FCC’S Inspector General Withdraws Finding That All Low Income USF Payments Were Erroneous

The Universal Service Administrative Company (“USAC”) collects Universal Service Fund (USF) revenues from surcharges on customers' phone bills. It then redistributes that money to local phone companies based on their claims for reimbursement of expenses for USF functions, such as high cost rural areas, low income assistance, schools and libraries, and rural health care telecommunications. The largest portion of the USF revenue goes to reduce bills for customers in rural and other high cost areas.

The new Inspector General (“IG”) at the FCC has pulled the plug on a determination made by the previous FCC IG that 100 percent of the $1.6 billion in payments from the low income programs (and Link-Up) were erroneous. In December 2008, the former FCC IG found that USAC was paying claims from local telephone companies for low-income Lifeline assistance based on their projections of discounts given to low-income customers rather than reimbursements based on actual assistance provided, and that USAC could not provide documentation to verify that each payment made was in reimbursement of actual discounts given to low-income customers.

The new IG, David Hunt, withdrew that finding and has called for further investigation as to whether the low income program disbursement system eliminates “fraud, waste and abuse.” USAC’s low income program employs Universal Service Fund monies to support Lifeline discount telephone service and discount connections through Link-Up.

The report released in December 2008 by Kent Nilsson, former Chairman Kevin Martin’s IG , which brought into question the integrity of the entire low income support program, was made without “an audit or other structured examination of the low income program disbursement system,” wrote acting IG Hunt . Upon completion of his audit of the low income program, he will prepare a report of his findings to the Commission and to Congress.

It is unclear how the “100% erroneous” determination could have been made when an investigation was never conducted. Had Nilsson’s determination not been withdrawn, there could have been consequences for low income telephone customers if reimbusement to telephone companies for Lifeline and Link-Up assistance were delayed or eliminated. There are significant issues percolating up, such as customers receiving a Lifeline discount from more than one provider at a time (such as wireline and wireless) and misuse of the eligibility verification system, but the low income program legitimately benefits way too many needy families to make the blanket statement made by Nilsson and unleash the unintended consequences it could have brought.

In addition to a further inquiry to assure accountability in the low-income telephone assistance programs, PULP believes there should be an additional FCC investigation into the low income programs: why do so many households that live in economic hardship and receive federal economic assistance which confers eligibility for Lifeline -- such as Food Stamps -- not receive any Lifeline telephone assistance?

For example, New York State's Office of Temporary and Disability Assistance report for May 2009 shows 1,267,045 New York households receive Food Stamps, but only about 300,000 New Yorkers receive any Lifeline telephone assistance, a number that has fallen from about 746,000 a decade ago even as the number of households receiving Food Stamps has dramatically grown.

• What are the policy and administrative barriers to getting phone assistance benefits to families living in hardship?
• What are the best practices? Why do some states like Texas do so much better than New York in enrolling their poor citizens in the Lifeline assistance program?
• Are telephone companies limiting services available to Lifeline customers which are available to all other customers?
• Why do some states like New York have narrower Lifeline eligibility standards than the FCC allows?
• Why are Lifeline-eligible customers whose phone service is provided by cable companies suchas Time Warner or Cablevision not receiving any Lifeline assistance?
• Why is there an emphasis on PR expenditures to encourage individual signups when there is no real policy and resource commitment to enroll every one of the easily identifiable eligible households efficiently through automatic enrollment?
• Why is there insufficient commitment of some state commissions to get the job done?

New York's backsliding in Lifeline enrollment and failure to provide telephone Lifeline assistance to readily identifiable families living in hardship means that low-income New Yorkers continue to lose at least $100 million a year in available telephone assistance benefits. Meanwhile, New York continues to remit far more USF revenue to USAC -- collected from New York telephone customers as surcharges on their bills -- than New York phone companies receive from USAC to reimburse price discounts given to needy New Yorkers.