, it's projected it would generate $1.7
billion in the first year.
Now, in the FCC's current program, as they suggest, they
would provide about $1.2 billion, so we actually provide more
money if you're looking at it from the standpoint of what way
can we provide more money. And as we pointed out earlier, we
solved the problem. There's the question about
constitutionality of this tax that the FCC has levied that was
not authorized by Congress, which we solve the problem by
providing a legal funding stream.
I have some figures here Mr. Tauzin just shared with me,
but its budget estimates are in 1999, the legal funding stream,
one penny out of every dollar in your phone--telephone use,
would generate $1.7 billion in 1999. In the year 2000, $1.7
billion. In the year 2001, $1.8 billion. In the year 2002,
$2.--excuse me--$2 billion. 2003, $2.1 billion. Of course, now
we--our legislation does sunset it five years from today. But
if Congress were to determine, as you know, as Congress should
have the right to do in our oversight, that we should extend
it, we certainly could. For that five years, we provide more
money than the current FCC tax.
Chairman Johnson of Connecticut. And what exactly does your
legislation allow the money to be used for?
Mr. Tauzin. Specifically, for all the purposes that the e-
rate fund as devised by the FCC envisions for the construction
grants to schools and libraries and rural hospitals so that
they can, in fact, have communication centers wired up to all
the classrooms or all the specific reading rooms or what have
you in the library or the hospital.
Chairman Johnson of Connecticut. Does your legislation
retain the responsibility of the FCC to develop a discounted
rate for libraries and schools?
Mr. Tauzin. Yes. Yes, ma'am.
Chairman Johnson of Connecticut. So the original purpose of
the FCC as a rate setter, to develop a discounted rate for
schools and libraries is retained under your proposal. What you
are doing is creating a clear tax to fund a clear public
purpose?
Mr. Tauzin. Yes, ma'am. In it, the fee that's charged for
all of us to have telephones. The telecommunications services
is about $690 million. That's retained within the FCC
authority. They still have the additional Internet access
authority. It's about $88 million to make sure that schools and
libraries can get cheaper rates for Internet service. All we do
is remove this tax and spend authority with the construction
grants and put that back under Congress where it belongs.
Chairman Johnson of Connecticut. Thank you very much. I
do--will just sort of conclude my initial statement about the
use of the former Universal Service revenues being for
universal goals, and point out that it does seem to be a
problem; that the FCC levied a fee that everyone pays, butnot
everyone benefits from.
Mr. Tauzin. Madam Chairman?
Chairman Johnson of Connecticut. Yes.
Mr. Tauzin. Could I add one thing? I want to correct the
record. The statement was that the charges that Americans are
feeling for this e-rate--they're only 19 cents on the AT&T 93
cent surcharge. According to the FCC's order, which I have a
copy of, 36 percent of the total is for this e-rate. Thirty-six
percent of the 93 cents is a 33 cent charge on Americans on
AT&T. On MCI, it's 5 percent of the fee. When you multiply that
out, a $1.80 is being charged under this e-rate. It's a
significant tax on American telephone users, and as Jerry
pointed out. I want to make this point as we conclude perhaps.
This is the most regressive tax in America. The poorest of the
poor use their telephones. And they're being taxed at these
high rates, again, by an agency I don't think has the authority
to do so.
Chairman Johnson of Connecticut. Thank you. I think that is
a very significant point.
Mr. Coyne.
Mr. Coyne. Thank you, Madam Chairman. I wonder if the two
authors would tell us how you intend to fund the bill?
Mr. Weller. Well, Mr. Coyne, as I stated in the testimony,
our legislation, as when it relates to revenue, in 1914, there
was a three percent tax that was levied on telephones. And at
that time, of course, very few Americans had telephones in
1914, so it was considered a luxury tax and the intention was
to use that as a revenue source to finance the World War I
effort. And like most taxes, the war is over with but the
revenue is still coming in. And it goes into the general
revenues. Then you also have the FCC tax that they levied on
telecommunication services. Our legislation eliminates the
FCC's tax and also reduces the World War I tax from three
percent to one percent. The remaining one percent we earmark so
we have a legal, already established revenue stream, which, as
projected, would generate $1.7 billion to go towards the school
and library Internet access program.
Mr. Coyne. CBO, I am told, says that the legislation would
reduce budget receipts in 1999 by $4.3 billion; and over a
five-year period, $23.9 billion. Is that correct?
Mr. Tauzin. Yes, Mr. Coyne, that's correct. In fact the
industry had estimated $28 billion. OMB came back with the
$23.9 billion. And that's the total offset required if you want
to do this. If you want to repeal both two-thirds of that old
1914 tax and also repeal this e-rate tax. It takes $23.9
billion of offsets over five years--a little less than $5
billion a year. And what we've suggested to our leadership here
is that if we're going to do a tax bill that benefits specific
groups of Americans included in that tax relief bill ought to
be this general tax relief against the most regressive taxes in
America, this tax on talking in our country, that all people
pay, particularly poor people. In some jurisdictions, Mr.
Coyne, taxes on telephones are higher than the total taxes on
tobacco. And for a free speech society, that ought to be
untenable. And what we're suggesting is that in a good tax
relief package, $23.9 billion over five years ought to go to
all Americans in the form of general tax relief on their
telephone bills.
Mr. Coyne. But you still feel that even with the reduction
and the revenue coming in as a result of your legislation, we'd
be able to fund the purpose of the schools and libraries?
Mr. Tauzin. Absolutely, Mr. Coyne.
Mr. Weller. If I could interject, Mr. Coyne, as I pointed
out the one penny per dollar in telephone service, the 1914
World War I tax, which we reduce from three cents per dollar to
one cent per dollar, that remaining one cent is earmarked for
the School and Library Internet Access Program--goes into that
trust fund. And that is projected to generate $1.7 billion,
which is a half a billion dollars more than what the FCC
currently projects to spend this year.
Mr. Tauzin. It theoretically could go on forever on our
telephone bills. There is no sunset today. The FCC
theoretically, if it has this authority, could it continue to
collect this tax as long as it felt it had a purpose to collect
it.
Secondly, if a school came back in five years and demanded
more money, I mean theoretically, they might be entitled to it
if they have a bona fide request. They might have to raise the
amount of this tax over time to fund the request that come.
Suppose somebody file suit and says, we were denied funding
and we think we were entitled to funding and they win that
suit; then this tax has to continually go up. What we'd do is
we'd provide what we think is sufficient amount of monies over
five years trust funded. Then, as Jerry said, if this Congress
feels like it wants to go further, it always has that right
over that five year period to extend that program. But that's a
legislative authority, not an agency authority.
Mr. Coyne. Mr. Blumenauer.
Mr. Blumenauer. It just seems to me that my colleagues are
sort of arguing against themselves on this.
First of all, over the course of five years, if you compare
their proposal with what the FCC would do if allowed, there is
a much larger portion that would accrue under the FCC that
would meet the projected needs. The proposal that is being
suggested by my friends is considerably less than what is
needed--and they're criticizing the FCC for not doing enough.
In fact, the only reason the FCC scaled it down was because of
the firestorm of political controversy. But they have scaled it
down and they would set the money out on a priority basis to
get funds to those most in need first. But over five years,
they would do more than that which is proposed by
Representative Tauzin, who also proposes sunsetting the
program. Furthermore, if you block grant to the States, there's
no guarantee that you will get this same scope as we are
talking about under the FCC proposal.
Finally, if the suggestion is that you shouldn't include
wiring to the classrooms, well, then you in your wisdom can go
ahead and cut back. But I would submit for the record some
report language that specifically references getting services
to the classroom. I think it was a reasonable interpretation
the gentlemen included in their legislation, and that's what
America schools and libraries are expecting. I am confident in
the final analysis this in what Congress and the Administration
will do.
Mr. Coyne. Thank you.
Chairman Johnson of Connecticut. Mr. Blumenauer, just to
that point, doesn't it concern you that if the FCC, the way
they have constructed this fee, and the way they are planning
to implement it, will put them in the position of reimbursing
systems where they are building a new school and would have
naturally have wired the classroom billing us for that wiring?
I mean, if you do it with a block grant, States can make some
judgments about whether some of the, frankly, more affluent
communities that were already building a school where they
would normally would have done this really needs that help or
not. I can tell you, in the old innercity schools, which we are
not going to absolutely replace in the near future, the
construction costs of wiring to the classrooms are very great.
But there are other suburban areas where, frankly, they are
building new schools with a lot of state aid, where we do not
need to use Federal resources to complement that construction
grant.
So one of the problems with the FCC program is that, since
they are not accustomed to administering an appropriated
program, they aren't equipped to make those decisions. If we
either do that at the State level, I think we need to deal with
that.
One of the problems with the FCC extending its authority--
and it is, after all, a rate regulatory agency--and the things
it does through rates, it does for everybody and everybody is
to benefit. This is a situation of which benefits are
differentiated across the scope, but everybody pays the fee.
This is a very dramatic expansion of the FCC authority. I'm
glad to know that some members have done some thinking about
it, so that we can clearly ascribe a source of funding for what
is a very important public purpose program.
I think that one of the things that this committee has to
be concerned with is how do we honestly raise money through
taxes, but also it assures that it get to the right place at
the right time to the people who really need it.
Mr. Blumenauer. May I respond?
Chairman Johnson of Connecticut. Yes.
Mr. Blumenauer. Well, first of all, the innercity school
that you talked about would get more benefit under the FCC
because there is a scale from 20 to 90 percent, with the larger
benefit rolling to those most in need. So a new suburban school
in the FCC proposal would receive very little compared to the
innercity school. The interpretation that my colleagues have
just made would wipe out the wiring to the innercity school.
They're complaining that that's what the FCC is doing.
Chairman Johnson of Connecticut. I want to let the other
members question, so we'll come back to this. I think 0 to 100
is just about as fair as 10 to 90.
Let me yield to Congressman Jennifer Dunn.
Ms. Dunn. Thank you very much, Madam Chairman. I appreciate
your putting together this hearing today because I, for one,
have real concerns about the assault on constitutional
authority that I've seen in the last few years, whether it's
the American Heritage Rivers Act or it is second amendment
rights taking those away from the State's jurisdiction. I have
a real concern and I think it's necessary for us to discuss
this sort of constitutional jurisdictional issue.
I like very much the bill being proposed by you, Mr.
Tauzin, and you, Mr. Weller. I think it gets jurisdiction back
to where it belongs, which is the Ways and Means Committee
under section 1 of the Constitution and the Congress. I'm very
pleased to hear the detail on your bill.
I think, Mr. Blumenauer, where you described this as a
user-fee versus a tax, very clearly that has not been declared
yet by the appeals court and it lies in the 5th circuit court
of appeals. Right now I think we will have our answer
eventually, and I tend to believe that the FCC have gone a step
too far, but will wait to make my decision until I hear about
that.
I have concerns generally about taxation and the United
States Government. The fact that this luxury tax was imposed in
1914 when few people had telephones, it was definitely a surtax
or a luxury tax on those people who were able to afford
telephones. And now, how many decades later it still is in
place. I think we must continue to do very solid and detailed
oversight on this sort of taxation.
The amounts of money vary that we have heard from you. I
have a concern on Mr. Tauzin and Mr. Weller. I wonder if you
could please explain for me if we are able to get by this FCC
Gore Tax and into the proposals that you've included in your
legislation? How do you make up for those revenues--that 2
percent of revenue--that has before flowed into the general
funds and now would be eliminated as you phase out that portion
of the tax?
Mr. Tauzin. Well, first of all, let me--if everyone is not
aware or acknowledged that, and I've cosponsored an earlier
bill that would completely repeal that 1914 tax--before this e-
rate problem became a problem that we saw an opportunity
perhaps to correct with it. Let me concur with you that a 1914
luxury tax on telephones is long overdue for appeals. Our bill
does that over repeals some immediately, two-thirds
immediately, one-third at a later date.
Secondly, repealing a tax that is going to the general fund
obviously requires an offset. Repealing the e-rate, we found
out, also requires an offset because the e-rate collections
were counted in the budget estimates. The total again is about
$4 billion over five years--by a little less than $5 billion a
year. That has to come out of budget estimates, budget
spending, and over in the course of our deliberations between
now and the end of this session.
Our plan is obviously to get the leadership, and hopefully
the chairman of your committee, to accept the notion that in
any general tax relief bill that this is a good place to give
Americans tax relief and fund it indeed out of surplus that we
expect to come to the Government on top of what Social Security
surpluses are being generated, and would be protected under our
general plan.
In a nutshell, we would hope that this is part of the
general tax relief bill, and that this $5 billion a year is
funded as a general tax relief for all Americans, in addition
of whatever special tax relief is provided in that bill, out of
surplus that we expect to generate over the next five years
over and above what Social Security trust fund surpluses are
generated and would be protected.
Ms. Dunn. Good. I thank the gentleman. Mr. Weller, did you
want to comment on that?
Mr. Weller. Well, just actually to build on a comment that
my friend Billy Tauzin made, but responsed to my friend, Mr.
Blumenauer's comment. We were talking in response to Mrs.
Johnson's question regarding urban schools andsuburban schools,
and I represent part of the City of Chicago, as well as the south
suburbs and a lot of rural areas. Of course, I think of LaSalle Peru
High School, a building which I think was designed to withstand a
nuclear strike--the building is a fortress; it was built over a century
ago and it'll last a lot longer than most buildings in the District
that I have the privilege of representing.
But in talking with the school administrators, and their
goal of course is to give every child access to the computers
and the Internet. What I think is wonderful about the
discussion we've had this morning, we've moved beyond the
question of whether or not we all work towards the goal of
giving every child access to computers and the Internet. I
think we all have agreed, and with the comments this morning.
The question is how do we solve the problem in getting there.
And with the FCC's tax, of course we have a constitutional
question, and of course the legislation that Mr. Tauzin and I
offer solves the problem by providing the legal source of
revenue, and accomplishes every goal that the FCC suggest we
accomplish with their goal.
Of course, in the case of LaSalle Peru High School, they
need $1 million really to put in the wire, the fiber, and of
course the hardware so they can provide computers and Internet
access for every child. Our program would make that available.
Of course, we block-granted to the States and then the State of
Illinois--in our case, the Illinois State Board of Education--
would administer in the application process and distribution of
those funds. This follow our philosophy which is that those
that are closest to the communities and the schools and library
districts being served can best make decisions in allocating
those funds. That's why we intend to do this, rather than
having a regulatory agency, which is what the FCC is.
The FCC was not created as an agency to provide grant money
to schools and libraries. The FCC was put in place to regulate
telecommunications. We of course solved the problem of helping
our schools, and helping our libraries provide access to the
Internet by providing a legal revenue stream--$1.7 billion in
the first year--which is more than the FCC indicates that they
would provide. And, of course, we get that money out to the
States, through their State Education Authority to allocate
those funds to local school districts and libraries. It's
common sense, it's legal, and it would work. it is consistent
with a lot of other funding programs they already have in place
for education.
Ms. Dunn. Thank you very much, Madam Chairman. It is the
belief of this Congress that we not increase taxes, and
certainly we would not like to have taxes increased arbitrarily
by an administrative agency. That's something for this
committee first to put great thought into. So I appreciate your
defining what the nut of this problem is for our hearing today.
Thank you very much.
Chairwoman Johnson of Connecticut. Thank you. Congresswoman
Thurman.
Mrs. Thurman. Thank you, Madam Chairman.
I'm going to follow up on this. If what I read is that this
was passed through the telecom bill, how are we saying that
this was not an authorization for Congress to raise these
dollars? I understand there might be a law suit on this to make
that determination, so quite frankly right now, we're assuming
something without any legal terms for this. I don't understand
why we are saying that they've done something that we're not
sure about yet. Maybe you can explain that. I don't know.
Mr. Tauzin. Ms. Thurman, let me try again. The problem is
basically in our universal service fund concept, we've always
thought of universal service as a subsidy system where you and
I perhaps may be charged a subsidy. But our poor neighbor, our
rural neighbor, might enjoy the use of a telephone. That
enhanced our telephone.
Mrs. Thurman. And we did that, though?
Mr. Tauzin. Yes, we did that a long time ago?
Mrs. Thurman. And we did it again and redid it again in
1996 with the telecommunications?
Mr. Tauzin. We did it again in terms of Internet services.
We not only said it's a good idea for everybody to have
telephones that I telephone and yours is more valuable, all
Americans are connected. We also said in the 1996 act is look,
we're entering a new age of communications. Internet services
are not only good and useful, they're going to be critical to
educating our children. So we said for heavens sake, let's make
sure that every school and library has the ability to access
Internet services at discounted rates. The same way we wanted
to make sure that every rural person and poor person had access
to telephone service at discounted rates. That was our intent.
What the FCC did was to take that very legitimate purpose
and add another one on to it. By defining that reference access
to the classroom, they decided well, let's put together a
program whereby the telephone companies will collect money from
their customers. We will collect it through a corporation, in
fact three of them they set up, that will then give grants to
schools and libraries to do what inside construction. It's a
little bit like taking the universal service fund that we've
enjoyed all these years and saying we're going to interpret it
now to allow the farmer out in rural America, to reconstruct
his house so that every room in his house has a telephone and
has all kind of new services--that his barn is equipped with
telephone services, his tractor now is equipped with telephone
services.
We never interpreted universal services to include
construction grants. That's the problem. The problem for us now
is how do we take this good purpose and clarify any questions
about legal funding also preserved for you and I, our
constitutional function of taxing and spending on the Nation
for legitimate purposes like this. Hence our bill.
What we're saying is that whether or not the 5th circuit
decides it's a fee or a tax. I think it's a tax; I think the
5th circuit is going to decide that. Why not clarify that? Why
not get rid of this question about whether these corporations
are legal or not?
Mrs. Thurman. But that would only be on the construction
part of it?
Mr. Tauzin. Yes, only on the construction part.
Mrs. Thurman. Okay, so we'll move on beyond that. So now
what happens then to doing what was intended to do, which was
to open up the telecommunications for schools and libraries.
You just totally get away with, even from the 1914 to even what
was passed in 1996?
Mr. Tauzin. Yes.
Mrs. Thurman. Your surplus dollars for the purpose of
Interneting schools throughout this Country?
Mr. Tauzin. What we're saying is that the FCC should
provide discounted rates of service for every classroom
inAmerica where the kids are going to be connected to the Internet and
learning on it. So that's true. The FCC should provide discounted rates
of service, the monthly charges you pay, for Internet access to every
hospital in America so that we all have the advantage of telemedicine,
which is going to save us all money and save many lives.
We said that the same is true for every library in America.
That no library ought to suffer for the lack of Internet
services because the rates are too high. There ought to be
discounted services for them. Yes, the FCC continues to do
that. It simply doesn't have the power to tax for this
construction program. You and I would have that power through
this bill.
Mrs. Thurman. When you put your bill together and you said
that you'll take two-thirds of the money or $24 billion
whatever your amount was. In putting your numbers together, how
have you made the assessment for the needs for this Country? I
mean, have you got this down to a formula, do we know--is it
going to be similar to what schools and libraries have had
before? 20-80, 90-10, whatever based on their disadvantage? I
mean, how have you made this assessment?
Mr. Tauzin. What we did was to, first of all, determine
that 1 cent out of this 3 percent tax was adequate to provide,
as Jerry pointed out, 1.7 escalating to 2.1 billion each year
for five years. We looked at what the FCC originally intended
in the e-rate proposal and we recognized that this was more
money than the FCC had originally intended to collect--very
close to those numbers. We said, here is a fund that can do
that.
Secondly, as was pointed out, the FCC is not scaling back
its program. Under our proposal, you wouldn't have to scale it
back. You could do full funding.
The third thing is we wanted to make sure that in this full
funding that there was not going to be an uncapped, unlimited
amounted that might be collected; that we would have some
control over that. So, in essence, as we administer the grant
program through the States, if the States present to us
legitimate needs as Jerry pointed out, we can expand it. If the
States are presenting request that aren't as legitimate for
rich schools, etc. that don't really need this money, then we
can literally live with our cap or even limit those spendings.
Ms. Dunn. So didn't that concern you a little bit if what
the chairman said earlier was that there was a universal need,
universal goals for everybody, and then we do get into the
politics, a little bit of divvying these dollars up State by
State. I mean, you're making mention that well if they really
need it or if they don't need it or whatever. I mean, I'm a
little concerned the way you phrased that. Maybe that's not
exactly what you mean, but I don't want to get into the
politics. This is about children; this is about our libraries;
this is about access.
Mr. Tauzin. Good point. That's why we wrote the language in
1996 as an entitlement. Let me say it again. That is why we
carefully said that no school, rich or poor, who filed a bona
fide request for discounted rate of service would be denied. We
wrote it as an entitlement so there wouldn't be any politics.
There wouldn't be any calling of names on this proposal or
anything else. This would be a simple, straight forward. The
school provides a bona fide request for discounted service for
cheaper rates per month for service to the Internet. They were
going to get it from the FCC. The FCC could not tell one school
or another you don't get it. That's why we wrote it that way.
But now we're talking about something different. We're
talking about a construction grant program, and what we're
saying there is, and the FCC has finally come to that
conclusion too, that when you come to construction grant
programs, you could have unlimited request for dollar. But you
have to have some kind of assessment of need. The FCC is trying
to work their way through that. What we're saying if we
properly fund this program, properly administer it through the
NTIA which is our technology, telecommunications technology
grant agency, and then let the State and their State
authorities design their programs for their own need, that
we're more likely to achieve that result without an open-ended
program like the FCC has potentially created out of
misinterpreting the act.
Chairman Johnson of Connecticut. Congressman Hulshof.
Mr. Hulshof. Thank you, Madam Chair. I was flipping through
an old Farmers Almanac the other day and saw this quote that
said, ``If Patrick Henry thought that taxation without
representation was bad, he ought to see taxation with
representation.'' [Laughter.]
And yet, I echoed the comments that my colleague from
Washington State made that ultimately the power of taxation
should rest with those of us who are here.
Mr. Blumenauer, I wasn't here in 1996 to vote for or
against the Telecommunications Act, and regardless of what the
parliamentarian's decision was at the time, whether it was a
user-fee or an excise tax, in the Hulshof household, one of my
responsibilities is to pay the bills. This past weekend, I
wrote the check for our family to GTE and I looked at the bill,
knowing this hearing was coming up, and GTE tells me that I'm
paying an excise tax. Do you disagree?
Mr. Blumenauer. No, you're paying an exise tax. That's been
on the bill and it's been a separate line item. What we're
talking about is the e-rate which is separate and distinct from
that. You've been paying your monthly bills with universal
service for as long as you've been writing checks. And
appropriately so because it is contributed to the entire
universe and it's made, as Mr. Tauzin said, the entire system
more valuable. This system of telecommunications will be made
more valuable by having all of our children have access to it.
That doesn't make it a tax.
Mr. Hulshof. Well I think that everyone here that's been
discussing that question and those of you responding, we share
the same goal. It use to be when I was in school doing a school
project, you went to the local library and paged through books
and now with the click of a mouse you have a wealth of
information that wasn't there before. I think the intent and
the goal of everyone is the same.
I want to give you a chance to respond because Billy was
making a point earlier, and I've noticed that you were not in
agreement through your nonverbal reaction. Congressman Tauzin
makes the point that the e-rate Program is now being
administered beyond the scope of universal service; it's being
administered through an improper FCC agent--I'm paraphrasing
his words of course. It's being funded well above its
demonstrated needs. And fourthly, that it is open-ended. Now,
what disagreement do you have with any or all of those
premises?
Mr. Blumenauer. I just finished explaining why I think this
application of the universal service fee extensiondoesn't
transmit it into a tax. Let me just reference the last two points that
you made.
First of all, with all due respect, the information I have
is distinctly different from my two colleagues. The
demonstrated need for what's in the pipeline now is far above
the $1.9 billion that the FCC has earmarked. They've scaled it
down as a result of all the controversy that's been going on.
They had originally identified $2.25 billion for the year, it
would be something like $3.35 billion through June of 1999.
They've scaled it back to $1.9 billion. The gentleman's
proposal would be $1.7 billion, and then go on over time. So
the demonstrated need for what's in the pipeline, the estimate
is higher than what the FCC is doing; and the $1.9 billion the
FCC is proposing is higher than the $1.7 billion that the
gentleman had suggested. That was the point that I was trying
to make.
You've suggested that somehow that it's the rich districts
that are going to be accruing the benefit under this, and we
need to be concerned about the innercity. That's precisely what
the FCC has been attempting to do, by giving a larger payment
subsidy to the innercity school to the rural poor schools that
have a much lower connection. And as the chair mentioned, some
of these innercity schools have to have wiring or else it is
illusory to assume they have Internet access because you'll
continue to have it as it is today, the 73 percent that have
Internet access have access mostly to the principal's office.
It's only 27 percent of the classrooms. You need a proposal
like this that gets it to the classrooms.
Mr. Hulshof. Let me reclaim because I see my time is about
to expire. No that's okay. Mr. Tauzin, did you want to quickly
respond?
Mr. Tauzin. Quickly, let me, first of all, thank you for
being an original cosponsor.
Mr. Hulshof. Proud to be on the bill.
Mr. Tauzin. Secondly, the answer is that the so-called
demonstrated need figure includes all these rich school
request. The FCC is now admitting they're going to fund at a
much lower percentage rate of grant. That number they cited to
you is an unrealistic number. It includes requests that are
extraordinary to even wire up and connect to the Internet
school buses in some districts. So keep in mind, the number we
provide, nearly $2 billion a year over a five year period is
quite adequate to the real needs expressed already by
applications to the FCC.
Mr. Hulshof. I appreciate that. As a concluding comment,
Madam Chair, and conversations with a young man, a 27 year old
man who's an Internet provider back home in Hannibal, MO, who
for other reasons because of the telecom bill is now $11,000 a
year in fees/taxes who came to me an said, ``Look, I would
prefer much better that at least you consider, and either vote
up or down these increases, these taxes, so that I can at least
express my opinion at the ballot box every two years because
that's why we send people to Washington to represent us.''
I appreciate each of you being here. Thank you, Madam
Chair.
Chairman Johnson of Connecticut. I think, Mr. Blumenauer
that your previous response demonstrates that what the FCC has
done is unprecedented in terms of the scope of the exercise of
its authority. For it to exercise its authority to provide a
discounted rate is harmonious its statutory authority and with
its traditions. For it to get itself in the position of
administering what is in effect an appropriated program
supported by a tax is to not only extend their scope of
authority beyond their law it seems to me, but also face them
with administrative responsibilities that they have never had
before. And whether this should go through the Commerce
Department and in the block grounds, or whether it should go to
the Education Department and down through one of their
mechanisms.
We do have in the Federal Government already established
bureaucracies who have long experience in thinking through how
do we best allocate these and whether it's $1.8 billion or $2.2
billion. So it is disturbing that the FCC should be trying to
make this determination in an area which we actually have a
whole department established to deal with the educational needs
of our schools throughout America and have a much greater body
of experience in how you would distribute and administrate
these dollars.
I think part of what we're dealing with here is that when
you, in a sense, levy a tax for a major public purpose, and
this is a major public purpose I don't think anybody would deny
that hooking up all of our schools, libraries, and hospitals is
not a major public purpose. That with that comes a lot of
complicated decisions and a lot of investment in a bureaucratic
delivery system. So it's important for us to really engage in
this issue as a fee to support a discounted service. Or is this
a tax to support a program to implement construction grant.
These are very different entities with different sources of
legal authority, and they do have enormous implications for the
overall bigger picture of Congresses obligation to tax the
people of America to fund programs that fulfill our public
purposes. And to be accountable for where we raise the tax and
where they go.
A fee upon a discounted service in the context of
regulation is a very different animal both legislatively and
constitutionally from a tax purpose. I think this discussion
has been very helpful to show the scope of this program and the
difficulties that scope represents. I think we are all in
agreement that we would want to have money enough to do the
job. I personally would like to see us be able to do it as an
entitlement because you don't want schools to wait two years to
do something that they need to do now. So there is a lot more
that has to be delved into in another realm.
The focus of this hearing is important. Is this is a tax or
a fee because it helps us deal with it. Is this going to be an
appropriated program of which we're going to deliver through
the appropriate bureaucratic mechanism and oversee its
accomplishment of its goal. Or is this rate regulation and
discount subsidies over endless periods of time, which it is. I
mean, the rate regulation, the discount rates will be forever.
They are not for five year.
Mr. Coyne.
Mr. Coyne. If you would allow me at this point, I think at
this point a clarification here would be helpful relative to
the issue of fee versus taxation.
In AT&T, the way they are billing their customers, what
they are putting into the bills currently as of July 1998, and
I quote from their bill that says, ``The universal connectivity
charge that appears on your bill is being assessed at a monthly
fee of 93 cents per account, instead of the previously
announced 5 percent monthly charge. This fee--and they refer to
it as a fee--supports the extended universal service fund which
now not only helps provide affordable telephone service, but
also gives schools andlibraries access to the Internet. The FCC
has also reduced the fees AT&T pays local phone companies to connect
toll calls. That's one reason our prices for long distance service have
continued to come down over the last decade.'' Then they give a phone
number for information if you want to call, an 1-800 number.
Chairman Johnson of Connecticut. Great, and I appreciate
that and I have a copy of their bill here. The issue remains as
its appropriately described as a fee and are the purposes for
which it is used are traditional purposes that fees are used
for. Is the delivery mechanism a traditional fee-delivery
mechanism? And more importantly on the issue of fee versus
taxes, does everyone who pays the fee benefit from paying the
fee, or do only selected groups benefit from pay the fee? And
does everyone who benefits pay the fee? Because in this case
not necessarily everyone who benefits pays the fee.
I appreciate your recognition of the way this is worded,
but I think the problem is really profound and not one we
should protect ourselves from.
Because we have other people waiting to testify, let me
move on to Mr. Neal.
Mr. Neal. Thank you, Mrs. Johnson, thank you very much. Not
being a member of the subcommittee, I appreciate you granting
me some time.
I think that the panelist have all indicated that the goal
of the e-rule program was desirable. I could just maybe direct
my question to Mr. Tauzin. Could you recreate quickly where
this provision was inserted and at what time it was inserted?
Mr. Tauzin. Are you talking about in legislative history?
Mr. Neal. Yes.
Mr. Tauzin. I would probably make a mistake in doing that
without reference to the documents right now. I can only tell
you that through the creation of the act, the 1996 Act, it
culminated over about four or five attempts. We passed the bill
several times in succession. The final act in 1996 signed into
law did contain clearly the instruction of the FCC for
discounted service. Without reference to the documents, I
couldn't tell you whether it happened in the subcommittee, the
full committee or in the conference committee. But I'll be
happy to supply that information to the committee.
Mr. Neal. I think it might have happened at conference. Do
you think that----
Mr. Tauzin. I think that the final language agreed to in
conference----
Chairwoman Johnson of Connecticut. If the gentlemen would
yield, we did have earlier testimony on this and the committee
can clarify this for you.
Mr. Tauzin. But I'll be happy to submit the chronology. I
would also like if it would help you to submit for the record a
copy of the letter from Chairman Bliley to the FCC bitterly
complaining about the FCC's attempt to force the carriers to
hide this fee in their rates without showing the customers that
it was being collected.
Mr. Neal. The only point I'm trying to raise is that we've
agreed that the goal is desirable and it's interesting that Mr.
Weller made reference to the Gore Tax, when you could also
suggest that Senator Snow from Maine was a full participant. So
maybe we could appropriately call it the Snow Tax, if that's
the rhetoric we're going to apply in hearings like this when
there should be a better attempt to crystallize the issue so
that we can intelligently focus on the issue for the American
people and we can help them help us make a determination.
There are unintended consequences of the Telecommunications
Act, including cable TV rates which none of us thought would
increase at such a fast pace. My point is simply this, that in
forums like this, there is an opportunity to elevate the public
debate. We don't elevate the public debate by suggesting things
like the Gore Tax when there are Republican members who were
fully aware of what was going to take place. In fact, an amicus
brief filed in the 5th Circuit by Senator Snow, as well as
Senator Rockefeller.
I don't know what purposes are achieved when we come into a
forum like this and suggest that it's the Gore Tax. Maybe you
could clarify that for me in your testimony.
Chairman Johnson of Connecticut. Mr. Neal, if we may. We
are terribly behind and I really would like to go onto to the
next----
Mr. Neal. Mrs. Johnson, I appreciate that.
Chairman Johnson of Connecticut. We've been through that
before. Neither the chairman nor the ranking member are
characterizing this discussion as anything other than a very
importing discussion about where taxing authority lies in the
constitution and in this body. And how we hold ourselves
accountable for the raising of revenues and the expenditure of
those revenues. And while I appreciate your point, and I regret
that people characterize the tax one way or another, we have
been through this several time in this hearing. We've been at
this an hour and a half and we have yet to call the
commissioner.
Mr. Neal. I understand the suggestion that you made, Mrs.
Johnson, and do appreciate the point on how this issue should
be characterized and the suggestion is fully accepted. Thank
you.
Chairman Johnson of Connecticut. I'd like to move on now. I
thank the panel very much for your input.
Excuse me. Stop one minute. Sorry, I forgot that Mr.
English arrived, and I will recognize him before we dismiss the
panel, if the three of you could remain for a moment.
My apologies, Mr. English.
Mr. English. And I thank the chair for the opportunity.
I'll keep my questions relatively brief. Having examined this
issue, it seems to me that the e-rate is a tax and I would like
to get some comments on that in a moment, but I want to first
raise a couple of questions with my colleague, Mr. Tauzin, who
has been pushing for a national consumption tax very
eloquently. Obviously it had not occurred to him that we had
given the FCC the power to impose one unilaterally.
I wonder in you view, is the e-rate funding mechanism
essentially an open-ended tax and is your tax proposal open-
ended?
Mr. Tauzin. First of all, to highlight your comment, you
know that I'm pushing for a general tax, not a special luxury
tax. In fact we repeal most excise tax.
I think the idea of special excise taxes is damaging to the
success of programs like telephone service for all Americans.
It's the most regressive way to treat this issue. So I think
it's consistent with our approach.
Secondly, our plan is not open-ended. Our plan is a five
year plan. Congress would have to extend it after five years if
they wanted to. Our plan says that for five years we would
retain the revenues from one-third of the 1914 luxury excise
tax that was placed on telephones. And for that five year
period that one-third of those revenues, about 1.7 billion a
year escalated to 2.1 billion we estimate, would go into a
trust fund for the administration of this construction grant
program for schools and libraries. At the end of five years,
that one-third of taxing authority in the trust fund would
terminate unless extended by Congress. So that our plan
terminates completely two-thirds of that old 1914 tax, it
terminates completely the e-rate tax imposed by the FCC. So
Americans would see immediately the benefit of $5 billion of
tax relief per year. But it retains one-third of that old 1914
tax, but only for a period of five years, sunsetting at that
point unless extended by Congress.
Mr. English. And I approve of the gentleman's approach
because you are getting at one of the things that bothers me,
and that is the huge accretion of excise taxes that the Federal
Government has imposed over the years and has not reassessed in
a long period of time.
In your view, and examining your proposal, why do you feel
we need to create a trust fund in this case?
Mr. Tauzin. Well, for two reasons. Number one, I think it's
very clear that because of the FCC's action to create the e-
rate, there has been a very large outpouring of expectations
from the American education community and from rural hospitals
and libraries of America for this assistance.
Number two, I think it makes sense. I think we ought to
help if we are going to take full advantage in the 1996 act of
the educational opportunities that are offered us in long-
distance learning through the Internet, if we are going to have
telemedicine really save us money in our Medicare, Medicaid
programs, and save money for all Americans in their insurance
bills, we ought to make sure that no hospital, no library, no
school is not properly equipped to take advantage of all these
efficiencies that the Internet is rapidly bringing to us in
these critical areas.
So, for the reason that I think it is a legitimate purpose;
and number two, that the expectations have been developed, I
think we ought to make sure that as we repeal one, we are
leaving no doubt that we are establishing a trust fund to carry
out the purposes that were intended by the e-rate program.
Mr. English. Thank you. Madame Chair, I have a number of
other questions, but this panel has been here a long time. I
appreciate their testimony and I appreciate the opportunity to
engage a little bit on this debate. Again, I believe that the
e-rate program clearly is tied in to a tax, rather than a fee,
and I believe should have come under the jurisdiction of this
committee.
I appreciate your efforts to reassert our role in this
process, and I thank the panel.
Mr. Tauzin. Thank you, Mr. English.
Chairman Johnson of Connecticut. I thank the panel very
much.
I would like to call forth Commissioner Harold Furchtgott-
Roth of the Federal Communications Commission, and Christopher
Wright, the General Counsel of the Federal Communications
Commission.
Mr. Furchtgott-Roth, if you would proceed, please.
STATEMENT OF HAROLD FURCHTGOTT-ROTH, COMMISSIONER, FEDERAL
COMMUNICATIONS COMMISSION
Mr. Furchtgott-Roth. Madam Chair, distinguished members of
the House Ways and Means Committee, it is a great honor for me
to appear before Congress and to appear before this Committee
in particular. I have a prepared statement that I would like to
have entered into the record.
Even the most casual observer of Congress knows of the
importance of the Ways and Means Committee. It is not just that
most Members want to be on this Committee. It is not just that
it has jurisdiction over important issues ranging from taxes to
social security. And, it is not just that it has a beautiful
committee room.
This Committee is important because it is rooted in the
Constitution. Its jurisdiction is squarely in Article I, and
its singular importance within Congress and within the House of
Representatives is guaranteed by the Origination Clause. ``All
bills for raising revenue shall originate in the House of
Representatives.''
Why was this sentence, of all sentences, included in a
Constitution remarkable for its brevity? The answer lies in a
theme that influenced both the founding of our Nation and our
history ever since. Americans should be taxed only, only by
elected representatives. There should be no taxation without
representation, and the House was originally the only popularly
elected body.
Taxation and overregulation of commerce characterize the
intolerable acts that the British Parliament, without American
representation, placed upon the American colonies that
precipitated the Revolutionary War. Disputes over taxation and
duties have scarred much of American history since.
This Committee has a solemn duty under the Constitution.
First, it alone must originate legislation that results in
taxes and revenue. Second, as a corollary, it alone must ensure
that other elements of the Federal Government, whether in
Congress or elsewhere, do not create taxes or raise revenues
without specific and direct authority from legislation
originating in this Committee.
It is with respect and admiration, reverence and humility
that I come before this Committee. I have been asked to comment
on whether the e-rate program, as implemented by the FCC, is a
tax or a fee. Let me note that my views on this topic are my
own. They do not represent a majority of the FCC. I have
articulated these and related views in a series of statements
and dissents over the past several months.
But my views are not outside the mainstream. The Republican
and Democratic leadership of both the House and Senate Commerce
Committees have written to the FCC expressing their dismay at
the entire implementation of universal service and suggesting
bluntly that the Commission start over.
The underlying statute, the Telecommunications Act of 1996,
does not, in any way, establish authority for taxes. During the
legislative process, the underlying bill was vetted by the
Parliamentarian to ensure that there was no language that was
properly under the jurisdiction of this Committee. The Act can
and should be implemented in such a manner that no revenues are
raised and no fees are promulgated that are, in fact, taxes.
The issue before this Committee is not whether its
jurisdiction has been usurped by another Committee of Congress.
The answer to that question is an unambiguous ``No.'' The issue
is whether the jurisdiction of this Committee has been usurped
by an independent agency.
Let me be clear: the issue before this Committee is not one
of policy. The issue is not whether spending Federal money on
computer equipment and services for schools and libraries is a
good idea. Everyone likes education. Many, perhaps most,
Americans would like the Federal Government to spend more money
on education. As the father of six children, I would only
welcome more Federal money to subsidize my children's
education.
But my responsibility as a Commissioner of the Federal
Communications Commission, however, is not to set tax policy or
to set Federal education policy, or frankly, even to make
telecommunications policy. Congress, not the FCC, sets Federal
policy in all areas, whether education or telecommunications.
The responsibility of the Federal Communications Commission is
simply to follow the Communications Act and other laws
governing the FCC.
Perhaps collecting more money for telecommunications
carriers and customers to support additional spending on
infrastructure for schools and libraries is a good idea. The
authority for that good idea, however, should be based in law
and should originate in this Committee. To the best of my
knowledge, it has not.
In my prepared statement, I explain why the FCC's
implementation of schools and libraries program resulted in the
creation of a tax. Fees for schools and libraries are assessed
at a fixed percentage of both the interstate and intrastate
revenues of telecommunications carriers, but the receipts are
disbursed primarily to nontelecommunications carriers to
provide ``internal connections'' for schools and libraries.
Please understand what this means. Every telephone company
in your district is paying a tax on every customer's telephone
bill. The receipts from this assessment are not used to benefit
the consumer directly by expanding the number of low-income or
high-cost consumers who remain on the telecommunications
network only as a result of the fee. There are other universal
service programs for this purpose, and those programs are
clearly based on fees, not taxes.
The receipts from this fee do not defray the costs for the
carrier to provide telecommunications service and thus,
ultimately benefit the telecommunications consumer. There are
Federal and State programs for that purpose, which are not
taxes.
Some of the schools and libraries' fees do go for
telecommunications services under section 254(h)(1). Support
for these services, while reasonable people may differ on
priorities, are clearly based on fees, as they defray the cost
of service to carriers.
But the vast majority of funds from the schools and
libraries corporation could not be supported under section
254(h)(1) alone. They require an expansive, and I believe,
unlawful interpretation of section 254(h)(2) to provide
subsidies for internal connections of schools.
And let's be sure the discussion is not just about wire and
fiber. It is about sophisticated computer equipment, about
servers, about routers that cost tens of thousands of dollars
each, and that the computer industry of America comes to the
FCC and lobbies for with their hands out. Of the requests for
1998, $1.3 billion of the total of $2 billion was for this
hardware.
The telecommunications customer does not benefit from this
transfer to the computer industry, nor does the
telecommunications carrier. It is unambiguously a transfer to
schools, libraries, and computer companies without any benefit
to those paying the fee. It is, in short, a tax.
What authority does the FCC claim to establish this tax?
The usual citation is section 254(h)(2). This section
authorizes the FCC to establish rules to enhance access to
advanced telecommunications and information services. Based on
this language, the Commission established rules that have led
to requests for Federal subsidies of more than $1 billion for
computer equipment.
This sentence does not require any Federal funds. It does
not require any discounts. It does not require taxes. It does
not require anything other than rules to enhance. In short, the
statutory language does not lead to a tax; only the
Commission's peculiar interpretation of this language does.
Who is shortchanged in this process? The American consumer
who pays the tax, telecommunications carriers who pay the tax,
and this Committee that did not authorize the tax. I trust that
this Committee will find an appropriate remedy.
Madam Chair, members of the Committee, I am available to
answer questions.
[The prepared statement follows:]
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Chairman Johnson of Connecticut. Thank you very much.
Mr. Wright.
STATEMENT OF CHRISTOPHER J. WRIGHT, GENERAL COUNSEL, FEDERAL
COMMUNICATIONS COMMISSION
Mr. Wright. Thank you. It is a pleasure to be here today as
Chairman Kennard's representative to discuss the FCC's
universal service program for schools and libraries.
As Congressman Neal noted earlier, I'd like to emphasize
that Senators Snowe and Rockefeller, the principal drafters of
section 254(h), filed an amicus brief in the 5th Circuit fully
endorsing the Commission's interpretation of the statute.
I'd like to first read three brief excerpts from section
254. The first, section 254(d), provides that ``every
telecommunications carrier that provides interstate
telecommunications services shall contribute'' to ``mechanisms
established by the Commission to preserve and advance universal
service.'' So all telecommunications carriers contribute.
Section 254(h), which contains a subsection specifically
addressed to ``educational providers and libraries,'' first
provides that ``all telecommunications carriers'' must provide
services to ``elementary schools, secondary schools, and
libraries'' at a discounted rate that the Commission,
``determines is appropriate and necessary to ensure affordable
access to, and use of such services by such entities.'' That is
section 254(h)(1). It plainly provides that schools get
discounts for telecommunications services. Internet services
are not telecommunications services; they are information
services.
The third section I'd like to quote is section 254(h)(2),
which Commissioner Furchtgott-Roth has just mentioned. It
directs the FCC to ``establish competitively neutral rules to
enhance, to the extent technically feasible and economically
reasonable, access to advanced telecommunications and
information services for all public and nonprofit elementary
and secondary school classrooms.''
If there is a source for Internet services, it is in that
sentence. The Commission has concluded that both Internet
services and inside wiring, both of which are information
services, should be funded under this provision.
The Commission reasonably interpreted the statute to reach
this result. Internal connections are necessary to provide
services to classrooms. And as Senators Snowe and Rockefeller
have emphasized, they wrote ``classrooms'' into section
254(h)(2) because that is where the students are. It is hard to
imagine what section 254(h)(2) covers if it does not cover
internal connections and Internet access.
The telephone companies that have challenged the
Commission's interpretation of that provision have not
suggested what it covers, even though it is a basic rule of
statutory construction that a statutory provision should not be
construed to be meaningless.
In their amicus brief, Senators Snowe and Rockefeller
specifically endorsed the Commission's decision to provide
discounts for internal connections and Internet access.
Let me turn now to the Origination Clause issue. With
respect to this issue, I understand that this committee would
like to focus on the schools and libraries program and not the
aspects of the Commission's order funding support to rural
areas and low-income Americans.
However, the issue cannot be severed in that manner. If the
schools and libraries program is an unconstitutional tax, so
are the much larger high-cost and low-income programs.
Fortunately, there is no merit to this Origination Clause
challenge.
Prior to the enactment of section 254, when the
Communications Act did not even contain the words ``universal
service,'' the D.C. Circuit heard and rejected an Origination
Clause challenge to the Commission's universal service program
in the ALC Communications case. The Court held that the
assessments at issue were not taxes and were not fees, but
instead were ``transfers from interexchange carriers to high-
cost, local exchange carriers, and low-income telephone
subscribers that fit comfortably within the range of special
purpose levies that are consistent with Congressional authority
to regulate commerce.''
In the Rural Telephone Coalition case, the D.C. Circuit
rejected an argument brought by some telephone companies that
the Commission's universal service program was a tax for
purposes of the tax clause. The Court said that a regulation is
a tax only when its primary purpose is raising revenue.
As Senators Snowe and Rockefeller have emphasized,
extending universal service support to schools and libraries
did not transform previously valid transfer payments into
taxes. To the contrary, because section 254 ``creates a
particular governmental program rather than raising revenue to
support government generally''--I am quoting there from the
Supreme Court's decision in Munoz-Flores, it plainly is not a
tax under the test enunciated by the Supreme Court.
In that same case, the Supreme Court squarely rejected the
notion now being advanced before the 5th circuit that an
assessment is a tax unless those required to pay the assessment
receive a direct benefit from it.
In short, attacks on universal service by
telecommunications companies are nothing new. In 1988, at a
time when there was no universal service provision in the
Communications Act, the D.C. Circuit upheld the Commission's
efforts to provide affordable telephone service to all
Americans and rejected the telephone companies' claims that the
universal service program was a tax not authorized by Congress.
The analogous claims recently advanced in the 5th Circuit
have even less force now that Congress has adopted section 254
and explicitly extended universal service for schools and
libraries.
I very much appreciate the opportunity to testify, and I
will be pleased to answer any questions that you may have.
Thank you.
[The prepared statement follows:]
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Chairman Johnson of Connecticut. I thank the panel.
Mr. Furchtgott-Roth, would you go through, as explicitly as
possible, exactly who pays and exactly who gets paid, who
benefits.
Mr. Furchtgott-Roth. Madam Chair, would this just be for
the schools and libraries program or for the other universal
service programs as well?
Chairman Johnson of Connecticut. For the school and
libraries program, although you may, if you wish, contrast it
with the universal service program.
Mr. Furchtgott-Roth. Yes, ma'am. Right now, all
telecommunications carriers pay a tax for the schools and
libraries program from both their interstate and intrastate
revenues. It is a fixed percentage that was established first
by a Commission notice, and subsequently an order in December
of 1997 that covered the first two quarters of 1998. In May of
this year, I believe we issued a subsequent notice that covered
the third and fourth quarters of 1998 and the first two
quarters of 1999. So this is simply a percentage of
telecommunications service revenue.
Who receives funds is very complicated, and there is a very
complicated mechanism to apply for funds from the Schools and
Libraries Corporation, an independent corporation established
by the Commission in 1997. This is, from all I can tell, a
private corporation, private nonprofit; it is not a government
entity. It was incorporated in the State of Delaware.
And as noted in the last panel, more than 30,000 schools
and libraries have applied for funds from this program. It
requires a very complicated form. Many schools have invested a
great many hours in filling out these forms, and when you go
from doing nothing to trying to disperse more than $1 billion
to 30,000 applicants, it is a very complicated process. And
something that, frankly, the FCC has never done before and does
not have a great deal of expertise.
Chairman Johnson of Connecticut. In your testimony, you
mentioned that there were nine telecommunications companies
that benefited, though all paid. Would you clarify that and
then the other aspect of that, those who don't pay and do
benefit.
Mr. Furchtgott-Roth. Yes. There are two parts of 254(h)
that are used to establish benefits for schools and libraries.
The first is under 254(h)(1), which is the traditional discount
program which clearly says that only telecommunications
carriers can receive these discounts, no one other than a
telecommunications carrier.
In my view, (h)(1) by itself would just be a fee, as the
Commission has interpreted; (h)(2), however, is where the
Commission has engaged in some extraordinarily complicated
legal gymnastics. And not being a lawyer, I am not quite sure
how they got there. I am not sure if I were a lawyer, I would
understand how they got there.
But what they said is that the beneficiaries can be anyone,
and it doesn't have to be a telecommunications carrier. And it
is under the advanced services that the internal connections
enter, and $1.3 billion out of the $2 billion requested for
1998 are for internal connections.
I wish I could give you a precise breakdown of how much of
this is going to telecommunications carriers, eligible
telecommunications carriers under section 214, or to folks who
are not telecommunications carriers at all.
I have requested some of this information from Schools and
Libraries Corporation and they have not been able to give it to
me at this point. But it is very clear that many companies that
are not telecommunications carriers at all have applied for a
great deal of money from the Schools and Libraries Corporation.
On the contributions side, right now it is just
telecommunications carriers that pay in. Other companies that
may, in fact, receive money or that the Commission has
designated as eligible to receive money, do not pay in. And
this would include Internet access providers, construction
companies that might be providing internal wiring, and perhaps
most importantly, it does not include the computer companies
that come in to lobby me and say this is a billion dollar
business for them and they'd like some of this money.
Chairman Johnson of Connecticut. Thank you. Then what I
would interpret your testimony to be is that you are not
arguing that all of universal service or even all of the e-rate
program are an illegal tax, but that basically 24(h)(2), a
limited part of the e-rate program, is an illegal tax.
Mr. Furchtgott-Roth. Let me be clear, Madam Chair. There
are two points I would like to leave you with on this. First of
all, I think that the Commission has completely misinterpreted
paragraph (h)(2), independent of whether it is a tax or not. I
just do not see how you get from the plain language of the
statute to the creation of a multi-billion dollar program. I
don't see how you get to any Federal dollars. And then above
and beyond that, I don't see how you get to a tax from it.
Chairman Johnson of Connecticut. Thank you.
Mr. Coyne.
Mr. Coyne. Thank you, Madam Chair. Mr. Wright, how many
schools and school districts nationwide have applied for
Internet and related telecommunications assistance?
Mr. Wright. We have received 30,000 applications.
Mr. Coyne. How many?
Mr. Wright. Thirty thousand applications covering more than
100,000 schools. Some of the applications are multischool
applications.
Mr. Coyne. Can you tell us what the total universal service
subsidy breakout is State by State. In other words, which
States or areas are subsidized and which pay to subsidize other
areas or States? Do you have that breakdown?
Mr. Wright. I don't have that on the tip of my tongue. Not
surprisingly though, with 30,000 applications and 100,000
schools, this is spread around the country. Just before this
hearing started, I was handed this purple document which I was
told was given to staff of each member of this committee which
does break it down by each State.
Mr. Coyne. Okay. There seems to be a perception in the
general public that Congress and the FCC has increased phone
costs. In your research and work that you do, can you give any
indication of why you think that is?
Mr. Wright. Well, you started off by admonishing all of us
to avoid political rhetoric, so I will. But let me just stick
to the facts. The facts are that since the 1996 Act was passed,
we've reduced access rates by more than $4 billion, and these
programs, including the explicitly high-cost program, are
smaller than $4 billion. So there has been a net reduction.
Mr. Coyne. Thank you.
Chairman Johnson of Connecticut. On that point, Mr.Wright,
you say since the 1996 Act was passed, that we've reduced access rates
by $4 billion.
Mr. Wright. Yes.
Chairman Johnson of Connecticut. Then why is it necessary
for the telephone company to use a billing mechanism that
clearly includes, by some accounts, 19 cents for this purpose,
and by other accounts, 36 cents for this purpose. If we've
reduced their charges that much, why are they including this in
the billing rate?
If they include it in the billing rate, then it is an
identifiable entity, and we have to decide whether that entity
is a fee or a tax. But if we've saved them $4 billion, why was
Congress wrong to assume that deregulation would bring them so
much more profit that they could fund this, which is the
assumption that we made?
Mr. Wright. I don't have the all the long-distance
carriers' billing plans at the tip of my tongue, but some of
them, like AT&T, didn't offer 10 cents a minute three years
ago. They offered 15 cents a minute. Now they offer 10 cents a
minute and they add in a half-penny for schools and libraries.
Chairman Johnson of Connecticut. Why do you allow them to
do that? You are the regulators. The bill was to say, we're
going to give you free open competition and it's going to cut
your costs. But one of the things you are going to do is make
sure that we do this and that that gets folded in. And yet, you
are allowing them to put in their universal rate, either 19
cents or 36 cents, and that is an identifiable either fee or
tax.
Mr. Wright. Madam Chairman, you referred earlier--described
us as rate regulators. That's not true. Over the past 25 years,
we have very aggressively deregulated the long-distance market
and we do not regulate their rates.
Chairman Johnson of Connecticut. Mr. Weller.
Mr. Weller. Thank you, Madam Chair. This is an extremely
helpful hearing. I really want to again commend you for
conducting today's hearing as we look at a challenge. It is
clear, I think, from the statements of members on both sides,
as well as those who have testified this morning, that every
one of us stands here in support of increasing access to the
Internet and computers for every school library in our nation.
Of course, the question is how can we accomplish it, and
the real question of this hearing is how do we fund, how do we
finance that goal. And in listening to the testimony of the
Commissioner, as well as the legal counsel, the chief lawyer
for the FCC--we have a disagreement here, so we've got both
sides represented. And the Commissioner indicated--and confirm
with me--it's my understanding that you agree with the notion
that many have, that the so-called fee is actually a tax, is
that correct, Commissioner?
Mr. Furchtgott-Roth. I believe that that portion that goes
to nontelecommunications carriers under (h)(2) is a tax, yes.
Mr. Weller. And then, Mr. Wright, you argue that what he
believes is a tax is actually a fee.
Mr. Wright. No, we've never defended this as a fee. The
language of the statute is ``specific mechanisms.'' The
language of the relevant cases are things like ``special
purpose levies.'' But some cases have been cited under
something called the Independent Offices Administration Act,
and it is alleged that we've claimed that these are fees under
that Act; we've never made that claim, so it's setting up a
straw man to beat that one down.
Mr. Weller. So then if you don't believe it's a fee, then
you believe it's a tax.
Mr. Wright. No, we believe it's what Congress called it,
and Congress called it a ``specific mechanism.''
Mr. Weller. A specific mechanism?
Mr. Wright. What the D.C. Circuit called----
Mr. Weller. Kind of like a revenue-enhancer and all the
other terms that politicians have used over the years to label
a tax something else.
Mr. Wright. I'm just a lawyer. But the courts have said
that a regulation is a tax only when its primary purpose is
raising revenue, and the courts have regularly approved----
Mr. Weller. Sure. Well, reclaiming my time, Mr. Wright, I
am not an attorney, so I turn to attorneys at times and ask for
advice and counsel. And I know that the Commissioners look to
you for advice and counsel, and they say this is what we want
to achieve, we are asking you to figure out a way we can
legally do it. And of course, you are charged with that.
As has been stated earlier, there are roughly 1,800 schools
in my State of Illinois that have requested help through the e-
rate program, not only for the reduced rate but also for the
assistance in putting in the wire and the fiber so they can
hook up computers. Of course, they use LaSalle-Peru High School
as the example where it is most expensive. They estimate that
it is going to cost them roughly $1 million. Ottawa, which is
10 minutes away, they estimate $100,000. So it varies from
school district to school district what the costs are to
achieve this goal.
One of the concerns I have, because many, including the
General Accounting Office, and many in the Congress, including
myself, question the constitutionality of what you label, I
forgot the term again, but what most of us label a tax. And
that if the court action in the 5th circuit finds the FCC's
interpretation of subsection (h)(2) and its subsequent action
unconstitutional, in the case of my State we have 1,800 schools
that are left hanging.
And the question I have for you is if the 5th circuit rules
against you and declares your funding mechanism, what we call a
tax, a tax and unconstitutional, because it was not levied by
Congress, what happens to your program?
Mr. Wright. That would be a major problem then. I think
your bill would be a great thing if the 5th circuit should take
that action.
Mr. Weller. Of course, I am one who believes that the
Fifth--I am not an attorney, but listening to those who are--
that the 5th circuit will rule it unconstitutional, which does
jeopardize the funding. And that's why I worked with my
colleagues and Mr. Tauzin and Mr. Hulshof and others to come up
with a solution to the problem.
And I was wondering, should they rule against you and the
solution we've offered, which is earmarking one cent of every
dollar of an existing revenue source, an excise tax that was
put in place in 1914 to finance World War I, do you feel that
that is a legal funding mechanism that would solve the problem
if the 5th circuit court rules against you?
Mr. Wright. Oh, it certainly sounds like it would. I don't
know all the details of the bill. I don't know whether it's
specific with respect to internal connections and Internet
access. But in what I would regard the unlikely event the 5th
circuit rules against us, that would sure be agreat backup.
If I could just make two brief points. You know, the
telephone companies did go in and seek a stay. And we opposed
it and they said this was an unconstitutional tax. The Court
didn't grant the stay. And we then took the very unusual step,
because we'd like to get this settled quickly, of moving to
have the case expedited, which is something the defendant
rarely does.
The telephone companies wouldn't join with us in our motion
to expedite, but we filed it anyway. We are anxious to get this
sorted out.
Mr. Weller. Madam Chair, could I just have a brief
followup? Of course, in Congress we are running out of time,
we've got roughly 30 days in the legislation session left
between now and the first week of October, and we can move this
solution fairly quickly to solve the problem and ensure that
the funds are available to those 1,800 schools in Illinois like
LaSalle-Peru, and Ottawa and others in the Gilette library
district.
From your standpoint, do you believe that if the Court
rules against you, that the FCC should continue to administer
the distribution of these funds or would you be willing to
accept from the FCC standpoint, allowing as we propose, through
the chief technology agency within the Commerce Department, to
use that agency to block-grant the funds back to the States. Do
you have any problem with shifting the administrative
responsibility elsewhere for distribution of those funds?
Mr. Wright. Of course, we abide by decisions of the courts.
This brown book I am holding is the Communications Act. It is
our job to administer it and anything Congress writes into it,
we will administer.
Mr. Weller. So you'd work with us, then. That's good. Thank
you, Madam Chair, and thank you.
Chairman Johnson of Connecticut. Thank you, Mr. Weller.
Mrs. Thurman.
Mrs. Thurman. Thank you, Madam Chairman. Staff just brought
to my attention--and I am curious, since this is my first time
on Ways and Means--that there evidently is a parliamentary
procedure that can be used when a revenue issue has not
originated in the House, called blue-slipping. And it's my
understanding that the staff of Ways and Means went to the
parliamentarian to get clarification as to whether or not they
could blue-slip this so the Ways and Means Committee could take
it. Their answer was no.
And even to the point where the Senate had said they would
go back and clarify any language to make sure that it wasn't
considered to be a tax. Are you familiar with this procedure
that took place, or any of the inquiry that took place on this
issue?
Mr. Furchtgott-Roth. Mrs. Thurman, I had the privilege of
being a staff member on the House Commerce Committee when the
1996 Act was going through the House in conference, and I do
have a recollection of the Parliamentarian reviewing it. I
don't have the specific recollection of the Ways and Means
Committee staff requesting a blue slip, but I would be very
surprised if the Ways and Means Committee staff did not, in
fact, review the language.
Mrs. Thurman. And that process is not open just to the
chairman or the ranking members? It's open to all members of
Congress?
Mr. Furchtgott-Roth. Yes, ma'am.
Mrs. Thurman. Secondly, Mr. Wright, let me ask you a
question. I am trying to get to the bottom of this. In your
beliefs in this dialogue, is the universal issue a tax or a
fee? Or is it just what we are now looking at in this new
provision, the tax?
Mr. Wright. Well, let me make clear that there is only one
funding provision in the Act. That is 254(d). It covers high-
cost, low-income and schools and libraries, says all
telecommunications carriers pay. There is only one funding
provision in the Act, and it applies without distinction to any
of the them.
Mrs. Thurman. So then what we are really doing is
dissecting this issue into, first of all, the school and
libraries issue, and then into the construction issue. Is
that----
Mr. Wright. Right. Let me make clear that in the 5th
Circuit, the telephone companies claim that all of this is an
unconstitutional tax.
Mrs. Thurman. Have they ever done this before?
Mr. Wright. Yes, twice in the last decade, they went to the
D.C. Circuit making the same case. Look, I am in the business
of defending the constitutionality of the acts of Congress. It
does not come easily to my lips to say that an act is
unconstitutional or even that there is a grave question. But to
the extent there was a grave question, it was with respect to
the high-cost fund before the 1996 Telecommunications Act was
enacted.
The high-cost fund, there was nothing in the act saying
anybody paid anything and the way we put together a program to
make service affordable to all Americans, we had the inter-
exchange carriers or the long-distance companies pay, they
didn't get any money. The local exchange carriers, the Bell
Atlantics and Ameritechs, collected all the money. And we won
that case. So this case seems easy in comparison.
Mrs. Thurman. Mr. Roth.
Mr. Furchtgott-Roth. Mrs. Thurman, I'd just like to make a
couple points on that. First of all, Mr. Wright is entirely
correct that 254(d) is the only source of funding. But I would
note that today the telecommunications carriers pay different
rates on different bases for different funds. The Commission
has set up a very complicated structure, so for instance, for
schools and libraries, they pay a certain percentage on both
inter and intrastate funds, entirely separable from a different
rate that is applied only to interstate funds that is used for
high-cost and low-income programs.
The other issue which I think is relevant to the question
of whether or not it is a tax is how the money is spent. And
for both high-cost and low-income, all of the money consistent
with section 214(e) and 254(e) only goes to eligible carriers.
The eligible carriers are all telecommunications carriers, so
all of the money stays within the telecommunications industry.
It is a shifting of funds from one telecommunications carrier
to another.
Mrs. Thurman. But in the final analysis, once the
connection or the wiring--I wouldn't call it construction, but
wiring--they still then are the beneficiary in the final
analysis by this rewiring, is that correct?
Mr. Furchtgott-Roth. No, ma'am, I would not----
Mrs. Thurman. Well, when they broke up and deregulated, a
lot of what they stopped doing--they have a lot of
subcontractors out there that do wiring and those kinds of
things today. But to provide the service, if I am correct,later
on once when they get the wiring done, then the whole universe gets the
opportunity to participate.
Mr. Furchtgott-Roth. Not under 254, not for schools and
libraries. A lot of that service will not go to
telecommunications carriers at all.
Mr. Wright. If I could add just a word, of course if the
schools are connected and they need the inside wiring to get
the Internet access, of course, the telephone companies end up
benefitting. World Com and MCI are the largest owners of the
Internet backbone in this country. That's one of the problems
in their pending merger. Of course, if the schools and
libraries have Internet access, they will use it, and the
telephone companies that contribute will benefit, it's just
like high-cost.
Mr. Furchtgott-Roth. Eighty percent of schools and
libraries in the United States are connected to the Internet
without a nickel of money from the FCC. The vast majority of
these schools and libraries receive today free or discounted
service to the Internet.
In fact, of the $2 billion that has been requested for
1998, less than $100 million of that is for Internet services.
Most of this money is not going for Internet services. A third
of the money is going for just regular telephone service
discounts, and two-thirds of the money is going for what is
euphemistically being described as internal connections, but
what is in fact primarily money to pay for extraordinarily
sophisticated computer equipment.
Mrs. Thurman. For schools and libraries.
Mr. Furchtgott-Roth. For schools and libraries.
Mrs. Thurman. So that universe still stays.
Mr. Furchtgott-Roth. But those people are not paying into
the fund.
Mrs. Thurman. Okay. Thank you.
Chairman Johnson of Connecticut. Mr. Hulshof.
Mr. Hulshof. Thank you, Madam Chairman. So, in essence, the
telecommunications carriers are paying into the e-rate program,
but then companies that are not telecommunications carriers are
receiving disbursements under the program. Commissioner, is
that essentially----
Mr. Furchtgott-Roth. That is true for only a portion of the
schools and libraries program, yes. It is not true for the
other universal service programs.
Mr. Hulshof. Mr. Wright, following up on what Ms. Johnson
asked earlier, somewhere in all the information given us, I saw
some information that reduced access charges have saved long-
distance carriers $2 billion, is the number that comes to mind.
Is that accurate, more or less?
Mr. Wright. It's more like $4 billion.
Mr. Hulshof. Four billion, okay. Is it your testimony or
statement that reduced access charges to long-distance
providers should pay for the e-rate program?
Mr. Wright. The e-rate program is separate, but I think in
understanding the whole system, it's certainly nice that they
balance out this way.
Mr. Hulshof. Well, hasn't the FCC stated that reduced
access charges should be passed on to the consumers?
Mr. Wright. Again, we are not in the direct business of
rate regulation. But it is our understanding that in a
competitive market, rate reductions should be passed on to the
consumers. We've declared this a competitive market; that's why
we've deregulated it.
Mr. Hulshof. And hasn't the fact been long-distance
carriers have reduced their rates in excess of the savings from
the reduced access charges?
Mr. Wright. Some of them are offering some very good deals
these days, yes.
Mr. Hulshof. So I guess my question is how can the savings
be spent twice? That is a nonlegal way to say it, but
ultimately, it seems that we are spending the savings more than
once, are we not?
Mr. Wright. Again, there is no direct tie. The long-
distance companies set their own rates. You are certainly right
that the e-rate program costs money; it comes from somewhere.
If I could give you an example, though, of why it's very
important that some nontelecommuncations companies get money, I
think look at this from the point of view of a school district.
You want to buy Internet service. The telephone companies are
arguing that only telecommunications companies should provide
that, so around here you could get Bell Atlantic.
But, of course, there are lots of Internet service
providers that are not telecommunications carriers. They are
not eligible under the telephone companies' argument. Under the
telephone companies' argument, a school has to choose the high-
cost telephone company and can't choose AOL, can't choose
Gateway, can't choose Erol's, even if they are lower cost and
better priced.
Mr. Hulshof. Let me explore just a bit--and even, Mr.
Weller, as an attorney, I am not sure that I am conversant,
certainly not on the scale that you are, Mr. Wright and I
acknowledge that--but one of the things Mr. Weller talked about
is there are some questions being raised by the General
Accounting Office regarding the constitutionality of the
corporation that has been established to administer the
program.
Do you have any quick comment on that?
Mr. Wright. Well, the quick comment is that we directed the
universal service group to reorganize itself. They are in the
process of doing it. We believe that that fullyresponds to
GAO's complaints.
Mr. Hulshof. Regarding your comments about the 5th
circuit--and I am not holding you to this--but the case has
been argued, or are we simply waiting for the Court's opinion
at this point?
Mr. Wright. No, the case hasn't been argued yet.
Mr. Hulshof. Okay, it has not been argued.
Mr. Wright. It has been briefed, but not argued.
Mr. Hulshof. You wanted to put this on an expedited track,
but the other parties have not. Any anticipation of when? What
is the normal course as far as when briefs and arguments and
ultimately an opinion? What's your best guess?
Mr. Wright. Briefs are in. Unless expedited, the argument
probably won't be held until the winter.
Mr. Hulshof. Okay. Let me ask you this question. You state
that these issues are raised in the 5th circuit litigation. But
I'm not sure that your brief responds to the argument that the
e-rate program, as distinct from the entire universal service
program, raises the separation of powers issue.
You talk about the Origination Clause issue. Can we be
confident that the 5th circuit will address the issue of the
separation of powers, because I am not sure your brief quite
addresses that point.
Mr. Wright. The way the issue is teed up in the 5th
circuit, the tax issue has been separate from whether we
interpreted 254(h) properly. And we filed about a 200-page
brief there. You will find a few pages on the tax issue. There
are about 25 pages somewhere else on whether we've interpreted
254(h) properly to cover internal connections and Internet
access.
Mr. Hulshof. So hopefully, the 5th circuit, although again,
drawing upon past experience, oftentimes courts will only give
us a narrow holding. So even though some of the witnesses
previously say we should wait until the 5th circuit returns its
opinion, it could very well be that the 5th circuit is only
going to narrowly address the issue and we still may have this
discussion at a later time.
Mr. Wright. Yes. I would say that in the normal course, we
won't get an opinion from the 5th Circuit until next summer,
and as already noted, we've got 30,000 applications pending,
100,000 schools. And we are getting a lot of complaints from
the schools that we ought to move more quickly.
Mr. Hulshof. Thank you, Madam Chair.
Chairman Johnson of Connecticut. I thank the panel for
testifying. I think the number of applications you received
attests the importance of this program and the importance of
resolving the problems around it.
I would also want to comment on the fact that the bill
wasn't blue-slipped does indicate that the parliamentarian
judged that this was not a tax, presumably in consultation with
either the Joint Tax Staff or with the staff of the Ways and
Means Committee. The issue really is whether or not it becomes
a tax by virtue of the way the FCC implemented it. And I think
this hearing has given us a great deal of insight into that
issue.
I personally am very impressed with the fact that two-
thirds of the money is going to wiring and computers. And I
would just remind both the members and the public that this
Congress doubled the money for school technology in last year's
budget to over half a billion dollars, because we do believe it
is our responsibility to help schools become state-of-the-art
technologically.
This Congress also passed just last year in the tax bill
tax incentives to help schools be able to get state-of-the-art
technology and to improve the partnership between the business
community and the schools in terms of the transfer of modern
technology into the school system for their usage.
So there are many indications that the Congress feels
responsible for achieving the goal of assuring state-of-the-art
technology in our schools and libraries, and certainly, the
directive to the FCC of a discounted rate is harmonious with
achieving not only the goal of creating that system, but
assuring its functioning and assuring it in a way that is
harmonious with the history of our effort to subsidize those
who are least able to pay the rates for communications
services.
But I do think that the nature of the grant subsidy program
that the FCC developed raises very significant questions about
whether a fee has then become a tax by virtue of who pays and
who benefits, and also whether we can afford to have
administrative agencies make that kind of interpretation and
put in place programs that, in many ways, duplicate the
administrative efforts of the government to achieve the same
goal in other parts of the bureaucracy.
So I think we have gained a lot more insight into both the
constitutional and legal issues that the recent actions of the
FCC raise, and I think we also have given ourselves a lot more
information about the variety of ways in which we can go about
assuring that the goal, on which we all agree, of high
technology and modern wiring into our schools can be achieved.
So I thank you for your participation today, and I thank
the members for their constancy in staying until the end. Thank
you.
[Whereupon, at 12:25 p.m., the hearing adjourned subject to
the call of the Chair.]
[A submission for the record follows:]
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