[Federal Register Volume 84, Number 245 (Friday, December 20, 2019)]
[Rules and Regulations]
[Pages 70026-70037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27219]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 13-184; FCC 19-117; FRS 16311]


Modernizing the E-Rate Program for Schools and Libraries

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) makes permanent the ``category two budget'' approach that 
the Commission adopted in 2014 to fund internal connections, which are 
primarily used for Wi-Fi, a technology that has enabled schools and 
libraries to transition from computer labs to one-to-one learning.

DATES: Effective January 21, 2020, except for Sec. Sec.  54.502(d) and 
(e) and 54.513(d) which are delayed. The Commission will publish a 
document in the Federal Register announcing the effective date of those 
rules.

FOR FURTHER INFORMATION CONTACT: Stephanie Minnock, Wireline 
Competition Bureau, (202) 418-7400 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (Order) in WC Docket No. 13-184; FCC 19-117, adopted on 
November 20, 2019 and released on December 3, 2019. The full text of 
this document is available for public inspection during regular 
business hours in the FCC Reference Center, Room CY-A257, 445 12th 
Street SW, Washington, DC 20554 or at the following internet address: 
https://docs.fcc.gov/public/attachments/FCC-19-117A1.pdf.

I. Introduction

    1. The Commission's E-Rate program is a vital source of support for 
connectivity to--and within--schools and libraries. In particular, the 
E-Rate program provides funding for internal connections, which are 
primarily used for Wi-Fi, a technology that has enabled schools and 
libraries to transition from computer labs to one-to-one digital 
learning. In this document, the Commission makes permanent the 
``category two budget'' approach that the Commission adopted in 2014 to 
fund these internal connections. The category two budget approach 
consists of five-year budgets for schools and libraries that provide a 
set amount of funding to support internal connections. In adopting this 
approach, the Commission also established a five-year test period (from 
funding year 2015 to funding year 2019), to consider whether this 
approach would be effective in ensuring greater and more equitable 
access to E-Rate discounts.
    2. Based on the overwhelming record support for the category two 
budget approach from the E-Rate community, coupled with the 
Commission's own experience during the five-year test period, the 
Commission concludes that the category two budget approach has provided 
broader, more equitable, and more predictable funding for schools and 
libraries than under the prior rules. The budget amount provided to 
schools and libraries during the test period proved to be successful, 
and, moving forward, the Commission intends to generally remain within 
those parameters of support. Building on the success of the category 
two budget approach, the Commission takes important steps to (1) 
streamline processes to ensure more equitable, consistent distribution 
of support for small, rural schools and libraries within the existing 
E-Rate program budget for category two services, (2) simplify the 
category two budgets, and (3) decrease the administrative burden of 
applying for category two services. As a result of the measures the 
Commission takes in this document, the category two budget approach 
will become more streamlined, furthering the program's overall 
effectiveness and the deployment of Wi-Fi in schools and libraries 
across the country.

II. Discussion

    3. To ensure that our nation's students and library patrons have 
access to high-speed broadband and to further the Commission's goal of 
bridging the digital divide for all Americans, it permanently extends 
the category two budget approach, which has provided certainty and more 
equitable funding to schools and libraries for the last five funding 
years. Doing so avoids a return

[[Page 70027]]

to the two-in-five rules. Furthermore, informed by the Commission's 
experience with administering the category two budgets during the five-
year test period, it simplifies and streamlines the category two budget 
approach to allow applicants to make more effective use of category two 
funding and to reduce administrative burdens. As part of these 
improvements, the Commission also provides more equitable, consistent 
support for small, rural schools and libraries within the existing 
category two services budget and make permanent the eligibility of 
managed internal broadband services, caching, and basic maintenance of 
internal connections.
    4. As detailed in the following, to ensure a smooth transition to 
the new rules, the Commission establishes rules for funding year 2020 
that extend the five-year test period for an additional year and 
provide a prorated amount of category two support to all applicants. In 
this way, the Commission balances the desire to meaningfully improve 
the category two budget approach while minimizing the impact associated 
with such changes for the upcoming funding year. Thus, the new rules 
the Commission adopts for the category two budget approach will apply 
beginning in funding year 2021, at which time the budgets will reset 
for all applicants as the Commission moves to fixed five-year funding 
cycles, the first of which will run from funding years 2021 to 2025.
    5. Based on a review of the record, the Commission first adopts its 
proposal to make the category two budget approach permanent, thus 
ensuring that the two-in-five rules will not come back into effect for 
any applicants following funding year 2019. Doing so is supported by 
the record and consistent with the findings of the Bureau's Category 
Two Budget Report. Commenters unanimously support the category two 
budget approach, and no commenter expressed a desire to return to the 
problematic two-in-five rules. In particular, commenters state that the 
benefits of the category two budget approach far outweigh any benefits 
of the alternative two-in-five rules approach. This view is consistent 
with the Bureau's finding that, since funding year 2015, funding has 
gone to all fifty states and all discount levels in a manner that more 
closely approximates the composition of participating schools and 
libraries in the E-Rate program overall.
    6. Moreover, there is agreement that the category two budget 
approach ``has led to wider, more robust deployment of broadband 
services within schools and libraries.'' Likewise, the category two 
budget approach has ``enabled all applicants, regardless of their place 
on the E-Rate discount matrix, to receive funding for broadband 
equipment and services inside their school and library buildings.'' 
With respect to libraries, ALA observed that ``for the first time in 
over fifteen years our libraries are assured of receiving C2 funding. 
The result is that all libraries, whether in rural remote areas or 
urban centers, have access to much needed funding for their in-building 
network requirements.'' Commenters also note that extending the 
category two budget approach permanently will give ``both applicants 
and service providers confidence that category two funding will 
continue in a reliable and predictable manner.''
    7. Finally, the record contains no evidence of any significant 
economic costs associated with a transition to a permanent category two 
budget approach. Accordingly, the economic benefits of transitioning to 
a permanent category two budget are expected to outweigh the costs. For 
all of these reasons, the Commission makes the category two budget 
approach permanent.
    8. Recognizing that the category two budget approach, while 
successful during the five-year test period, can be improved upon, the 
Commission takes this opportunity to simplify the budgets and make 
category two funding even more effective than during the last five 
funding years. Specifically, beginning in funding year 2021, the 
Commission resets all applicant budgets and begin fixed five-year 
budget cycles. As part of this modification, the Commission also adopts 
district-wide and library system-wide budget calculations, which will 
relieve applicants of some of the most significant administrative 
burdens associated with the category two application process and 
management of the budgets. Furthermore, to ensure the needs of schools 
with low student counts and small libraries, particularly those in 
rural areas, are met and to promote their increased participation, the 
Commission increases the category two funding floor to $25,000. The 
Commission maintains the per-student budget multipliers that served 
schools well during the five-year test period and adopt a single budget 
multiplier for libraries, all of which will be adjusted for inflation 
every five years. Additionally, the Commission makes managed internal 
broadband services, caching, and basic maintenance of internal 
connections permanently eligible, and confirm their eligibility for all 
applicants in funding year 2020.
    9. First, to facilitate the transition to the new rules, the 
Commission will reset all budgets to the full amount eligible under the 
new rules, which will provide applicants the opportunity to deploy 
internal connections and make it easier for them to track their 
category two budgets in the new funding cycle. All applicants will 
start with a new five-year budget cycle beginning in funding year 2021, 
regardless of whether they completed their previous five-year budget 
cycle during the test period.\1\ The Commission agrees with commenters 
that resetting the budgets at the end of the test period will alleviate 
confusion, whereas rolling over remaining funds from the test period 
would be difficult to track given the changes to the rules and the 
budget calculations.
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    \1\ The budget reset applies to all applicants, including those 
applicants who were subject to the relief the Commission provided in 
the response to Hurricanes Harvey, Irma, and Maria.
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    10. Next, as part of the improvements to the category two budget 
approach the Commission makes in this document, and to ease the 
administration of the budgets, the Commission adopts fixed five-year 
budget cycles, with the first such cycle running from funding year 2021 
through funding year 2025. Applicants may submit applications in any 
funding year during this five-year cycle. In the 2019 Category Two 
Notice, 84 FR 34107, July 17, 2019, the Commission sought comment on 
using rolling budgets, or setting fixed five-year budget cycles, as 
part of the permanent category two budget rules, and asked if fixed 
five-year cycles would be easier to administer. Commenters largely 
support fixed five-year cycles, noting that fixed budgets present the 
``clearest and cleanest approach,'' and that a ``simplified, fixed 
timeframe for budget expenditure for all applicants will alleviate much 
of the confusion'' created by rolling budgets. The Commission agrees 
and now adopts fixed five-year budget cycles to simplify the 
administration of the budgets and eliminate a source of confusion for 
applicants. Fixed cycles also present natural beginning and ending 
points for budgets, making it easier to make changes and updates to the 
budgets in future funding years should the need to do so arise. These 
changes will allow for the smoothest transition to the new rules, and 
the Commission agrees with commenters who stated that the risks 
associated with a fresh start and fixed budgets are minimal.
    11. The Commission notes that no commenter supported rolling 
budgets that begin the first year a school or

[[Page 70028]]

library requests category two funding and look back four years, as 
described in the 2019 Category Two Notice. Some commenters, however, 
supported rolling over unused funds from the five-year test period into 
new, fixed five-year cycles. The Commission concludes, however, that 
the administrative burden of carrying unused funds from one budget 
period to another far outweigh the benefits of doing so, and the 
program would be easier to administer with clear starting and ending 
points to budget periods. Other commenters support rolling budgets to 
the extent that fixed budgets will present challenges with schools 
opening or closing during a five-year period. The Commission disagrees 
and finds instead that fixed five-year cycles present the simplest 
rules to administer, and in fact minimize the confusion caused by a 
school opening or closing mid-cycle. Under a rolling scenario, that 
school district's budget would need to reflect changes caused by a 
school opening or closing for an extended period of time, while fixed 
budget cycles reset at the conclusion of the five-year cycle, giving 
the district an opportunity to start fresh calculating its budget. 
Overall, the benefits some applicants may receive from carrying over a 
portion of unused funding, or from being able to start calculating 
budgets on a rolling basis, are outweighed by the ability of all 
applicants to calculate budgets on a clear, predictable basis, with 
established beginning and ending points that also present clear 
opportunities for future modifications, should the need arise.
    12. Next, as part of the permanent rules that will go into effect 
in funding year 2021, the Commission adopts district-wide and library 
system-wide category two budgets--a change that nearly all commenters 
support. Specifically, school districts and library systems will now 
have a single budget to administer, and the district or library system 
will have the flexibility to allocate category two funding among its 
schools and libraries as it sees fit, vastly simplifying the planning 
and application process for category two services. This change will 
simplify some of the more complicated aspects of administering the 
budgets and applying for funding (such as dividing the costs of shared 
services among multiple entities, estimating student counts at new 
schools, and counting part-time students), without eliminating 
protections against waste, fraud, and abuse, which continue to apply 
with respect to each individual school and library included in the 
school district-wide and library system-wide budgets. In particular, 
calculating the budgets in this way will largely eliminate the need for 
applicants to maintain and administer separate budgets for each school 
or library in a district or library system and minimize instances where 
funding requests are delayed or denied because they exceeded the budget 
for a particular school or library. Further, as commenters noted, 
different schools have different technological needs, and a single 
district-level or system-level budget will allow the school district or 
library system to determine how best to account for these differences. 
By affording applicants the flexibility to determine how best to 
allocate funding within their districts and library systems, the 
Commission ensures a more effective use of E-Rate funds.
    13. In adopting district-wide budgets, the Commission provides 
general guidance on what constitutes a ``school district.'' Given that 
applicants are likely to be in the best position to apply this guidance 
to their particular circumstances, the Commission does not strictly 
define the term for the purposes of applying for and calculating a 
district-wide budget. In response to the Commission's request for 
comment on how applicants and USAC should determine which entities are 
part of a school district for calculating category two budgets, the 
Commission received several comments, but no clear consensus. To 
provide administrative ease and flexibility to account for differing 
scenarios and consistent with the manner in which applicants currently 
calculate district-wide discount rates, applicants should consider all 
schools that fall under the control of a central administrative agency 
as a district for the purpose of calculating a shared, district-wide 
budget.
    14. Under this approach, private schools and charter schools that 
operate independently of a public school district or a central 
administrative agency, and are individually responsible for their 
finances and administration, should separately calculate their category 
two budgets and apply for funding. Independent charter schools, private 
schools, and other eligible educational facilities that seek support 
for more than one school building should factor all students in 
facilities under the control of their central administrative agency or 
entity into the category two budget calculation. For example, if a 
group of parochial schools shares administration and finances, they 
should calculate a single, ``district-wide'' category two budget for 
all students under the central administrative entity or agency.
    15. To address issues that may arise regarding changes to school 
districts and library systems during a five-year budget cycle, as well 
as issues that may arise in accommodating states' varied definitions of 
school or library districts, the Commission directs the Bureau to 
provide clarifying guidance consistent with the terms of the Order, and 
publish clarifications or additional guidance with respect to the 
implementation and administration of district-wide and library system-
wide category two budgets to the extent necessary.
    16. Full-Time Enrollment. In another effort to streamline both the 
application filing and review process, going forward the Commission 
will base student counts on full-time enrollment only and eliminate the 
need for schools or school districts to count part-time students in 
their enrollment numbers. Commenters support this change as a 
simplification that stems from district-wide budgets. More 
specifically, because the district-wide budgets will allow school 
districts greater flexibility in allocating category two support, it is 
no longer necessary for schools with lower full-time enrollment, but 
high part-time enrollment to take the often difficult and time-
consuming steps to count and verify their part-time enrollment numbers 
in order to obtain category two funding. Using district-wide budgets, 
the Commission believes that all schools in a district will have 
adequate support to ensure appropriate deployment of local area 
networks.
    17. The Commission also will no longer permit school districts to 
estimate the number of students for buildings under construction 
because those students will otherwise be accounted for by the district 
enrollment numbers. However, an independent school with its own entity-
level budget will still be allowed to estimate its enrollment numbers 
in order to be able to request category two support while construction 
is underway. As presently required by the Commission's rules, if an 
applicant overestimates the number of students who enroll in that 
school, it must return to USAC any funding in excess of that which it 
was entitled based on the actual enrollment by the end of the next 
funding year.
    18. To ensure that all E-Rate applicants, including small schools 
and libraries in rural areas, have the funding they need to deploy 
their internal connections networks within the existing E-Rate program 
budget for category two services, the Commission takes several steps to 
make access to category two funding more equitable and, in turn, result 
in a more consistent distribution of support for small, rural

[[Page 70029]]

schools and libraries. First, the Commission raises the category two 
budget funding floor from $9,200 to $25,000. Second, the Commission 
eliminates the funding disparity between urban and rural libraries 
inherent in the current bifurcated approach that disadvantages rural 
libraries and adopt a unified budget multiplier for all libraries.
    19. Funding Floor. To ensure that small schools and libraries have 
sufficient funding to deploy their internal connections, the Commission 
increases the funding floor to a pre-discount level of $25,000 over the 
five-year funding cycle beginning in funding year 2021. In the 2019 
Category Two Notice, the Commission sought comment on whether the 
funding floor should be increased to $25,000. The Commission agrees 
with commenters that the existing funding floor level of $9,200, 
combined with the overall administrative burden of requesting category 
two support, resulted in a low participation rate by small and rural 
entities with low student enrollment or small square footage. For 
instance, from funding year 2015 through funding year 2019, school 
sites nationwide, on average, used 60% of their category two funding 
support, but small sites that only qualify for the funding floor, on 
average, used only 33% of their category two funding support, in large 
part because so little funding was available to them or because the 
benefits of the funding at the floor were often lower than the costs 
associated with the application process.
    20. To illustrate why few entities at the funding floor (which 
include many rural schools and libraries) took advantage of category 
two funding during the five-year test period, the Commission considers 
a small school at an 85% discount rate with 61 students. During that 
period, which set the budget floor at $9,200, such a school would have 
been eligible to receive category two support of just $7,820 despite 
having many of the same technical needs for its Wi-Fi networks as 
larger schools. In fact, one commenter estimates that it would cost 
$24,350 to deploy switches, wireless access points, wireless access 
point controllers, routers, and cabling to a small school with 61 
students. The Commission agrees with those commenters that argue that a 
budget floor of $25,000 is sufficient to ensure that those small sites 
that previously did not participate can deploy internal connections 
networks. With a $25,000 funding floor, that same small school at an 
85% discount rate will receive $21,250 in E-Rate support. The 
Commission expects that this additional funding, in addition to the 
increased flexibility of district-wide and library system-wide 
budgeting generally, will make it attractive and beneficial for small 
schools and libraries to take advantage of category two funding 
support. And the Commission finds that this increase in the funding 
floor can be done within the existing E-Rate program budget for 
category two services in combination with its other reforms to the 
category two budget approach.
    21. School Multiplier. Consistent with the findings in the Category 
Two Budget Report, the Commission continues to believe that the 
existing category two budget mechanism is generally sufficient for 
schools, and thus the Commission adopts its proposal to maintain the 
$150 per student school budget multiplier adjusted for inflation from 
the five-year test period, and--for administrative simplicity--adjust 
that amount ($166.44) up to $167 per student for the new five-year 
funding cycle beginning in funding year 2021. The Commission finds that 
maintaining the same per-student level of support as was available in 
the previous category two budget cycle is sufficient to meet schools' 
internal connections needs. This level of support enabled 85% of school 
sites to receive category two funding support during the funding year 
2015 through funding year 2019 budget cycle. Many schools required less 
funding than the $167 per student budget multiplier the Commission 
adopts in this document--in fact, 50% of schools used less than $131 
per student over those five years.
    22. Some commenters argue that a higher budget multiplier is needed 
for schools to build their Wi-Fi networks. The Commission disagrees. 
The Commission finds that increasing per-student budgets beyond the 
rate of inflation is not necessary at this juncture, particularly given 
the other changes the Commission makes to the category two budget 
approach in the Order. In fact, the Commission believes that the 
changes made in this document will lead to additional category two 
funding support being available for those schools that need it.
    23. The streamlined district-wide budget approach the Commission 
adopts in this document empowers school districts to allocate category 
two funding support to the sites that need it most. Entity-specific 
budgets have constrained category two funding support to be directed to 
specific sites based on enrollment numbers or square footage without 
the ability to make adjustments for level of need. If there was a 
school in a district that required less than the per-site budget 
allocation to deploy a Wi-Fi network and another school in the district 
that required more than the per-site allocation, the district could not 
re-direct the unused funding to complete the more expensive network, 
which meant that part of the category two budget support for the 
district went unspent and an identified need went unmet. Implementing 
district-wide budgets lifts this restriction and allows applicants to 
allocate category two funding to the sites that most need it, which, in 
turn, permits them to take advantage of a greater portion of their 
category two budgets. For example, Funds For Learning estimates that 
adopting school district and library system-wide budgets will make an 
additional $94.1 million per year in category two funding available to 
applicants. Further, by increasing the funding floor, the Commission is 
providing additional category two funds to some of the smallest schools 
in the country. As a result, under the Commission's new approach, these 
small schools do not need an increase in the per-student allocation to 
receive an increase in the category two funding available to them.
    24. Library Multiplier. To eliminate the funding disparity between 
rural and urban libraries inherent in the existing bifurcated approach 
to calculating budgets for libraries and to ease administration, the 
Commission establishes a single pre-discount budget multiplier for all 
libraries of $4.50 per square foot over the five-year funding cycle 
beginning in funding year 2021. Currently, the library multipliers 
differ based on geography. Specifically, libraries located in cities 
and urbanized areas with a population of 250,000 or more, as identified 
by the Institute of Museum and Library Services (IMLS) locale codes of 
11, 12, and 21, receive $5.00 per square foot, adjusted annually for 
inflation, and libraries in all other locations receive $2.30 per 
square foot, adjusted annually for inflation.
    25. As demonstrated by the record, the cost to deploy a Wi-Fi 
network does not vary significantly based on geography. As internal 
connections are provided within school and library buildings, which are 
similar regardless of location, the Commission is now persuaded by 
experience from the test period that the costs to install the equipment 
and the type of equipment needed to provide connections within these 
buildings should also be comparable regardless of location. Indeed, 
some commenters contend that internal connections deployment costs are 
higher in rural areas than urban areas, and even those commenters that

[[Page 70030]]

favor a higher budget multiplier for libraries in highly-concentrated 
urban areas recognize that an increase in the budget multiplier for 
rural libraries is needed. Accordingly, the Commission finds that 
experience has not borne out the prediction that costs would be higher 
and the need for support would be greater in highly concentrated urban 
areas than for libraries in the rest of the country.
    26. Moreover, the Commission's experience during the five-year test 
period shows that a lower budget multiplier for rural applicants 
creates a considerable disparity in access to the amount of category 
two funding support available for rural libraries. As the Bureau's 
Category Two Budget Report found, rural libraries seek category two 
funding support at a much lower rate than urban libraries. Commenters 
attributed rural libraries' lack of participation to insufficient 
budgets and recommended an increase to the multiplier for rural 
libraries. Raising the budget multiplier for libraries outside of 
highly-concentrated urban areas, therefore, is a necessary step towards 
ensuring that they have sufficient funding to deploy their internal 
connections.
    27. Finally, setting a single budget multiplier for all libraries 
simplifies the library budget calculations for applicants and will 
reduce the application review burden for USAC. Without the need to 
determine the IMLS locale code for each E-Rate supported library and 
the overall budget multiplier for a library system, applicants and USAC 
should be able to increase the efficiency and pace of the filing and 
processing of applications.
    28. To provide a single budget multiplier for all libraries within 
the existing budget, the Commission adopts a pre-discount multiplier of 
$4.50 per square foot for all libraries. The Commission calculated this 
number, first, by estimating the potential total of all pre-discount 
library budgets from funding year 2015 to funding year 2019 using all 
public libraries. The Commission then divided this potential total of 
all pre-discount library budgets by the total square footage of all 
public libraries. The Commission provided a slight upward adjustment to 
$4.50 per square foot to reflect the anticipated participation rates of 
libraries requesting category two funding under the E-Rate program. 
This new budget multiplier, coupled with the increased funding floor, 
will make additional category two support available for those small and 
rural libraries that did not participate during the five-year test 
period.
    29. The Commission's experience indicates that a pre-discount 
multiplier of $4.50 per square foot will minimally impact libraries in 
highly concentrated urban areas while providing sufficient additional 
funding to enable other libraries to deploy internal connections 
networks. Given that 91% of libraries in highly concentrated urban 
areas used less than $3.99 per square foot from funding years 2015 
through 2019, the Commission expects that this reduction will affect 
only a small proportion of libraries in those areas. Indeed, those 
applicants will still be under budget, even with a budget of $4.50 per 
square foot. Moreover, as with schools, introducing library system-wide 
budgets will give library systems enhanced flexibility to allocate 
funding throughout their sites as they see fit, and raising the funding 
floor will provide greater funding for small libraries, even if their 
per square foot allocations are reduced slightly.
    30. Calculating District-Wide and Library System-Wide Budgets. 
Based on the changes to the budget multipliers and funding floor the 
Commission makes in this document, the Commission details how 
applicants will calculate their budgets under the district-wide and 
library system-wide budget methodology. Specifically, to ease 
administration and to recognize that school and library systems are in 
fact systems with generally unified budgets that have the ability to 
direct support to whatever school or library in the system needs it 
most, the Commission requires school districts and library systems to 
calculate total budgets using their aggregate student count or square 
footage and the ``aggregate funding floor'' (i.e., the aggregate number 
of schools or libraries times the funding floor).\2\ Therefore, a 
school district or library system need only determine the aggregate 
number of students or square footage throughout the system as well as 
the total number of eligible schools and libraries in the system, 
without detailing the precise number of students or square footage 
attributable to any individual school or library. The Commission 
expects most school districts and library systems to receive funding 
significantly above the aggregate funding floor and to appropriately 
allocate funds to those that need it most. In addition, the Commission 
recognizes that smaller school districts and library systems have less 
access to shared resources and are more likely to be located in rural 
areas where funding is scarce. As such, the Commission creates an 
exception for small school districts and library systems. Specifically, 
the Commission gives school districts and library systems with 10 or 
fewer sites the option to calculate their budgets on a per-site basis 
by adding together the budgets of each eligible site within the 
district or library system.
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    \2\ In other words, a school district with 10,000 students would 
normally have an aggregate budget of $1,670,000. If those students 
were spread across 100 schools, then its budget would instead be 
$2,500,000 (the aggregate funding floor). Accordingly, the funding 
floor only comes into play if the aggregate budget for the system 
would fall under the aggregate funding floor for the system.
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    31. To illustrate how the calculation would work, the Commission 
considers a school district with five schools, three of which have 200 
students each and two of which have 100 students each. Using the $167 
budget multiplier for schools and the $25,000 funding floor for funding 
year 2021, the school district would have a total pre-discount budget 
of $150,200, to spend across the five schools over the five-year 
period.\3\ Giving small systems this option will ensure that small, 
rural school districts and library systems can take full advantage of 
the increased funding floor, with only minimal increases to 
administrative complexity for applicants and for USAC.\4\
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    \3\ Each school with 100 students would be eligible for a 
$16,700 budget (which is less than what they would receive under the 
funding floor) and each school with 200 students would be eligible 
for a $33,400 budget. Hence the aggregate budget here is 2 x $25,000 
+ 3 x $33,400 = $150,200. Without this exception, the school 
district's aggregate budget would be determined by multiplying the 
aggregate number of students in the district ((3 x 200) + (2 x 100) 
= 800) by the school multiplier ($167). Hence, the aggregate budget 
would be 800 x $167 = $133,600, which is less than what the 
district's budget would be under the exception.
    \4\ Although the Commission recognizes that allowing site-by-
site calculations increases the number of auditable issues for 
applicants and USAC and could lead some applicants to shuffle 
headcounts to maximize support, they find such concerns of little 
consequence for the smaller school districts and library systems for 
which this option was created. The Commission's experience with USAC 
audits persuades the Commission that the administrative burdens on 
USAC are likely to be manageable if the Commission limit this option 
to school districts and library systems with 10 or fewer locations, 
particularly given that those districts and systems present fewer 
opportunities for shifting headcount and, on that basis, gaming the 
funding support rules. Thus, although the record does not enable the 
Commission to precisely identify the ``ideal'' number of locations 
at which to draw this line, the Commission finds that its choice of 
10 or fewer reasonably balances its interest in managing the 
administrative burden of the program and guarding against the risk 
of gaming.
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    32. Inflation Adjustment. For both budget multipliers and the 
funding floor, the Commission amends its rules to make a one-time 
adjustment for inflation before the start of the filing window for each 
five-year funding cycle. Commenters generally agree that

[[Page 70031]]

a one-time inflation adjustment over a five-year cycle will reduce 
confusion surrounding the category two budget calculations, although 
commenters suggested different approaches for calculating inflation. 
The Commission rejects suggestions that use either predictions or other 
inflation indicators as too complex. Instead, the Commission finds that 
the simplest, most effective, and most accurate approach is to adjust 
for inflation before the start of the filing window for each five-year 
funding cycle, providing notice to applicants about the upcoming budget 
multipliers and funding floor. Adjusting for inflation in this way will 
simplify the budget calculation, and will ensure that subsequent five-
year funding cycles accurately reflect historical inflation rates. To 
ensure that applicants know their budgets well in advance of funding 
year 2021, the Commission announces the budget multipliers and the 
funding floor in the Order. The Commission's calculations of the budget 
multipliers and funding floor account for future inflation through 
funding year 2021 using estimated inflation adjustments. Accordingly, 
these figures will not be further adjusted for inflation between now 
and the funding year 2021 filing window, or again during this initial 
five-year funding cycle.\5\
---------------------------------------------------------------------------

    \5\ Specifically, as discussed above, the Commission establishes 
a school budget multiplier of $167, a library budget multiplier of 
$4.50, and a funding floor of $25,000 for funding year 2021.
---------------------------------------------------------------------------

    33. For future funding years, before the start of every five-year 
funding cycle, the Commission directs the Bureau to calculate and 
announce the inflation adjustments. Specifically, the Bureau will 
announce the budget multipliers and funding floor as adjusted for 
inflation at least 60 days before the start of the filing window for 
the next five-year funding cycle. For funding year 2026 and beyond, the 
Commission shall use the last four quarters of available data on the 
Gross Domestic Product Chain-type Price Index (GDP-CPI) compared with 
the equivalent quarters from the beginning of the five-year funding 
cycle. The increase shall be rounded to the nearest 0.1% and shall be 
used to calculate the category two budget multipliers and funding floor 
for that five-year funding cycle. The budget multipliers and funding 
floor will also be rounded to the nearest cent to eliminate confusion 
surrounding the calculation, as supported by commenters.
    34. Student Counts and Square Footage. To further reduce 
administrative burdens, and consistent with the record, the Commission 
will require applicants to provide student counts and library square 
footage for schools and libraries only once (calculated at the time 
that the discount is calculated that funding year) during a five-year 
funding cycle beginning with the first such cycle that starts in 
funding year 2021. Specifically, under the fixed, five-year budgets the 
Commission adopts in this document, the Commission will require 
applicants to validate their student counts or library square footage 
for each school and library in the district or library system in the 
first year an applicant applies for category two support during the 
relevant five-year cycle. Applicants, if they choose to do so, can 
update their student counts or square footage information in subsequent 
funding years to reflect, for example, an increased budget due to 
increased student enrollment. Applicants, however, are not required to 
do so, and can instead keep the student count and square footage 
information for the entire five years of the budget cycle. The 
Commission notes, contrary to what was suggested in the record, that 
the requirement that the category two budget enrollment numbers only be 
validated once every five years has no impact on the requirement that 
schools update their enrollment and National School Lunch Program or 
Community Eligibility Provision numbers for purposes of calculating 
discount rates each year.
    35. In the 2019 Category Two Notice, the Commission proposed to 
permanently extend the eligibility of managed internal broadband 
services, caching, and basic maintenance of internal connections under 
a category two budget approach consistent with the Commission's 
determination in 2014 to make these services eligible for support 
through funding year 2019. Commenters expressed broad support for 
retaining the eligibility of these three services. Consistent with the 
Commission's determinations in the 2014 First E-Rate Order, 79 FR 
49160, August 19, 2014, it finds that category two budgets allay 
concerns about wasteful spending on these three services, and the 
Commission therefore sees continued benefit for the functionality of 
networks within schools and libraries in making these services eligible 
for category two support. Accordingly, the Commission adopts the 
proposal to make these services eligible for category two support under 
the permanent category two budget approach.
    36. The 2019 Category Two Notice sought comment on whether 
additional services should be made eligible for category two funding. 
In response, commenters urged the Commission to make eligible several 
additional services. For example, several commenters requested that the 
Commission makes eligible under category two the filtering technology 
necessary for compliance with the Children's Internet Protection Act. 
But the Commission has previously explained that the Children's 
Internet Protection Act prohibits recipients from obtaining discounts 
under the universal service support mechanism for the purchase or 
acquisition of technology protection measures necessary for compliance 
with the Children's Internet Protection Act. Others requested that the 
Commission makes eligible services that it has either previously made 
ineligible or that the Commission has previously declined to make 
eligible. The Commission declines to make additional services eligible 
under category two so that E-Rate eligible entities continue to focus 
requests for category two funding on the internal connections that are 
truly necessary to deliver high-speed broadband to students and library 
patrons via local area networks and wireless local area networks, 
consistent with the Commission's reasoning in the 2014 First E-Rate 
Order. And the Commission finds that the requests of still other 
commenters to make additional services eligible for category one 
support are beyond the scope of this proceeding.
    37. At the request of several commenters, the Commission directs 
the Bureau to address ongoing issues related to the application of its 
eligible services rules with respect to category two services by 
providing clarifications in instances where the terminology used in the 
Commission's rules does not align with the terminology used by service 
providers in the context of bid responses and invoicing or has 
otherwise caused applicant uncertainty or confusion about how to 
request category two services.
    38. Equipment Transfer Rule. Consistent with the Commission's 
efforts to streamline the process for requesting support for category 
two services, it now eases the Commission's equipment transfer rule to 
lessen the paperwork burden on school districts and library systems. As 
the Commission stated in the 2019 Category Two Notice, and supported by 
the record, the original concerns that led to the adoption of a 
prohibition on equipment transfers for a period of three years after 
purchase--namely, that applicants might replace or upgrade their 
equipment more often than necessary or

[[Page 70032]]

to circumvent the then-existent two-in-five rules--are no longer 
relevant under a district-wide and library system-wide category two 
budget approach. Under the district-wide and library system-wide 
category two budget approach, the category two purchases for all 
individual schools within the district fall under the same budget, so 
there will no longer be the incentive to purchase a piece of equipment 
for one site and move it to another. This incentive existed under the 
two-in-five rules because there were limits on the internal connections 
funding that each individual school could receive. Under those rules, 
if an individual school did not request equipment when it had the 
opportunity to do so, another school in the same district could 
circumvent the two-in-five rule by requesting that equipment and moving 
it to the facility where it was needed. As the two-in-five rules no 
longer apply, the provisions of the equipment transfer rules that 
prevent its circumvention are no longer needed.
    39. The Commission therefore modifies section 54.513(d) of the 
Commission's rules, effective for funding year 2021, to allow districts 
and library systems to transfer equipment between schools within a 
district and libraries within a system. Importantly, transferors no 
longer must notify USAC of the transfer, but both the transferor and 
recipient must maintain detailed records documenting the transfer and 
the reason for the transfer for a period of five years as required by 
the Commission's rules. Additionally, as a reminder to all applicants, 
under section 54.516(a) of the Commission's rules, schools, libraries, 
and consortia are required to maintain asset and inventory records of 
equipment purchased and the actual locations of such equipment for a 
period of 10 years after purchase.
    40. Non-Instructional Facilities. In the 2019 Category Two Notice, 
the Commission noted that the cost allocation of the shared costs of a 
piece of equipment located in a non-instructional facility could be 
more easily handled in a district-wide category two budget because the 
district-wide approach relieves the burden of allocating costs among 
the budgets of eligible entities. Under the per-entity budget rules, 
district-wide applicants requesting funding for equipment that would be 
shared district-wide but housed in a non-instructional facility 
determined each school's use of the shared equipment as well as the 
non-instructional building's use of the shared equipment, deducted the 
cost of the non-instructional building's use of the shared equipment, 
and submitted funding requests from each school for each portion of 
eligible funding. USAC then reviewed each funding request to ensure 
that funding is only provided for equipment used by eligible entities. 
Under the district-wide budget approach adopted in this document, 
applicants will only need to deduct the cost of the non-instructional 
facility's use of the shared network equipment.
    41. In response to the 2019 Category Two Notice, commenters agreed 
that cost allocation of the use of shared equipment is burdensome, and 
requested that the Commission allow all buildings associated within a 
district or library system, including non-instructional facilities, to 
qualify for category two funding support because the category two 
budget places a ceiling on the amount that can be spent on category two 
services. The Commission declines to modify its rules regarding whether 
non-instructional facilities or the administrative buildings of 
libraries qualify for category two funding support. The district-wide 
budgets the Commission adopts in this document will reduce the 
administrative burden on applicants that use non-instructional 
facilities or other administrative buildings to house network equipment 
shared district-wide and will make it easier for USAC to review such 
requests by eliminating the need to allocate among eligible entities in 
a district. However, the Commission is not persuaded that the 
administrative burden associated with deducting the cost of the non-
instructional building's use of shared network equipment warrants 
eliminating a rule designed to ensure that E-Rate support is only 
provided to eligible entities for eligible purposes. The relatively 
simple task of subtracting the cost of the non-instructional facility's 
use of the shared network element is unlikely to significantly burden 
either applicants or USAC. Accordingly, the Commission will continue to 
require applicants to deduct the cost of non-instructional facilities' 
use of shared equipment from their requests for E-Rate support, as 
required by the current rules.
    42. In this document, the Commission extends the five-year test 
period for the category two budget approach through funding year 2020 
and provide a prorated portion of category two funding for each 
applicant for that additional year. This approach ensures a smooth 
transition to the permanent rules effective in 2021 while providing 
applicants with sufficient funding to deploy internal connections in 
funding year 2020.
    43. In the 2019 Category Two Notice, the Commission sought comment 
on using funding year 2020 as a bridge year between the five-year test 
period and the permanent extension of the category two budget approach. 
The Commission has weighed the costs and benefits of attempting to 
allow applicants to begin requesting E-Rate program support for 
category two services under these permanent rules--including the 
district-wide approach it adopts in this document--in funding year 2020 
and finds that the costs of doing so far outweigh the benefits. In 
particular, implementing new rules for funding year 2020 would likely 
cause delays in funding commitments, and USAC would likely need to 
conduct manual application reviews to accommodate any rule changes. The 
Commission therefore adopts rules extending the five-year test period 
by one additional year and provide prorated E-Rate support for funding 
year 2020 while the Bureau and USAC take the necessary steps to ensure 
effective implementation of the permanent rules beginning funding year 
2021. By extending the test period into funding year 2020, and making 
additional category two support available during that funding year, the 
Commission provides needed certainty and predictability to E-Rate 
participants while allowing the Commission and USAC adequate time to 
implement and ensure a smooth transition to the permanent rules the 
Commission adopts in this document.
    44. First, to implement the permanent rules, the Commission 
recognizes that they and USAC will need time to update (1) E-Rate 
program forms in compliance with the Paperwork Reduction Act; (2) 
USAC's IT systems, including the E-Rate Productivity Center (EPC), to 
track the district-wide and library system-wide budgets and ensure 
funding requests that are over budget are reduced; and (3) 
administrative processes, such as Program Integrity Assurance 
procedures, to ensure consistent review for all five years of the 
funding cycle. Implementing the Commission's new rules as quickly as 
possible will, at best, take them into next year before completion. 
While SECA and SHLB suggest that USAC perform manual workarounds, 
including performing manual calculations of district-wide and library-
wide budgets, the Commission disagrees. Doing so would require USAC to 
make such calculations for approximately 50,000 schools. Moreover, 
manual review of applications in the first year of a five-year funding 
cycle introduces risks of improper payments and the potential

[[Page 70033]]

inability for USAC to properly track the category two budgets until the 
end of the funding cycle. Because these are fixed five-year budgets, 
any error that occurs in the first funding year has the potential to 
impact multiple funding years. Such an outcome would introduce further 
complexity and thus directly contradict the Commission's overall goal 
to simplify and streamline the category two budget approach.
    45. Moreover, implementation of new rules has a strong potential to 
significantly delay the application filing window for funding year 
2020. Despite the statements from some commenters that this months-long 
delay would be preferable to the community, the Commission finds that 
the potential harms, including delaying commitments for category one 
funding requests--which, this funding year, represented nearly $2 
billion's worth of high-speed broadband service and equipment--are 
unacceptable. A delay in funding commitments would create delays in the 
deployment of E-Rate supported services, to the detriment of schools 
and libraries.
    46. The Commission also is unpersuaded by arguments that extending 
the five-year test period will cause more confusion than rushing the 
implementation of the permanent rules with insufficient outreach to 
stakeholders. Instead, to give certainty to applicants in advance of 
the expected opening of the filing window for funding year 2020 and to 
smooth the transition to new, permanent rules, the Commission finds 
that the public interest would be served by an extension of the test 
period through funding year 2020. Since funding year 2015, over 90,000 
schools and 4,900 libraries have used category two support to deploy 
Wi-Fi networks for the benefit of students and library patrons. The 
Commission largely makes no changes to how applicants should apply for 
support for category two services in funding year 2020, allowing 
applicants to move forward using their existing knowledge of the 
category two budget approach and providing an amount of funding 
equivalent to a single funding year's budget to aid applicants whose 
budgets would have ended in funding year 2019. The Commission also sets 
its clear guidance on the budget calculations for funding year 2021, 
allowing applicants to begin much-needed technology planning.
    47. The Commission finds that the benefits of clear rules for 
funding year 2021 strongly outweigh the costs and risks associated with 
new rules implemented without adequate outreach to applicants and 
subsequent delays in funding commitments. By using funding year 2020 as 
a bridge to a permanent set of rules for category two services, the 
Commission will be able to ensure that the permanent rule changes are 
carefully and thoroughly implemented and administered, and that 
applicants are given a smooth transition period and notice for planning 
technology changes or upgrades. As a result of the Commission's 
extension of the test period, all applicants will continue to be able 
to request category two support under the existing category two budget 
approach in funding year 2020, and the Commission will not revert back 
to the two-in-five rules for any applicants.
    48. The Commission provides a prorated portion of category two 
funding to all applicants in funding year 2020, which it will treat as 
a sixth year of the test period. In the 2014 First E-Rate Order, the 
Commission established a pre-discount category two budget for schools 
of $150 per student over five funding years, or 20% of the total 
funding per student annually. Accordingly, in extending the five-year 
test period by an additional year, the Commission provides an 
additional 20% in funding to schools and libraries, as well as to the 
funding floor. The Commission directs the Bureau to release updates to 
the category two budget multipliers and funding floor for the test 
period, adjusted for inflation and proration and rounded to the nearest 
cent, consistent with the Order, within 15 days of publication of the 
Order in the Federal Register. As in previous years of the test period, 
the available category two funding that will be available to applicants 
in funding year 2020 will be the updated budget multipliers and funding 
floor that the Bureau calculates minus the category two funding that 
applicants spent earlier in the test period.\6\
---------------------------------------------------------------------------

    \6\ The Commission notes that this same calculation is 
applicable to applicants whose category two budget was reset based 
on relief the Commission granted in the 2017 Hurricane Relief Order, 
82 FR 55767, November 24, 2017.
---------------------------------------------------------------------------

    49. This action will ensure that all applicants, including those 
who have exhausted their category two budgets or completed their five-
year budget cycles, can request category two support in funding year 
2020. While ALA argued against making additional funds available during 
a bridge year, the Commission finds providing support for this one 
funding year more equitable and appropriate than denying funding to 
applicants that in good faith managed their five-year budgets over a 
five-year period (and did not anticipate a sixth year).
    50. Moreover, this approach is consistent with the Commission's 
intent in the 2014 First E-Rate Order to provide approximately $1 
billion per year in category two support to ensure applicants had 
access to funding for internal connections on a predictable, 
consistent, and equitable basis. Demand for category two services has 
tracked closely to this initial target. By providing a prorated portion 
of funding for funding year 2020, the Commission can make available 
approximately $1 billion for category two services, providing 
applicants with funding that may be needed to maintain their local area 
networks while the Commission transitions to permanent category two 
rules. The Commission also finds that providing a prorated portion of 
category two funding to all applicants treats all entities equitably 
because every entity will be eligible for the same amount of category 
two support during the six-year test period. Finally, this approach 
provides both applicants and USAC with a single calculation for all 
entities, which simplifies the administration in funding year 2020 for 
requesting and reviewing category two funding requests and reduces the 
chances of overpayments.
    51. The Commission finds that good cause exists here to make those 
portions of the Order that codify the permanent eligibility of managed 
internal broadband services, caching, and basic maintenance of internal 
connections for support in funding year 2020 and beyond and the 
proration of budget multipliers and the funding floor for funding year 
2020 effective upon publication in the Federal Register. A rule may be 
made effective prior to thirty days from publication in the Federal 
Register for good cause found and published with the rule. Here, to 
ensure that applicants have sufficient notice of the services that will 
be eligible and the prorated funding that will be available to them 
before they file their funding year 2020 applications, it is necessary 
to implement those portions of the Order as soon as possible following 
release of the Order. The filing window for E-Rate funding applications 
typically opens in mid-January each year to ensure adequate time for 
USAC to process such applications and issue funding commitments or 
denials. Therefore, in light of the need to enable the release of the 
Eligible Services List and notification of budget multipliers and the 
funding floor with sufficient time to make applicants aware of what 
services are eligible and the amount of support available before the 
opening of the filing

[[Page 70034]]

window, the Commission finds that good cause exists to make the 
portions of the Order addressing eligible services and proration of 
budget multipliers and the funding floor for funding year 2020 
effective upon publication in the Federal Register. Moreover, making 
the eligibility of managed internal broadband service, caching, and 
basic maintenance of internal connections and the budget multipliers 
and a funding floor for funding year 2020 effective immediately will 
not impose any implementation burden on applicants given that these 
services were eligible and budget multipliers and a funding floor were 
used during the initial five-year test period.
    52. In addition, to ensure that the application filing window for 
funding year 2020 is not unduly delayed by implementation of the 
Commission's decisions herein, it waives the requirement in section 
54.502(d) of the Commission's rules that the Eligible Services List be 
released at least 60 days prior to the opening of the application 
filing window. Section 1.3 of the Commission's rules allows the 
Commission to waive a rule on its own motion for good cause shown. The 
Bureau may find it necessary to release the Eligible Services List less 
than 60 days before the opening of the application filing window to 
ensure that the filing window opens with enough time to allow USAC to 
process applications for funding year 2020. Applicants will benefit 
from this waiver because it will help to ensure that their applications 
are processed in a timely manner. The Commission finds that the 
adoption of the Order at this time and its impact on a number of 
eligible services constitute special circumstances that warrant waiver 
of the 60-day requirement, and that doing so is in the public interest.

III. Procedural Matters

A. Paperwork Reduction Analysis

    53. This document contains new and modified information collection 
requirements subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. It will be submitted to the Office of Management and 
Budget (OMB) for review under section 3507(d) of the PRA. OMB, the 
general public, and other Federal agencies will be invited to comment 
on the new and modified information collection requirements contained 
in the proceeding. In addition, the Commission notes that pursuant to 
the Small Business Paperwork Relief Act of 2002, it previously sought 
specific comment on how the Commission might ``further reduce the 
information collection burden for small business concerns with fewer 
than 25 employees.''

B. Congressional Review Act

    54. The Commission has determined, and the Administrator of the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, concurs that this rule is ``non-major'' under the Congressional 
Review Act, 5 U.S.C. 804(2). The Commission will send a copy of the 
Order to Congress and the Government Accountability Office pursuant to 
5 U.S.C. 801(a)(1)(A).
    55. As required by the Regulatory Flexibility Act of 1980 (RFA), as 
amended, the Federal Communications Commission (Commission) included an 
Initial Regulatory Flexibility Analysis (IRFA) of the possible 
significant economic impact on a substantial number of small entities 
by the policies and rules proposed in the 2019 Category Two Notice in 
WC Docket No. 13-184. The Commission sought written public comment on 
the proposals in the 2019 Category Two Notice, including comment on the 
IRFA. The Commission did not receive any relevant comments in response 
to the IRFA. The Final Regulatory Flexibility Analysis (FRFA) conforms 
to the RFA.
    56. The Commission is required by Section 254 of the Communications 
Act of 1934, as amended, to promulgate rules to implement the universal 
service provisions of Section 254. On May 8, 1997, the Commission 
adopted rules to reform its system of universal service support 
mechanisms so that universal service is preserved and advanced as 
markets move toward competition. Specifically, under the schools and 
libraries universal service support mechanism, also known as the E-Rate 
program, eligible schools, libraries, and consortia that include 
eligible schools and libraries may receive discounts for eligible 
telecommunications services, internet access, and internal connections.
    57. Taking steps to close the digital divide is a top priority for 
the Commission. The E-Rate program provides a vital source of support 
to schools and libraries, ensuring that students and library patrons 
across the nation have access to high-speed broadband and essential 
communications services. In the Order, the Commission permanently 
extends the category two budget approach and adopts several proposals 
that will reduce the burden on small entities, such as a move to 
district-wide or library-system wide budgets and fixed budget cycles to 
allow careful planning from E-Rate applicants. The Commission also 
extends the five-year test period for the category two budget approach 
for a sixth year to include funding year 2020 to provide funding for 
applicants in funding year 2020 while the Commission and USAC implement 
permanent rules for funding year 2021. During this funding year, with 
limited exceptions, the existing category two budget rules will 
continue to be in effect. Permanent rules for the category two budget 
approach to go into effect in funding year 2021.
    58. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the rules, as adopted. The RFA generally defines the term 
``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one that: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA).
    59. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. The Commission's actions, over time, may affect small 
entities that are not easily categorized at present. The Commission 
therefore describes here, at the outset, three broad groups of small 
entities that could be directly affected herein. First, while there are 
industry specific size standards for small businesses that are used in 
the regulatory flexibility analysis, according to data from the SBA's 
Office of Advocacy, in general a small business is an independent 
business having fewer than 500 employees. These types of small 
businesses represent 99.9% of all businesses in the United States which 
translates to 28.8 million businesses.
    60. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of August 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    61. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau

[[Page 70035]]

data from the 2012 Census of Governments indicate that there were 
90,056 local governmental jurisdictions consisting of general purpose 
governments and special purpose governments in the United States. Of 
this number there were 37,132 General purpose governments (county, 
municipal and town or township) with populations of less than 50,000 
and 12,184 Special purpose governments (independent school districts 
and special districts) with populations of less than 50,000. The 2012 
U.S. Census Bureau data for most types of governments in the local 
government category show that the majority of these governments have 
populations of less than 50,000. Based on this data the Commission 
estimates that at least 49,316 local government jurisdictions fall in 
the category of ``small governmental jurisdictions.''
    62. The small entities that may be affected are Schools and 
Libraries, Telecommunications Service Providers, internet Service 
Providers (ISPs), and Vendors of Internal Connections.
    63. The Commission expects that the rules adopted in the Order will 
result in modified reporting, recordkeeping, or other compliance 
requirements for small or large entities. The Order takes two major 
actions. First, it permanently extends the existing category two budget 
approach for all entities, while adopting a number of steps to simplify 
how applications for category two services are filed, reviewed, and 
ultimately invoiced beginning in funding year 2021. These changes will 
result in modifications to information collections that decrease the 
compliance costs for small entities. And, second, it adopts rules 
extending the current five-year funding cycle for one additional year 
into for funding year 2020 to ensure that support for category two 
services is available and funding for other services are not delayed. 
For the funding year 2020 rules, both small and large entities will 
apply for category two funding in the same manner as in previous years 
with no changes to reporting, recordkeeping, or other compliance 
requirements. The Commission does not believe that small entities will 
have to hire attorneys, engineers, consultants, or other professionals 
to comply.
    64. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) the establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    65. In the Order, the Commission has taken steps to minimize the 
economic impact on small entities with the rule changes that it has 
adopted by permanently extending the category two budget approach and 
working to simplify the administration of the budgets. In the 
following, the Commission outlines many of the adopted simplifications 
that will aid small entities in compliance.
    66. District-Wide or Library System-Wide Budgets. The Commission 
adopts a rule providing that school districts and library systems shall 
calculate their budgets for the entire district or system, allowing 
applicants to use funds efficiently at the schools and libraries that 
need the funding. This dramatically reduces the requirements for the 
application review process, including, but not limited to, eliminating 
reporting of part-time students, eliminating complicated cost 
allocations for equipment that is shared by members of a district or 
system, and overall simplification of the application process from 
start to finish.
    67. Modification of the Equipment Transfer Rule. In addition to the 
district- and system-wide budgets, the Commission amends its rule 
allowing districts and systems to transfer equipment among their own 
schools and libraries and eliminating the need to report such transfers 
to USAC. This removes a reporting requirement for all applicants, but 
keeps rules in place that requires schools and libraries to maintain 
asset inventories of all E-Rate supported equipment.
    68. Modification of the Library Budget Multiplier. The Commission 
amends its rules to have a single library budget multiplier. Currently, 
there are two multipliers, depending on the urban status of the 
library. A single multiplier allows for a simpler calculation of the 
library budgets, streamlining the application and its review.
    69. Increase of the Funding Floor. The Commission adopts an 
increase in the funding floor, which is aimed at encouraging 
participation by small entities. Many commenters argued that the burden 
of program compliance outweighed the benefit of receiving the current 
funding floor, which was also inadequate to meet their needs. 
Increasing the funding floor and simplifying the category two budget 
approach will allow more small entities to participate.
    70. Simplification of the Budget Calculation. The Commission adopts 
fixed, five-year budgets that refresh every five years, eliminating the 
need for applicants and USAC to calculate the budgets annually with a 
series of different variables including inflation, changing student 
counts, and funding years at issue. This dramatically decreases the 
burden on applicants to calculate the budget and apply for E-Rate 
support.
    71. The Order also extends the five-year test period for the 
category two budget approach into a sixth year and sets out the budget 
calculation in the Order to simplify how to calculate the amount of 
funding available to applicants in advance of the funding year 2020 
filing window. While stakeholders advocated for a faster transition to 
the new rules as an alternative to rules for one funding year, the 
Commission finds that this approach causes the least disruption to the 
overall program and provides it and USAC with sufficient time and 
resources to successfully implement the many permanent changes the 
Commission adopts for funding year 2021. The Commission takes steps to 
minimize the burden of the funding year 2020 rules by simplifying the 
budget calculation slightly and otherwise maintaining current category 
two budget rules. As a result, there is no additional burden or cost to 
small entities because the program rules that are familiar to them are 
unchanged. Further, absent the rule changes in the Order, the category 
two budget rules would begin to sunset in funding year 2020, meaning 
that small entities would have to navigate two sets of rules. The rule 
changes in the Order prevent this sunsetting from taking place, thus 
preventing a potential source of burden and cost to small entities.

IV. Ordering Clauses

    72. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1 through 4, 201 through 202, 254, 303(r), and 
403 of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 
201-202, 254, 303(r), and 403, the Order is adopted, and Sec.  
54.502(c) of the Commission's rules, 47 CFR 54.502(c), is amended as 
set forth in the following, and such rule amendments shall be effective 
thirty (30) days after the publication of the Order in the Federal 
Register, except amendments to the budget multipliers and funding 
floor, which shall be effective immediately and except to the extent 
expressly addressed in the following.

[[Page 70036]]

    73. It is further ordered, that pursuant to the authority contained 
in sections 1 through 4, 201 through 202, 254, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-202, 
254, 303(r), and 403, Sec. Sec.  54.502(d)-(e) and 54.513(d) of the 
Commission's rules, 47 CFR 54.502(d)-(e) and 54.513(d), are amended as 
set forth in the following, effective upon announcement of approval by 
OMB under the Paperwork Reduction Act. The Commission directs the 
Bureau to announce the effective date for these information collections 
in a document published in the Federal Register announcing OMB 
approval.
    74. It is further ordered that, pursuant to the authority contained 
in sections 1 through 4, 201 through 202, 254, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-202, 
254, 303(r), and 403, sections of the Order addressing eligible 
services and proration of budgets for funding year 2020 in paragraphs 
35, 36, and 48 shall become effective immediately upon publication of 
the Order in the Federal Register, pursuant to 5 U.S.C. 553(d)(3); and 
47 CFR 1.427(b).
    75. It is further ordered, that pursuant to the authority contained 
in sections 1 through 4 and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151-154 and 254, and pursuant to the authority in 
Sec.  1.3 of the Commission's rules, 47 CFR 1.3, that Sec.  54.502(d), 
47 CFR 54.502(d) is waived, and such waiver shall become effective upon 
release.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Health facilities, Infants and 
children, Internet, Libraries, Reporting and recordkeeping 
requirements, Schools, Telecommunications, Telephone.

Federal Communications Commission.
Marlene Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

Subpart F--Universal Service Support for Schools and Libraries

0
1. The authority citation for part 54 continues to read as follows:

    Authority: Sections 1, 4(i), 5, 201, 205, 214, 219, 220, 254, 
303(r), and 403 of the Communications Act of 1934, as amended, and 
section 706 of the Communications Act of 1996, as amended; 47 U.S.C. 
151, 154(i), 155, 201 205, 214, 219, 220, 254, 303(r), 403, and 1302 
unless otherwise noted.


0
2. Amend Sec.  54.502 by revising paragraph (c) and redesignating 
paragraph (d) as paragraph (e) and adding new paragraph (d) to read as 
follows:


Sec.  54.502  Eligible services.

* * * * *
    (c) Funding year 2020. Libraries, schools, or school districts with 
schools that receive funding for category two services in funding year 
2020 shall be eligible for support for category two services pursuant 
to paragraphs (c)(1) through (6) of this section.
    (1) Six-year funding cycle. Each eligible school or library shall 
be eligible for a budgeted amount of support for category two services 
over a six-year funding cycle. Each school or library shall be eligible 
for the total available budget less the pre-discount amount of any 
support received for category two services in the prior funding years 
of that school's or library's six-year funding cycle.
    (2) School budget. Each eligible school shall be eligible for 
support for category two services up to a pre-discount price of $150 
plus an additional prorated 20% (adjusted for inflation dating back to 
funding year 2015) over six funding years that will be completed at the 
end of funding year 2020. Applicants shall provide the student count 
per school, calculated at the time that the discount is calculated each 
funding year. New schools may estimate the number of students but shall 
repay any support provided in excess of the maximum budget based on 
student enrollment the following funding year.
    (3) Library budget. Each eligible library located within the 
Institute of Museum and Library Services locale codes of ``11--City, 
Large,'' defined as a territory inside an urbanized area and inside a 
principal city with a population of 250,000 or more, ``12--City, 
Midsize,'' defined as a territory inside an urbanized area and inside a 
principal city with a population less than 250,000 and greater than or 
equal to 100,000, or ``21--Suburb, Large,'' defined as a territory 
outside a principal city and inside an urbanized area with population 
of 250,000 or more, shall be eligible for support for category two 
services, up to a pre-discount price of $5.00 per square foot plus an 
additional prorated 20% (adjusted for inflation dating back to funding 
year 2015) over six funding years that will be completed at the end of 
funding year 2020. All other eligible libraries shall be eligible for 
support for category two services, up to a pre-discount price of $2.30 
per square foot plus an additional prorated 20% (adjusted for inflation 
dating back to funding year 2015) over a six-year funding cycle that 
will be completed at the end of funding year 2020. Libraries shall 
provide the total area for all floors, in square feet, of each library 
outlet separately, including all areas enclosed by the outer walls of 
the library outlet and occupied by the library, including those areas 
off-limits to the public.
    (4) Funding floor. Each eligible school and library will be 
eligible for support for category two services of at least a pre-
discount price of $9,200 plus an additional prorated 20% (adjusted for 
inflation dating back to funding year 2015) over six funding years that 
will be completed at the end of funding year 2020.
    (5) Requests. Applicants shall request support for category two 
services for each school or library based on the number of students per 
school building or square footage per library building. Category two 
funding for a school or library may not be used for another school or 
library. The costs for category two services shared by multiple 
eligible entities shall be divided reasonably between each of the 
entities for which support is sought in that funding year.
    (6) Non-instructional buildings. Support is not available for 
category two services provided to or within non-instructional school 
buildings or separate library administrative buildings unless those 
category two services are essential for the effective transport of 
information to or within one or more instructional buildings of a 
school or non-administrative library buildings, or the Commission has 
found that the use of those services meets the definition of 
educational purpose, as defined in Sec.  54.500. When applying for 
category two support for eligible services to a non-instructional 
school building or library administrative building, the applicant shall 
allocate the cost of providing services to one or more of the eligible 
school or library buildings that benefit from those services being 
provided.
    (d) Funding year 2021 and beyond. Schools, school districts, 
libraries, and library systems shall be eligible for support for 
category two services pursuant to the five-year budgets described in 
paragraphs (d)(1) through (6) of this section.
    (1) Fixed five-year funding cycle. Beginning in funding year 2021, 
each eligible school, school district, library, or library system shall 
be eligible for a budgeted amount of pre-discount support for category 
two services over a five-year funding cycle that will reset in

[[Page 70037]]

funding year 2026 and subsequently, after every five funding years. 
Each school, school district, library, or library system shall be 
eligible for the total available budget less the pre-discount amount of 
any support received for category two services in the prior funding 
years of that fixed five-year funding cycle.
    (2) School and school district multipliers. Each eligible school 
district and schools operating independently of a school district shall 
be eligible for support for category two services up to a pre-discount 
price of $167 per student over a five-year funding cycle. The amount of 
support will be calculated at the time that the discount is calculated 
in the first funding year of the five-year cycle in which the applicant 
requests category two support, unless the school or school district 
elects to seek additional program support using updated enrollment 
numbers in subsequent funding years in the five-year cycle. School 
districts shall provide the total number of students within the school 
district. Independent charter schools, private schools, and other 
eligible educational facilities that operate under the control of a 
central administrative agency shall provide the total number of 
students under the control of that agency. Schools that are not 
affiliated financially or operationally with a school district or 
central administrative agency shall provide the total number of 
students in the school.
    (3) Library and library system multipliers. Library systems and 
libraries operating independently of a system shall be eligible for 
support for category two services, up to a pre-discount price of $4.50 
per square foot over a five-year funding cycle. The amount of support 
will be calculated at the time that the discount is calculated in the 
first funding year of the five-year cycle in which the applicant 
requests category two support, unless the library or library system 
elects to seek additional program support using updated square footage 
in subsequent funding years in the five-year cycle. Library systems 
shall provide the total area for all floors, in square feet, of all of 
its library outlets, including all areas enclosed by the outer walls of 
the library outlet and occupied by the library, including those areas 
off-limits to the public. Independent libraries shall provide the total 
area for all floors, in square feet, of all areas enclosed by the outer 
walls of the library outlet and occupied by the library, including 
those areas off-limits to the public.
    (4) Funding floor. Each eligible school and library shall be 
eligible for support for category two services of at least a pre-
discount price of $25,000 over five funding years.
    (5) Calculation increase. Before funding year 2026 and every 
subsequent five-year funding cycle, the Wireline Competition Bureau 
shall announce the multipliers and funding floor as adjusted for 
inflation at least 60 days before the start of the filing window for 
the next five-year funding cycle. The Bureau shall use the last four 
quarters of data on the Gross Domestic Product Chain-type Price Index 
(GDP-CPI) compared with the equivalent quarters from the beginning of 
the five-year funding cycle. The increase shall be rounded to the 
nearest 0.1 percent and shall be used to calculate the category two 
budget multipliers and funding floor for that five-year funding cycle. 
The multipliers and funding floor shall be rounded to the nearest cent.
    (6) Non-instructional buildings. Support is not available for 
category two services provided to or within non-instructional school 
buildings or separate library administrative buildings unless those 
category two services are essential for the effective transport of 
information to or within one or more instructional buildings of a 
school or non-administrative library buildings, or the Commission has 
found that the use of those services meets the definition of 
educational purpose, as defined in Sec.  54.500. When applying for 
category two support for eligible services to a non-instructional 
school building or library administrative building, the applicant shall 
deduct the cost of the non-instructional building's use of the category 
two services or equipment.
    (e) Eligible services list process. The Administrator shall submit 
by March 30 of each year a draft list of services eligible for support, 
based on the Commission's rules for the following funding year. The 
Wireline Competition Bureau will issue a Public Notice seeking comment 
on the Administrator's proposed eligible services list. The final list 
of services eligible for support will be released at least 60 days 
prior to the opening of the application filing window for the following 
funding year.

0
3. Amend Sec.  54.513 by revising paragraph (d) to read as follows:


Sec.  54.513   Resale and transfer of services.

* * * * *
    (d) Eligible services and equipment components of eligible services 
purchased at a discount under this subpart shall not be transferred, 
with or without consideration of money or any other thing of value, for 
a period of three years after purchase, except that eligible services 
and equipment components of eligible services may be transferred to 
another eligible school or library in the event that the particular 
location where the service originally was received is permanently or 
temporarily closed, or is part of the same eligible school district or 
library system as the location receiving the eligible services or 
equipment components of eligible services. If an eligible service or 
equipment component of a service is transferred pursuant to this 
paragraph, both the transferor and recipient must maintain detailed 
records documenting the transfer and the reason for the transfer for a 
period of five years.

[FR Doc. 2019-27219 Filed 12-19-19; 8:45 am]
BILLING CODE 6712-01-P