[House Hearing, 105 Congress] [From the U.S. Government Publishing Office] FUNDING MECHANISMS OF THE ``E-RATE'' PROGRAM ======================================================================= HEARING before the SUBCOMMITTEE ON OVERSIGHT of the COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS SECOND SESSION __________ AUGUST 4, 1998 __________ Serial No. 105-108 __________ Printed for the use of the Committee on Ways and Means U.S. GOVERNMENT PRINTING OFFICE 63-683 WASHINGTON : 2000 COMMITTEE ON WAYS AND MEANS BILL ARCHER, Texas, Chairman PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York BILL THOMAS, California FORTNEY PETE STARK, California E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania AMO HOUGHTON, New York SANDER M. LEVIN, Michigan WALLY HERGER, California BENJAMIN L. CARDIN, Maryland JIM McCRERY, Louisiana JIM McDERMOTT, Washington DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas MICHAEL R. McNULTY, New York JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana MAC COLLINS, Georgia JOHN S. TANNER, Tennessee ROB PORTMAN, Ohio XAVIER BECERRA, California PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida JOHN ENSIGN, Nevada JON CHRISTENSEN, Nebraska WES WATKINS, Oklahoma J.D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY HULSHOF, Missouri A.L. Singleton, Chief of Staff Janice Mays, Minority Chief Counsel ------ Subcommittee on Oversight NANCY L. JOHNSON, Connecticut, Chairman ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York PHILIP S. ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee WES WATKINS, Oklahoma KAREN L. THURMAN, Florida JERRY WELLER, Illinois KENNY HULSHOF, Missouri Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. C O N T E N T S ---------- Page Advisory of July 24, 1998, announcing the hearing................ 2 WITNESSES Federal Communications Commission: Hon. Harold Furchtgott-Roth, Commissioner.................... 48 Christopher J. Wright, General Counsel....................... 65 Blumenauer, Hon. Earl, a Representative in Congress from the State of Oregon................................................ 14 Tauzin, Hon, W.J. (Billy), a Representative in Congress from the State of Louisiana............................................. 10 Weller, Hon. Jerry, a Representative in Congress from the State of Illinois.................................................... 8 SUBMISSION FOR THE RECORD American Association of Educational Service Agencies; American Association of School Administrators; American Federation of Teachers; American Library Association; American Vocational Association; Consortium for School Networking; Council of Chief State School Officers; International Society for Technology in Education; National Association of Elementary School Principals; National Education Association; National Education Knowledge Industry Association; National Grange; National Rural Education Association; and National School Boards Association, joint letter................................................... 84 FUNDING MECHANISMS OF THE E-RATE PROGRAM ---------- TUESDAY, AUGUST 4, 1998 House of Representatives, Committee on Ways and Means, Subcommittee on Oversight, Washington, DC. The Subcommittee met, pursuant to notice, at 10:10 a.m., in room 1100, Longworth House Office Building, Hon. Nancy Johnson (Chairman of the Subcommittee) presiding. [The advisory announcing the hearing follows:] [GRAPHIC] [TIFF OMITTED] T3683A.001 [GRAPHIC] [TIFF OMITTED] T3683A.002 [GRAPHIC] [TIFF OMITTED] T3683A.003 Chairman Johnson of Connecticut. Good morning, and welcome. Today, the United States is the most technologically advanced country in the world, and it's our responsibility to assure that continued technological strength. Since our children are our future, we must ensure that they are given every opportunity to thrive in the technology-driven global economy. As Congress has acknowledged, the best chance to teach the most children the needed technical skills is to reach them in primary and secondary schools. Congress recognized this when we passed a provision in the Telecommunications Act of 1996 which provides advanced telecommunications services, at discount, to schools and libraries so that they can bring the most current technology to their communities, at affordable prices. This provision is now known as the e-rate program. Every school, in rich districts and in poor, in cities and in remote rural areas, should have access to the Internet and to the other services that will increase the technical skills of its students. I support the goals of the e-rate program, and I believe that everyone on the subcommittee supports that program's goals. We are not here today to discuss the e-rate program's purpose or goals. Rather, we are here to discuss how the e-rate program is funded. We are focusing on this narrow issue because it, separate and independent from the e-rate program, has very significant implications for us as policymakers, as members of Congress that have struggled hard to balance the budget, and as many members who oppose tax increases. When the drafters of the Constitution established the three branches of government, they carefully delineated the duties and powers of each branch. Congress, and Congress alone, was entrusted with the power to levy taxes. Congress should not and cannot delegate the authority to levy taxes. That being established, we are here to determine whether the e-rate program, as implemented by the FCC, is a fee or a tax, because if it is, indeed, a tax, it has not been levied by Congress, but by an executive branch agency; and, therefore, is illegal. A fee is a voluntary payment, or benefit conferred, on the payor. And the amount of the fee paid correlates with the benefit received. For example, campers often pay a fee to enter national parks like Yellowstone National Park. If they do not want to pay a fee, they can chose to camp elsewhere. If they do chose to camp there, the fees are designed to approximate the costs of running the park. A tax, on the other hand, is a mandatory charge imposed on the payor for general or specified governmental purposes. I am sure that we all too aware of examples of taxes. At first blush, I must admit that the charges that the FCC has imposed on telecommunications carriers appear to be taxes. They are mandatory. All telecommunications providers must contribute to the e-rate program, whether they receive benefit from the program or not. You may have seen these charges on your phone bill last month. Also both the Congressional Budget Office and the Office of Management and Budget agree that contributions to the program are general revenues and that disbursements for the program will be general outlays. This sounds like a tax--mandatory contributions, which go directly into the government's coffers. But I do not want to jump to conclusions. Rather, I want to hear from witnesses so that they can help us understand whether this program is, in fact, a hidden tax. This determination is important. We, as the representatives of the people, are accountable for the taxes that they pay. Raising taxes is serious business. And as we struggle to balance burden and society's goals, we cannot have the bureaucracy making a mockery of tax cuts by imposing fees that are, in fact, hidden taxes that end up being paid by every one of us. The goals of the e-rate program are laudable. Finding the funding for the program must be a priority. But we must follow the constitutionally prescribed process. In 1665, Colbert said, I quote, ``the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.'' We have to set our sights a little higher than simply minimizing the hissing. The Constitution speaks very clearly: tax law is made by Congress. And money bills originate in the House, in the Committee on Ways and Means. I look forward to hearing from our witnesses today, and I'm pleased to yield to our Ranking Democrat, Mr. Coyne. Mr. Coyne. Thank you Madam Chairman. We are here today to conduct an oversight hearing on an issue that is very important to our children's educational future. The issue we are focusing on today is the e-rate program, which is designed to provide our schools and libraries with state-of-the-art telecommunications services. This program was created in the Telecommunications Act of 1996 as part of the Universal Service Program, which provides low-income consumers and households in rural and high-cost areas with telephone services at affordable prices. The United States has been able to ensure access to telephone services for all Americans regardless of their location and wealth through this Universal Service Program. The Universal Service Program has been in existence for decades and was codified and expanded in the 1996 Telecommunications Act. The Universal Service Program is a cross-subsidy system by which telecommunications companies contribute to the Universal Service Fund and then draw from the fund as reimbursement for discounts and other subsidies that they have provided to consumers. The contributions from the telecommunications companies go into a revolving fund which pays back the industry amounts reflecting their Universal Coverage subsidies. The principal expansion of the Universal Service Program in the 1996 Telecommunications Act was the provision to provide public and non-profit elementary and secondary schools, public libraries, and rural health providers with advanced telecommunications services such as the Internet. Since 1996, over 100,000 schools have applied for the program, which the FCC has announced it will fund at about $2 billion. I am well aware of how important this program is, because many schools and libraries in the district that I represent have applied for the program, and all of them are very pleased about the new educational opportunities they can now offer their students. Soon, if all goes as planned, Internet access for schools and libraries will be a reality. The stated purpose of today's hearing is number one, to review funding mechanisms for the e-rate program; and number two, to determine whether it is a tax. If the Ways and Means Committee's jurisdiction has been bypassed, this is a legitimate matter for us to consider here today. However, I am also aware that there has been a great deal of political rhetoric surrounding the issue. For example, some have called the e-rate program a tax, and named it after our Vice President. I hope we all will focus on the substantive issues and not engage in partisan rhetoric here today. First, the 1996 Telecommunications Act passed by the House by a vote of 414 to 16, a clear bipartisan endorsement. Further, it is my understanding that in May of 1995, when the schools and libraries provision was added to the Senate version of the bill, the House parliamentarian was consulted to determine whether the provision was a tax, for purposes of the House blue slipping it as a revenue measure not originating in the House of Representatives. The Senate bill was not blue slipped by any member of the House at that time. Further, the Senate provision was included in the final conference agreement approved by the House and the Senate. To the extent the e-rate program constitutes a tax, we should assert jurisdiction on a possible amendment to the Commerce Department's appropriation bill that is currently before the House of Representatives, which would block funding for the program. On the other hand, it is the responsibility of the courts to evaluate whether a new law is constitutional and appropriately delegates authority to the executive branch. The very issue we are discussing today is pending before the 5th circuit court of appeals. The answer will be provided by the court in the very near future. In the past, the industry has supported this fund and built contributions into its cost base. The contributions to the fund have never been explicitly passed on to the consumer as a line item charge. However, companies are now having to compete for customers in the deregulated world created by the 1996 Telecommunications Act. To get those customers, they need to advertise a very low cost per minute. They have been aided in this goal by reductions the 1996 Act caused in local access charges. According to the materials I received from the FCC, this reduction is now about one and half cents per minute. This reduction should have more than offset the increased costs of Universal Service, guaranteeing customers rates that were at least a penny a minute less. For a customer who makes an hour of long distance calls a week, that savings is about $30 per year. Why, then, have phone companies chosen to show the increase in Universal Service as a separate charge and not part of the rate? It's not because their costs have increased. It's because doing that allows them to advertise a lower rate than they actually charge, and, as a bonus, blame it on the government. For example, itemizing the charge allows them to charge the hypothetical customer I was just describing about half a cent more per minute than their advertised rate, increasing the bill by about $15 a year. I believe today's witnesses will help us better understand whether the phone bills our constituents receive are actually reflecting their phone company's underlying costs. I hope our committee will not be a part to legitimizing any rhetoric which prevents consumers from getting the full benefit of reductions in long distance telephone costs mandated by Congress. Thank you, Madam Chairman. Chairman Johnson of Connecticut. Thank you, Mr. Coyne. You opening statement was very helpful. Those of us who were very supportive of the Telecommunications Act and of its funding of this function at the time did believe that it would be paid for through the savings that that Act allowed the industry to realize. And I personally believe that that may be why it was never blue slipped. But that is exactly the controversy we are here to look into today, because the long-term implications of the legislative branch allowing the executive branch to develop revenue sources for specific functions is very serious and does compromise our ability to control the tax burden on the people of the Nation and to manage the relationship between revenues and appropriations and the Nation's priorities. So this is not a hearing about whether or not we support hooking up the libraries and schools. We all clearly do support that. It is a very important, though rather technical hearing, on the means by which we plan to accomplish those goals. I would like to first recognize Mr. Weller for his testimony, a valued member of this committee and a member of the Oversight Subcommittee. Mr. Weller. STATEMENT OF THE HON. JERRY WELLER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS Mr. Weller. Well, thank you, madam Chair. And thank you, Mr. Coyne, and members of the Oversight Subcommittee for the opportunity to testify today. And I also want to commend Chair Johnson for her leadership on today's issue. I'm particularly glad to join my colleague, Mr. Tauzin, also my colleague and friend, Mr. Blumenauer today to testify before the Oversight Subcommittee on what I think we all agree on, and that is on an effort to achieve the goal that we all share, which is giving every child access to the Internet through our local schools and libraries, to better prepare them for the economy and job market of the 21st century. Two years ago, when we passed the Telecommunications Act, in 1996, it included a simple directive: that any telecommunications carrier serving a particular geographic area must make any of its services under the Universal Service Fund available at reduced rates to schools and libraries. Unfortunately, the FCC misinterpreted the Telecommunications Act and now jeopardizes this goal that we all share, which is providing Internet access for all of America's children. Like you, Madam Chair, I want to work in a bipartisan way to fix this problem. First, if we look historically, the FCC determined that as much as two and quarter billion dollars per year should be made available to support Universal Service for schools and libraries. Second, the FCC expanded the scope of what was available for schools and libraries from just discounted rates on the telecommunications services and decided to include Internet access costs and Internet connections, such as wiring. Third, the FCC created a whole new bureaucracy known as the School and Libraries Corporation to administer the e-rate program without any authorization from Congress to do so. Finally, with probably the most questionable of all the provisions, the FCC determined that the funds supporting the e- rate for schools and libraries should come from an assessment or tax on all telecommunication service providers. This controversial assessment, which is currently facing legal challenges, and as Mr. Coyne pointed out, has commonly become known as the Gore tax. Here are the problems that we now face. The FCC has taken unauthorized to create a new, ineffective bureaucracy that has yet to provide any funding to 1,800 schools in Illinois that have applied for help in connecting their students to the Internet. And two, the FCC has taken the unconstitutional action of imposing an unauthorized tax on telephone usage in order to cover the expenses of this enterprise. The FCC is incorrect in its contention that the so-called Gore tax is a fee. A fee is a voluntary charge for a service rendered. However, telephone customers are not receiving a service. Thus, if a charge is levied and no direct service is provided, then it is characterized as a tax regardless of whether it shows up on your 1040 Form or your telephone bill. And only Congress can impose a tax under our Constitution. The FCC's actions are now being contest in court. The result is that many schools across the country that were depending on the e-rate have been left in the cold. Some examples in the district I represent, in the 11th District of Illinois, include Bradley-Bourbonais Community High School, which has applied to get 38 computers connected; Steger High School, in south Cook County, which applied to get 156 classrooms wired; Wilmington School District, which applied to get 123 computers connected and 50 classrooms wired; Joliet's Public Library District, which applied to get 20 computers connected; and La Salle Catholic, which is a grade school, which applied to get 36 computers connected and 14 classrooms wired. This is only a smattering of examples where the FCC and the SLC have left the hopes and dreams of schools and students hanging in the winds. We cannot let this continue. That's why I'm glad to join with my colleague and friend, Mr. Tauzin, in sponsoring the School and Libraries Internet Access Act of 1998, H.R. 4324. The School and Library Internet Access Act would save the technology assistance program for over 1,800 schools in Illinois alone by slashing the World War I three percent telephone excise tax, which currently goes to the general revenue fund, to one percent, and earmarking the remaining revenue to fund the important school and library Internet access programs that through block grants to our States. In addition to slashing the current tax, the School and Library Internet Access Act repeals the so-called three percent Gore Tax on telephone customers. Our legislation will save consumers and estimated $5 billion, while providing $1.7 billion in the first year to equip our schools and libraries with Internet access. This legislation effectively kills two birds with one stone. First, the legislation preserves and expands funding for this important Internet access assistance program for our schools and libraries and places it appropriately under the jurisdiction of the National Telecommunications and Information Administration. Second, the legislation abolishes the FCC's unconstitutional, what some call the ``Gore Tax'' funding mechanism and reduces an antiquated World War I tax, which disproportionately impacts the poor and senior citizens. Let's do it right this time. The FCC and its illegal ``Gore Tax'' created the problem. However, I support the bipartisan goal of giving every child in school access to the Internet and believe we need to solve this problem by enacting the School and Library Internet Access Act. It is important to the children of Illinois and the 1,800 schools which are pleading for help. It is the right thing to do. Let's work in a bipartisan fashion to get this job done. Of course, Madam Chair, I ask my colleagues to give the School and Libraries Internet Access Act, which helps solve this problem, favorable consideration in this committee. Again, thank you, Madam Chair and Mr. Coyne. Chairman Johnson of Connecticut. Thank you, Mr. Weller. Mr. Tauzin, the cosponsor of H.R. 4324. STATEMENT OF THE HON. W.J. TAUZIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA Mr. Tauzin. Thank you, Chairman Johnson. Let me I suppose go right to the heart of this issue. The issue is not whether or not we ought to fund a decent schools and libraries fund or whether we ought to carry out the purposes of the e-rate program thoroughly, completely in America. I think we all agree that it is a good public, national goal to make sure that all the children of America have access to Internet services and, in fact, have access to what will become extraordinary new opportunities in long distance learning. And it's also--the same is true for our libraries and certainly true for rural hospitals in America. That's not the question. The question, as you correctly pose it, Madam Chairman, is whether or not the e-rate tax itself is a tax or a fee. Is it the fee that the parliamentarian said it was going to be? Or has it become a tax? To the quick: the 5th circuit is going to decide this. But I think we can decide it rather quickly, too. The courts have pretty well determined what is a fee and what is a tax. Now you have great expertise in taxation. We've seen fees at the Commerce Committee. A fee is simply a collection of a charge for which there is a nexus in service. Someone pays and gets a benefit for it directly. A tax is something where you don't have a direct benefit. You generally are putting in money for the good of other people in our society. This qualifies. This e-rate quickly qualifies as a tax, and the question is how do we get from here to there? The answer is that the Commerce Committee and other committees who worked on the Telecommunications bill, and your committee included, intended, I think, very quickly to make sure that the FCC administered a properly discounted service plan to make sure that the monthly charges to the schools and libraries of America were discounted charges, that is, charges that could be afforded by the schools and libraries and rural hospitals in the same sense that we intended in the Universal Service fee collection system that charges on a monthly basis to rural individuals or poor individuals in our society would be discounted. That is, the rest of us would subsidize the connection of telephone service to those individuals so that our telephone would be more valuable to us. Everybody would be on the same system; and, therefore, poor and rural people would not be left out of service on a monthly basis for telephone service. What the FCC did in interpreting that provision to include a capacity to levy a tax on telephone users for the purpose of construction grants to schools and libraries goes way beyond the intent of Congress. And as you pointed out, Madam Chairwoman, I think it calls into question the powers of the executive side of our government. It is the power of Congress to levy a tax for the purpose of providing a construction grant program. And it is the purview of Congress to decide the level of that tax and then also to oversee the spending of that program. Here's what the FCC did. It levied its tax, and it set up corporations to administer the spending of the money after it collected the tax, and decided then that these corporations would decide, in fact, administer a grant program to schools and libraries in America--corporations that are not subject to congressional oversight. So, in effect, it avoided the constitutional separation of powers. It avoided the oversight of Congress through its Ways and Means Committee, and its appropriation process in working this program through. The bill that Jerry and I and others have filed does several things at one time. One, it legitimizes the program. It takes out of question, the question of whether or not we ought to properly fund this program with a properly funded tax. It funds it properly with a tax we are already collecting since 1914, a tax that was imposed--three percent on telephones--that was imposed in 1914 to fund World War I. If my history serves me right, that war is over. We can find a new purpose for that tax. Our bill repeals that tax over time, but leaves in place one-third of it, the one cent, that will properly fund the schools and libraries program. And then secondly, we repeal clearly any authority the FCC thinks it has to levy a so-called e-rate tax on telephone users. It repeals two taxes at the same time, sunsets the balance of the 1914 tax, leaving enough in place, $1.7 billion a year--in fact, escalating to $2.1 billion in this last year, enough in place over five years for us to carry out the program properly under congressional supervision with a tax that's clearly authorized without corporations that have been called into legal question by our own GAO. I submit to you that this is a plan that's a win-win for all of us. It gives great tax relief to Americans, repeals the e-rate tax, repeals two-thirds of an old tax, provides a funding mechanism for schools and libraries that is legally and properly funded, and subjects it all to the proper legislative oversight of this committee and the Appropriations Committee, and other education committees of Congress, as well as the Commerce Committee in its oversight of the NTIA. I suggest to you this is a good approach. It solves a lot of problems at one time, and gets rid of any legal questions about the sanctity of this program. [The prepared statement follows:] [GRAPHIC] [TIFF OMITTED] T3683A.004 Chairman Johnson of Connecticut. Thank you, Mr. Tauzin. Mr. Blumenauer. Mr. Coyne. Madam Chairman---- Chairman Johnson of Connecticut. Welcome to have you. Sorry. Mr. Coyne. I wonder if I could make an observation relative to what's been said here. To continue to refer to this tax as the Gore Tax I think is misinterpreting what the purpose of this hearing here today is. As the Chairwoman pointed out, the purpose here today is find out whether or not it is a tax, or it isn't a tax. But to refer to this as a Gore Tax I think just brings some partisan rhetoric into this hearing that is not becoming of the process here today. We could just as easily be calling this the Weller Tax in as much as Representative Weller voted, as I did, for this legislation, and maybe we ought to refer to it as the Weller tax instead of naming it after the Vice President. Chairman Johnson of Connecticut. Mr. Blumenauer, it's a pleasure to have you before our committee. STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON Mr. Blumenauer. Thank you, Madam Chair. And I appreciate your courtesy in allowing me to join with you. And the exchange that's been going on I think underscores the importance of why you should have this oversight series of hearings and testimony. I identify with the 1,800 schools in Illinois. I have schools who have applied for the e-rate in my district. You have them in yours. They are a part of the 100,000 schools and libraries that Mr. Coyne referenced who've made application and who should, by rights, be receiving benefit for it. And the longer that we continue to dilly dally here in the Federal Government, we hold our children and their future hostage. And I think it's inappropriate. I want to state from the outset that I am a strong supporter of the e-rate. I believe Congress, in 1996, made that commitment, and it was with the clear expectation that the e- rate was going to be funded out of the savings that were going to accrue to the telecommunication industry. In section 254, there was a notion that it would be part of the Universal Service Program, which been in place administratively for over 60 years. Universal service provides services to high-cost and rural areas, and it is something that has, in fact, been litigated. The Federal Court District Court for the District of Columbia did already settle earlier in the game that the Universal Service program was not a tax. It was a fee because it was used to ensure affordable rates for specified services not designated primarily as a means of raising revenue. The addition of a support mechanism for schools and libraries does not change the fundamental nature of the Universal Service Program. And as was referenced by Mr. Tauzin, when this issue was under debate in the House, it was called before the parliamentarian and a ruling was made in the House that it was not a tax, it was a fee. And I think it is important for us to keep that in perspective as we move forward. Now we have these pesky little extra items that are being added to phone bills. You referenced, I believe, the one that AT&T has. There's a 93 cent surcharge for Universal Service activities. However, only 19 cents of that is attributable to the e-rate cost. The majority is for the Universal Service that they have, in fact, been collecting for over 60 years. It seems to me that it is important to allow the litigation to go forward as been referenced. But I think the evidence is clear from the legislative history, from what's happened with the Universal Service in the past, that it's very likely that it will be, in fact, determined to be a fee. It is important I think for this committee, however, to look at proposals that have been proposed by my colleagues to my left, because it may well be at some point in the game that we do want to have an alternative mechanism available, either because there are politics that intervene, as they have intervened to this point, or because there are better ways of going about it. I remain open to alternatives frankly at some point if they're necessary. But at this point, they aren't necessary. I have grave reservations about starting over again. The FCC has addressed what I think were legitimate complaints about the administration and structure. They have implemented the recommendations from the GAO report. They're ready to go, albeit at a scaled down level. If we somehow get lost in the rhetoric, the politics, try and score points, the children and the commitment will be lost in the dust. And I think that would be a mistake, because there are these 100,000 schools and libraries that have made application for e-rate discounts, as was envisioned earlier. They are ready to go. We have the ability as a Congress to move forward in cooperation with the administration and the FCC and do so. And I hope that in the course of your deliberations, it will be clear that that is the course that we should follow. I do have a great deal of information that I'm not going to bore you with that I would like to be made a part of the record if I could submit it. And I stand willing to answer any questions or engage in a conversation as you see fit. Chairman Johnson of Connecticut. So ordered. We will submit your material for the record. [The prepared statement and attachments follow. An additional attachment is being retained in the Committee files.] [GRAPHIC] [TIFF OMITTED] T3683A.005 [GRAPHIC] [TIFF OMITTED] T3683A.006 [GRAPHIC] [TIFF OMITTED] T3683A.007 [GRAPHIC] [TIFF OMITTED] T3683A.008 [GRAPHIC] [TIFF OMITTED] T3683A.009 [GRAPHIC] [TIFF OMITTED] T3683A.010 [GRAPHIC] [TIFF OMITTED] T3683A.011 [GRAPHIC] [TIFF OMITTED] T3683A.012 [GRAPHIC] [TIFF OMITTED] T3683A.013 [GRAPHIC] [TIFF OMITTED] T3683A.014 [GRAPHIC] [TIFF OMITTED] T3683A.015 [GRAPHIC] [TIFF OMITTED] T3683A.016 [GRAPHIC] [TIFF OMITTED] T3683A.017 [GRAPHIC] [TIFF OMITTED] T3683A.018 [GRAPHIC] [TIFF OMITTED] T3683A.019 [GRAPHIC] [TIFF OMITTED] T3683A.020 Chairman Johnson of Connecticut. I think it is important to acknowledge that historically the Universal Service Charge has been dedicated to goals that have benefitted everyone. At times, it was used for the war effort. That certainly benefitted everyone. Deficit reduction--has the same impact on everyone. Universal connectivity of all the telephone lines benefits everyone. It means that anyone can call into any little rural remote area. The way the FCC interpreted their responsibility under this law has, I think, raised very fundamental questions. You point out that there was the expectation and I think particularly Congressman Tauzin on the Commerce Committee, it is my understanding that, and it was my understanding as a legislator voting for that bill, that our expectation was that this responsibility would be funded from the savings that we were in a sense giving to the industry. Is that not correct? Mr. Tauzin. It's important to understand that there are three things happening here, though. The first is the collection--the administration, rather, of a Universal Service Fee and helps us all have telephones. The second thing we intended in the bill was the administration of a second discount service, specifically designed for schools and libraries, to come out of the Universal Fee, to be funded by the savings. That's correct. Nowhere did we intend that the FCC would add a third thing, amounting to this grant program for construction inside the school. If I can maybe draw an analogy that helps us understand it. When America decided on a Universal Service Fee system to make telephones more affordable for rural people and poor people, nowhere in that system did we provide a tax collecting to go out and wire up the insides of houses, to put communication centers, to put a telephone in every room of every rural house, in the barn and in the tractor. This is such a separate concept of actually providing construction grants to go out and do the inside wiring and to put communication centers in all the buildings and offices of a farm. What the FCC did was to make that extension, that leap, if you will, of interpretation. What they said was not only are we going to provide discounted service for the monthly charges that a school or library would be assessed for access to the Internet, we're going to actually add another charge, a tax, which we will collect and administer through a corporation to grant money to the schools and libraries to do what?--to do construction programs inside the schools, to build communications centers, to put wiring into every class, to put wiring in the offices of the administrators. There are even applications to put them inside buses. Now, here's my point. That's a separate concept from Universal Service discounted rate that Congress never intended. And no one in an administrative agency ought to assume they have the power to tax and spend like that. Now, I'm not quarreling with the goal. I think it's a good goal. But it's our responsibility under the Constitution to both levy that tax, and we have in 1914, and to spend it properly, with congressional oversight and approval. One final thought, Madam Johnson. I think this is critical. For all of you who want to see schools and libraries wired up, understand what happened in the last several months. The FCC has now scaled back its program. It's trying now to decide which schools and libraries are going to get this money as opposed to which are not, in a scaled back program. The problem with that is that when we wrote our bill, in 1996, we created an entitlement. We did so on purpose. We didn't want politics played with this program. So we said that any school that filed a bona fide request for this discounted service had to get it. The FCC couldn't deny it. Now, they've interpreted that section to mean a grant of construction funds. Does that mean that any school, the richest in the America, that applies for this money has an entitled right to get that money if its a bona fide request. Maybe so. Do you get where I'm going? By interpreting it this one step further, the FCC may have created not only a legal mess over whether they can tax, but a legal mess over who's entitled to this money. Under the bill that Jerry and I filed, Congress would oversight the spending of this money. We could target it to the schools and the libraries around America that most need it, under a five-year program that would be administered properly through the State education authorities of our country. And I suggest that's a much sounder approach. Chairman Johnson of Connecticut. And, Mr. Tauzin and Mr. Weller, would your bill provide sufficient funding to meet the entitlement nature of the original vision of this program? Mr. Weller. Well, if you look at the projected funding that's provided, Madam Chair. In the first year with the funding mechanism, which is a legal funding mechanism that's already established in the statutes. In fact, you know, that telephone tax that was created in 1914, the one penny out of every dollar that we earmark for the school and library Internet access program, it's projected it would generate $1.7 billion in the first year. Now, in the FCC's current program, as they suggest, they would provide about $1.2 billion, so we actually provide more money if you're looking at it from the standpoint of what way can we provide more money. And as we pointed out earlier, we solved the problem. There's the question about constitutionality of this tax that the FCC has levied that was not authorized by Congress, which we solve the problem by providing a legal funding stream. I have some figures here Mr. Tauzin just shared with me, but its budget estimates are in 1999, the legal funding stream, one penny out of every dollar in your phone--telephone use, would generate $1.7 billion in 1999. In the year 2000, $1.7 billion. In the year 2001, $1.8 billion. In the year 2002, $2.--excuse me--$2 billion. 2003, $2.1 billion. Of course, now we--our legislation does sunset it five years from today. But if Congress were to determine, as you know, as Congress should have the right to do in our oversight, that we should extend it, we certainly could. For that five years, we provide more money than the current FCC tax. Chairman Johnson of Connecticut. And what exactly does your legislation allow the money to be used for? Mr. Tauzin. Specifically, for all the purposes that the e- rate fund as devised by the FCC envisions for the construction grants to schools and libraries and rural hospitals so that they can, in fact, have communication centers wired up to all the classrooms or all the specific reading rooms or what have you in the library or the hospital. Chairman Johnson of Connecticut. Does your legislation retain the responsibility of the FCC to develop a discounted rate for libraries and schools? Mr. Tauzin. Yes. Yes, ma'am. Chairman Johnson of Connecticut. So the original purpose of the FCC as a rate setter, to develop a discounted rate for schools and libraries is retained under your proposal. What you are doing is creating a clear tax to fund a clear public purpose? Mr. Tauzin. Yes, ma'am. In it, the fee that's charged for all of us to have telephones. The telecommunications services is about $690 million. That's retained within the FCC authority. They still have the additional Internet access authority. It's about $88 million to make sure that schools and libraries can get cheaper rates for Internet service. All we do is remove this tax and spend authority with the construction grants and put that back under Congress where it belongs. Chairman Johnson of Connecticut. Thank you very much. I do--will just sort of conclude my initial statement about the use of the former Universal Service revenues being for universal goals, and point out that it does seem to be a problem; that the FCC levied a fee that everyone pays, butnot everyone benefits from. Mr. Tauzin. Madam Chairman? Chairman Johnson of Connecticut. Yes. Mr. Tauzin. Could I add one thing? I want to correct the record. The statement was that the charges that Americans are feeling for this e-rate--they're only 19 cents on the AT&T 93 cent surcharge. According to the FCC's order, which I have a copy of, 36 percent of the total is for this e-rate. Thirty-six percent of the 93 cents is a 33 cent charge on Americans on AT&T. On MCI, it's 5 percent of the fee. When you multiply that out, a $1.80 is being charged under this e-rate. It's a significant tax on American telephone users, and as Jerry pointed out. I want to make this point as we conclude perhaps. This is the most regressive tax in America. The poorest of the poor use their telephones. And they're being taxed at these high rates, again, by an agency I don't think has the authority to do so. Chairman Johnson of Connecticut. Thank you. I think that is a very significant point. Mr. Coyne. Mr. Coyne. Thank you, Madam Chairman. I wonder if the two authors would tell us how you intend to fund the bill? Mr. Weller. Well, Mr. Coyne, as I stated in the testimony, our legislation, as when it relates to revenue, in 1914, there was a three percent tax that was levied on telephones. And at that time, of course, very few Americans had telephones in 1914, so it was considered a luxury tax and the intention was to use that as a revenue source to finance the World War I effort. And like most taxes, the war is over with but the revenue is still coming in. And it goes into the general revenues. Then you also have the FCC tax that they levied on telecommunication services. Our legislation eliminates the FCC's tax and also reduces the World War I tax from three percent to one percent. The remaining one percent we earmark so we have a legal, already established revenue stream, which, as projected, would generate $1.7 billion to go towards the school and library Internet access program. Mr. Coyne. CBO, I am told, says that the legislation would reduce budget receipts in 1999 by $4.3 billion; and over a five-year period, $23.9 billion. Is that correct? Mr. Tauzin. Yes, Mr. Coyne, that's correct. In fact the industry had estimated $28 billion. OMB came back with the $23.9 billion. And that's the total offset required if you want to do this. If you want to repeal both two-thirds of that old 1914 tax and also repeal this e-rate tax. It takes $23.9 billion of offsets over five years--a little less than $5 billion a year. And what we've suggested to our leadership here is that if we're going to do a tax bill that benefits specific groups of Americans included in that tax relief bill ought to be this general tax relief against the most regressive taxes in America, this tax on talking in our country, that all people pay, particularly poor people. In some jurisdictions, Mr. Coyne, taxes on telephones are higher than the total taxes on tobacco. And for a free speech society, that ought to be untenable. And what we're suggesting is that in a good tax relief package, $23.9 billion over five years ought to go to all Americans in the form of general tax relief on their telephone bills. Mr. Coyne. But you still feel that even with the reduction and the revenue coming in as a result of your legislation, we'd be able to fund the purpose of the schools and libraries? Mr. Tauzin. Absolutely, Mr. Coyne. Mr. Weller. If I could interject, Mr. Coyne, as I pointed out the one penny per dollar in telephone service, the 1914 World War I tax, which we reduce from three cents per dollar to one cent per dollar, that remaining one cent is earmarked for the School and Library Internet Access Program--goes into that trust fund. And that is projected to generate $1.7 billion, which is a half a billion dollars more than what the FCC currently projects to spend this year. Mr. Tauzin. It theoretically could go on forever on our telephone bills. There is no sunset today. The FCC theoretically, if it has this authority, could it continue to collect this tax as long as it felt it had a purpose to collect it. Secondly, if a school came back in five years and demanded more money, I mean theoretically, they might be entitled to it if they have a bona fide request. They might have to raise the amount of this tax over time to fund the request that come. Suppose somebody file suit and says, we were denied funding and we think we were entitled to funding and they win that suit; then this tax has to continually go up. What we'd do is we'd provide what we think is sufficient amount of monies over five years trust funded. Then, as Jerry said, if this Congress feels like it wants to go further, it always has that right over that five year period to extend that program. But that's a legislative authority, not an agency authority. Mr. Coyne. Mr. Blumenauer. Mr. Blumenauer. It just seems to me that my colleagues are sort of arguing against themselves on this. First of all, over the course of five years, if you compare their proposal with what the FCC would do if allowed, there is a much larger portion that would accrue under the FCC that would meet the projected needs. The proposal that is being suggested by my friends is considerably less than what is needed--and they're criticizing the FCC for not doing enough. In fact, the only reason the FCC scaled it down was because of the firestorm of political controversy. But they have scaled it down and they would set the money out on a priority basis to get funds to those most in need first. But over five years, they would do more than that which is proposed by Representative Tauzin, who also proposes sunsetting the program. Furthermore, if you block grant to the States, there's no guarantee that you will get this same scope as we are talking about under the FCC proposal. Finally, if the suggestion is that you shouldn't include wiring to the classrooms, well, then you in your wisdom can go ahead and cut back. But I would submit for the record some report language that specifically references getting services to the classroom. I think it was a reasonable interpretation the gentlemen included in their legislation, and that's what America schools and libraries are expecting. I am confident in the final analysis this in what Congress and the Administration will do. Mr. Coyne. Thank you. Chairman Johnson of Connecticut. Mr. Blumenauer, just to that point, doesn't it concern you that if the FCC, the way they have constructed this fee, and the way they are planning to implement it, will put them in the position of reimbursing systems where they are building a new school and would have naturally have wired the classroom billing us for that wiring? I mean, if you do it with a block grant, States can make some judgments about whether some of the, frankly, more affluent communities that were already building a school where they would normally would have done this really needs that help or not. I can tell you, in the old innercity schools, which we are not going to absolutely replace in the near future, the construction costs of wiring to the classrooms are very great. But there are other suburban areas where, frankly, they are building new schools with a lot of state aid, where we do not need to use Federal resources to complement that construction grant. So one of the problems with the FCC program is that, since they are not accustomed to administering an appropriated program, they aren't equipped to make those decisions. If we either do that at the State level, I think we need to deal with that. One of the problems with the FCC extending its authority-- and it is, after all, a rate regulatory agency--and the things it does through rates, it does for everybody and everybody is to benefit. This is a situation of which benefits are differentiated across the scope, but everybody pays the fee. This is a very dramatic expansion of the FCC authority. I'm glad to know that some members have done some thinking about it, so that we can clearly ascribe a source of funding for what is a very important public purpose program. I think that one of the things that this committee has to be concerned with is how do we honestly raise money through taxes, but also it assures that it get to the right place at the right time to the people who really need it. Mr. Blumenauer. May I respond? Chairman Johnson of Connecticut. Yes. Mr. Blumenauer. Well, first of all, the innercity school that you talked about would get more benefit under the FCC because there is a scale from 20 to 90 percent, with the larger benefit rolling to those most in need. So a new suburban school in the FCC proposal would receive very little compared to the innercity school. The interpretation that my colleagues have just made would wipe out the wiring to the innercity school. They're complaining that that's what the FCC is doing. Chairman Johnson of Connecticut. I want to let the other members question, so we'll come back to this. I think 0 to 100 is just about as fair as 10 to 90. Let me yield to Congressman Jennifer Dunn. Ms. Dunn. Thank you very much, Madam Chairman. I appreciate your putting together this hearing today because I, for one, have real concerns about the assault on constitutional authority that I've seen in the last few years, whether it's the American Heritage Rivers Act or it is second amendment rights taking those away from the State's jurisdiction. I have a real concern and I think it's necessary for us to discuss this sort of constitutional jurisdictional issue. I like very much the bill being proposed by you, Mr. Tauzin, and you, Mr. Weller. I think it gets jurisdiction back to where it belongs, which is the Ways and Means Committee under section 1 of the Constitution and the Congress. I'm very pleased to hear the detail on your bill. I think, Mr. Blumenauer, where you described this as a user-fee versus a tax, very clearly that has not been declared yet by the appeals court and it lies in the 5th circuit court of appeals. Right now I think we will have our answer eventually, and I tend to believe that the FCC have gone a step too far, but will wait to make my decision until I hear about that. I have concerns generally about taxation and the United States Government. The fact that this luxury tax was imposed in 1914 when few people had telephones, it was definitely a surtax or a luxury tax on those people who were able to afford telephones. And now, how many decades later it still is in place. I think we must continue to do very solid and detailed oversight on this sort of taxation. The amounts of money vary that we have heard from you. I have a concern on Mr. Tauzin and Mr. Weller. I wonder if you could please explain for me if we are able to get by this FCC Gore Tax and into the proposals that you've included in your legislation? How do you make up for those revenues--that 2 percent of revenue--that has before flowed into the general funds and now would be eliminated as you phase out that portion of the tax? Mr. Tauzin. Well, first of all, let me--if everyone is not aware or acknowledged that, and I've cosponsored an earlier bill that would completely repeal that 1914 tax--before this e- rate problem became a problem that we saw an opportunity perhaps to correct with it. Let me concur with you that a 1914 luxury tax on telephones is long overdue for appeals. Our bill does that over repeals some immediately, two-thirds immediately, one-third at a later date. Secondly, repealing a tax that is going to the general fund obviously requires an offset. Repealing the e-rate, we found out, also requires an offset because the e-rate collections were counted in the budget estimates. The total again is about $4 billion over five years--by a little less than $5 billion a year. That has to come out of budget estimates, budget spending, and over in the course of our deliberations between now and the end of this session. Our plan is obviously to get the leadership, and hopefully the chairman of your committee, to accept the notion that in any general tax relief bill that this is a good place to give Americans tax relief and fund it indeed out of surplus that we expect to come to the Government on top of what Social Security surpluses are being generated, and would be protected under our general plan. In a nutshell, we would hope that this is part of the general tax relief bill, and that this $5 billion a year is funded as a general tax relief for all Americans, in addition of whatever special tax relief is provided in that bill, out of surplus that we expect to generate over the next five years over and above what Social Security trust fund surpluses are generated and would be protected. Ms. Dunn. Good. I thank the gentleman. Mr. Weller, did you want to comment on that? Mr. Weller. Well, just actually to build on a comment that my friend Billy Tauzin made, but responsed to my friend, Mr. Blumenauer's comment. We were talking in response to Mrs. Johnson's question regarding urban schools andsuburban schools, and I represent part of the City of Chicago, as well as the south suburbs and a lot of rural areas. Of course, I think of LaSalle Peru High School, a building which I think was designed to withstand a nuclear strike--the building is a fortress; it was built over a century ago and it'll last a lot longer than most buildings in the District that I have the privilege of representing. But in talking with the school administrators, and their goal of course is to give every child access to the computers and the Internet. What I think is wonderful about the discussion we've had this morning, we've moved beyond the question of whether or not we all work towards the goal of giving every child access to computers and the Internet. I think we all have agreed, and with the comments this morning. The question is how do we solve the problem in getting there. And with the FCC's tax, of course we have a constitutional question, and of course the legislation that Mr. Tauzin and I offer solves the problem by providing the legal source of revenue, and accomplishes every goal that the FCC suggest we accomplish with their goal. Of course, in the case of LaSalle Peru High School, they need $1 million really to put in the wire, the fiber, and of course the hardware so they can provide computers and Internet access for every child. Our program would make that available. Of course, we block-granted to the States and then the State of Illinois--in our case, the Illinois State Board of Education-- would administer in the application process and distribution of those funds. This follow our philosophy which is that those that are closest to the communities and the schools and library districts being served can best make decisions in allocating those funds. That's why we intend to do this, rather than having a regulatory agency, which is what the FCC is. The FCC was not created as an agency to provide grant money to schools and libraries. The FCC was put in place to regulate telecommunications. We of course solved the problem of helping our schools, and helping our libraries provide access to the Internet by providing a legal revenue stream--$1.7 billion in the first year--which is more than the FCC indicates that they would provide. And, of course, we get that money out to the States, through their State Education Authority to allocate those funds to local school districts and libraries. It's common sense, it's legal, and it would work. it is consistent with a lot of other funding programs they already have in place for education. Ms. Dunn. Thank you very much, Madam Chairman. It is the belief of this Congress that we not increase taxes, and certainly we would not like to have taxes increased arbitrarily by an administrative agency. That's something for this committee first to put great thought into. So I appreciate your defining what the nut of this problem is for our hearing today. Thank you very much. Chairwoman Johnson of Connecticut. Thank you. Congresswoman Thurman. Mrs. Thurman. Thank you, Madam Chairman. I'm going to follow up on this. If what I read is that this was passed through the telecom bill, how are we saying that this was not an authorization for Congress to raise these dollars? I understand there might be a law suit on this to make that determination, so quite frankly right now, we're assuming something without any legal terms for this. I don't understand why we are saying that they've done something that we're not sure about yet. Maybe you can explain that. I don't know. Mr. Tauzin. Ms. Thurman, let me try again. The problem is basically in our universal service fund concept, we've always thought of universal service as a subsidy system where you and I perhaps may be charged a subsidy. But our poor neighbor, our rural neighbor, might enjoy the use of a telephone. That enhanced our telephone. Mrs. Thurman. And we did that, though? Mr. Tauzin. Yes, we did that a long time ago? Mrs. Thurman. And we did it again and redid it again in 1996 with the telecommunications? Mr. Tauzin. We did it again in terms of Internet services. We not only said it's a good idea for everybody to have telephones that I telephone and yours is more valuable, all Americans are connected. We also said in the 1996 act is look, we're entering a new age of communications. Internet services are not only good and useful, they're going to be critical to educating our children. So we said for heavens sake, let's make sure that every school and library has the ability to access Internet services at discounted rates. The same way we wanted to make sure that every rural person and poor person had access to telephone service at discounted rates. That was our intent. What the FCC did was to take that very legitimate purpose and add another one on to it. By defining that reference access to the classroom, they decided well, let's put together a program whereby the telephone companies will collect money from their customers. We will collect it through a corporation, in fact three of them they set up, that will then give grants to schools and libraries to do what inside construction. It's a little bit like taking the universal service fund that we've enjoyed all these years and saying we're going to interpret it now to allow the farmer out in rural America, to reconstruct his house so that every room in his house has a telephone and has all kind of new services--that his barn is equipped with telephone services, his tractor now is equipped with telephone services. We never interpreted universal services to include construction grants. That's the problem. The problem for us now is how do we take this good purpose and clarify any questions about legal funding also preserved for you and I, our constitutional function of taxing and spending on the Nation for legitimate purposes like this. Hence our bill. What we're saying is that whether or not the 5th circuit decides it's a fee or a tax. I think it's a tax; I think the 5th circuit is going to decide that. Why not clarify that? Why not get rid of this question about whether these corporations are legal or not? Mrs. Thurman. But that would only be on the construction part of it? Mr. Tauzin. Yes, only on the construction part. Mrs. Thurman. Okay, so we'll move on beyond that. So now what happens then to doing what was intended to do, which was to open up the telecommunications for schools and libraries. You just totally get away with, even from the 1914 to even what was passed in 1996? Mr. Tauzin. Yes. Mrs. Thurman. Your surplus dollars for the purpose of Interneting schools throughout this Country? Mr. Tauzin. What we're saying is that the FCC should provide discounted rates of service for every classroom inAmerica where the kids are going to be connected to the Internet and learning on it. So that's true. The FCC should provide discounted rates of service, the monthly charges you pay, for Internet access to every hospital in America so that we all have the advantage of telemedicine, which is going to save us all money and save many lives. We said that the same is true for every library in America. That no library ought to suffer for the lack of Internet services because the rates are too high. There ought to be discounted services for them. Yes, the FCC continues to do that. It simply doesn't have the power to tax for this construction program. You and I would have that power through this bill. Mrs. Thurman. When you put your bill together and you said that you'll take two-thirds of the money or $24 billion whatever your amount was. In putting your numbers together, how have you made the assessment for the needs for this Country? I mean, have you got this down to a formula, do we know--is it going to be similar to what schools and libraries have had before? 20-80, 90-10, whatever based on their disadvantage? I mean, how have you made this assessment? Mr. Tauzin. What we did was to, first of all, determine that 1 cent out of this 3 percent tax was adequate to provide, as Jerry pointed out, 1.7 escalating to 2.1 billion each year for five years. We looked at what the FCC originally intended in the e-rate proposal and we recognized that this was more money than the FCC had originally intended to collect--very close to those numbers. We said, here is a fund that can do that. Secondly, as was pointed out, the FCC is not scaling back its program. Under our proposal, you wouldn't have to scale it back. You could do full funding. The third thing is we wanted to make sure that in this full funding that there was not going to be an uncapped, unlimited amounted that might be collected; that we would have some control over that. So, in essence, as we administer the grant program through the States, if the States present to us legitimate needs as Jerry pointed out, we can expand it. If the States are presenting request that aren't as legitimate for rich schools, etc. that don't really need this money, then we can literally live with our cap or even limit those spendings. Ms. Dunn. So didn't that concern you a little bit if what the chairman said earlier was that there was a universal need, universal goals for everybody, and then we do get into the politics, a little bit of divvying these dollars up State by State. I mean, you're making mention that well if they really need it or if they don't need it or whatever. I mean, I'm a little concerned the way you phrased that. Maybe that's not exactly what you mean, but I don't want to get into the politics. This is about children; this is about our libraries; this is about access. Mr. Tauzin. Good point. That's why we wrote the language in 1996 as an entitlement. Let me say it again. That is why we carefully said that no school, rich or poor, who filed a bona fide request for discounted rate of service would be denied. We wrote it as an entitlement so there wouldn't be any politics. There wouldn't be any calling of names on this proposal or anything else. This would be a simple, straight forward. The school provides a bona fide request for discounted service for cheaper rates per month for service to the Internet. They were going to get it from the FCC. The FCC could not tell one school or another you don't get it. That's why we wrote it that way. But now we're talking about something different. We're talking about a construction grant program, and what we're saying there is, and the FCC has finally come to that conclusion too, that when you come to construction grant programs, you could have unlimited request for dollar. But you have to have some kind of assessment of need. The FCC is trying to work their way through that. What we're saying if we properly fund this program, properly administer it through the NTIA which is our technology, telecommunications technology grant agency, and then let the State and their State authorities design their programs for their own need, that we're more likely to achieve that result without an open-ended program like the FCC has potentially created out of misinterpreting the act. Chairman Johnson of Connecticut. Congressman Hulshof. Mr. Hulshof. Thank you, Madam Chair. I was flipping through an old Farmers Almanac the other day and saw this quote that said, ``If Patrick Henry thought that taxation without representation was bad, he ought to see taxation with representation.'' [Laughter.] And yet, I echoed the comments that my colleague from Washington State made that ultimately the power of taxation should rest with those of us who are here. Mr. Blumenauer, I wasn't here in 1996 to vote for or against the Telecommunications Act, and regardless of what the parliamentarian's decision was at the time, whether it was a user-fee or an excise tax, in the Hulshof household, one of my responsibilities is to pay the bills. This past weekend, I wrote the check for our family to GTE and I looked at the bill, knowing this hearing was coming up, and GTE tells me that I'm paying an excise tax. Do you disagree? Mr. Blumenauer. No, you're paying an exise tax. That's been on the bill and it's been a separate line item. What we're talking about is the e-rate which is separate and distinct from that. You've been paying your monthly bills with universal service for as long as you've been writing checks. And appropriately so because it is contributed to the entire universe and it's made, as Mr. Tauzin said, the entire system more valuable. This system of telecommunications will be made more valuable by having all of our children have access to it. That doesn't make it a tax. Mr. Hulshof. Well I think that everyone here that's been discussing that question and those of you responding, we share the same goal. It use to be when I was in school doing a school project, you went to the local library and paged through books and now with the click of a mouse you have a wealth of information that wasn't there before. I think the intent and the goal of everyone is the same. I want to give you a chance to respond because Billy was making a point earlier, and I've noticed that you were not in agreement through your nonverbal reaction. Congressman Tauzin makes the point that the e-rate Program is now being administered beyond the scope of universal service; it's being administered through an improper FCC agent--I'm paraphrasing his words of course. It's being funded well above its demonstrated needs. And fourthly, that it is open-ended. Now, what disagreement do you have with any or all of those premises? Mr. Blumenauer. I just finished explaining why I think this application of the universal service fee extensiondoesn't transmit it into a tax. Let me just reference the last two points that you made. First of all, with all due respect, the information I have is distinctly different from my two colleagues. The demonstrated need for what's in the pipeline now is far above the $1.9 billion that the FCC has earmarked. They've scaled it down as a result of all the controversy that's been going on. They had originally identified $2.25 billion for the year, it would be something like $3.35 billion through June of 1999. They've scaled it back to $1.9 billion. The gentleman's proposal would be $1.7 billion, and then go on over time. So the demonstrated need for what's in the pipeline, the estimate is higher than what the FCC is doing; and the $1.9 billion the FCC is proposing is higher than the $1.7 billion that the gentleman had suggested. That was the point that I was trying to make. You've suggested that somehow that it's the rich districts that are going to be accruing the benefit under this, and we need to be concerned about the innercity. That's precisely what the FCC has been attempting to do, by giving a larger payment subsidy to the innercity school to the rural poor schools that have a much lower connection. And as the chair mentioned, some of these innercity schools have to have wiring or else it is illusory to assume they have Internet access because you'll continue to have it as it is today, the 73 percent that have Internet access have access mostly to the principal's office. It's only 27 percent of the classrooms. You need a proposal like this that gets it to the classrooms. Mr. Hulshof. Let me reclaim because I see my time is about to expire. No that's okay. Mr. Tauzin, did you want to quickly respond? Mr. Tauzin. Quickly, let me, first of all, thank you for being an original cosponsor. Mr. Hulshof. Proud to be on the bill. Mr. Tauzin. Secondly, the answer is that the so-called demonstrated need figure includes all these rich school request. The FCC is now admitting they're going to fund at a much lower percentage rate of grant. That number they cited to you is an unrealistic number. It includes requests that are extraordinary to even wire up and connect to the Internet school buses in some districts. So keep in mind, the number we provide, nearly $2 billion a year over a five year period is quite adequate to the real needs expressed already by applications to the FCC. Mr. Hulshof. I appreciate that. As a concluding comment, Madam Chair, and conversations with a young man, a 27 year old man who's an Internet provider back home in Hannibal, MO, who for other reasons because of the telecom bill is now $11,000 a year in fees/taxes who came to me an said, ``Look, I would prefer much better that at least you consider, and either vote up or down these increases, these taxes, so that I can at least express my opinion at the ballot box every two years because that's why we send people to Washington to represent us.'' I appreciate each of you being here. Thank you, Madam Chair. Chairman Johnson of Connecticut. I think, Mr. Blumenauer that your previous response demonstrates that what the FCC has done is unprecedented in terms of the scope of the exercise of its authority. For it to exercise its authority to provide a discounted rate is harmonious its statutory authority and with its traditions. For it to get itself in the position of administering what is in effect an appropriated program supported by a tax is to not only extend their scope of authority beyond their law it seems to me, but also face them with administrative responsibilities that they have never had before. And whether this should go through the Commerce Department and in the block grounds, or whether it should go to the Education Department and down through one of their mechanisms. We do have in the Federal Government already established bureaucracies who have long experience in thinking through how do we best allocate these and whether it's $1.8 billion or $2.2 billion. So it is disturbing that the FCC should be trying to make this determination in an area which we actually have a whole department established to deal with the educational needs of our schools throughout America and have a much greater body of experience in how you would distribute and administrate these dollars. I think part of what we're dealing with here is that when you, in a sense, levy a tax for a major public purpose, and this is a major public purpose I don't think anybody would deny that hooking up all of our schools, libraries, and hospitals is not a major public purpose. That with that comes a lot of complicated decisions and a lot of investment in a bureaucratic delivery system. So it's important for us to really engage in this issue as a fee to support a discounted service. Or is this a tax to support a program to implement construction grant. These are very different entities with different sources of legal authority, and they do have enormous implications for the overall bigger picture of Congresses obligation to tax the people of America to fund programs that fulfill our public purposes. And to be accountable for where we raise the tax and where they go. A fee upon a discounted service in the context of regulation is a very different animal both legislatively and constitutionally from a tax purpose. I think this discussion has been very helpful to show the scope of this program and the difficulties that scope represents. I think we are all in agreement that we would want to have money enough to do the job. I personally would like to see us be able to do it as an entitlement because you don't want schools to wait two years to do something that they need to do now. So there is a lot more that has to be delved into in another realm. The focus of this hearing is important. Is this is a tax or a fee because it helps us deal with it. Is this going to be an appropriated program of which we're going to deliver through the appropriate bureaucratic mechanism and oversee its accomplishment of its goal. Or is this rate regulation and discount subsidies over endless periods of time, which it is. I mean, the rate regulation, the discount rates will be forever. They are not for five year. Mr. Coyne. Mr. Coyne. If you would allow me at this point, I think at this point a clarification here would be helpful relative to the issue of fee versus taxation. In AT&T, the way they are billing their customers, what they are putting into the bills currently as of July 1998, and I quote from their bill that says, ``The universal connectivity charge that appears on your bill is being assessed at a monthly fee of 93 cents per account, instead of the previously announced 5 percent monthly charge. This fee--and they refer to it as a fee--supports the extended universal service fund which now not only helps provide affordable telephone service, but also gives schools andlibraries access to the Internet. The FCC has also reduced the fees AT&T pays local phone companies to connect toll calls. That's one reason our prices for long distance service have continued to come down over the last decade.'' Then they give a phone number for information if you want to call, an 1-800 number. Chairman Johnson of Connecticut. Great, and I appreciate that and I have a copy of their bill here. The issue remains as its appropriately described as a fee and are the purposes for which it is used are traditional purposes that fees are used for. Is the delivery mechanism a traditional fee-delivery mechanism? And more importantly on the issue of fee versus taxes, does everyone who pays the fee benefit from paying the fee, or do only selected groups benefit from pay the fee? And does everyone who benefits pay the fee? Because in this case not necessarily everyone who benefits pays the fee. I appreciate your recognition of the way this is worded, but I think the problem is really profound and not one we should protect ourselves from. Because we have other people waiting to testify, let me move on to Mr. Neal. Mr. Neal. Thank you, Mrs. Johnson, thank you very much. Not being a member of the subcommittee, I appreciate you granting me some time. I think that the panelist have all indicated that the goal of the e-rule program was desirable. I could just maybe direct my question to Mr. Tauzin. Could you recreate quickly where this provision was inserted and at what time it was inserted? Mr. Tauzin. Are you talking about in legislative history? Mr. Neal. Yes. Mr. Tauzin. I would probably make a mistake in doing that without reference to the documents right now. I can only tell you that through the creation of the act, the 1996 Act, it culminated over about four or five attempts. We passed the bill several times in succession. The final act in 1996 signed into law did contain clearly the instruction of the FCC for discounted service. Without reference to the documents, I couldn't tell you whether it happened in the subcommittee, the full committee or in the conference committee. But I'll be happy to supply that information to the committee. Mr. Neal. I think it might have happened at conference. Do you think that---- Mr. Tauzin. I think that the final language agreed to in conference---- Chairwoman Johnson of Connecticut. If the gentlemen would yield, we did have earlier testimony on this and the committee can clarify this for you. Mr. Tauzin. But I'll be happy to submit the chronology. I would also like if it would help you to submit for the record a copy of the letter from Chairman Bliley to the FCC bitterly complaining about the FCC's attempt to force the carriers to hide this fee in their rates without showing the customers that it was being collected. Mr. Neal. The only point I'm trying to raise is that we've agreed that the goal is desirable and it's interesting that Mr. Weller made reference to the Gore Tax, when you could also suggest that Senator Snow from Maine was a full participant. So maybe we could appropriately call it the Snow Tax, if that's the rhetoric we're going to apply in hearings like this when there should be a better attempt to crystallize the issue so that we can intelligently focus on the issue for the American people and we can help them help us make a determination. There are unintended consequences of the Telecommunications Act, including cable TV rates which none of us thought would increase at such a fast pace. My point is simply this, that in forums like this, there is an opportunity to elevate the public debate. We don't elevate the public debate by suggesting things like the Gore Tax when there are Republican members who were fully aware of what was going to take place. In fact, an amicus brief filed in the 5th Circuit by Senator Snow, as well as Senator Rockefeller. I don't know what purposes are achieved when we come into a forum like this and suggest that it's the Gore Tax. Maybe you could clarify that for me in your testimony. Chairman Johnson of Connecticut. Mr. Neal, if we may. We are terribly behind and I really would like to go onto to the next---- Mr. Neal. Mrs. Johnson, I appreciate that. Chairman Johnson of Connecticut. We've been through that before. Neither the chairman nor the ranking member are characterizing this discussion as anything other than a very importing discussion about where taxing authority lies in the constitution and in this body. And how we hold ourselves accountable for the raising of revenues and the expenditure of those revenues. And while I appreciate your point, and I regret that people characterize the tax one way or another, we have been through this several time in this hearing. We've been at this an hour and a half and we have yet to call the commissioner. Mr. Neal. I understand the suggestion that you made, Mrs. Johnson, and do appreciate the point on how this issue should be characterized and the suggestion is fully accepted. Thank you. Chairman Johnson of Connecticut. I'd like to move on now. I thank the panel very much for your input. Excuse me. Stop one minute. Sorry, I forgot that Mr. English arrived, and I will recognize him before we dismiss the panel, if the three of you could remain for a moment. My apologies, Mr. English. Mr. English. And I thank the chair for the opportunity. I'll keep my questions relatively brief. Having examined this issue, it seems to me that the e-rate is a tax and I would like to get some comments on that in a moment, but I want to first raise a couple of questions with my colleague, Mr. Tauzin, who has been pushing for a national consumption tax very eloquently. Obviously it had not occurred to him that we had given the FCC the power to impose one unilaterally. I wonder in you view, is the e-rate funding mechanism essentially an open-ended tax and is your tax proposal open- ended? Mr. Tauzin. First of all, to highlight your comment, you know that I'm pushing for a general tax, not a special luxury tax. In fact we repeal most excise tax. I think the idea of special excise taxes is damaging to the success of programs like telephone service for all Americans. It's the most regressive way to treat this issue. So I think it's consistent with our approach. Secondly, our plan is not open-ended. Our plan is a five year plan. Congress would have to extend it after five years if they wanted to. Our plan says that for five years we would retain the revenues from one-third of the 1914 luxury excise tax that was placed on telephones. And for that five year period that one-third of those revenues, about 1.7 billion a year escalated to 2.1 billion we estimate, would go into a trust fund for the administration of this construction grant program for schools and libraries. At the end of five years, that one-third of taxing authority in the trust fund would terminate unless extended by Congress. So that our plan terminates completely two-thirds of that old 1914 tax, it terminates completely the e-rate tax imposed by the FCC. So Americans would see immediately the benefit of $5 billion of tax relief per year. But it retains one-third of that old 1914 tax, but only for a period of five years, sunsetting at that point unless extended by Congress. Mr. English. And I approve of the gentleman's approach because you are getting at one of the things that bothers me, and that is the huge accretion of excise taxes that the Federal Government has imposed over the years and has not reassessed in a long period of time. In your view, and examining your proposal, why do you feel we need to create a trust fund in this case? Mr. Tauzin. Well, for two reasons. Number one, I think it's very clear that because of the FCC's action to create the e- rate, there has been a very large outpouring of expectations from the American education community and from rural hospitals and libraries of America for this assistance. Number two, I think it makes sense. I think we ought to help if we are going to take full advantage in the 1996 act of the educational opportunities that are offered us in long- distance learning through the Internet, if we are going to have telemedicine really save us money in our Medicare, Medicaid programs, and save money for all Americans in their insurance bills, we ought to make sure that no hospital, no library, no school is not properly equipped to take advantage of all these efficiencies that the Internet is rapidly bringing to us in these critical areas. So, for the reason that I think it is a legitimate purpose; and number two, that the expectations have been developed, I think we ought to make sure that as we repeal one, we are leaving no doubt that we are establishing a trust fund to carry out the purposes that were intended by the e-rate program. Mr. English. Thank you. Madame Chair, I have a number of other questions, but this panel has been here a long time. I appreciate their testimony and I appreciate the opportunity to engage a little bit on this debate. Again, I believe that the e-rate program clearly is tied in to a tax, rather than a fee, and I believe should have come under the jurisdiction of this committee. I appreciate your efforts to reassert our role in this process, and I thank the panel. Mr. Tauzin. Thank you, Mr. English. Chairman Johnson of Connecticut. I thank the panel very much. I would like to call forth Commissioner Harold Furchtgott- Roth of the Federal Communications Commission, and Christopher Wright, the General Counsel of the Federal Communications Commission. Mr. Furchtgott-Roth, if you would proceed, please. STATEMENT OF HAROLD FURCHTGOTT-ROTH, COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION Mr. Furchtgott-Roth. Madam Chair, distinguished members of the House Ways and Means Committee, it is a great honor for me to appear before Congress and to appear before this Committee in particular. I have a prepared statement that I would like to have entered into the record. Even the most casual observer of Congress knows of the importance of the Ways and Means Committee. It is not just that most Members want to be on this Committee. It is not just that it has jurisdiction over important issues ranging from taxes to social security. And, it is not just that it has a beautiful committee room. This Committee is important because it is rooted in the Constitution. Its jurisdiction is squarely in Article I, and its singular importance within Congress and within the House of Representatives is guaranteed by the Origination Clause. ``All bills for raising revenue shall originate in the House of Representatives.'' Why was this sentence, of all sentences, included in a Constitution remarkable for its brevity? The answer lies in a theme that influenced both the founding of our Nation and our history ever since. Americans should be taxed only, only by elected representatives. There should be no taxation without representation, and the House was originally the only popularly elected body. Taxation and overregulation of commerce characterize the intolerable acts that the British Parliament, without American representation, placed upon the American colonies that precipitated the Revolutionary War. Disputes over taxation and duties have scarred much of American history since. This Committee has a solemn duty under the Constitution. First, it alone must originate legislation that results in taxes and revenue. Second, as a corollary, it alone must ensure that other elements of the Federal Government, whether in Congress or elsewhere, do not create taxes or raise revenues without specific and direct authority from legislation originating in this Committee. It is with respect and admiration, reverence and humility that I come before this Committee. I have been asked to comment on whether the e-rate program, as implemented by the FCC, is a tax or a fee. Let me note that my views on this topic are my own. They do not represent a majority of the FCC. I have articulated these and related views in a series of statements and dissents over the past several months. But my views are not outside the mainstream. The Republican and Democratic leadership of both the House and Senate Commerce Committees have written to the FCC expressing their dismay at the entire implementation of universal service and suggesting bluntly that the Commission start over. The underlying statute, the Telecommunications Act of 1996, does not, in any way, establish authority for taxes. During the legislative process, the underlying bill was vetted by the Parliamentarian to ensure that there was no language that was properly under the jurisdiction of this Committee. The Act can and should be implemented in such a manner that no revenues are raised and no fees are promulgated that are, in fact, taxes. The issue before this Committee is not whether its jurisdiction has been usurped by another Committee of Congress. The answer to that question is an unambiguous ``No.'' The issue is whether the jurisdiction of this Committee has been usurped by an independent agency. Let me be clear: the issue before this Committee is not one of policy. The issue is not whether spending Federal money on computer equipment and services for schools and libraries is a good idea. Everyone likes education. Many, perhaps most, Americans would like the Federal Government to spend more money on education. As the father of six children, I would only welcome more Federal money to subsidize my children's education. But my responsibility as a Commissioner of the Federal Communications Commission, however, is not to set tax policy or to set Federal education policy, or frankly, even to make telecommunications policy. Congress, not the FCC, sets Federal policy in all areas, whether education or telecommunications. The responsibility of the Federal Communications Commission is simply to follow the Communications Act and other laws governing the FCC. Perhaps collecting more money for telecommunications carriers and customers to support additional spending on infrastructure for schools and libraries is a good idea. The authority for that good idea, however, should be based in law and should originate in this Committee. To the best of my knowledge, it has not. In my prepared statement, I explain why the FCC's implementation of schools and libraries program resulted in the creation of a tax. Fees for schools and libraries are assessed at a fixed percentage of both the interstate and intrastate revenues of telecommunications carriers, but the receipts are disbursed primarily to nontelecommunications carriers to provide ``internal connections'' for schools and libraries. Please understand what this means. Every telephone company in your district is paying a tax on every customer's telephone bill. The receipts from this assessment are not used to benefit the consumer directly by expanding the number of low-income or high-cost consumers who remain on the telecommunications network only as a result of the fee. There are other universal service programs for this purpose, and those programs are clearly based on fees, not taxes. The receipts from this fee do not defray the costs for the carrier to provide telecommunications service and thus, ultimately benefit the telecommunications consumer. There are Federal and State programs for that purpose, which are not taxes. Some of the schools and libraries' fees do go for telecommunications services under section 254(h)(1). Support for these services, while reasonable people may differ on priorities, are clearly based on fees, as they defray the cost of service to carriers. But the vast majority of funds from the schools and libraries corporation could not be supported under section 254(h)(1) alone. They require an expansive, and I believe, unlawful interpretation of section 254(h)(2) to provide subsidies for internal connections of schools. And let's be sure the discussion is not just about wire and fiber. It is about sophisticated computer equipment, about servers, about routers that cost tens of thousands of dollars each, and that the computer industry of America comes to the FCC and lobbies for with their hands out. Of the requests for 1998, $1.3 billion of the total of $2 billion was for this hardware. The telecommunications customer does not benefit from this transfer to the computer industry, nor does the telecommunications carrier. It is unambiguously a transfer to schools, libraries, and computer companies without any benefit to those paying the fee. It is, in short, a tax. What authority does the FCC claim to establish this tax? The usual citation is section 254(h)(2). This section authorizes the FCC to establish rules to enhance access to advanced telecommunications and information services. Based on this language, the Commission established rules that have led to requests for Federal subsidies of more than $1 billion for computer equipment. This sentence does not require any Federal funds. It does not require any discounts. It does not require taxes. It does not require anything other than rules to enhance. In short, the statutory language does not lead to a tax; only the Commission's peculiar interpretation of this language does. Who is shortchanged in this process? The American consumer who pays the tax, telecommunications carriers who pay the tax, and this Committee that did not authorize the tax. I trust that this Committee will find an appropriate remedy. Madam Chair, members of the Committee, I am available to answer questions. [The prepared statement follows:] [GRAPHIC] [TIFF OMITTED] T3683A.021 [GRAPHIC] [TIFF OMITTED] T3683A.022 [GRAPHIC] [TIFF OMITTED] T3683A.023 [GRAPHIC] [TIFF OMITTED] T3683A.024 [GRAPHIC] [TIFF OMITTED] T3683A.025 [GRAPHIC] [TIFF OMITTED] T3683A.026 [GRAPHIC] [TIFF OMITTED] T3683A.027 [GRAPHIC] [TIFF OMITTED] T3683A.028 [GRAPHIC] [TIFF OMITTED] T3683A.029 [GRAPHIC] [TIFF OMITTED] T3683A.030 [GRAPHIC] [TIFF OMITTED] T3683A.031 [GRAPHIC] [TIFF OMITTED] T3683A.032 [GRAPHIC] [TIFF OMITTED] T3683A.033 [GRAPHIC] [TIFF OMITTED] T3683A.034 Chairman Johnson of Connecticut. Thank you very much. Mr. Wright. STATEMENT OF CHRISTOPHER J. WRIGHT, GENERAL COUNSEL, FEDERAL COMMUNICATIONS COMMISSION Mr. Wright. Thank you. It is a pleasure to be here today as Chairman Kennard's representative to discuss the FCC's universal service program for schools and libraries. As Congressman Neal noted earlier, I'd like to emphasize that Senators Snowe and Rockefeller, the principal drafters of section 254(h), filed an amicus brief in the 5th Circuit fully endorsing the Commission's interpretation of the statute. I'd like to first read three brief excerpts from section 254. The first, section 254(d), provides that ``every telecommunications carrier that provides interstate telecommunications services shall contribute'' to ``mechanisms established by the Commission to preserve and advance universal service.'' So all telecommunications carriers contribute. Section 254(h), which contains a subsection specifically addressed to ``educational providers and libraries,'' first provides that ``all telecommunications carriers'' must provide services to ``elementary schools, secondary schools, and libraries'' at a discounted rate that the Commission, ``determines is appropriate and necessary to ensure affordable access to, and use of such services by such entities.'' That is section 254(h)(1). It plainly provides that schools get discounts for telecommunications services. Internet services are not telecommunications services; they are information services. The third section I'd like to quote is section 254(h)(2), which Commissioner Furchtgott-Roth has just mentioned. It directs the FCC to ``establish competitively neutral rules to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms.'' If there is a source for Internet services, it is in that sentence. The Commission has concluded that both Internet services and inside wiring, both of which are information services, should be funded under this provision. The Commission reasonably interpreted the statute to reach this result. Internal connections are necessary to provide services to classrooms. And as Senators Snowe and Rockefeller have emphasized, they wrote ``classrooms'' into section 254(h)(2) because that is where the students are. It is hard to imagine what section 254(h)(2) covers if it does not cover internal connections and Internet access. The telephone companies that have challenged the Commission's interpretation of that provision have not suggested what it covers, even though it is a basic rule of statutory construction that a statutory provision should not be construed to be meaningless. In their amicus brief, Senators Snowe and Rockefeller specifically endorsed the Commission's decision to provide discounts for internal connections and Internet access. Let me turn now to the Origination Clause issue. With respect to this issue, I understand that this committee would like to focus on the schools and libraries program and not the aspects of the Commission's order funding support to rural areas and low-income Americans. However, the issue cannot be severed in that manner. If the schools and libraries program is an unconstitutional tax, so are the much larger high-cost and low-income programs. Fortunately, there is no merit to this Origination Clause challenge. Prior to the enactment of section 254, when the Communications Act did not even contain the words ``universal service,'' the D.C. Circuit heard and rejected an Origination Clause challenge to the Commission's universal service program in the ALC Communications case. The Court held that the assessments at issue were not taxes and were not fees, but instead were ``transfers from interexchange carriers to high- cost, local exchange carriers, and low-income telephone subscribers that fit comfortably within the range of special purpose levies that are consistent with Congressional authority to regulate commerce.'' In the Rural Telephone Coalition case, the D.C. Circuit rejected an argument brought by some telephone companies that the Commission's universal service program was a tax for purposes of the tax clause. The Court said that a regulation is a tax only when its primary purpose is raising revenue. As Senators Snowe and Rockefeller have emphasized, extending universal service support to schools and libraries did not transform previously valid transfer payments into taxes. To the contrary, because section 254 ``creates a particular governmental program rather than raising revenue to support government generally''--I am quoting there from the Supreme Court's decision in Munoz-Flores, it plainly is not a tax under the test enunciated by the Supreme Court. In that same case, the Supreme Court squarely rejected the notion now being advanced before the 5th circuit that an assessment is a tax unless those required to pay the assessment receive a direct benefit from it. In short, attacks on universal service by telecommunications companies are nothing new. In 1988, at a time when there was no universal service provision in the Communications Act, the D.C. Circuit upheld the Commission's efforts to provide affordable telephone service to all Americans and rejected the telephone companies' claims that the universal service program was a tax not authorized by Congress. The analogous claims recently advanced in the 5th Circuit have even less force now that Congress has adopted section 254 and explicitly extended universal service for schools and libraries. I very much appreciate the opportunity to testify, and I will be pleased to answer any questions that you may have. Thank you. [The prepared statement follows:] [GRAPHIC] [TIFF OMITTED] T3683A.035 [GRAPHIC] [TIFF OMITTED] T3683A.036 [GRAPHIC] [TIFF OMITTED] T3683A.037 [GRAPHIC] [TIFF OMITTED] T3683A.038 [GRAPHIC] [TIFF OMITTED] T3683A.039 [GRAPHIC] [TIFF OMITTED] T3683A.040 [GRAPHIC] [TIFF OMITTED] T3683A.041 Chairman Johnson of Connecticut. I thank the panel. Mr. Furchtgott-Roth, would you go through, as explicitly as possible, exactly who pays and exactly who gets paid, who benefits. Mr. Furchtgott-Roth. Madam Chair, would this just be for the schools and libraries program or for the other universal service programs as well? Chairman Johnson of Connecticut. For the school and libraries program, although you may, if you wish, contrast it with the universal service program. Mr. Furchtgott-Roth. Yes, ma'am. Right now, all telecommunications carriers pay a tax for the schools and libraries program from both their interstate and intrastate revenues. It is a fixed percentage that was established first by a Commission notice, and subsequently an order in December of 1997 that covered the first two quarters of 1998. In May of this year, I believe we issued a subsequent notice that covered the third and fourth quarters of 1998 and the first two quarters of 1999. So this is simply a percentage of telecommunications service revenue. Who receives funds is very complicated, and there is a very complicated mechanism to apply for funds from the Schools and Libraries Corporation, an independent corporation established by the Commission in 1997. This is, from all I can tell, a private corporation, private nonprofit; it is not a government entity. It was incorporated in the State of Delaware. And as noted in the last panel, more than 30,000 schools and libraries have applied for funds from this program. It requires a very complicated form. Many schools have invested a great many hours in filling out these forms, and when you go from doing nothing to trying to disperse more than $1 billion to 30,000 applicants, it is a very complicated process. And something that, frankly, the FCC has never done before and does not have a great deal of expertise. Chairman Johnson of Connecticut. In your testimony, you mentioned that there were nine telecommunications companies that benefited, though all paid. Would you clarify that and then the other aspect of that, those who don't pay and do benefit. Mr. Furchtgott-Roth. Yes. There are two parts of 254(h) that are used to establish benefits for schools and libraries. The first is under 254(h)(1), which is the traditional discount program which clearly says that only telecommunications carriers can receive these discounts, no one other than a telecommunications carrier. In my view, (h)(1) by itself would just be a fee, as the Commission has interpreted; (h)(2), however, is where the Commission has engaged in some extraordinarily complicated legal gymnastics. And not being a lawyer, I am not quite sure how they got there. I am not sure if I were a lawyer, I would understand how they got there. But what they said is that the beneficiaries can be anyone, and it doesn't have to be a telecommunications carrier. And it is under the advanced services that the internal connections enter, and $1.3 billion out of the $2 billion requested for 1998 are for internal connections. I wish I could give you a precise breakdown of how much of this is going to telecommunications carriers, eligible telecommunications carriers under section 214, or to folks who are not telecommunications carriers at all. I have requested some of this information from Schools and Libraries Corporation and they have not been able to give it to me at this point. But it is very clear that many companies that are not telecommunications carriers at all have applied for a great deal of money from the Schools and Libraries Corporation. On the contributions side, right now it is just telecommunications carriers that pay in. Other companies that may, in fact, receive money or that the Commission has designated as eligible to receive money, do not pay in. And this would include Internet access providers, construction companies that might be providing internal wiring, and perhaps most importantly, it does not include the computer companies that come in to lobby me and say this is a billion dollar business for them and they'd like some of this money. Chairman Johnson of Connecticut. Thank you. Then what I would interpret your testimony to be is that you are not arguing that all of universal service or even all of the e-rate program are an illegal tax, but that basically 24(h)(2), a limited part of the e-rate program, is an illegal tax. Mr. Furchtgott-Roth. Let me be clear, Madam Chair. There are two points I would like to leave you with on this. First of all, I think that the Commission has completely misinterpreted paragraph (h)(2), independent of whether it is a tax or not. I just do not see how you get from the plain language of the statute to the creation of a multi-billion dollar program. I don't see how you get to any Federal dollars. And then above and beyond that, I don't see how you get to a tax from it. Chairman Johnson of Connecticut. Thank you. Mr. Coyne. Mr. Coyne. Thank you, Madam Chair. Mr. Wright, how many schools and school districts nationwide have applied for Internet and related telecommunications assistance? Mr. Wright. We have received 30,000 applications. Mr. Coyne. How many? Mr. Wright. Thirty thousand applications covering more than 100,000 schools. Some of the applications are multischool applications. Mr. Coyne. Can you tell us what the total universal service subsidy breakout is State by State. In other words, which States or areas are subsidized and which pay to subsidize other areas or States? Do you have that breakdown? Mr. Wright. I don't have that on the tip of my tongue. Not surprisingly though, with 30,000 applications and 100,000 schools, this is spread around the country. Just before this hearing started, I was handed this purple document which I was told was given to staff of each member of this committee which does break it down by each State. Mr. Coyne. Okay. There seems to be a perception in the general public that Congress and the FCC has increased phone costs. In your research and work that you do, can you give any indication of why you think that is? Mr. Wright. Well, you started off by admonishing all of us to avoid political rhetoric, so I will. But let me just stick to the facts. The facts are that since the 1996 Act was passed, we've reduced access rates by more than $4 billion, and these programs, including the explicitly high-cost program, are smaller than $4 billion. So there has been a net reduction. Mr. Coyne. Thank you. Chairman Johnson of Connecticut. On that point, Mr.Wright, you say since the 1996 Act was passed, that we've reduced access rates by $4 billion. Mr. Wright. Yes. Chairman Johnson of Connecticut. Then why is it necessary for the telephone company to use a billing mechanism that clearly includes, by some accounts, 19 cents for this purpose, and by other accounts, 36 cents for this purpose. If we've reduced their charges that much, why are they including this in the billing rate? If they include it in the billing rate, then it is an identifiable entity, and we have to decide whether that entity is a fee or a tax. But if we've saved them $4 billion, why was Congress wrong to assume that deregulation would bring them so much more profit that they could fund this, which is the assumption that we made? Mr. Wright. I don't have the all the long-distance carriers' billing plans at the tip of my tongue, but some of them, like AT&T, didn't offer 10 cents a minute three years ago. They offered 15 cents a minute. Now they offer 10 cents a minute and they add in a half-penny for schools and libraries. Chairman Johnson of Connecticut. Why do you allow them to do that? You are the regulators. The bill was to say, we're going to give you free open competition and it's going to cut your costs. But one of the things you are going to do is make sure that we do this and that that gets folded in. And yet, you are allowing them to put in their universal rate, either 19 cents or 36 cents, and that is an identifiable either fee or tax. Mr. Wright. Madam Chairman, you referred earlier--described us as rate regulators. That's not true. Over the past 25 years, we have very aggressively deregulated the long-distance market and we do not regulate their rates. Chairman Johnson of Connecticut. Mr. Weller. Mr. Weller. Thank you, Madam Chair. This is an extremely helpful hearing. I really want to again commend you for conducting today's hearing as we look at a challenge. It is clear, I think, from the statements of members on both sides, as well as those who have testified this morning, that every one of us stands here in support of increasing access to the Internet and computers for every school library in our nation. Of course, the question is how can we accomplish it, and the real question of this hearing is how do we fund, how do we finance that goal. And in listening to the testimony of the Commissioner, as well as the legal counsel, the chief lawyer for the FCC--we have a disagreement here, so we've got both sides represented. And the Commissioner indicated--and confirm with me--it's my understanding that you agree with the notion that many have, that the so-called fee is actually a tax, is that correct, Commissioner? Mr. Furchtgott-Roth. I believe that that portion that goes to nontelecommunications carriers under (h)(2) is a tax, yes. Mr. Weller. And then, Mr. Wright, you argue that what he believes is a tax is actually a fee. Mr. Wright. No, we've never defended this as a fee. The language of the statute is ``specific mechanisms.'' The language of the relevant cases are things like ``special purpose levies.'' But some cases have been cited under something called the Independent Offices Administration Act, and it is alleged that we've claimed that these are fees under that Act; we've never made that claim, so it's setting up a straw man to beat that one down. Mr. Weller. So then if you don't believe it's a fee, then you believe it's a tax. Mr. Wright. No, we believe it's what Congress called it, and Congress called it a ``specific mechanism.'' Mr. Weller. A specific mechanism? Mr. Wright. What the D.C. Circuit called---- Mr. Weller. Kind of like a revenue-enhancer and all the other terms that politicians have used over the years to label a tax something else. Mr. Wright. I'm just a lawyer. But the courts have said that a regulation is a tax only when its primary purpose is raising revenue, and the courts have regularly approved---- Mr. Weller. Sure. Well, reclaiming my time, Mr. Wright, I am not an attorney, so I turn to attorneys at times and ask for advice and counsel. And I know that the Commissioners look to you for advice and counsel, and they say this is what we want to achieve, we are asking you to figure out a way we can legally do it. And of course, you are charged with that. As has been stated earlier, there are roughly 1,800 schools in my State of Illinois that have requested help through the e- rate program, not only for the reduced rate but also for the assistance in putting in the wire and the fiber so they can hook up computers. Of course, they use LaSalle-Peru High School as the example where it is most expensive. They estimate that it is going to cost them roughly $1 million. Ottawa, which is 10 minutes away, they estimate $100,000. So it varies from school district to school district what the costs are to achieve this goal. One of the concerns I have, because many, including the General Accounting Office, and many in the Congress, including myself, question the constitutionality of what you label, I forgot the term again, but what most of us label a tax. And that if the court action in the 5th circuit finds the FCC's interpretation of subsection (h)(2) and its subsequent action unconstitutional, in the case of my State we have 1,800 schools that are left hanging. And the question I have for you is if the 5th circuit rules against you and declares your funding mechanism, what we call a tax, a tax and unconstitutional, because it was not levied by Congress, what happens to your program? Mr. Wright. That would be a major problem then. I think your bill would be a great thing if the 5th circuit should take that action. Mr. Weller. Of course, I am one who believes that the Fifth--I am not an attorney, but listening to those who are-- that the 5th circuit will rule it unconstitutional, which does jeopardize the funding. And that's why I worked with my colleagues and Mr. Tauzin and Mr. Hulshof and others to come up with a solution to the problem. And I was wondering, should they rule against you and the solution we've offered, which is earmarking one cent of every dollar of an existing revenue source, an excise tax that was put in place in 1914 to finance World War I, do you feel that that is a legal funding mechanism that would solve the problem if the 5th circuit court rules against you? Mr. Wright. Oh, it certainly sounds like it would. I don't know all the details of the bill. I don't know whether it's specific with respect to internal connections and Internet access. But in what I would regard the unlikely event the 5th circuit rules against us, that would sure be agreat backup. If I could just make two brief points. You know, the telephone companies did go in and seek a stay. And we opposed it and they said this was an unconstitutional tax. The Court didn't grant the stay. And we then took the very unusual step, because we'd like to get this settled quickly, of moving to have the case expedited, which is something the defendant rarely does. The telephone companies wouldn't join with us in our motion to expedite, but we filed it anyway. We are anxious to get this sorted out. Mr. Weller. Madam Chair, could I just have a brief followup? Of course, in Congress we are running out of time, we've got roughly 30 days in the legislation session left between now and the first week of October, and we can move this solution fairly quickly to solve the problem and ensure that the funds are available to those 1,800 schools in Illinois like LaSalle-Peru, and Ottawa and others in the Gilette library district. From your standpoint, do you believe that if the Court rules against you, that the FCC should continue to administer the distribution of these funds or would you be willing to accept from the FCC standpoint, allowing as we propose, through the chief technology agency within the Commerce Department, to use that agency to block-grant the funds back to the States. Do you have any problem with shifting the administrative responsibility elsewhere for distribution of those funds? Mr. Wright. Of course, we abide by decisions of the courts. This brown book I am holding is the Communications Act. It is our job to administer it and anything Congress writes into it, we will administer. Mr. Weller. So you'd work with us, then. That's good. Thank you, Madam Chair, and thank you. Chairman Johnson of Connecticut. Thank you, Mr. Weller. Mrs. Thurman. Mrs. Thurman. Thank you, Madam Chairman. Staff just brought to my attention--and I am curious, since this is my first time on Ways and Means--that there evidently is a parliamentary procedure that can be used when a revenue issue has not originated in the House, called blue-slipping. And it's my understanding that the staff of Ways and Means went to the parliamentarian to get clarification as to whether or not they could blue-slip this so the Ways and Means Committee could take it. Their answer was no. And even to the point where the Senate had said they would go back and clarify any language to make sure that it wasn't considered to be a tax. Are you familiar with this procedure that took place, or any of the inquiry that took place on this issue? Mr. Furchtgott-Roth. Mrs. Thurman, I had the privilege of being a staff member on the House Commerce Committee when the 1996 Act was going through the House in conference, and I do have a recollection of the Parliamentarian reviewing it. I don't have the specific recollection of the Ways and Means Committee staff requesting a blue slip, but I would be very surprised if the Ways and Means Committee staff did not, in fact, review the language. Mrs. Thurman. And that process is not open just to the chairman or the ranking members? It's open to all members of Congress? Mr. Furchtgott-Roth. Yes, ma'am. Mrs. Thurman. Secondly, Mr. Wright, let me ask you a question. I am trying to get to the bottom of this. In your beliefs in this dialogue, is the universal issue a tax or a fee? Or is it just what we are now looking at in this new provision, the tax? Mr. Wright. Well, let me make clear that there is only one funding provision in the Act. That is 254(d). It covers high- cost, low-income and schools and libraries, says all telecommunications carriers pay. There is only one funding provision in the Act, and it applies without distinction to any of the them. Mrs. Thurman. So then what we are really doing is dissecting this issue into, first of all, the school and libraries issue, and then into the construction issue. Is that---- Mr. Wright. Right. Let me make clear that in the 5th Circuit, the telephone companies claim that all of this is an unconstitutional tax. Mrs. Thurman. Have they ever done this before? Mr. Wright. Yes, twice in the last decade, they went to the D.C. Circuit making the same case. Look, I am in the business of defending the constitutionality of the acts of Congress. It does not come easily to my lips to say that an act is unconstitutional or even that there is a grave question. But to the extent there was a grave question, it was with respect to the high-cost fund before the 1996 Telecommunications Act was enacted. The high-cost fund, there was nothing in the act saying anybody paid anything and the way we put together a program to make service affordable to all Americans, we had the inter- exchange carriers or the long-distance companies pay, they didn't get any money. The local exchange carriers, the Bell Atlantics and Ameritechs, collected all the money. And we won that case. So this case seems easy in comparison. Mrs. Thurman. Mr. Roth. Mr. Furchtgott-Roth. Mrs. Thurman, I'd just like to make a couple points on that. First of all, Mr. Wright is entirely correct that 254(d) is the only source of funding. But I would note that today the telecommunications carriers pay different rates on different bases for different funds. The Commission has set up a very complicated structure, so for instance, for schools and libraries, they pay a certain percentage on both inter and intrastate funds, entirely separable from a different rate that is applied only to interstate funds that is used for high-cost and low-income programs. The other issue which I think is relevant to the question of whether or not it is a tax is how the money is spent. And for both high-cost and low-income, all of the money consistent with section 214(e) and 254(e) only goes to eligible carriers. The eligible carriers are all telecommunications carriers, so all of the money stays within the telecommunications industry. It is a shifting of funds from one telecommunications carrier to another. Mrs. Thurman. But in the final analysis, once the connection or the wiring--I wouldn't call it construction, but wiring--they still then are the beneficiary in the final analysis by this rewiring, is that correct? Mr. Furchtgott-Roth. No, ma'am, I would not---- Mrs. Thurman. Well, when they broke up and deregulated, a lot of what they stopped doing--they have a lot of subcontractors out there that do wiring and those kinds of things today. But to provide the service, if I am correct,later on once when they get the wiring done, then the whole universe gets the opportunity to participate. Mr. Furchtgott-Roth. Not under 254, not for schools and libraries. A lot of that service will not go to telecommunications carriers at all. Mr. Wright. If I could add just a word, of course if the schools are connected and they need the inside wiring to get the Internet access, of course, the telephone companies end up benefitting. World Com and MCI are the largest owners of the Internet backbone in this country. That's one of the problems in their pending merger. Of course, if the schools and libraries have Internet access, they will use it, and the telephone companies that contribute will benefit, it's just like high-cost. Mr. Furchtgott-Roth. Eighty percent of schools and libraries in the United States are connected to the Internet without a nickel of money from the FCC. The vast majority of these schools and libraries receive today free or discounted service to the Internet. In fact, of the $2 billion that has been requested for 1998, less than $100 million of that is for Internet services. Most of this money is not going for Internet services. A third of the money is going for just regular telephone service discounts, and two-thirds of the money is going for what is euphemistically being described as internal connections, but what is in fact primarily money to pay for extraordinarily sophisticated computer equipment. Mrs. Thurman. For schools and libraries. Mr. Furchtgott-Roth. For schools and libraries. Mrs. Thurman. So that universe still stays. Mr. Furchtgott-Roth. But those people are not paying into the fund. Mrs. Thurman. Okay. Thank you. Chairman Johnson of Connecticut. Mr. Hulshof. Mr. Hulshof. Thank you, Madam Chairman. So, in essence, the telecommunications carriers are paying into the e-rate program, but then companies that are not telecommunications carriers are receiving disbursements under the program. Commissioner, is that essentially---- Mr. Furchtgott-Roth. That is true for only a portion of the schools and libraries program, yes. It is not true for the other universal service programs. Mr. Hulshof. Mr. Wright, following up on what Ms. Johnson asked earlier, somewhere in all the information given us, I saw some information that reduced access charges have saved long- distance carriers $2 billion, is the number that comes to mind. Is that accurate, more or less? Mr. Wright. It's more like $4 billion. Mr. Hulshof. Four billion, okay. Is it your testimony or statement that reduced access charges to long-distance providers should pay for the e-rate program? Mr. Wright. The e-rate program is separate, but I think in understanding the whole system, it's certainly nice that they balance out this way. Mr. Hulshof. Well, hasn't the FCC stated that reduced access charges should be passed on to the consumers? Mr. Wright. Again, we are not in the direct business of rate regulation. But it is our understanding that in a competitive market, rate reductions should be passed on to the consumers. We've declared this a competitive market; that's why we've deregulated it. Mr. Hulshof. And hasn't the fact been long-distance carriers have reduced their rates in excess of the savings from the reduced access charges? Mr. Wright. Some of them are offering some very good deals these days, yes. Mr. Hulshof. So I guess my question is how can the savings be spent twice? That is a nonlegal way to say it, but ultimately, it seems that we are spending the savings more than once, are we not? Mr. Wright. Again, there is no direct tie. The long- distance companies set their own rates. You are certainly right that the e-rate program costs money; it comes from somewhere. If I could give you an example, though, of why it's very important that some nontelecommuncations companies get money, I think look at this from the point of view of a school district. You want to buy Internet service. The telephone companies are arguing that only telecommunications companies should provide that, so around here you could get Bell Atlantic. But, of course, there are lots of Internet service providers that are not telecommunications carriers. They are not eligible under the telephone companies' argument. Under the telephone companies' argument, a school has to choose the high- cost telephone company and can't choose AOL, can't choose Gateway, can't choose Erol's, even if they are lower cost and better priced. Mr. Hulshof. Let me explore just a bit--and even, Mr. Weller, as an attorney, I am not sure that I am conversant, certainly not on the scale that you are, Mr. Wright and I acknowledge that--but one of the things Mr. Weller talked about is there are some questions being raised by the General Accounting Office regarding the constitutionality of the corporation that has been established to administer the program. Do you have any quick comment on that? Mr. Wright. Well, the quick comment is that we directed the universal service group to reorganize itself. They are in the process of doing it. We believe that that fullyresponds to GAO's complaints. Mr. Hulshof. Regarding your comments about the 5th circuit--and I am not holding you to this--but the case has been argued, or are we simply waiting for the Court's opinion at this point? Mr. Wright. No, the case hasn't been argued yet. Mr. Hulshof. Okay, it has not been argued. Mr. Wright. It has been briefed, but not argued. Mr. Hulshof. You wanted to put this on an expedited track, but the other parties have not. Any anticipation of when? What is the normal course as far as when briefs and arguments and ultimately an opinion? What's your best guess? Mr. Wright. Briefs are in. Unless expedited, the argument probably won't be held until the winter. Mr. Hulshof. Okay. Let me ask you this question. You state that these issues are raised in the 5th circuit litigation. But I'm not sure that your brief responds to the argument that the e-rate program, as distinct from the entire universal service program, raises the separation of powers issue. You talk about the Origination Clause issue. Can we be confident that the 5th circuit will address the issue of the separation of powers, because I am not sure your brief quite addresses that point. Mr. Wright. The way the issue is teed up in the 5th circuit, the tax issue has been separate from whether we interpreted 254(h) properly. And we filed about a 200-page brief there. You will find a few pages on the tax issue. There are about 25 pages somewhere else on whether we've interpreted 254(h) properly to cover internal connections and Internet access. Mr. Hulshof. So hopefully, the 5th circuit, although again, drawing upon past experience, oftentimes courts will only give us a narrow holding. So even though some of the witnesses previously say we should wait until the 5th circuit returns its opinion, it could very well be that the 5th circuit is only going to narrowly address the issue and we still may have this discussion at a later time. Mr. Wright. Yes. I would say that in the normal course, we won't get an opinion from the 5th Circuit until next summer, and as already noted, we've got 30,000 applications pending, 100,000 schools. And we are getting a lot of complaints from the schools that we ought to move more quickly. Mr. Hulshof. Thank you, Madam Chair. Chairman Johnson of Connecticut. I thank the panel for testifying. I think the number of applications you received attests the importance of this program and the importance of resolving the problems around it. I would also want to comment on the fact that the bill wasn't blue-slipped does indicate that the parliamentarian judged that this was not a tax, presumably in consultation with either the Joint Tax Staff or with the staff of the Ways and Means Committee. The issue really is whether or not it becomes a tax by virtue of the way the FCC implemented it. And I think this hearing has given us a great deal of insight into that issue. I personally am very impressed with the fact that two- thirds of the money is going to wiring and computers. And I would just remind both the members and the public that this Congress doubled the money for school technology in last year's budget to over half a billion dollars, because we do believe it is our responsibility to help schools become state-of-the-art technologically. This Congress also passed just last year in the tax bill tax incentives to help schools be able to get state-of-the-art technology and to improve the partnership between the business community and the schools in terms of the transfer of modern technology into the school system for their usage. So there are many indications that the Congress feels responsible for achieving the goal of assuring state-of-the-art technology in our schools and libraries, and certainly, the directive to the FCC of a discounted rate is harmonious with achieving not only the goal of creating that system, but assuring its functioning and assuring it in a way that is harmonious with the history of our effort to subsidize those who are least able to pay the rates for communications services. But I do think that the nature of the grant subsidy program that the FCC developed raises very significant questions about whether a fee has then become a tax by virtue of who pays and who benefits, and also whether we can afford to have administrative agencies make that kind of interpretation and put in place programs that, in many ways, duplicate the administrative efforts of the government to achieve the same goal in other parts of the bureaucracy. So I think we have gained a lot more insight into both the constitutional and legal issues that the recent actions of the FCC raise, and I think we also have given ourselves a lot more information about the variety of ways in which we can go about assuring that the goal, on which we all agree, of high technology and modern wiring into our schools can be achieved. So I thank you for your participation today, and I thank the members for their constancy in staying until the end. Thank you. [Whereupon, at 12:25 p.m., the hearing adjourned subject to the call of the Chair.] [A submission for the record follows:] [GRAPHIC] [TIFF OMITTED] T3683A.042 [GRAPHIC] [TIFF OMITTED] T3683A.043 [GRAPHIC] [TIFF OMITTED] T3683A.044 [GRAPHIC] [TIFF OMITTED] T3683A.045