Detailed Information on the
Universal Service Fund for Low Income Customers Assessment

Collect performance data on a quarterly basis at the time of the contribution factor filing. Once sufficient data is collected to provide a reliable baseline, establish targets for the performance measures.

Continue review of the USF IPIA audits and determine further opportunities to improve USF oversight.

The FCC should develop a set of performance measures for the Low Income program.

Is the program purpose clear?

Explanation: Section 254 of the Communications Act of 1934 (The Act), as amended, provides a specific purpose for the Low Income program. The Act directed the FCC to establish policies to advance and preserve universal service based on several principles, including that consumers in all regions of the country, such as low income consumers, shall have access to telecommunications services that are comparable to urban services and rates. A second key principle is that the mechanisms should be specific, predictable and sufficient to preserve and advance universal service. The Low Income program promotes these principles by providing universal service support to improve the affordability of and increase access to local telephone service among low income consumers in a manner that is specific, sufficient, and predictable.

Evidence: 47 U.S.C. § 254(b)(3) ("Consumers in all regions of the Nation, including low income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas, and are available at rates that are reasonably comparable to rates charged for similar services in urban areas.") 47 U.S.C. § 254(b)(5) ("Specific and Predictable Support Mechanisms. -- There should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service."). A February 2002 GAO report entitled "Federal and State Universal Service Programs and Challenges to Funding" states the purpose of the Low Income program is to assist qualifying low income consumers through discounted installation and monthly telephone service, and free toll limitation service. See United States General Accounting Office, Report to the Ranking Minority Member, Subcommittee on Telecommunications and the Internet, Committee on Energy and Commerce, House of Representatives: Federal and State Universal Service Programs and Challenges to Funding, GAO Report 02-187, available at (http://www.gao.gov/new.items/d02187.pdf), at 8 (2002) (GAO Report 02-187). The report states that "federal and state universal service programs have helped to make telephone service affordable to a wide range of beneficiaries ... [including] low income [consumers] ... and rural localities where the costs of providing telephone service are high." See id. at "Highlights" page.

Does the program address a specific and existing problem, interest, or need?

Explanation: The Low Income program promotes telephone affordability and increased telephone penetration for low income households. To accomplish these tasks, the Low Income program reimburses eligible telecommunications carriers (ETCs) for discounts provided to qualifying low income consumers on monthly charges for local telephone service (known as the Lifeline program) and on new service installation or activation fees for residential telephone service (known as the Link-Up program). The Low Income program addresses the disparity in telephone service between low income households and the rest of the population. In 1984, 91.8% of all households subscribed to telephone service, while 80.1% of low income households received such service. In 2004, 94.2% of US households received telephone service, while 88% of low income households received service. The Government Accountability Office (GAO) has noted that income level is an important determinant of telephone service. Also, a recent academic study noted that the price elasticity of demand for telephone service is low. One implication of these findings is that the subsidy available to low income households must be viewed by them as significant in order to impact their decision to subscribe to telephone service. In the Lifeline program, eligible consumers may receive up to a $10 monthly discount on local telephone service. The Link Up program provides 50% of the cost of telephone service installation, up to $30. Higher subsidies are available for Tribal customers.

Evidence: The need for the Low Income program is supported by statistical analysis of data at the Census Block Group level, which shows that low income is correlated with low telephone penetration. See Riordan, M., "Universal Residential Telephone Service," Handbook of Telecommunications Economics, Volume 1, edited by M. Cave, S. Majumdar, and I. Vogelsang, Amsterdam: Elsevier, 2002, p. 428 (citing Schement, J. R. Beyond Universal Service: Characteristics of Americans without telephones, 1980-1993, Telecommunications Policy, 2, 477-85) (Riordan). GAO Report 02-187 also demonstrates a justification for low income universal service support. In particular, the GAO Report states that one of the factors that poses challenges for achieving universal service is that "low income households subscribe to basic telephone service at lower levels than households with higher incomes. For example, while approximately 94 percent of all households have telephone service, only 80 percent of households with incomes below $5,000 have telephone service." GAO Report 02-187, at 1. The GAO report further identifies states the purpose of the Low Income program is to assist qualifying low income consumers through discounted installation and monthly telephone service, and free toll limitation service. See GAO Report 02-187, at 8. The report states that "federal and state universal service programs have helped to make telephone service affordable to a wide range of beneficiaries ... [including] low-income [customers] ... and rural localities where the costs of providing telephone service are high." See id. at "Highlights" page. See Ackerberg, Riordan, Rosston, and Wimmer, "Low Income Demand for Local Telephone Service: The Effects of Lifeline and Linkup", March 28, 2005. [check permission of reference].

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: No other Federal program provides low income consumers with discounts on installation charges for residential telephone service and on monthly telephone service charges. However, many states have implemented Low Income programs that supplement the Federal program, and such support is provided in addition to the Federal subsidy. The Federal program incents States to undertake such support through a matching formula. Specifically, the federal program supplies a level of support plus a matching incentive amount based on the level of state support, up to an additional $1.75 per customer. The FCC's rules prohibit support that exceeds the standard telephone rate. The base amount that the program provides to States was set upon commencement of the program in 1997. Other income maintenance subsidies, such as unemployment benefits, can also of course be used toward telephone service. The FCC does not coordinate with these other programs.

Evidence: Compare 47 C.F.R. Subpart E (describing the federal Low Income program) with 47 C.F.R. Subpart D (describing the federal High Cost program); 47 C.F.R. Subpart F (describing the schools and libraries program); and 47 C.F.R. Subpart G (describing the Rural Health Care program). To date, twenty four (24) states (including Dist. of Col.) have implemented low income programs to establish service, and thirty nine (39) states have implemented low income programs to lower the monthly rate of telephone service. See GAO Report 02-187, Appendix III: State-Level Universal Service Programs. These low income programs are designed to provide support in addition to the federal Low Income program. Many state programs use the same names as the federal program (e.g., Lifeline and Link-Up). Specifically, the federal program supplies a level of support plus a matching incentive amount based on the level of state support, up to an additional $1.75 per customer. The federal and state support combined cannot exceed the standard telephone service rate. The service provider must pass through the combined discount to the low income customer, and print out on a customer's monthly bill both the standard rate for the telephone service and the combined discount. If the standard rate is low relative to the combined discount, the company generally claims less than the maximum amount of support available in order to avoid bringing a customer's rate below $0. In addition, the FCC's rules specify that customers receiving tribal discounts must pay at least $1.00. See 47 C.F.R. § 54.407(b) ("The eligible telecommunications carrier's universal support reimbursement shall not exceed the carrier's standard, non-Lifeline rate.") See also In the Matter of Verizon N. J. Inc. for a Revision of Tariff B.P.U. - No. 2 Providing for a Revenue Neutral Rate Restructure, Decision and Order, Docket No. TT04060442, available at http://www.state.nj.us/bpu/wwwroot/telco/TTO4060442_20050415.pdf (N. J. coordinating State Lifeline policy in relation to FCC policy regarding customer eligibility); Order Directing Local Exchange Companies to Apply Deferred Accounting to Certain Intrastate Revenues, Case 94-C-0095 and Case 28425, available at http://www3.dps.state.ny.us/pscweb/WebFileRoom.nsf/Web/7F5B0C894E46282685256DF100756CA6/$File/doc3514.pdf?OpenElement (N. Y. Dept. of Pub. Serv. directing telephone companies to defer that amount of the state revenues currently used to support Lifeline subsidies which will be replaced by federal intrastate Lifeline support revenues received on or after Jan. 1, 1998.). See also Pub. Utility Comm. of Ohio, Rule 4901:1-04-05(B), available at http://www.puco.ohio.gov/puco/rules/rule.cfm?doc_id=741 (Ohio setting Lifeline discounts to provide eligible residential customers with the maximum contribution of federally available assistance. At no time will the monthly access line discounts cause the local service rates to be less than zero.). The amount of discounts available in each state is publicly available information. USAC publishes the amount of state and federal discounts in its annual reports and on its website. The amount of the discounts includes state and federal support. The information is collected by USAC from publicly available tariffs, company and state sources. USAC performs range checks to guard against any overlapping support. States also provide information to consumers on the discounts available. See "LifelineSupport.org" Home Page, available at http://www.lifelinesupport.org/li/low-income/lifelinesupport/default.aspx (providing Lifeline information by state); USAC, Federal Universal Support Mechanisms, Fund Size Projections For the 2nd Qtr 2006, Jan. 31, 2006, Appendix LI-02 (detailing state and federal discounts for each state); Universal Service Q & A, available at http://www.state.nj.us/bpu/home/printUSF.html (N. J. Dept. of Public Utilities helping consumers learn more about lifeline).

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: While the FCC has sought to ensure that subsidies available through the Low Income program satisfy their intended purpose, the program experiences significant over-arching management challenges. The Low Income program, like other mechanisms of the FCC's Universal Service Fund (USF), is managed by a private entity with no contract or memorandum of understanding with the FCC, and no performance measures. In addition, funds are maintained outside of the Treasury, and are presently exempted from the fiscal protections provided by the Anti-Deficiency Act. Furthermore, the program is funded through a percentage charge (10.9% in Q206 for the whole of the USF) assessed on consumer's phone bills for long distance and international calls. As technology evolves to provide alternative communications platforms and such revenue becomes more difficult to identify, the funding base of the program is undermined. As a result, the percentage charge on consumers' phone bills has consistently increased over time (the charge was 5.9% in 2000). While this percentage charge funds the entire Universal Service Fund, the Low Income program of the USF generally comprises less than 15% of USF spending. The FCC has recognized the management challenges relating to the Low Income program and the whole of the USF, and has sought comment on a comprehensive rulemaking on USF management.

Evidence: "Contribution factor filings" (the charge on phone bills that supports the USF) can be found at: (http://www.fcc.gov/wcb/universal_service/quarter.html) For a discussion on the challenges to universal service in a technologically dynamic industry, see: Nuechterlein and Weiser, "Universal Service in the Age of Competition", chapter 10 of Digital Crossroads, 2005, MIT Press. See Comprehensive Review of Universal Service Fund Management, Administration, and Oversight, WC Docket No. 05-195; Federal-State Joint Board on Universal Service, CC Docket No. 96-45; Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6; Rural Health Care Support Mechanism, WC Docket No. 02-60; Lifeline and Link-Up, WC Docket No. 03-109; Changes to the Board of Directors for the National Exchange Carrier Association, Inc., CC Docket No. 97-21, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 20 FCC Rcd 11308, para. 30 (2005) (Fund Management NPRM).

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The Low Income program is effectively targeted to provide support to eligible telecommunications carriers (ETCs) that serve qualifying low income consumers. Specifically, the Low Income program reimburses ETCs that provide discounts to qualifying low income consumers on 1) telephone installation (Link-Up) and 2) monthly telephone service (Lifeline). ETCs receive support only for actual discounts passed through to qualifying subscribers. Federal eligibility criteria is tied to participation in one or more of several federal income-based programs. Under the FCC's rules, subscribers may also qualify by demonstrating that household income is at or below 135% of the Federal Poverty Guidelines. Under FCC rules, states with their own state-based low income programs may establish eligibility criteria for subscription for federal Low Income benefits. These state criteria however, must be narrowly tailored and based solely on income or factors directly related to income. To help ensure that the program reaches intended beneficiaries, FCC rules require ETCs to publicize the availability of Lifeline and Link-Up in a manner reasonably designed to reach those likely to qualify for the service. In addition to the FCC requirements, many states assist in outreach. These efforts range from automatic enrollment for eligible consumers to outreach by state agencies designated to assist low income citizens. The FCC is working with the National Association of Regulatory Utility Commissioners and the National Association of State Utility Consumer Advocates to improve and coordinate outreach efforts to the nation's low income consumers. Also, the FCC provided additional targeted support for eligible residents of tribal lands after examining penetration rates and determining that existing universal service support mechanisms were not adequate to sustain telephone subscribership on tribal lands. Specifically, the FCC adopted rules that increased the amount of support available to eligible consumers living on tribal lands for Lifeline and Link-Up. The FCC also broadened the eligibility criteria to include assistance programs in which eligible consumers living on tribal lands would be more likely to participate, such as the Bureau of Indian Affairs general assistance program.

Evidence: 47 C.F.R. § 54.407(b) (eligible telecommunications carriers may receive universal service support reimbursement for each qualifying low income consumer served). See Lifeline Order, 19 FCC 8312-14, paras. 13-18 (detailing program-based criteria), paras. 10-12 (explaining income-based criteria). See 47 U.S.C. § 54.409(a) (state commissions must establish narrowly targeted qualification criteria that are based solely on income or factors directly related to income). See December 2005 Monitoring Report, Tables 2.1, 6.3, 6.4, 6.5 available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-262986A4.pdf (December 2005 Monitoring Report). The number of households with income less than $10,000 is computed by FCC analysis of the Current Population Survey of Households (CPSH), with the figure of $10,000 as only a benchmark used to estimate telephone penetration for low income households. Many states use federal guidelines to determine eligibility and support, or similar criteria, however all states do not use exactly the same benchmark for determining eligibility. Id. See Telephone Subscribership Report (November 2005), at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-262084A1.pdf. Public Utility Commission of Texas, Rule § 26.412. (Texas Public Utility setting Lifeline eligibility based on income relative to federal poverty guidelines, or receiving benefits from any of several federal programs. "Lifeline support amounts per qualifying low-income customer shall be provided to participating telecommunications carriers pursuant to Title 47, Code of Federal Regulations, § 54.403.") available at http://www.puc.state.tx.us/rules/subrules/telecom/26.412/26.412.doc. See 47 C.F.R. §§ 54.405(b), 54.411(d) (Lifeline and Link-Up advertising requirements for ETCs). See, e.g., Ohio, www.puco.ohio.gov/puco/rules/rule.cfm?doc_id=741 (state government provides to carriers an electronic list of citizens that are eligible for Lifeline through participation in a specific state low income program; customers are automatically enrolled in Lifeline); Texas, 16 TX ADC § 26.412 (all low income programs are administered by one state agency; eligible customers automatically enrolled in Lifeline). See Press Release: FCC and NARUC Launch "Lifeline Across America" To Raise Awareness of Lifeline and Link-Up Programs, available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-260129A1.pdf 47 C.F.R. § 54.409(c) (specifying the amount of support for eligible residents of Tribal lands). See Twelfth Report and Order, 15 FCC Rcd 12208 (2000).

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The Low Income program does not currently have long-term performance measures. The FCC has sought comment on long-term performance measures in a comprehensive Fund Management NPRM and is currently considering the record in that proceeding. The FCC also continually monitors telephone industry data (such as subscribership and rates), which is used to inform any changes that may be required to the rules of the Low Income program.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, 11318, 11321, paras. 24-25, 30. See Telephone Subscribership Report, available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/subs1104.pdf (presenting subscribership statistics based on the Current Population Survey (CPS) conducted by the Census Bureau and subscribership levels by state, income level, race, age, household size, and employment status) (Telephone Subscribership Report). See December 2005 Monitoring Report, available at http://www.fcc.gov/wcb/iatd/stats.html (containing information that shows the impact of various universal service support mechanisms, and the methods used to finance them). See also Reference Book of Rates, Price Indices, and Expenditures for Telephone Service, available at http://www.fcc.gov/wcb/iatd/lec.html (Reference Book) (providing data about rates, price indices, and expenditures for telephone service) (Reference Book). Quantitative FCC goals for the Low Income program were once set in the past, but were discontinued. See, e.g., Funding Year 2001 Annual Performance Report, p. 17 ("Goal FY 03: 50% of eligible low income consumers utilize Lifeline Services.") available at http://www.fcc.gov/Reports/ar2001.pdf.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The Low Income program does not currently have long-term performance measures. The FCC has sought comment on long-term performance measures in a comprehensive Fund Management NPRM and is currently considering the record in that proceeding.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, 11318, 11321, paras. 24-25, 30. Quantitative FCC goals for the Low Income program were once set in the past, but were discontinued. See, e.g., Funding Year 2001 Annual Performance Report, p. 17 ("Goal FY 03: 50% of eligible low income consumers utilize Lifeline Services.") available at http://www.fcc.gov/Reports/ar2001.pdf.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Low Income program does not currently have performance measures. The FCC has sought comment on long-term performance measures in a comprehensive Fund Management NPRM and is currently considering the record in that proceeding. The FCC does, however, collect and publish information and data addressing telephone subscribership and prices.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, 11318, 11321, paras. 24-25, 30. See Telephone Subscribership Report, available at http://www.fcc.gov/wcb/iatd/stats.html. See December 2005 Monitoring Report, available at http://www.fcc.gov/wcb/iatd/stats.html (contains information designed to monitor the impact of various universal service support mechanisms, and the methods used to finance them); Reference Book, available at http://www.fcc.gov/wcb/iatd/stats.html (for data about rates, price indices, and expenditures for telephone service). Quantitative FCC goals for the Low Income program were once set in the past, but were discontinued. See, e.g., Funding Year 2001 Annual Performance Report, p. 17 ("Goal FY 03: 50% of eligible low income consumers utilize Lifeline Services.") available at http://www.fcc.gov/Reports/ar2001.pdf.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The Low Income program does not currently have annual performance measures. The FCC has sought comment on long-term performance measures in the Fund Management NPRM and is currently considering the record in that proceeding.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, 11321, para. 30. Quantitative FCC goals for the Low Income program were once set in the past, but were discontinued.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: The Low Income program does not currently have specific annual or long-term performance goals. The FCC has sought comment on long-term performance measures in the Fund Management NPRM and is currently considering the record in that proceeding. Although the program does not have long-term goals, the FCC's rules require participants, including state public utility commissioners and ETCs, to file annual certifications demonstrating compliance with Section 254 of The Act and that ETCs act in accordance with FCC universal service rules, which are designed to accomplish the program's purpose. In addition, beneficiaries certify that they are eligible for Universal Service support.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, 11318, 11321, paras. 24-25, 30. 47 C.F.R. § 54.407 (Reimbursement for offering Lifeline) 47 C.F.R. § 54.409 (Consumer qualification for Lifeline) 47 C.F.R. § 54.410 (Certification and Verification of Consumer Qualification for Lifeline) 47 C.F.R. § 54.413 (Reimbursement for revenue forgone in offering a Link-Up program) 47 C.F.R. § 54.415 (Consumer Qualification for Link-Up) 47 C.F.R. § 54.416 (Certification of Consumer Qualification for Link-Up) 47 C.F.R. § 54.417 (Recordkeeping requirements) See Lifeline Order, 19 FCC Rcd 8302, 8306, paras. 7-8.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Independent evaluations do not occur on a regular basis. However, the FCC assesses the Low Income program informally through ongoing management activities to improve the program, and takes action through rulemaking proceedings. As part of these proceedings, parties file comments and make presentations to the FCC. Parties may provide information and suggestions regarding the effectiveness of the Low Income program. In addition, independent entities periodically conduct evaluations on the performance of the Low Income program. For example, one recent academic study concluded that the Link Up program may be more cost-effective than the Lifeline program. The Low Income program does not currently have long-term performance measures. The FCC, however, sought comment on long-term performance measures in the Fund Management NPRM and is currently considering the record in that proceeding. From 2003-2005, the program's private administrator conducted 189 audits of low income beneficiaries. The administrator recommended recovery of $1 million. In addition, the FCC's Office of Inspector General (OIG) has indicated it plans to conduct audits of Low Income program beneficiaries to ensure that funds are being used for the intended purpose, that accurate records of foregone revenues are maintained, and that low income recipients are truly eligible.

Evidence: While the annual program cost per beneficiary is estimated to be less than $100 per year, various researchers estimate costs per additional low income subscriber to be in the range of $514 to $2,127. The range is due to differences in assumptions, methodologies, estimates of demand elasticity (e.g., for all households versus just low income households, which are the only ones eligible for Low Income support), the number of low income households, the inclusion of matching state support, and other factors. The FCC is unaware of any attempt to quantify the total increased value to society of each additional connected, low income household or to compare the value of the Low Income program with the costs of the Low Income program. See Low Income Orders, available at http://www.fcc.gov/wcb/universal_service/lowincome.html (FCC considering various proposals). See Stroup, C., Lifeline Staff Analysis, "Quantifying the effects of adding an income criterion to the Lifeline eligibility criteria." See Lifeline Order, at Technical Appendix, K-2 (estimating $514 to $567). Garbacz, C., and Thompson, H., "Estimating Telephone Demand with State Decennial Census Data from 1970-1990." Journal of Regulatory Economics, 21 (3), 2000, pp. 317-329. Garbacz, C., and Thompson, H., "Estimating Telephone Demand with State Decennial Census Data from 1970-1990: Update with 2000 Data," Journal of Regulatory Economics, 24 (3), 2003, pp. 373-378 (estimating $2,127). Mercatus Center, Regulatory Studies Program, "Public Interest Comments on: Performance Measures for Universal Service Programs," October 17, 2005. SeeFund Management NPRM, 20 FCC Rcd 11308, 11318, 11321, paras. 24-25, 30. See 47 C.F.R. § 54.407 (Interstate access universal service support). See Ackerberg, Riordan, Rosston, and Wimmer, "Low Income Demand for Local Telephone Service: The Effects of Lifeline and Linkup", March 28, 2005. [check permission of reference].

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The Low Income program is not subject to the annual budget process, since it is funded through mandatory charges on interstate and international telephone revenue. The level of these charges are assessed quarterly based on estimated demand. This quarterly process provides an opportunity for the program to review progress against goals and measures and adjust the level of the program accordingly. However, since the program has no stated goals or measures aside from general statutory guidance, no such evaluation of the program is undertaken, and progress against even the statutory guidance cannot be determined. The administrative expenses of the program's private administrator are also funded through mandatory charges, and so are not subjected to annual budget review. While the administrator submits its estimated expenses quarterly to the FCC, these expenses are generally not reviewed in a rigorous manner.

Evidence: See, e.g., FCC Annual Budget Request, available at http://intranet.fcc.gov/omd/fo/finance/budget_process.html. The budgetary submission for the Universal Service Fund is found in the Federal Communications Commission, FY 2005 Budget Estimates to Congress, available at http://ftp.fcc.gov/Reports/fcc2005budget_complete.pdf. See Fund Management NPRM, 20 FCC Rcd 11308, 11322, 11324, paras. 32, 60. See 47 C.F.R. § 54.807 (Interstate access universal service support).

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The Low Income program does not currently identify or measure annual or long term goals or targets, and thus has not fully identified strategic planning deficiencies. Nevertheless, through notice and comment in rulemaking proceedings, the FCC regularly works to improve the efficiency of the program and to ensure that the statutory goals are being addressed. The Low Income program does not currently have long-term performance measures. The FCC, however, sought comment on long-term performance measures in the Fund Management NPRM and is currently considering the record in that proceeding.

Evidence: See generally Lifeline Order, 19 FCC Rcd 8302; Fund Management NPRM, 20 FCC Rcd 11308. See Fund Management NPRM, 20 FCC Rcd 11308, 11318, 11321, paras. 24-25, 30.

Are all regulations issued by the program/agency necessary to meet the stated goals of the program, and do all regulations clearly indicate how the rules contribute to achievement of the goals?

Explanation: The FCC implemented the Low Income program in response to section 254 of the Communications Act. Through the rulemaking process, the FCC analyzes its rules to ensure that they promote the statutory principles articulated for the program, and articulates the justification for rule changes in its Orders. Further, Section 11 of the Act requires the FCC to evaluate its regulations and eliminate any unnecessary regulations every two years. However, upon implementation of the program following the 1996 Act, the FCC did not conduct a comprehensive assessment of which Federal requirements, policies, and practices apply to it. As such, the implementation of the Low Income program, and the USF generally, has been unusual for a Federal program. In particular, this approach has created uncertainty in the appropriate application of fiscal controls and other normal program standards. In response to a recommendation on the part of the Government Accountability Office (GAO) that the FCC conduct a comprehensive assessment of the legal requirements related to the USF, the FCC expressed its belief that the case-by-case approach it uses is appropriate. However, as GAO noted, "A definitive determination on the entire framework of laws that apply or do not apply to the USF would enable the FCC to make proactive operational decisions on what stepts it should take and what inernal controls it should have in place."

Evidence: 47 U.S.C. § 254. See Low Income Orders, available at http://www.fcc.gov/wcb/universal_service/lowincome.html (FCC considering and implementing various proposals). 47 U.S.C. § 161 (providing for biennial review of FCC regulations). See, e.g., Staff Report, Wireline Competition Bureau, Biennial Regulatory Review 2004, WC Docket 04-179, 20 FCC Rcd 263, 282, 302 (2005). Wireline Competition Bureau, Federal Communications Commission Biennial Regulatory Review 2002, WC Docket No. 02-213, GC Docket No. 02-390, Staff Report, 18 FCC Rcd 4622, 4724 (2002), issued concurrently with the 2002 Biennial Review, GC Docket No. 02-390, Report, 18 FCC Rcd 4726 (2002). See GAO-05-151, "Greater Involvement Needed by the FCC in the Management and Oversight of the E-Rate Program", February 2005, at: (www.gao.gov)

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Though FCC regularly collects data from a variety of sources on trends related to the Low Income program (such as consumer expenditure on telephone service and telephone penetration, for example), it has not established measures for the Low Income program through which it might use such data to gauge the results of the program. It therefore cannot take steps to improve program performance based on quantitative analysis, or set targets that would demonstrate the satisfaction of the program's statutory guidance. The FCC regularly combines the data from sources such as telephone service providers, the USF administrator, and Federal and State agencies, and publishes performance information in various statistical reports (e.g., Monitoring Report, Reference Book). These reports are then used to monitor and manage the program on an ad-hoc basis through the rulemaking process to improve performance.

Evidence: FCC Statistical Trends in Telephony. See December 2005 Monitoring Reports, available at http://www.fcc.gov/wcb/iatd/stats.html. See Reference Book, available at http://www.fcc.gov/wcb/iatd/lec.html. See also Monitoring Report, at Section 7, available at http://www.fcc.gov/wcb/iatd/stats.html> (describing use of the Bureau of Labor and Statistics (BLS) price index data directly); Monitoring Report, at Section 6, available at http://www.fcc.gov/wcb/iatd/stats.html (describing telephone penetration by income by state; uses the Consumer Price Index (CPI) from BLS to adjust the income categories for inflation). In the Lifeline Order, the FCC included a voluntary survey for states concerning state Lifeline and Link Up programs. The FCC directed USAC to mail the survey form to states and territories. USAC received responses from 35 states and territories. See Lifeline Order, 19 FCC Rcd 8302. ETCs that have provided qualifying low income consumers with Lifeline and Link-Up discounts file the Lifeline and Link-Up Worksheet (FCC Form 497) with USAC to receive support that reimburses them for providing discounted service and installation. See FCC Form 497, available at http://www.universalservice.org/li/telecom/step06/form497.aspx See, e.g., Fund Management NPRM, 20 FCC Rcd 11308. FCC Statistical Trends in Telephony. See, e.g., December 2005 Monitoring Report, available at http://www.fcc.gov/wcb/iatd/stats.html. Reference Book, available at http://www.fcc.gov/wcb/iatd/lec.html (describing use of the Bureau of Labor and Statistics (BLS) price index data directly). Monitoring Report, at Section 6, available at http://www.fcc.gov/wcb/iatd/stats.html (describing telephone penetration by income by state; uses the Consumer Price Index (CPI) from BLS to adjust the income categories for inflation). USAC 2005 Annual Report, available at http://www.universalservice.org/_res/documents/about/pdf/annual-report-2005.pdf.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: The Low Income program, along with other programs of the Universal Service Fund, is administered by a private entity established by the FCC, entitled the Universal Service Administrative Company (USAC). USAC operates with no contract or memorandum of understanding with the FCC, and with no measures against which to judge its performance. USAC, in turn, contracts out to third parties the execution of some functions. USAC does not collect performance information from carriers, though carriers are required to certify their compliance with the FCC's rules and Section 254 of the Communications Act. Data collected by USAC is used to administer the program, rather than to judge performance or results.

Evidence: General information about the USAC Board of Directors and its by-laws is available at http://www.universalservice.org/board and http://www.universalservice.org/download/usacbylaws.pdf. Information on the USAC Management Team is available at http://www.universalservice.org/overview. 47 C.F.R. § 54.702 (g-h) (Administrator quarterly and annual reports). 47 C.F.R. § 54.717 (Audits of the Administrator).

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: While the FCC has established program rules that specify the intended purpose of funds, it cannot demonstrate that funds are regularly used in accordance with program rules. Federal funds are provided to carriers only in the amount of discounts passed directly to the eligible consumer. The FCC's rules require participants, including state public utility commissioners and carriers, to file annual certifications demonstrating compliance with Section 254 of the Communications Act and FCC universal service rules, which are designed to accomplish the program's purpose. In addition, beneficiaries certify that they are eligible for Universal Service support. While the program's administrator and the FCC have undertaken an audit program to determine the level of compliance with FCC rules, this oversight is at present insufficient to properly control the use of funds by program beneficiaries. From 2003-2005, USAC conducted 189 audits of low income beneficiaries, and recommended recovery of $1 million. In addition, the FCC's Office of Inspector General (OIG) has noted that the Universal Service Fund, of which the Low Income program is a part, has an insufficent audit program in place to accurately determine the level of waste, fraud, and abuse in the program. The FCC's Inspector General has indicated it plans to implement more rigorous oversight of Low Income program beneficiaries, and the FCC has requested authority to use funds for this purpose in its fiscal year 2007 budget request to Congress. In addition, the FCC is working with the Office of Managment and Budget in order to determine the optimal timing for the recording of obligations in the Low Income program. This issue has no impact on the delivery of program benefits to eligible consumers.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, at para. 70. 7 C.F.R. § 54.407 (Reimbursement for offering Lifeline) 47 C.F.R. § 54.409 (Consumer qualification for Lifeline) 47 C.F.R. § 54.410 (Certification and Verification of Consumer Qualification for Lifeline) 47 C.F.R. § 54.413 (Reimbursement for revenue forgone in offering a Link-Up program) 47 C.F.R. § 54.415 (Consumer Qualification for Link-Up) 47 C.F.R. § 54.416 (Certification of Consumer Qualification for Link-Up) 47 C.F.R. § 54.417 (Recordkeeping requirements) See Lifeline Order, 19 FCC Rcd 8302, 8306, paras. 7-8. See FCC's fiscal year 2007 budget request at: (http://www.fcc.gov/Reports/fcc2007budget_main.pdf)

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Though the FCC's rules limit the support available to qualifying low income consumers and the program makes use of the Internet to expedite data submission, the program does not measure administrative efficiency in a rigorous manner, and has not adopted any metrics by which to judge efficiency. The FCC allows and encourages on-line verification, where states can obtain and provide data to allow ETCs real-time access to a database of low income assistance program participants or income reports. In the comprehensive Fund Management NPRM, the FCC sought comment on USAC's performance since the inception of the USF program, including whether USAC has administered the USF in an efficient, effective, and competitively neutral manner. The FCC is currently considering the record in that proceeding.

Evidence: 47 C.F.R. § 54.403 (specificying the amount of Lifeline support). 47 C.F.R. § 54.403 (specificying the amount of Link-Up support). Lifeline Order, 19 FCC Rcd 8302, 8323, at para. 36. See, e.g., Fund Management NPRM, 20 FCC Rcd 11308, 11322, 11333, paras. 32, 60

Does the program collaborate and coordinate effectively with related programs?

Explanation: Many states have implemented Low Income programs that supplement the Federal program, and such support is provided in addition to the Federal subsidy. The Federal program incents States to undertake such support through a matching formula. Specifically, the federal program supplies a level of support plus a matching incentive amount based on the level of state support, up to an additional $1.75 per customer. The FCC's rules prohibit support that exceeds the standard telephone rate. The base amount that the program provides to States was set upon commencement of the program in 1997. Other income maintenance subsidies, such as unemployment benefits, can also of course be used toward telephone service. The FCC coordinates with these other programs to the extent that participation is one criteria for eligibility in the Low Income program.

Evidence: Working Group on Lifeline and Linkup Services Seeks Information on Effective Outreach to Low Income Consumers, Public Notice, DA 06-41 (rel. Jan. 10, 2006) (Working Group seeks input on ways to enhance consumer awareness of Lifeline and Linkup as well as best practices for carrier outreach). Also see Evidence section in question 1.3

Does the program use strong financial management practices?

Explanation: An independent auditor has identified material internal control weaknesses associated with the FCC's financial management processes, and was unable to express an opinion on the 2005 financial statements of the agency. In particular, the auditor noted that appropriate controls were not in place that would enable monthly reconciliation of accounts and investment transactions, and the USF administrator did not record financial transactions in a timely manner. The independent auditor has made several recommendations to the agency, including: 1) clarifying the FCC office responsible for the agency's financial activities; 2) make explicit a delegation of authority from the Office of the Chairman, when such delegation has occurred; 3) ensure timely financial reporting; 4) ensure that the Office of the Inspector General exercises independence. The FCC has indicated that it is addressing these findings and taking the appropriate steps to correct deficiencies. Since October 1, 2004, and pursuant to FCC direction, USAC has implemented generally acceptable accounting principles for federal agencies (Federal GAAP) and maintains universal service funds in accordance with the United States Government Standard General Ledger (USGSGL).

Evidence: See FCC Fiscal Year 2005 Performance and Accountability Report at: (http://www.fcc.gov/omd/strategicplan/) See Application of Generally Accepted Accounting Principles for Federal Agencies and Generally Accepted Government Auditing Standards to the Universal Service Fund, CC Docket No. 96-45, Order, 18 FCC Rcd 19911 (2003) (GAAP Order). See Fund Management NPRM, 20 FCC Rcd 11308, 11322, 11333, paras. 32, 60.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Low Income program continues to be administered by a non-Federal entity without any contract or memorandum of understanding, and no performance measures have been adopted by which to judge the performance of the program. In additon, the program is presently exempt from fiscal protections afforded by the Anti-Deficiency Act. Also, the funding base of the program continues to decline as interstate and international telephone revenue becomes more difficult to identify. At the same time, the demand on the program has increased, from $530 million in 2000 to over $800 million in 2005. The FCC periodically reviews the administrative procedures in the Low Income program and modifies these procedures where appropriate. The FCC sought to improve the financial reporting on the part of the administrator by requiring that financial statements be be prepared consistent with Federal accounting standards. The Fund Management NPRM proceeding is also considering ways to improve the administration of the Low Income program, and the Universal Service fund in general.

Evidence: See Low Income Orders, available at http://www.fcc.gov/wcb/universal_service/lowincome.html (FCC orders improving the Low Income program). See, e.g., Lifeline Order, 19 FCC Rcd 8302; Fund Management NPRM, 20 FCC Rcd 11308. See USAC's "Understanding Audits" at http://www.universalservice.org/li/about/understanding-audits.aspx (explaining how USAC audits are performed). See GAAP Order, 18 FCC Rcd 19911 (amending the FCC's rules governing certain financial reporting and auditing requirements applicable to the Universal Service Fund). See, e.g., Fund Management NPRM, 20 FCC Rcd 11308, at paras. 9-22, 33, 53-56.

Does the program have oversight practices that provide sufficient knowledge of grantee activities?

Explanation: Though the Low Income program requires certification from households and carriers on the eligibility of beneficiaries, the FCC's Inspector General has stated that "fraud is an inherent risk in the Universal Service Fund (USF) core business processes: collection, certification, and disbursement of funds", and greater oversight is required. Specifically, the Inspector General has stated that, "controls over management oversight and accountability for receipt of USF funds by beneficiaries have been materially weak because of inadequate management controls, lack of a sufficient independent audit program to deter future fraudulent activity, and weaknesses in the structure of the program." The Inspector General has been unable to implement an effective independent oversight program of the USF, including the Low Income program, because of a lack of sufficient resources. The FCC has requested funds from Congress for this purpose, and is presently evaluating the participation of outside auditors. The FCC's rules require that carriers certify annually that a statistically valid sample of customers remain eligible for Low Income program support, and that the benefits to customers that are no longer eligible are terminated. The FCC has also initiated a proceeding in which it sought comment on fund management issues and is currently considering the record in that proceeding.

Evidence: See the FCC's 2005 Performance and Accountability Report at: (http://www.fcc.gov/omd/strategicplan/) See Lifeline Order, 19 FCC Rcd 8302, 8318, paras 28-32 (certification), 33-36 (verification procedures, 37-40 (recordkeeping). See http://universalservice.org/li/about/understanding-audits.aspx. See 47 C.F.R. § 54.717 (USAC must be audited annually). See also 47 C.F.R. § 54.705(c)(iv) (the High Cost and Low Income Committee has authority to perform audits). Fund Management NPRM, 20 FCC Rcd 11308.

Does the program collect grantee performance data on an annual basis and make it available to the public in a transparent and meaningful manner?

Explanation: Though the FCC and USAC collect data related to the Low Income program, this data is used only for the administration of the program, rather than for performance management. The FCC should adopt performance measures that reflect the impact of the program, and is examining this issue through the rulemaking process. Data related to the program, such as disbursements, telephone subscriber penetration, rates, and carriers receiving support, is generally available at the FCC's website or that of the program's administrator. See also response to Question 3.1.

Evidence: See December 2005 Monitoring Report; Reference Book. See Quarterly Reports, available at http://www.universalservice.org/overview/filings (publicly available information including projected fund size). See also 47 C.F.R. § 54.316 (requiring states to certify whether rates in areas served by rural and non-rural carriers are reasonably comparable).

Did the program seek and take into account the views of all affected parties (e.g., consumers; large and small businesses; State, local and tribal governments; beneficiaries; and the general public) when developing significant regulations?

Explanation: The rules governing the Low Income program are adopted in notice and comment proceedings consistent with the Administrative Procedure Act. Further, all data collections related to the Low Income program are implemented consistent with the Paperwork Reduction Act, which requires public notice and comment on collection burdens. Parties to Low Income program proceedings include consumer groups, state utility commissions, state consumer advocates, large and small carriers either individually, or through their advocacy associations. Moreover, the FCC has sought comment from all interested parties on Universal Service fund management generally, including the Low Income program, and is currently considering the record in that proceeding.

Evidence: See Low Income Orders, available at http://www.fcc.gov/wcb/universal_service/lowincome.html. See Lifeline Order, 19 FCC Rcd 8302. See Fund Management NPRM, 20 FCC Rcd 11308

Did the program prepare adequate regulatory impact analyses if required by Executive Order 12866, regulatory flexibility analyses if required by the Regulatory Flexibility Act and SBREFA, and cost-benefit analyses if required under the Unfunded Mandates Reform Act; and did those analyses comply with OMB guidelines?

Explanation: FCC regulations are not subject to E.O. 12866 or the Unfunded Mandates Reform Act, though they are subject to the Regulatory Flexibility Act and SBREFA. The order initiating the program rules, and subsequent implementing decisions, complied with the Regulatory Flexibility Act. OMB reviews FCC rules under the Paperwork Reduction Act. The FCC does consider the costs of implementing regulations for small businesses in the course of rulemaking proceedings in accordance with the Regulatory Flexibility Act.

Evidence: See Low Income Orders, available at http://www.fcc.gov/wcb/universal_service/lowincome.html. See Lifeline Order, 19 FCC Rcd 8302.

Are the regulations designed to achieve program goals, to the extent practicable, by maximizing the net benefits of its regulatory activity?

Explanation: The FCC was directed by Section 254 of the Communications Act to ensure that low income consumers have access to telecommunications services, and established the Lifeline and Link Up mechanisms of the Low Income program to implement this directive. While the FCC has adjusted eligibility criteria to target this subsidy, it has not considered the cost effectiveness of the respective mechanisms or evaluated the proper level of subsidy as telephone penetration increases over time (though it has done this for Tribal customers). Also, the lack of performance measures or targets in the program inhibit the ability to adjust for changing circumstances and long-term effects of the program.

Evidence: Under the Commission's rules, there are four tiers of federal Lifeline support. All eligible subscribers receive Tier 1 support, which provides a discount equal to the ETC's subscriber line charge. Tier 2 support provides an additional $1.75 per month in federal support, available if all relevant state regulatory authorities approve such a reduction. (All fifty states have approved.) Tier 3 of federal support provides one half of the subscriber's state Lifeline support, up to a maximum of $1.75. Only subscribers residing in a state that has established its own Lifeline/Link-Up program may receive Tier 3 support, assuming that the ETC has all necessary approvals to pass on the full amount of this total support in discounts to subscribers. Tier 4 support provides eligible subscribers living on tribal lands up to an additional $25 per month towards reducing basic local service rates, but this discount cannot bring the subscriber's cost for basic local service to less than $1. See 47 C.F.R. § 54.403.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The FCC has not adopted long-term outcome goals or measures for the Low Income program at this time. The FCC is seeking comment on appropriate performance goals for the low income program. Telephone subscribership levels have remained high, and the penetration gap between low income and other households has declined from 11.7% in 1984 to 6.2% in 2004.

Evidence: Fund Management NPRM, 20 FCC Rcd 11308, 11321, para. 30. See December 2005 Monitoring Report; Reference Report. The December 2005 Monitoring Report shows that the telephone subscriber percentage (penetration rate) between low income households and other households has decreased over time, largely as a result of the Low Income program. In 1984, at the start of the Low Income program, the penetration rate gap between low income households (e.g., households with incomes less than $10,000 in 1984 dollars) and all households was 11.7%. (91.8% (penetration rate for all households) minus 80.1% (penetration rate for low income households) = 11.7%). In 2004, the gap was 6.2%. (94.2% (penetration rate for all households) minus 88.0% (penetration rate for low income households) = 6.2%). Thus from 1984 to 2004, the penetration rate gap was reduced by 5.5%. (11.7% minus 6.2% = 5.5%). See December 2005 Monitoring Report, Tables 6.3 - 6.4, available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-262986A8.pdf.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The Low Income program does not currently have annual performance goals. The FCC sought comment on annual performance goals in the Fund Management NPRM and is currently considering the record in that proceeding.

Evidence: Fund Management NPRM, 20 FCC Rcd 11308, 11321, para. 30.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The program has not adopted any measures of efficiency. The budget of the program's non-Federal administrator is approved quarterly by the FCC, there is no rigorous review of program costs. The FCC should consider adopting measures of program efficiency in its present rulemaking on Fund Management.

Evidence:

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: Though several States have adopted programs similar to the Federal Low Income program, no comparison between the Federal and State programs has been undertaken. Since the State programs rely in many ways on the Federal program, both for regulatory guidance as well as funds, it is unlikely that such a comparison would yield significant differences. The FCC may consider the effect of automatic enrollment in the Federal Low Income program based on the impact such a policy has had in the States that have adopted it.

Evidence: Twenty four (24) states, including the District of Columbia, implemented Low income programs to establish service, and thirty nine (39) states implemented Low Income programs to lower the monthly rate. See GAO Report 02-187, Appendix III: State-Level Universal Service Programs. State plans typically provide low income support for the same consumer eligibility criteria as the federal USF program and are designed to supplement the federal USF program. See Lifeline Order, 19 FCC Rcd 8302. See Evidence in response to Question 1.3.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: The FCC is not aware of any independent evaluations that demonstrate program effectiveness. The FCC's December 2005 Monitoring Report shows that since the inception of the Low Income program there has been a penetration rate gap reduction of 5.5% for low income consumers.

Evidence: December 2005 Monitoring Report

Were programmatic goals (and benefits) achieved at the least incremental societal cost and did the program maximize net benefits?

Explanation: The FCC has not adopted long-term outcome goals or measures for the Low Income program at this time. The FCC is seeking comment on appropriate performance goals for the Low Income program.

Evidence: See Fund Management NPRM, 20 FCC Rcd 11308, 11322, para. 32.