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We conclude that it is in the public interest to change the funding year for the schools and libraries universal service support mechanism from a calendar year cycle (January 1 December 31) to a fiscal year cycle (July 1 June 30). Moreover, we conclude that the transition to a fiscal year approach should be implemented immediately. Applications submitted during the initial 75day filing window and approved for funding will, therefore, be funded through June 30, 1999, within the funding limitations adopted herein.  X-2. ` ` In this Order, we also reconsider, on our own motion, the Commission's decisions governing the amount of money that may be collected during the second six months of 1998 and the first six months of 1999 for the federal universal service support mechanisms  X-for schools, libraries, and rural health care providers.\ yO#-ԍ In light of pending petitions for reconsideration in this proceeding, the Commission retains jurisdiction to  {O-reconsider its own rules on its own motion. See 47 U.S.C.  405, 47 C.F.R.  1.108. See also Central Florida  {O-Enterprises, Inc. v. FCC, 598 F.2d 37, 48 n.51 (D.C. Cir. 1978), cert. dismissed, 441 U.S. 957 (1979). For the reasons set forth below, we find that we should modify the collection rate for the schools and libraries and rural health care support mechanisms for the third and fourth quarters of 1998 and the first and second  Xe-quarters of 1999. We do not revise the annual caps adopted in the Universal Service Order. N e {O -ԍ See FederalState Joint Board on Universal Service, CC Docket No. 9645, Report and Order, 12 FCC  {O -Rcd 8776, 9002, 905462, 913945 (1997) (Universal Service Order), as corrected by FederalState Joint Board  {O!-on Universal Service, Errata, CC Docket No. 9645, FCC 97157 (rel. June 4, 1997), appeal pending in Texas  {O`"-Office of Public Utility Counsel v. FCC and USA, No. 9760421 (5th Cir. 1997); FederalState Joint Board on  {O*#-Universal Service, Order on Reconsideration, CC Docket No. 9645, 12 FCC Rcd 10095 (rel. July 10, 1997); Changes to the Board of Directors of the National Exchange Carrier Association Inc., FederalState Joint Board  {O$-on Universal Service, CC Docket Nos. 9721, 9645, Report and Order and Second Order on Reconsideration,  {O%-12 FCC Rcd 18400 (1997) (NECA Report and Order), as corrected by FederalState Joint Board on Universal"%0*''%"  {O-Service, Errata, CC Docket No. 9645, DA 972477 (rel. Dec. 3, 1997); Changes to the Board of Directors of the National Exchange Carrier Association Inc., FederalState Joint Board on Universal Service, CC Docket Nos.  {O"-9721, 9645, Order on Reconsideration, Second Report and Order and Further Notice of Proposed Rulemaking, 12 FCC Rcd 12444 (1997); FederalState Joint Board on Universal Service, CC Docket Nos. 9645, 97160,  {O-Third Report and Order, 12 FCC Rcd 22485 (1997) (Third Report and Order), as corrected by FederalState  {O~-Joint Board on Universal Service, Erratum, CC Docket Nos. 9645 and 97160 (rel. Oct. 15, 1997); Changes to the Board of Directors of the National Exchange Carrier Association, Inc., FederalState Joint Board on  {O-Universal Service, CC Docket No. 9721, Report and Order and Second Order on Reconsideration in CC Docket  {O-9721, 12 FCC Rcd 22423 (1997); FederalState Joint Board on Universal Service, CC Docket No. 9624, Third  {O-Order on Reconsideration, 12 FCC Rcd 22801 (1997) (Third Reconsideration Order); FederalState Joint Board on Universal Service, Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers,  {O6 -Transport Rate Structure and Pricing, End User Common Line Charge, CC Docket Nos. 9645, 96262, 941, 91 {O -213, 9572, Fourth Order on Reconsideration, 13 FCC Rcd 5318 (1997) (Fourth Reconsideration Order), as  {O -corrected by FederalState Joint Board on Universal Service, Errata, CC Docket Nos. 9645, 96262, 941, 91 {O -213, 9572, DA 98158 (rel. Jan 29, 1998), appeal pending in Alenco Communications, Inc., et al. v. FCC and  {O^ -USA, No. 9860213 (5th Cir. 1998). "e(0*''PP" Rather, we adjust the maximum amounts that may be collected and spent during 1998 and the first six months of 1999.  X-3. ` ` In this Order, we direct the Universal Service Administrative Company  X-(USAC)( {O}-ԍ In the NECA Report and Order, the Commission established the administrative structure of the federal universal service support mechanisms, directing the National Exchange Carrier Association (NECA), as a condition of becoming temporary administrator of universal service, to create the Universal Service  {O-Administrative Company, the Rural Health Care Corporation, and the Schools and Libraries Corporation.  NECA  {O-Report and Order, 12 FCC Rcd 18402. Among other functions, USAC collects funds from contributors and disburses those funds in accordance with the instructions of RHCC and SLC. 47 C.F.R.  69.616. RHCC and SLC, in contrast, collect requests for support from applicants, commit funds to applicants, and monitor demand to ensure that the support mechanisms' annual monetary caps are not exceeded. 47 C.F.R.  69.618.619. We have directed USAC, RHCC, and SLC to prepare and submit a joint plan of reorganization for approval by the  {O-Commission. See Report in Response to Senate Bill 1768 and Conference Report on H.R. 3579, Report to  {OU-Congress, FCC 9885 at 7, para. 10 (rel. May 8, 1998) (May 8 Report).  to collect only as much money as is required by demand, but in no event more than $25 million per quarter for the third and fourth quarters of 1998 to support the rural health care universal service support mechanism, and no more than $325 million per quarter for the third and fourth quarters of 1998 and the first and second quarters of 1999 to support the schools and libraries universal service support mechanism. Furthermore, we direct the administrative corporations (USAC, the Schools and Libraries Corporation, and the Rural Health Care Corporation) neither to commit nor disburse more than $100 million during 1998 for the rural health care support mechanism, or more than $1.925 billion for the schools and libraries support mechanism during 1998 and the first two quarters of 1999. Although these revised collection rates will not fully satisfy the estimated support requested by schools and  X -libraries, we anticipate that the collection rates will ensure full support for telecommunications" 0*''PPl " services and Internet access, and will also provide support for internal connections for the neediest applicants.  X-4. ` ` Consistent with this decision and in response to commenters' suggestions,  {O4-ԍ See Great City Schools comments at 4 (proposing priority rules that would permit full funding for schools and libraries eligible for 80 percent and 90 percent discounts and a proportional scale back of discounts for all  {O-other eligible schools and libraries). See also Anchorage School Dist. Sept. 10 Public Notice comments at 1 (stating that, if sufficient funds are not available to meet all approved applications in subsequent filing periods, the Commission should apply an equal percentage reduction to all approved applicants during period); Mississippi Council for Ed. Tech. Sept. 10 Public Notice comments at 4 (asserting that funds should be available first to the most disadvantaged schools and libraries); Montana School Boards Ass'n Sept. 10 Public Notice comments at 3 (supporting a mechanism similar to the rules of priority should be applied to all funds, not just $250 million); New York City Dept. of IT&T Sept. 10 Public Notice comments at 3 (stating that, if funds are exhausted within the window filing period, distribution of funds should be subject to a prorata reduction based on economic disadvantage, obviating need of a $250 million trigger); New York Pub. Library Sept. 10 Public Notice comments at 1 (advocating a filing window and prorata allocation of funds when only $500 million  {O-remains for the year). But see RUPRI comments at 34 (stating that sole reliance on poverty and urban/rural status is not the proper approach, but emphasis should be on total relative price after discount); Colorado Dept. of Ed. Sept. 10 Public Notice comments at 2 (opposing any proposal that limits the funds available to schools and libraries in the first six months because the Commission has chosen to collect only $1 billion in the first six months); DataCast Sept. 10 Public Notice comments at 2 (favoring rules of priority that allocate 1/4 of all funds to rural, high cost schools and take into account "relative economic advantage" in allocating support); Illinois State Board of Dirs. Sept. 10 Public Notice comments at 1012 (favoring granting states greater authority in implementing rules of priority, favors granting priority to schools with the least amount of infrastructure, and favoring a higher trigger level because current 10 percent trigger represents insufficient funds); Maine Dept. of Ed. Sept. 10 Public Notice comments at 2 (favoring allocation of support according to the Technology Literacy Challenge Grants formula). we  X-also adopt new rules of priority for the schools and libraries mechanism to ensure further that schools and libraries with the greatest level of economic disadvantage will have priority for  Xv-support and will receive the level of support established in the Universal Service Order.|v {O-ԍ See generally Universal Service Order, 12 FCC Rcd 8776 et seq.. | In addition, we adopt a rule to prorate the distribution of support to health care providers if demand by health care providers exceeds the total fund allocated for a given funding year. Our decisions in this Order minimize burdens on subscribers, provide substantial support to schools, libraries, and health care providers, and enhance the Commission's previous efforts to ensure that the most disadvantaged schools and libraries receive funding priority.  X -5. ` ` In this Order, we also reconsider, consistent with the will of Congress, the level of compensation for the officers and employees of the Schools and Libraries Corporation (SLC) and the Rural Health Care Corporation (RHCC). We conclude that, as a condition of  X-its continued service, the Administrator must compensate all officers and employees of the two independent corporations at an annual rate of pay, including any nonregular payments, bonuses, or other compensation, that does not exceed the rate of basic pay in effect for level I"d 0*''PP"  X-of the Executive Schedule under section 5312 of Title 5 of the United States Code. {Oy-ԍ That pay rate is currently capped at $151,800. See Exec. Order No. 13,071, 62 Fed. Reg. 68,521 (1997). This rule will take effect on July 1, 1998. Finally, we reconsider, on our own motion, section 54.709 of the Commission's rules, which governs the date on which proposed universal service  X-contribution factors become effective and eliminates the requirement that proposed contribution factors be published in the Federal Register. We conclude that, in the absence of further Commission action, the proposed contribution factors set forth in a Public Notice will be deemed approved 14 days after release of the Public Notice in which they are announced.  XH- II.XADJUSTMENT IN FUNDING YEAR FOR SCHOOLS AND LIBRARIES  X1-SUPPORT MECHANISM (#  X -X A.X` ` BACKGROUND (#`  X -6. ` ` In the Universal Service Order, the Commission, among other things,  X -established the federal universal service support mechanism for schools and libraries._ Z {O-ԍ Universal Service Order, 12 FCC Rcd at 900292._  X -Consistent with the recommendations of the FederalState Joint Board on Universal Service (Joint Board), the Commission concluded that all telecommunications services, Internet access, and internal connections would be provided at discounts ranging from 20 percent to 90  Xd-percent to eligible schools and libraries.\d {O-ԍ Universal Service Order, 12 FCC Rcd at 9002.\ The Commission took these actions pursuant to and consistent with section 254 of the Communications Act, as amended by the  X6-Telecommunications Act of 1996,r X6~ yOe-ԍ Section 254 was added by the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996 Act), codified at 47 U.S.C.  151 et seq. (Hereinafter, all citations to the 1996 Act will be to the 1996 Act as it is codified in the United States Code.) The 1996 Act amended the Communications Act of 1934 (the Act).r and its accompanying legislative history. 6 {O-ԍ See, e.g., S. Rep. No. 230, 104th Cong., 2d Sess. 131 (1996) (Joint Explanatory Statement). For example,  X-Congress explained that "[n]ew subsection (h) of Section 254 is intended to ensure that . . .  X-elementary and secondary school classrooms and libraries have affordable access to modern  X-telecommunications services."M 0  yO -ԍ Joint Explanatory Statement at 132.M Congress further stated that "[t]he ability of K12  X-[kindergarten to 12th grade] classrooms, [and] libraries . . . to obtain access to advanced telecommunications services is critical to ensuring that these services are available on a  X-universal basis."a   yO!%-ԍ Joint Explanatory Statement at 13233 (emphasis added).a  X-"P 0*''PPo"Ԍ X-7. ` ` In the Universal Service Order, the Commission concluded that the funding year for schools and libraries would be the calendar year, and that applications for support  X-would be accepted beginning on July 1 for the following year.^  {OM-ԍ Universal Service Order, 12 FCC Rcd at 9057. ^ Schools and libraries are  X-required to reapply for universal service support each year.\Z {O-ԍ Universal Service Order, 12 FCC Rcd at 9062.\ Moreover, for the first year of the support mechanism only, the Commission stated that requests for support would be  X-accepted as soon as the schools and libraries website was opened and the applications were  Xx-available.]x {O -ԍ Universal Service Order, 12 FCC Rcd at 9057. ] In the Third Report and Order, the Commission adopted a filing window that would give equal funding priority to all schools, libraries, and health care providers filing during that window period and directed SLC and RHCC to determine the length of their filing  X5-windows.^5~ {Od-ԍ Third Report and Order, 12 FCC Rcd at 22486. ^ Consistent with Commission direction, SLC adopted a filing window of 75  X -days,  {O-ԍ Schools and Libraries Corporation and Health Care Corporation Adopt Length of Filing Windows, Public  {O-Notice, CC Docket No. 9645, DA 972349 (rel. Nov. 6, 1997) (Windows Public Notice).  which opened on January 30, 1998 and closed on April 15, 1998. l  yO;-ԍ Also consistent with Commission direction to determine the length of its filing window, the Rural Health  {O-Care Corporation adopted a 75day initial filing window. See Windows Public Notice. The rural health care filing window opened on May 1, 1998 and will close on July 14, 1998. We note that, consistent with the schools and libraries support mechanism, discounts on eligible services for eligible health care providers will be  {O]-effective January 1, 1998 or the date services begin pursuant to the contract, whichever is later. See infra para. 9.  X -X B.X` ` DISCUSSION(#`  X - 8. ` ` Upon reconsideration on our own motion, we find that it is in the public interest to change the funding year for the schools and libraries universal service support mechanism from a calendar year cycle (January 1 December 31) to a fiscal year cycle that will run from July 1 June 30. Moreover, we conclude that the transition to a fiscal year should be implemented immediately. In order to accommodate the transition to a fiscal year funding cycle, the first funding period will be the 18month period that runs from January 1, 1998 through June 30, 1999. The second funding cycle, therefore, will begin on July 1, 1999. Applications submitted during the initial 75day filing window and approved for funding by SLC, therefore, will be funded through June 30, 1999, to the extent permitted by funding  X-constraints. Parties seeking support for the following fiscal year may begin to file applications on October 1, 1998. We direct SLC, in consultation with the Common Carrier Bureau, to establish a filing window for the next fiscal year, to open no later than October 1,"0*''PP" 1998. We also conclude that SLC should determine the length of that window and resolve  X-other administrative matters necessary to implement a filing window. {Ob-ԍ This is consistent with previous directions to the administrative corporations. See Third Report and  {O,-Order, 12 FCC Rcd at 22488.  X-9. ` ` We decide to implement a fiscal year funding cycle for schools and libraries, and to transition to this approach immediately, for several reasons. The immediate transition to a fiscal year approach will ameliorate the concerns of applicants seeking support for internal connections that they will be unable to complete installation before December 31,  X_-1998, which marks the end of the funding year if determined on a calendar year basis._$ {O4 -ԍ See Santa MariaBonita School District, Request for Waiver (dated Feb. 11, 1998) (Santa MariaBonita  {O -Request for Waiver). We recognize that, because of the delay in issuing funding commitments to schools and libraries,  X1-many applicants may not be able to complete by this date the internal connections for which they have sought universal service support. The delay may be attributed to a variety of factors, including the Commission's decision to implement an initial filing window, and the Chairman's request to SLC to conduct an independent audit before disbursing any funds, in  X -order to protect against waste, fraud, and abuse.  {O-ԍ See, e.g., Letter from the Honorable William E. Kennard, Federal Communications Commission, to the Honorable John McCain, Chairman, Senate Committee on Commerce. In short, the schools and libraries support mechanism is being implemented for the first time, and the Commission was not fully aware of the amount of time necessary to establish administrative systems that ensure program integrity and fair and orderly administration. Applicants could not have anticipated these delays at the time they conducted their technology needs assessments. Moreover, applicants understandably have been reluctant to begin service or initiate the installation of internal connections before receipt of a funding commitment. Nevertheless, schools and libraries that have worked diligently to comply with the Commission's requirements should not be  X-burdened unnecessarily by this delay. To further accommodate schools and libraries affected by the delay in implementation, we note that discounts will be available on eligible services effective January 1, 1998 or the date services begin pursuant to the contract, whichever is later. Moreover, the transition to the fiscal year funding cycle adopted herein will afford applicants that will receive support for internal connections the flexibility to complete the  X-installation of internal connections through June of 1999." {O5!-ԍ Santa MariaBonita Request for Waiver at 12 (stating that, without an extension of time beyond December 31, 1998 to complete the installation of internal connections, "plans and specifications will have to be redrawn and rewritten . . . [t]he district would also need to cancel the current bid process and reissue bid documents starting a new bid cycle"). " 0*''PP3"Ԍ X-10. ` ` Furthermore, adopting a fiscal year funding cycle will synchronize the schools and libraries universal service support mechanism with the budgetary and planning cycles of most schools and libraries. This coordination of the support mechanism with the applicants' internal administrative processes will enable schools and libraries to plan their technology needs in a more efficient and organized manner. In addition, using a fiscal year funding cycle  X-will align universal service contribution levels with the local exchange carrier annual access tariff filing schedule. Under our rules, local exchange carriers file their annual tariffs to be  X_-effective July 1 of each year.K_ {O-ԍ See 47 C.F.R.  69.3(a).K One piece of information these companies require in order to file their tariffs is the universal service contribution factors.  X - 11.` ` We recognize that, under the approach adopted herein, some schools and libraries that did not file within the initial window in 1998 will not be eligible to receive funding until July 1999, rather than January 1999. We find, however, that on balance, the benefits that will be conferred on the approximately 30,000 applicants that filed within the initial window outweigh the hardship caused by the potential sixmonth delay in funding for some applicants. We also find that this approach strikes the best balance between fulfilling the statutory mandate to enhance access to advanced telecommunications and information services  Xy-for schools and libraries, and fulfilling the statutory principle that "[q]uality services should be  Xb-available at just, reasonable, and affordable rates.DbZ yOm-ԍ 47 U.S.C.  254(b)(1). D  X4-12. ` ` To accomplish this change, we conclude that the following revisions in the funding cycle must be implemented. First, for applications filed within the initial 75day filing window seeking discounts on telecommunications services and Internet access, the Administrator shall make funding commitments effective for services provided no earlier than January 1, 1998. These services will be funded at the approved monthly level, consistent with the information included on the school's or library's application, through June 30, 1999. We conclude that this approach is reasonable because telecommunications services and Internet access are generally provided at regular, monthly intervals and are billed on a monthly, recurring basis.  XN-13. ` ` Second, for applications filed within the initial 75day filing window seeking discounts on internal connections, the Administrator shall commit the approved amount of support, but these funds may be utilized during the remainder of 1998 as well as during the transition period through June 30, 1999. We conclude that this approach is reasonable because, unlike telecommunications services and Internet access, internal connections  X-generally entail nonrecurring rather than recurring costs. {Ov%-ԍ See McKinsey and Company, Connecting K12 Schools to the Information Superhighway at Appendix A. Moreover, installation of internal"|0*''PP" connections frequently requires that the projects be timed to occur during periods when school is out of session and students are not present in instructional buildings. Thus, the installation of internal wiring might be completed in stages during winter and summer vacation periods. Accordingly, we amend section 54.507(b) of our rules, as provided in Appendix A.  X-14. ` ` The transition to a fiscal year funding cycle adopted herein requires that we reconsider on our own motion the limitation on the exemption from competitive bidding for voluntary extensions of contracts. Our rules currently provide that voluntary extensions of  XH-existing contracts are not exempt from the competitive bidding rules."H {O -ԍ See 47 C.F.R.  54.511(d); see also 47 C.F.R.  54.504. Our rules state that the following contracts are exempt from our competitive bidding requirements: contracts signed on or before July 10, 1997 are exempt for the life of the contract; and contracts signed after July 10, 1997 but before January 30, 1998 are exempt only with respect to services provided between January 1, 1998 and December 31, 1998. 47 C.F.R.  54.511(c)(1). In order to accomplish an orderly transition to the fiscal year funding cycle, however, we conclude that we must allow existing contracts that have a termination date between December 31, 1998 and June 30,  X -1999 to be voluntarily extended to a date no later than June 30, 1999. Although voluntary  X -extensions of contracts generally are not exempt from the competitive bidding requirement,o  {OO-ԍ See Universal Service Order, 12 FCC Rcd at 906263, para. 545. o we adopt this limited exception for voluntary extensions of contracts up to June 30, 1999. To hold otherwise would result in schools and libraries either having to participate in competitive bidding for only a six month service period or not being eligible for support for that six month period. We conclude that either result would be both administratively and financially unworkable for schools and libraries. We find, therefore, that it is in the public interest to amend the exemption (in section 54.511 of our rules) from the competitive bidding requirements, to allow schools and libraries that filed applications within the 75day initial filing window to extend voluntarily, to a date no later than June 30, 1999, existing contracts that otherwise would terminate between December 31, 1998 and June 30, 1999.  X- III.COLLECTIONS DURING 1998 AND THE FIRST SIX MONTHS OF 1999  X-X A.X` ` BACKGROUND(#`  X-  X-15. ` ` Because these newlycreated support mechanisms had no historical data of their own upon which to estimate with certainty the demand for services in the initial months of the  Xe-support mechanisms,geD {OZ"-ԍ Universal Service Order,12 FCC Rcd at 905456, 914041.g the FederalState Joint Board on Universal Service and the Commission relied on the figures submitted on the record in the Universal Service proceeding to project demand for the schools and libraries and rural health care universal service support"7 0*''PP"  X-mechanisms. {Oy-ԍ See FederalState Joint Board on Universal Service, CC Docket No. 9645, Recommended Decision, 12  {OC-FCC Rcd 87, 36871 (1996); Universal Service Order, 12 FCC Rcd at 905457. Based on extensive public comment and the unanimous recommendation of  X-the bipartisan Joint Board,f$ {O-ԍ See Recommended Decision, 12 FCC Rcd at 36871. f the Commission instituted annual caps on both support  X-mechanisms $2.25 billion for the schools and libraries support mechanism,\ {O9-ԍ Universal Service Order, 12 FCC Rcd at 9054.\ and $400  X-million for the rural health care support mechanism.\ H {O -ԍ Universal Service Order, 12 FCC Rcd at 9141.\ In addition, the Commission specified  X-that the Administrator should collect $100 million per month for the first three months of  X-1998 for the schools and libraries support mechanism,\! {O-ԍ Universal Service Order, 12 FCC Rcd at 9056.\ and held that, between January 1, 1998 and June 30, 1998, the Administrator "will only collect as much as required by demand,  X_-but in no case more than $1 billion."`"\_l  {O|-ԍ Universal Service Order, 12 FCC Rcd at 9054. The Commission further directed the administrator to "adjust future contribution assessments quarterly based on its evaluation of schools and library demand for funds,  {O-within the limits of the spending caps . . . ." Id. at 905556.` For the rural health care support mechanism, the Commission directed the Administrator to collect $100 million for the first three months of  X1-1998.\#1  {Or-ԍ Universal Service Order, 12 FCC Rcd at 9145.\ On December 16, 1997, the Commission adopted the Third Reconsideration Order.  X -The Third Reconsideration Order revised the collection amounts, directing the administrator to collect and spend no more than $50 million for the first six months of 1998 to support the rural health care universal service support mechanism and no more than $625 million for the first six months of 1998 to support the schools and libraries universal service support  X -mechanism.h$ " {O-ԍ Third Order on Reconsideration, 12 FCC Rcd 22801 (1997).h The Commission took this action because it did not want to impose unnecessary financial requirements on service provider contributors to universal service by  X-requiring the collection of funds that were not needed to meet demand for universal service  X}-assistance.%$} {O -ԍ Third Reconsideration Order, 12 FCC Rcd at 2280304. Based on what it learned about the status of preparatory arrangements being made by schools and libraries to obtain the benefit of the universal service support mechanism, the Commission concluded that demand for the schools and libraries support mechanism  {O<#-would not exceed $625 million in the first and second quarters of 1998. Id. "f %0*''PP"Ԍ X-16.` ` When it adopted the annual funding caps in the Universal Service Order in  X-May 1997, the Commission anticipated that funds would begin to flow on January 1, 1998.\& {Od-ԍ Universal Service Order, 12 FCC Rcd at 9092.\ In making that estimate, the Commission did not take fully into account the amount of time necessary for the administrative corporations to establish administrative systems that not only will provide the highest level of service to eligible schools, libraries, and health care providers, but that will ensure that federal universal service funds are not subject to waste, fraud, and abuse. Due to those efforts to maximize the adequacy, efficiency, and accountability of the support mechanisms, and due to the filing window that the Commission adopted to ensure equitable treatment of schools, libraries, and health care providers, eligible  X3-entities could not begin to receive commitments for funding until after midApril 1998, when  X -the initial filing window closed.G' Z {O' -ԍ In the Third Report and Order, the Commission adopted a filing window that will give equal funding  {O -priority to all schools, libraries, and health care providers that file during that window period. Third Report and  {O-Order, 12 FCC Rcd 22485. Consistent with Commission direction to determine the length of the filing windows, SLC and RHCC adopted windows of 75 days. Schools and Libraries Corporation and Health Care Corporation  {OM-Adopt Length of Filing Windows, CC Docket No. 9645, Public Notice, DA 972349 (rel. Nov. 6, 1997). The schools and libraries filing window opened on January 30, 1998 and closed on April 15, 1998. The rural health care filing window opened on May 1, 1998 and will close on July 14, 1998.G Funds for the schools and libraries support mechanism will not begin to be disbursed until July 1998, at the earliest, and funds for the rural health care support mechanism likely will not begin to be disbursed before the third quarter of 1998.  X -17.` ` As of May 1, 1998, SLC estimated that $2.02 billion in discounts had been  X -requested by applicants that had filed for schools and libraries discounts through April 28,  X-1998.( yO-ԍ Third Quarter 1998 Fund Size Requirements for the Schools and Libraries Universal Service Program, dated May 1, 1998, at 2 (filed by SLC). RHCC projected that the rural health care support mechanism will require $25  X{-million for the third quarter.){  yO&-ԍ Third Quarter 1998 Projected Demand and Expenses for the Rural Health Care Universal Service Support Program, dated May 1, 1998, at 1 (filed by RHCC). On May 13, 1998, the Common Carrier Bureau released a Public Notice seeking comment on a proposed revision of the 1998 collection amounts for the  XM-schools and libraries and rural health care universal service support mechanisms.e*\MR  yOP -ԍ Common Carrier Bureau Seeks Comment on Proposed Revision of 1998 Collection Amounts for Schools  {O!-and Libraries and Rural Health Care Universal Service Support Mechanisms, Public Notice, CC Docket No. 96 {O!-45, DA 98872 (rel. May 13, 1998) (Collection Public Notice).e In the  X6-Collection Public Notice, the Common Carrier Bureau sought comment on a proposal to direct  X!-USAC to collect only as much money as is required by demand, but in no event more than $25 million per quarter for the third and fourth quarters of 1998 to support the rural health care universal service support mechanism, and no more than $524 million per quarter for the" v*0*''PP" third and fourth quarters of 1998 to support the schools and libraries universal service support mechanism. The Common Carrier Bureau also sought comment on whether to direct the administrative corporations neither to commit nor disburse more than $100 million for the  X-health care support mechanism and $1.67 billion for the schools and libraries support  X-mechanism during the 1998 funding year.P+ {O-ԍ Collection Public Notice at 4. P  Xv- B.` ` DISCUSSION  XH-18.` ` Consistent with section 254 of the Act, and the recommendations of the  X1-FederalState Joint Board on Universal Service,^,1Z {O< -ԍ See Recommended Decision, 12 FCC Rcd 87.^ we remain committed to providing support to eligible schools and libraries for telecommunications services, Internet access, and internal  X -connections.-.   yO-ԍ We note that Secretary Riley of the United States Department of Education (Department of Education) recently responded to a General Accounting Office (GAO) report that identified 40 programs in nine federal agencies, funded at more than $10 billion, that support the acquisition of telecommunications technologies for  {O-schools and libraries. See Letter from Secretary Richard W. Riley, United States Department of Education to James F. Hinchman, Acting Comptroller General, GAO, dated June 8, 1998 (citing GAO, Telecommunications: Court Challenges to FCC's Universal Service Order and Federal Support for Telecommunications for Schools and Libraries (rel. May 7, 1998)). Secretary Riley characterized the GAO report as "very misleading," stating that "[o]f of the $8.2 billion identified from Department of Education programs, we estimate that only about $590 million is available specifically for education technologyrelated programs, and that only a very small  {O-percentage of that amount is used to support telecommunications." Id. at 1. Secretary Riley also noted that "[t]he Technology Literacy Challenge Fund and other, smaller sources of Federal funding for technology would work in conjunction with the ERate discounts to help schools use the Internet effectively, but by no means could  {O-they take the place of the ERate in providing and maintaining Internet access." Id. at 2. We share the concerns of commenters that curtailing collections may have  X -adverse impacts on schools and libraries, particularly the neediest of those entities._.B  {O-ԍ See, e.g., Letter from the Honorable Ted Kennedy, the Honorable Jay Rockefeller, the Honorable Bob Kerrey, the Honorable Chris Dodd, the Honorable Jim Jeffords, the Honorable Rick Santorum, the Honorable John Chafee, and the Honorable Olympia Snowe, dated May 22, 1998, at 1 (stating that "modern technology can level the playing field"); NTIA comments at 2 (stating that "[n]o school or child must be excluded from the benefits of the information age because of income or geographical area"); Letter from the Honorable Jay Rockefeller, the Honorable Bob Kerrey, and 32 Senators, United States Senate, dated June 10, 1998, at 1 (stating that "[u]niversal means just that urban, suburban and rural; poor and rich; public and private; all races and ethnic groups . . . [n]o child or family should be left behind")._ We, therefore, remain dedicated to providing support in a manner that targets the most economically disadvantaged schools and libraries. At the same time, we are cognizant of the  X -concerns of many legislators that we must balance the need to provide support for schools and libraries against the need to continue to provide support for high cost carriers, and to keep " .0*''PP"  X-telephone rates affordable throughout the country./z {Oy-ԍ See Letter from the Honorable Tom Bliley, Chairman, House Committee on Commerce, the Honorable John D. Dingell, Ranking Minority Member, House Committee on Commerce, the Honorable John McCain, Chairman, Senate Committee on Commerce, and the Honorable Ernest F. Hollings, Ranking Minority Member, Senate Committee on Commerce, to the Honorable William E. Kennard, Chairman, Federal Communications Commission, dated June 4, 1998; Letter from the Honorable John D. Dingell, Ranking Minority Member, House Committee on Commerce, to the Honorable William E. Kennard, Chairman, Federal Communications Commission, dated June 4, 1998. We note that, pursuant to the 1996 Act, the Commission has taken significant action to implement the universal service provisions of the Act. At the present time, the rural, insular, and high cost telephone subscribers continue to receive high cost support at the same level that they have received for years. In addition, one of the first steps in universal service reform was to make existing high cost support  X-explicit.0"  {OH -ԍ See, e.g., Universal Service Order, 12 FCC Rcd at 9165 (removing Long Term Support (LTS) from access charges); 12 FCC Rcd at 894041 (stating that "[w]e adopt the Joint Board's recommendation that a subsidy corresponding in amount to that generated formerly by DEM [dial equipment minutes] weighting be recovered from the new universal service support mechanisms"). Moreover, we have expanded the Commission's lowincome programs, Lifeline  Xv-Assistance (Lifeline) and Lifeline Connection Assistance (Link Up).m1v  {O-ԍ See generally Universal Service Order, 12 FCC Rcd at 895294.m For example, we adopted the Joint Board's recommendation that Lifeline service should be provided to lowincome consumers nationwide, even in states that had not previously participated in Lifeline, and that all eligible telecommunications carriers should be required to provide Lifeline  X -service.2"  {OQ-ԍ Universal Service Order, 12 FCC Rcd at 8952.  In late February 1998, eligible telecommunications carriers began submitting to USAC requests for reimbursement for offering Lifeline service to low-income consumers. Federal Universal Service Programs Fund Size Projections & Contribution Base for Third Quarter 1998, filed by USAC, dated May 1, 1998, at 12. The Commission remains committed, pursuant to section 254, to implementing all  X -parts of universal service.  X -19.` ` We find, therefore, that it is prudent to begin funding collections for a new mechanism at a reduced level, and allow for the possibility of increased collections in the future. We note that this phasein approach to funding is consistent with the decision in the  X-Universal Service Order, and with the initial funding for high cost support when NECA began  X{-its high cost collection and distribution efforts in 1986.Y3{p {O!-ԍ See 47 C.F.R.  36.631 and 36.64. Y In providing support for schools, libraries, and rural health care providers, we strive to ensure a smooth transition to the new  XM-universal service support mechanisms and to minimize disruption to consumers. We find that our decision to adjust the maximum amounts that may be collected or spent in 1998 is consistent with these goals. " 30*''PP"Ԍ X-20.` ` We therefore find that we should not increase the quarterly collection amounts at this time with respect to the schools and libraries and rural health care support mechanisms. We therefore conclude that establishing quarterly collection rates for the schools and libraries support mechanism of $325 million for each of the third and fourth quarters of 1998 and the first and second quarters of 1999 will preserve the dual statutory mandates to maintain affordable rates throughout the country and to "enhance . . . access to advanced  Xv-telecommunications and information services for all public and nonprofit elementary and  X_-secondary school classrooms . . . and libraries."B4_ yO-ԍ 47 U.S.C.  254(h)(2).B These collection rates maintain current collection rate levels and will not increase interstate telecommunications carriers' costs of providing service. Moreover, these collection rate levels should ensure that long distance  X -rates, overall, will continue to decline.5 X yO# -ԍ On June 16, 1998, incumbent local exchange carriers will file new access tariffs with rates to become effective on July 1, 1998. Based on preliminary information filed by these carriers on April 2, 1998, we estimate their total access charge revenues to decline by approximately $720 million below current levels,  {O{-measured on an annualized basis at current demand levels. The Third Quarter Contribution Factors Public  {OE-Notice, released by the Common Carrier Bureau upon adoption of this Order, will produce a reduction in total  {O-interexchange carrier payments of approximately $85 million. See Third Quarter 1998 Universal Service  {O-Contribution Factors Revised and Approved, CC Docket No. 9645, Public Notice, DA 981130 (rel. June 12, 1998). Based on this, total interexchange carrier payments for access services and universal service contributions should decrease by approximately $800 million on July 1, 1998. At the same time, based on the estimated demand for support by schools and libraries that filed applications during the initial 75day filing window, these collection rates will be sufficient to fully fund requests for support for telecommunications services, and Internet access, and to fully fund requests by the neediest schools and libraries for support for internal connections. The remaining requests for support for internal connections would be funded in the manner set forth in Section III, herein.  Xy-21.` ` We further conclude that we should establish maximum collection rates for the  Xb-rural health care support mechanism at $25 million for each of the third and fourth quarters of 1998. These collection rates are consistent with projected demand and there is no evidence that eligible health care providers will require additional funding this year. Consistent with  X-the Universal Service Order, we do not want USAC to collect funds that exceed demand.60  {O-ԍ See Universal Service Order, 12 FCC Rcd at 9145 (stating that collection for the rural health care universal service support mechanism would be based on demand). Because the rural health care support mechanism will continue to be funded on a calendar, rather than a fiscal, year basis, and because the mechanism is still in the very early stages, we find that we should not adopt maximum collection rates beyond 1998. Instead, we will evaluate the 1999 collection rates for the rural health care support mechanism in the future.  X-22.` ` The universal service support mechanisms will provide substantial support to schools, libraries, and health care providers without imposing unnecessary burdens on"~ 60*''PP" consumers, and the most economically disadvantaged schools and libraries will receive the  X-greatest share of support, consistent with the discount matrix contained in the Universal  X-Service Order.\7 {OM-ԍ Universal Service Order, 12 FCC Rcd at 9050.\ We seek to provide support to schools, libraries, and rural health care providers in a manner that does not require consumers' rates to rise and without causing rate churn. Some commenters assert that a certain amount of rate churn is to be expected in a  X-competitive marketplace.8ZZ {O-ԍ See, e.g., AirTouch comments at 5 n.10 (stating that changing rates are to be expected in a competitive marketplace); Nassau BOCES comments at 34 (asserting that rate churn is a fact of life under competitive conditions). That may be true, but we remain committed to ensuring that universal service does not exacerbate any rate churn that may already exist in the marketplace.  Xc-Excessive and unnecessary rate churn would be disruptive to consumers, a result we wish to avoid.  X -23.` ` Numerous commenters take issue with the Commission's proposal to revise collections for the schools and libraries and rural health care universal service support  X -mechanisms consistent with anticipated reductions in access charges.a9 | {O-ԍ See, e.g., Bell Atlantic comments at 34 (asserting that, because access charges are dictated by a price cap formula, the Commission cannot impose additional reductions in access charges to fund universal service); EdLiNC comments at 13 (stating that linking access charge reductions to universal service funding is inconsistent with section 254's mandate to establish a discount mechanism adequate to meet the congressional goal of providing all schools and libraries will affordable access to advanced telecommunications and information services); NC DPI comments at 4 (stating that the law does not require that access charges and universal service funding be linked and that the Commission should not act to make that happen); Time Warner comments at 34 (asserting that the Commission should establish a universal service fund that is sufficient to address the policy goals of affordability for basic telecommunications services and support of eligible services for schools, libraries, and rural health care provider but that is not tied to access charge reductions).a We agree with the  X -Alaska Commission that funding for the new universal service support mechanisms "must be  X -balanced against potential impact on rates and universal service,"J:  yO-ԍ Alaska Commission comments at 4.J and that is precisely the approach we are adopting. We conclude, therefore, that a gradual phasein of the schools, libraries, and rural health care universal service support mechanisms that takes advantage, and reflects the timing, of access charge reductions will provide substantial support for eligible services ordered by eligible schools, libraries and rural health care providers, and at the same  XO-time will avoid disruption to consumers.  X!-24.` ` Many commenters note that schools and libraries have expended substantial resources, in terms of both time and money, in applying for discounted services, all with the" :0*''PP"  X-expectation that a maximum of $2.25 billion in funding would be available. ;  {Oy-ԍ See, e.g., Funds for Learning comments at 2 (stating that schools and libraries have spent time completing applications and designing technology plans and have modified or delayed installation schedules, all in reliance on the availability of $2.25 billion); NC Governor comments at 12 (supporting full funding because of tremendous effort, especially in terms of human resources, to participate in universal service); EdLiNC comments at 35 (stating that schools and libraries have devoted substantial resources, made contractual commitments, and issued bonds with the expectation that universal service would be funded up to the amount recommended by the Joint Board and adopted a year ago by the Commission); Great City Schools comments at 3 (stating that the submission of over 30,000 applications is evidence that schools and libraries have relied upon the expectation of full funding and have had to devote substantial resources toward applying for universal service discounts).  We share the concern of the U.S. Department of Education and other commenters that schools and libraries require predictability of funding to facilitate longrange technology planning, and that our  X-actions here should not discourage schools and libraries from seeking universal service  X-support.E<  {O -ԍ See U.S. Department of Education comments at 1. See also Letter from Richard W. Riley, Secretary of Education, William M. Daley, Secretary of Commerce, Daniel R. Glickman, Secretary of Agriculture, and Donna E. Shalala, Secretary of Health and Human Services to William E. Kennard, Chairman of the Federal Communications Commission, dated June 8, 1998 (stating that the Commission should "strongly support the erate" because "delaying or undermining its effectiveness will heighten the risk of economic inequality and social division"); DTG comments at 45 (stating that "[t]he proposed revision of support collections after the initial round of applications is final imposes new risk and unpredictability on the process at a time when it should become more predictable if the goal of access to advanced telecommunications for all schools is to be met"); NC DPI comments at 3 (changing the rules at this point causes mistrust and economic hardship); Funds for Learning comments at 2 (asserting that schools and libraries need predictability, not more frustration, and that service providers may become disenchanted with the changing rules and potential loss of business as schools and libraries have to delay projects for which they anticipated receiving support). We note here that the Santa Maria {OQ-Bonita School District proposed an alternative to the proposed collection amounts described in the Collection  {O-Public Notice, under which an additional $350 million would be collected in 1998, followed by a $350 million  {O-reduction in collections in 1999. See Santa MariaBonita School District comments at 23. Because this proposal would not mitigate the problem of rate churn that it would impose upon consumers, we must reject it.E We agree that the submission of over 30,000 applications demonstrates substantial  X-demand for universal service support for schools and libraries,&=z {O(-ԍ See, e.g., Letter from the Honorable Ted Kennedy, the Honorable Jay Rockefeller, the Honorable Bob Kerrey, the Honorable Chris Dodd, the Honorable Jim Jeffords, the Honorable Rick Santorum, the Honorable John Chafee, and the Honorable Olympia Snowe, United States Senate, dated May 22, 1998 (stating that the number of applications submitted demonstrates the "importance of the program and the nationwide need for this financial assistance").New Jersey Library Association comments at 2 (stating that initial response demonstrates the need for the schools and libraries support mechanism); EdLiNC comments at 4 (stating that the submission of over 30,000 applications validates the need for and the importance of universal service for schools and libraries).& and we applaud the entities that have worked diligently to comply with our rules. We are troubled by the disruption imposed on schools and libraries and we hope to avoid this situation in the future. At the same time, we must be mindful of the effects of the schools and libraries and rural health care  X1-support mechanisms on consumers. If we were to fund these support mechanisms to the full  X -amount of the caps adopted in the Universal Service Order, there would be negative" ,=0*''PP$ " consequences for consumers. Congress mandated that universal service has many components, including support for schools, libraries, and rural health care providers, as well  X-as the directive to maintain rates at an affordable level.> yOK-ԍ 47 U.S.C.  254(b)(1) (stating that "[q]uality services should be available at just, reasonable, and affordable rates"). We conclude, therefore, that reducing the collection rates for the schools and libraries and rural health care support mechanisms during the initial implementation is consistent with the Act and is the most prudent course to take at this time.  X_-25.` ` Several commenters maintain that revising collections levels for the schools and libraries and rural health care support mechanisms to match projected reductions in access charges would impose an unreasonable and disproportionate burden on CMRS and other  X -wireless providers that do not pay access charges,?z  {O -Ѝ See, e.g., AirTouch comments at 2 (stating that the proposed revision in collection amounts would "unlawfully discriminate against wireless carriers and others who do not accrue any benefits from access charge reductions"); CTIA comments at 45 (asserting that the proposed revision imposes an unreasonable burden on CMRS and other providers that do not pay access charges); PCIA comments at 23 (stating that the proposed revision will disproportionately impact CMRS providers); MACtel comments at 23 (stating that the proposed revision will disproportionately increase the universal service burden on CMRS providers and will reduce CMRS penetration rates in rural and insular areas because the cost of CMRS service will increase). and that such an approach would not be  X -competitively neutral.@  b  yO-Ѝ GTE comments at 7 (stating that the proposed revision in collection amounts would not be competitively neutral because wireless and paging carriers that do not pay access charges will not enjoy the benefits of reduced access charges and will, therefore, have to increase their charges to offset increased universal service contribution obligations). One of the dissenting statements similarly suggests that wireless  X -carriers are being disproportionately burdened because they do not pay access charges.vA J  yO-ԍ Statement of Commissioner Harold FurchtgottRoth, dated June 22, 1998, at 4.v We  X -note first that we are not here adopting our proposal in the Collection Public Notice to increase schools and libraries funding to levels that match projected reductions in access charges paid by longdistance carriers. We are instead freezing for the next four quarters the contribution levels in place during the second quarter of 1998. Thus, no carrier will experience increased universal service obligations as a result of an increase in funding for the schools and libraries support mechanism. Second, we find that CMRS and other wireless carriers are not disproportionately burdened because they pay universal service obligations even though they do not benefit from access charge reductions. Before passage of the 1996 Act, only interstate longdistance carriers paid for universal service in the interstate jurisdiction, either directly or through access charges. The 1996 Act, however changed that  X-by requiring universal service to be supported by all interstate telecommunications carriers, whether or not they had previously paid access charges. The point of the 1996 Act in this respect was to end the existing discriminatory treatment of longdistance carriers, and impose"A0*''PPq" universal service obligations as well on other interstate carriers, including CMRS carriers. The 1996 Act also established that universal service be funded in a competitively neutral  X-manner. To implement that, we have required that all interstate telecommunications carriers  X-contribute to universal service based on enduser revenues.jB {O4-Ѝ See Universal Service Order, 12 FCC Rcd at 9206.j We continue to believe that to be a reasonable approach to implementing the competitive neutrality requirements of the Act.  X-Finally, to the extent that the Collection Public Notice noted the relation between universal service obligations and access charge reductions, it was simply to note that overall the Commission's actions have reduced the cost of providing long distance service an issue of significant public interest. We note similarly here that, since passage of the 1996 Act, competition and changes in reciprocal compensation arrangements between CMRS providers and local exchange carriers (LECs) have helped provide for the lowest wireless prices for  X -consumers in history, despite wireless carriers contributions to universal service.  X - 26.` `  The contention in one of the dissents that universal service contributions, at  X -least to the extent used to provide support for nontelecommunications services, constitute an  X -unlawful tax is neither new nor correct.zC Z yO-ԍ Statement of Commissioner Harold FurchtgottRoth, dated June 22, 1998, at 1316.z As the Commission has found previously, contributions to the universal service mechanisms do not represent taxes enacted under Congress's taxing authority. Rather, they constitute fees enacted pursuant to Congress's Commerce power. We noted previously that the contribution requirements do not violate the Origination Clause of the Constitution because "universal service contributions are not  X6-commingled with government revenues raised through taxes,"aD6 {O-ԍ Fourth Reconsideration Order, 13 FCC Rcd at 5465.a and univeral service support mechanisms therefore are not a "general welfare scheme" of the type found by courts to be  X-taxes.E| {O5-ԍ  Universal Service Order, 12 FCC Rcd at 918889. See United States v. MunozFlores, 495 U.S. 385, 398 (1990) ("special assessment" on any person convicted of a federal misdemeanor to be deposited into a Crime  {O-Victim's Fund was not a tax); see also Response of Federal Communications Commission to Motion for Stay of  {O-Celpage, Inc., Texas Office of Public Utility Counsel v. FCC and USA, No 9760241 (5th Cir.) (Texas Public  {O[-Utility Counsel Stay Opposition) at 1417, and cases cited therein. On delegation issues, see, e.g., Universal  {O%-Service Order, 12 FCC Rcd at 900323, 9084-90, 920305; Brief for Federal Communications Commission in  {O-Texas Public Utility Counsel (Texas Public Utility Counsel Brief) at 165172, 173177, 183188. In United States v. MunozFlores and elsewhere, the Supreme Court has held that Congress does not exercise its taxing powers when funds are raised for a specific government program. Universal service contributions are deposited into a specific fund established as part of the universal service mechanisms to provide money support for those mechanisms and  X-therefore do not constitute taxes. " E0*''PP3"Ԍ X-27.` `  Our conclusion that universal service contributions are not a tax is not changed  X-by the citation to Thomas v. Network Solutions, Inc.FF yOb-ԍ 1998 WL 191205 (D.D.C.). F There, the court found that part of the charge made by the National Science Foundation's contractor for the registration of internet domain names was a tax rather than a fee because it provided "revenue for the government for  X-projects that did not directly benefit the payees or otherwise apply to the purposes furthered  X-by the [agreement between the NSF and its contractor]."3GX {O-ԍ Id.3 Here, by contrast, universal service contributions are not intended to raise general revenue as they are placed in a segregated fund dedicated for a specific regulatory purpose, and, as we have noted previously, all telecommunications carriers required to contribute benefit from the ubiquitous  X3-telecommunications network that universal service makes possible._H3 {O -ԍ  Universal Service Order, 12 FCC Rcd at 918889._ Even if this were not the  X -case, MunozFlores rejects the proposition that a charge is a tax unless the payees benefit  X -from its payment.I | {O4-ԍ 495 U.S. at 400; see also cases cited in Texas Public Utility Counsel Stay Opposition at 13-16; Head  {O-Money Cases (Edye v. Robertson), 112 U.S. 580 (1884).  X -28.` `  Finally, we note that the argument that universal service contributions for the schools and libraries mechanisms constitutes an unlawful tax can be and has been made with  X -respect to the entire universal service program.J  {O4-ԍ See Brief of Celpage, Texas Office of Public Utility Counsel v. FCC and USA, No. 9760421 (5th Cir. 1997) (appeal pending). This argument proves too much. If that interpretation were correct, the entire universal service program, including support for service to rural and high cost areas, would constitute an unlawful tax. This interpretation is incorrect because, as noted above, Congress need not exercise its taxing powers to fund a specific government program through fees. This is precisely what Congress has done with respect to universal service.  X -29.` ` We find, therefore, that it serves the public interest to adjust the amounts that the Commission directed the Administrator to collect and spend for the second six months of 1998, as described herein. We amend our previous decision, and direct USAC to collect only as much as required by demand, but in no event more than $25 million per quarter for the third and fourth quarters of 1998 for the rural health care universal service support mechanism. We direct USAC to collect only as much as required by demand, but in no event  X-more than $325 million per quarter for the third and fourth quarters of 1998 and the first and second quarters of 1999 to support the schools and libraries universal service support mechanism. We also direct RHCC to commit to applicants no more than $100 million for"R2 J0*''PP" disbursement during 1998, and direct SLC to commit to applicants no more than $1.925 billion for disbursement during 1998 and the first half of 1999. The adoption of these limits  X-on disbursements supersedes any prior restrictions on expenditures during 1998.K yOK-ԍ Prior to adoption of this Order, sections 54.507(a) and 54.623(a) of our rules provided that no more than  {O-a specified monetary amount could be collected or spent during the first six months of 1998. See Appendix A.  X-30.` ` Furthermore, we conclude that the carryover of unused funding authority will not apply for the funding period January 1, 1998 through June 30, 1999. That is, to the extent that the amounts collected in the funding period January 1, 1998 through June 30, 1999 are less than $2.25 billion, the difference will not be carried over to subsequent funding years. Consistent with the phasedin approach to funding for the schools and libraries and rural health care support mechanisms that we have adopted herein, we find it unnecessary to carry over unused funding authority. To the extent that funds are collected but not disbursed in the funding period January 1, 1998 through June 30, 1999, however, those collected funds would be carried over to the next funding period. Accordingly, we amend section 54.507(a) and section 54.623(a) of our rules, as provided in Appendix A.  X - IV.XRULES OF PRIORITY FOR THE SCHOOLS AND LIBRARIES AND RURAL  X-HEALTH CARE SUPPORT MECHANISMS (#  Xb- A.` ` BACKGROUND  X4-31.` ` In the Universal Service Order, the Commission initially concluded that schools  X-and libraries would receive universal service discounts on a firstcome, firstserved basis.L" {O-ԍ Universal Service Order, 12 FCC Rcd at 9057; 47 C.F.R.  54.507(c), 54.623. Discounts for schools and libraries are allocated according to a discount matrix which assigns discount levels to schools and libraries based on whether a school or library is located in a rural area and on the percentage of students who are eligible for the national school lunch  X-program in a given school or school district.M {O(-ԍ See Universal Service Order, 12 FCC Rcd at 9050. See also 47 C.F.R.  54.505(c). The discount matrix is reproduced at Appendix D. For example, schools in which at least 75 percent of the students are eligible for the school lunch program receive a 90 percent discount  X-on rates for telecommunications services, Internet access, and internal connections. The discount rate falls as low as 20 percent in the case of an urban school with fewer than 1 percent of its students eligible for the lunch program. To protect the most disadvantaged schools and libraries, the Commission adopted rules of priority that go into effect when only  X9-$250 million remains available for allocation toward school and library discounts.yN9 {O$-ԍ Universal Service Order, 12 FCC Rcd at 905960; 47 C.F.R.  54.507(g).y As  X"-adopted, the rules of priority require SLC to allocate remaining funds to provide discounts to""N0*''PP" the most economically disadvantaged schools and libraries in accordance with the procedures  X-set forth in section 54.709(g) of our rules.O yOb-ԍ 47 C.F.R.  54.507(g). Pursuant to section 54.507(g), when only $250 million remains to be allocated, the SLC will notify the public and, during a 30day period or the remainder of the funding year, whichever is shorter, will commit funds only to the schools and libraries in the two most economically disadvantaged categories. During the period, SLC will grant priority to the most economically disadvantaged schools and libraries that have not yet received universal service discounts. If funds remain after the 30day period, the funds  {OJ-once again will be allocated according to the Commission's rules. See id.į  X-32.` ` On September 10, 1997, the Common Carrier Bureau sought comment on several issues with respect to the application process and the distribution of universal service  X-support for schools, libraries, and health care providers.P$B yO -ԍ Common Carrier Bureau Seeks Comment on Universal Service Support Distribution Options for Schools,  {OH -Libraries, and Health Care providers, CC Docket 9645, Public Notice, DA 971957 (1997) (September 10 Public  {O-Notice). This Public Notice was published in the Federal Register on September 15, 1997. 62 Fed. Reg. 48280 (Sept. 15, 1997). Comments were filed on September 25, 1997. Among other things, the Bureau  Xv-sought comment on whether the Commission should establish a filing window period, and what methods would "ensure a broad and fair distribution of funds, particularly at the earliest  XH-stages of these support programs."PQH.  {O'-ԍ September 10 Public Notice at 2.P The Bureau also sought comment on "whether a mechanism to prioritize requests from rural health care providers should be adopted in the  X -event that requests exceed available funds."PR  {O-ԍ September 10 Public Notice at 2.P In the Third Report and Order, the Commission adopted an initial filing window in order to give equal funding priority to all schools,  X -libraries, and health care providers that apply for support at any time during the filing  X -window, replacing the firstcome, firstserved approach for the first application filing period.S R  {O-ԍ Third Report and Order, 12 FCC Rcd at 22486. In addition, the Commission concluded that SLC and RHCC may implement such additional filing periods as they deem necessary. 47 C.F.R.  54.507, 54.623. The Commission adopted the filing window to provide more time for schools, libraries, and health care providers to complete the necessary forms and to negotiate contracts in accordance with our competitive bidding requirement, as well as to reduce disparities among applicants  X{-with varied administrative resources.\T{ {O -ԍ Third Report and Order, 12 FCC Rcd at 22486.\  Xd-  XM-33.` ` In addition to commenting on the adoption of a filing window, parties presented a wide range of suggestions for altering the rules of priority to ensure a broad and  X-fair distribution of funds in response to the September 10 Public Notice.TU> yO&-ԍ These commenters are listed in Appendix C.T In the Third Report"U0*''PP)"  X-and Order, the Commission clarified that, in the event that the $250 million trigger was reached during the filing window, SLC, consistent with its function as Administrator, would  X-be responsible for allocating funds in accordance with the Commission's rules of priority._V {OM-ԍ Third Report and Order, 12 FCC Rcd at 2248788._ The Commission did not make any modifications to its rules of priority at that time. In the  X-Collection Public Notice, the Common Carrier Bureau sought additional comment on ways to ensure that the most economically disadvantaged schools and libraries receive adequate  Xz-universal service support.WzZ {O -ԍ We note that several parties commented in response to the Collection Public Notice on certain administrative and access charge reform issues. Because these issues have no substantive bearing on the issues  {O -addressed in this Order, we do not respond substantively to those comments. See, e.g., AirTouch comments at 3 (enduser surcharges); GTE comments at 8 (same); Sprint comments at 3 (same); SBC comments at 24 (fundamental changes to schools and libraries universal service support mechanism); API comments at 34 (access charge reform and the productivity factor); RUPRI comments at 5 (high cost fund); USTA comments at 5 (high cost fund, SLC administrative expenses, support for telecommunications carriers only); Nassau BOCES comments at 23 (retroactive payments); NTIA comments at 2 (truthinbilling, local plans for Internet use); CTIA comments at 14 (calculation of universal service contributions for wireless providers); ICA comments at 2 (access charge reform).   XL- B.` ` DISCUSSION  X -34.` ` Schools and Libraries Support Mechanism. Upon further consideration, we find that we must adopt additional new rules of priority to ensure that, when a filing window period is in effect, support is directed toward the most economically disadvantaged schools  X -and libraries, as well as toward those located in rural areas. Consistent with the statute and  X -the recommendations of the Joint Board, we have consistently focused on ensuring that the services eligible for universal service support are affordable for all eligible schools and libraries. Under the discount matrix, the most economically disadvantaged schools and libraries are eligible for the greatest levels of discount. For example, schools with between 75 and 100 percent of their students eligible for the national school lunch program are eligible  XQ-for 90 percent discounts on all eligible services.`XQ  {O-ԍ See Universal Service Order, 12 FCC Rcd at 9050.` In the Universal Service Order, we  X<-established a priority system under which the most economically disadvantaged schools and libraries, those with over 50 percent of their student populations eligible for the national school lunch program, would have priority when only $250 million available to be committed  X-in a given funding year._Y  {O0#-ԍ Universal Service Order, 12 FCC Rcd at 905960._ The rules of priority adopted in the Universal Service Order, however, were premised on the assumption that support would be distributed on a first come, first served basis. That is, the $250 million trigger was established before the Commission adopted a window filing period. We conclude that we must adopt additional new rules of"Y0*''PPR" priority premised on the existence of a filing window period during which all applications received within the window are treated as if filed simultaneously. We also conclude that new rules of priority are necessary to account for the fact that the support requested by schools and libraries during the initial filing window exceeds the total authorized support available for the funding period January 1, 1998 through June 30, 1999. Moreover, there is the possibility that  X-support requested by schools and libraries during subsequent filing windows may exceed the total authorized support available in subsequent funding years. Therefore, we adopt new rules of priority that will operate when a filing window is in effect. We do not, however, alter the  XH-rules of priority for applicants that request support when a filing window is not in effect.ZH {O -ԍ These rules are preserved in section 54.507(g)(2), as amended in this Order. See Appendix A. Although, in this initial 18month funding period, only the applications filed during the initial 75day filing window will receive support, it is possible that in future funding years support could be provided for applications filed outside of a filing window period.  X -35.` ` The additional new rules of priority described below will equitably provide the greatest assurance of support to the schools and libraries with the greatest levels of economic disadvantage while ensuring that all applicants filing during a window receive at least some support in the event that the amounts requested for support submitted during the filing window exceed the total support available in a funding year. Because these rules of priority utilize the discount matrix, which provides higher discounts for schools and libraries in rural areas, they also equitably provide greater support to schools and libraries in rural areas. These rules, therefore, further implement the Commission's prior decisions to allocate support for schools and libraries in a manner that provides higher levels of support for rural areas and areas with greater economic disadvantage, while recognizing that every eligible school and  X-library should receive some assistance.[Z {O-ԍ See, e.g., Third Report and Order, 12 FCC Rcd at 22486, 2248788; Universal Service Order, 12 FCC Rcd at 905760. Further, these rules of priority are consistent with  X-the suggestions of several commenters.& \.  {O=-ԍ See Great City Schools comments at 4 (proposing priority rules that would permit full funding for schools and libraries eligible for 80 percent and 90 percent discounts and a proportional scale back of discounts for all  {O-other eligible schools and libraries). See also Anchorage School Dist. Sept. 10 Public Notice comments at 1 (stating that, if sufficient funds are not available to meet all approved applications in subsequent filing periods, the Commission should apply an equal percentage reduction to all approved applicants during period); Mississippi Council for Ed. Tech. Sept. 10 Public Notice comments at 4 (asserting that funds should be available first to the most disadvantaged schools and libraries); Montana School Boards Ass'n Sept. 10 Public Notice comments at 3 (supporting a mechanism similar to the rules of priority should be applied to all funds, not just $250 million); New York City Dept. of IT&T Sept. 10 Public Notice comments at 3 (stating that, if funds are exhausted within the window filing period, distribution of funds should be subject to a prorata reduction based on economic disadvantage, obviating need of a $250 million trigger); New York Pub. Library Sept. 10 Public Notice comments at 1 (advocating a filing window and prorata allocation of funds when only $500 million  {O%-remains for the year). But see RUPRI comments at 34 (stating that sole reliance on poverty and urban/rural"%[0*''$&" status is not the proper approach, but emphasis should be on total relative price after discount); Colorado Dept. of Ed. Sept. 10 Public Notice comments at 2 (opposing any proposal that limits the funds available to schools and libraries in the first six months because the Commission has chosen to collect only $1 billion in the first six months); DataCast Sept. 10 Public Notice comments at 2 (favoring rules of priority that allocate 1/4 of all funds to rural, high cost schools and take into account "relative economic advantage" in allocating support); Illinois State Board of Dirs. Sept. 10 Public Notice comments at 1012 (favoring granting states greater authority in implementing rules of priority, granting priority to schools with the least amount of infrastructure, and implementing a higher trigger level because current 10 percent trigger represents insufficient funds); Maine Dept. of Ed. Sept. 10 Public Notice comments at 2 (favoring allocation of support according to the Technology Literacy Challenge Grants formula). & Upon further consideration, we conclude that these"` \0*''PPT" new rules of priority will best promote the universal service goals of the Communications  X-Act.N]`  {O -ԍ 47 U.S.C.  151 et seq.N Accordingly, we amend section 54.507(g) of our rules as indicated in Appendix A.  X-  X-36.` ` The additional new rules of priority for the schools and libraries universal service support mechanism shall operate as described herein for applicants that submit a  X-request for support within an established filing window.d^  yO0-ԍ We note this request will be submitted using FCC Form 471.d When the filing window closes, SLC shall calculate the total demand for support submitted by applicants during the filing window. If total demand exceeds the total support available in that funding year, SLC shall take the following steps. SLC shall first calculate the demand for telecommunications services and Internet access for all discount categories. These services shall receive first priority for the available funding. SLC shall then calculate the amount of available funding remaining after providing support for all requests for telecommunications services and Internet access. SLC shall allocate the remaining funds to the requests for support for internal  X -connections,_  yO-ԍ In his dissent, Commissioner FurchtgottRoth argues that we lack authority under section 254(h)(2) of the Act to provide discounts for internal connections. Statement of Commissioner Harold FurchtgottRoth, dated June 22, 1998, at 911. As we have discussed at length in our prior orders, analysis of section 254(h)(2), in  {O`-conjunction with other provisions of the Act, clearly demonstrates that such discounts are authorized. See, e.g.,  {O*-Universal Service Order, 12 FCC Rcd at 908490. See also FederalState Joint Board on Universal Service, CC  {O-Docket No. 9645, Report to Congress, FCC 9867, at 89, para. 185 (rel. April 10, 1998) (April 10th Report). beginning with the most economically disadvantaged schools and libraries, as  X -determined by the schools and libraries discount matrix.`  yOo -ԍ See Appendix D, which reproduces the discount matrix adopted in section 54.505(c) of our rules. That is, schools and libraries eligible for a 90 percent discount shall receive first priority for the remaining funds, and those funds will be applied to their requests for internal connections. To the extent that funds remain, SLC shall next allocate funds toward the requests for internal connections submitted by schools and libraries eligible for an 80 percent discount, then for a 70 percent discount,  XK-and shall continue committing funds for internal connections in the same manner to the applicants at each descending discount level until there are no funds remaining. "4`0*''PP "Ԍ X-ԙ37.` ` If the remaining funds are not sufficient to support all of the funding requests that comply with the Commission's rules and eligibility requirements within a particular discount level, SLC shall divide the total amount of remaining support available by the  X-amount of support requested within the particular discount level to produce a prorata factor.a yO4-ԍ The prorata factor is calculated based on the amount of support requested that complies with the Commission's rules and eligibility requirements. Thus, for example, if all applicants eligible for discounts of 90 percent may be fully funded, but there are not sufficient funds remaining to fully fund internal connections for applicants eligible for discounts of 80 percent, SLC shall reduce the support level for each applicant that is eligible for an 80 percent discount by multiplying the appropriate requested amount of support by the prorata factor. SLC shall then allocate funds to each applicant within the 80 percent discount category based on this reduced discount level. SLC shall commit support to all applicants consistent with the calculations described herein. We expect that, for the initial 18month funding period, the collection levels established in this Order will enable all of the applicants eligible for discounts of 90 percent to receive full support for internal connections, and that at least a substantial portion, if not all, of the support requested for internal connections by applicants eligible for discounts of 80 percent will be provided.  X-38.` ` In light of our decision to reduce the collection levels for schools and libraries at this time, we find that our revised method of prioritization is the best way to provide  Xb-substantial and predictable support for schools and libraries.b b  {O3-ԍ See, e.g., U.S. Department of Education comments at 1 (stating that schools and libraries require predictability of funding to facilitate longrange technology planning); DTG comments at 45 (stating that "[t]he proposed revision of support collections after the initial round of applications is final imposes new risk and unpredictability on the process at a time when it should become more predictable if the goal of access to advanced telecommunications for all schools is to be met"); NC DPI comments at 3 (changing the rules at this point causes mistrust and economic hardship); Funds for Learning comments at 2 (asserting that schools and libraries need predictability, not more frustration, and that service providers may become disenchanted with the changing rules and potential loss of business has schools and libraries have to delay projects for which they anticipated receiving support). We conclude that, to the extent that we are unable at this time to fund demand fully, the best approach is to provide full support for recurring services, and to direct support for internal connections to the neediest schools and libraries. We agree with commenters who state that it would be the most  X-economically disadvantaged schools and libraries that would suffer the most if internal" b0*''PP"  X-connections were not funded.-cz {Oy-ԍ See, e.g., Great City Schools comments at 34 (stating that unless the neediest schools and libraries receive support for internal connections, support for other services will have little value and the digital divide will be perpetuated); WinStar comments at 24 (stating that internal connections are important for all schools and libraries, but especially so for those in lowincome areas); Cisco Systems comments at 1 (asserting that it is the poorest and most rural schools and libraries, those that are not currently connected, that are seeking support for internal connections); EdLiNC comments at 4, n.2 (stating that support for internal connections is essential of the goals of section 254 are to be met, especially for the neediest schools and libraries).- The data received from the applications submitted during the  X-initial filing window also support this revision in our rules of priority.d"  {O -ԍ See Letter from Ira Fishman, CEO, SLC to the Honorable William E. Kennard, Chairman, Federal Communications Commission, dated May 7, 1998. A chart attached to the letter contains a funding request analysis for telecommunications services, Internet access, and internal connections by discount level, based on the applications received within the initial 75day filing window period.  X-39.` ` Rural Health Care Support Mechanism. The Commission concluded in the  X-Universal Service Order that support for health care providers should be allocated on a first X-come, firstserved basis.e  {O6-ԍ Universal Service Order, 12 FCC Rcd at 9143. See also 47 C.F.R.  54.623(c). Unlike the schools and libraries support mechanism, however, the Commission did not adopt rules that allocate support among health care providers on the basis of their economic circumstances. We determine that we should adopt rules that will take effect in the event that the support requested by health care providers during a filing window exceeds the total authorized support in a funding year. As with the schools and libraries mechanism, our decisions to adjust the maximum collection amounts during 1998 and to  X -adopt a filing window for the rural health care support mechanism lead us to conclude that we should establish rules to allocate funds in the event that all of the available funds will be requested before the window period closes. Several commenters suggested various means by  X -which to prioritize the need of health care providers.)fx  yO-ԍ Robert Clark Sept. 10 Public Notice comments (supporting adoption of a staged allocation approach that avoids granting all support to metrobased state hospital networks); CNMI Sept. 10 Public Notice comments at 23 (stating that priority should be given to health care providers with the greatest costs); NYSDPS/NYSED Sept.10 Public Notice comments at 57 (stating that priority should be based on current participation in state or federal rural network development programs and/or number of persons served by particular providers); RUPRI Sept. 10 Public Notice comments at 23 (asserting that priority should be given to health care providers located in Health Professional Shortage Areas and rurality should be evaluated by the Beale code or other rurality index).) We conclude, however, that the complexity of the proposals outweighs their utility. We are not convinced that the administrative burden and the costs associated with any of the proposals outweighs the benefits that would accrue to health care providers.  XO-40.` ` We conclude, therefore, that we should not adopt, at this time, a method by which to prioritize health care providers in the event that demand requested during a filing window exceeds available support. We conclude instead that we should adopt a prorata rule"!f0*''PP" that will reduce each applicant's level of support by an equal amount in the event that demand exceeds the total fund allocated for a given funding year. This approach will ensure fairness and equity to each health care provider applying for universal service support and will not impose an undue administrative burden upon either the applicants or the Administrator. If, however, parties submit specific prioritization methods that can be implemented without substantial expense, administrative burden, or complexity, and that ensure equitable distribution of funds as well or better than the prorata rule we adopt herein, we will consider modifying this approach in the future.  X1-41.` ` When the filing window closes, RHCC shall calculate the total demand for support submitted by all eligible applicants. If the total demand submitted during the filing window exceeds the total funding available for the funding year, RHCC shall take the following steps. RHCC shall divide the total funds available for the funding year by the total amount of support requested to produce a prorata factor. RHCC shall multiply the prorata factor by the total amount of support requested by each applicant that has filed during the filing window. RHCC shall then commit funds to each applicant consistent with this calculation. For example, if at the close of the filing window $125 million has been requested in 1998, RHCC would calculate the prorata factor by dividing $100 million by $125 million to produce a factor of fourfifths(.8). RHCC would then multiply the total  XK-dollar amount requested by each applicant by .8 and would commit such reduced dollar amount to each applicant. We, therefore, add section 54.623(f) to our rules as provided in Appendix A to reflect the procedure described herein.  X-42.` ` We conclude that the amendments to our rules adopted herein shall be effective  X-upon publication in the Federal Register.Gg  yOQ-ԍ Prior to their publication in the Federal Register, the Commission will submit a report on the amended rules adopted herein to Congress and the GAO, as required by the Contract with America Advancement Act (CWAAA), 5 U.S.C.  801. Pursuant to the CWAAA, the amended rules may take effect following that submission. 5 U.S.C. 801(a)(4). Contrary to the suggestion in Commissioner FurchtgottRoth's dissent (at 7), the CWAAA does not require that the Commission wait 60 days after this submission is made for the rules to go into effect. Such a delay in the effective date is required only for major rules, and by definition "major rules" do "not include any rule promulgated under the Telecommunications Act of 1996 and the amendments made by that Act." 5 U.S.C. 804(2). We have confirmed with the Office of Management and Budget, which is responsible for determining whether or not a rule is major, 5 U.S.C. 804(2), that the amended rules adopted herein are promulgated under the Telecommunications Act of 1996 because they are part of the Commission's continuing implementation of section 254 as added by the 1996 Act and therefore are nonmajor rules. Despite the Order's citation in the ordering paragraphs to other provisions of the Communications Act as subsidiary sources of authority, it could not be clearer that the amended rules adopted herein implement the 1996 Act because explicit statutory authorization for the universal service mechanism for schools and libraries did not exist prior to addition of section 254 by the 1996 Act. G We find that we have good cause to take such  X-action, pursuant to the Administrative Procedure Act,ChH  yO%-ԍ 5 U.S.C.  553(d)(3).C because compliance with these"h0*''PP" amendments requires preparation only by USAC, SLC, and RHCC, each of which is able to comply with these amendments in a short amount of time. Compliance with these amendments does not require preparation by other affected entities, such as schools, libraries, or health care providers. To the extent that contributors are affected, their burdens are lessened.   Xv- V.XLEVEL OF COMPENSATION FOR OFFICERS AND EMPLOYEES OF THE (#(# ADMINISTRATIVE CORPORATIONS(#  X1-A.` ` BACKGROUND  X -  X -43.` ` In connection with supplemental appropriations legislation enacted on May 1, 1998, Congress requested that the Commission propose a single entity to administer the universal service support mechanisms for schools and libraries and rural health care  X -providers.i  yO7-ԍ H.R. 3579, which makes emergency supplemental appropriations for fiscal year 1998, was signed into law on May 1, 1998. The Conference Report on H.R. 3579 eliminated from the final bill specific legislative language contained in S. 1768, the supplemental appropriations bill adopted by the Senate on March 31, 1998 (the Senate bill). Section 2005 of the Senate bill had directed the Commission to prepare and submit to Congress by May 8, 1998, a twopart report on universal service. The statement of the HouseSenate conferees accompanying the final bill nevertheless expresses the expectation that, among other things, "the FCC will comply with the reporting requirement in the Senate bill, respond to inquiries regarding the universal service contribution mechanisms, access charges and cost data, and propose a new structure for the implementation of the universal service programs." Conference Report on H.R. 3579, H. Rept. 105504. The Conference Report for the emergency supplemental appropriations bill noted that the HouseSenate conferees concurred with the salary limitations contained in section  X-2005(c) of the Senate bill.[j yO-ԍ Conference Report on H.R. 3579, H. Rept. 105504.[ Those limitations related to compensation for officers and  Xy-employees of the unified entity proposed by the Commission to administer the support mechanisms for schools, libraries, and rural health care providers. Specifically, section 2005(c) of the Senate bill provided that no such officer or employee may be compensated at an annual rate of pay, including any nonregular payments, bonuses, or other compensation in an amount exceeding the rate of basic pay in effect for Level I of the Executive Schedule  X-under section 5312 of title 5 of the United States Code.@k(  yO-ԍ S. 1768, sec. 2005(c).@  X-  X-44.` ` On May 8, 1998, the Commission issued a Report to Congress that proposed merging SLC and RHCC into USAC and vesting the consolidated USAC with the administrative responsibilities for all of the universal service support mechanisms, including  X-the support mechanisms for schools, libraries, and rural health care providers.Wl  {O%-ԍ May 8th Report, FCC 9885, at para. 8. W The May 8th"J l0*''PP"  X-Report proposed that the functions, assets, employees, rights, and liabilities of SLC and  X-RHCC be transferred to USAC by January 1, 1999.Wm {Od-ԍ May 8th Report, FCC 9885, at para. 10.W To implement this transfer, the Commission stated that USAC, SLC, and RHCC would be required jointly to prepare and submit a plan of reorganization for approval by the Commission. Moreover, the Commission requested from Congress specific statutory authority to create or designate one or more  X-entities, such as USAC, to administer the federal universal service support mechanisms.WnZ {O-ԍ May 8th Report, FCC 9885, at para. 15.W In  Xx-the May 8th Report, the Commission also stated that it would address in a forthcoming  Xc-reconsideration order the salary limitations provided in the Senate bill.\oc {O -ԍ May 8th Report, FCC 9885, at para. 11 n.34.\ The Commission further stated its intent to seek comment on whether the salary limitations provided in the  X5-Senate bill should apply to the officers and employees of USAC and NECA as well.\p5~ {Od-ԍ May 8th Report, FCC 9885, at para. 11 n.34.\  X -45.` ` On May 15, 1998, the Commission sent a letter to USAC, SLC, and RHCC requesting that the administrative corporations jointly prepare and submit for Commission  X -approval a plan of reorganization that is consistent with the language of section 2005 of the  X -Senate bill, the Conference Report on H.R. 3579, the Commission's May 8th Report, and  X -established principles and requirements of corporate law.q  yOn-ԍ Letter from A. Richard Metzger, Jr., Chief, Common Carrier Bureau, to the USAC, SLC, and RHCC  {O6-Boards of Directors, dated May 15, 1998 (May 15, 1998 letter). In particular, the Commission directed the administrative corporations to address in the reorganization plan "the transfer of  X-employees' contractual rights and other benefits, and obligations of SLC and RHCC."Irj  {O-ԍ May 15, 1998 letter at 2.I As set forth in the May 15, 1998 letter, the administrative corporations are directed to file with the Commission a joint plan of reorganization addressing these issues by July 1, 1998.  X:-  X#-B.` ` DISCUSSION  X-46.` ` We conclude that Congress's intent regarding the level of compensation for officers and employees of SLC and RHCC was clearly stated in both section 2005(c) of the Senate bill and in the Conference Report. The Senate and the HouseSenate conferees expressly stated that there should be limits on the level of compensation afforded to the officers and employees of the two independent corporations. We conclude, therefore, consistent with the will of Congress, that, effective July 1, 1998, the administrator must, as a condition of its continued service, compensate all officers and employees of SLC and RHCC"k r0*''PP1" at an annual rate of pay, including any nonregular payments, bonuses, or other compensation,  X-that does not exceed the rate of basic pay in effect for Level I of the Executive Schedule under section 5312 of Title 5 of the United States Code. This level of compensation will apply to all officers and employees of SLC and RHCC, as currently organized, as well as to all such officers and employees in the consolidated administrative corporation following  X-reorganization on July 1, 1998.-sX yO-ԍ We note that, following submission of the joint plan for reorganization by USAC, SLC, and RHCC, the Commission will seek comment on whether the salary limitations provided in the Senate bill should apply to the officers and employees of USAC and NECA as well.- Accordingly, we amend section 69.620(a) of our rules, as provided in Appendix A.  XH- VI.PUBLICATION OF QUARTERLY CONTRIBUTION FACTORS IN THE (#(# X1- FEDERAL REGISTER  X -  X - A.` ` BACKGROUND  X -47.` ` In the NECA Report and Order, the Commission established an administrative  X -process by which quarterly universal service contribution factors will be calculated.^t  {OY-ԍ NECA Report and Order, 12 FCC Rcd at 1842627.^ The Commission stated that USAC would be responsible for processing Universal Service Worksheets, FCC Form 457s, which are the forms that require contributors to list their end X{-user telecommunications revenues.[u{z {O-ԍ NECA Report and Order, 12 FCC Rcd at 18424.[ The Commission also stated that USAC, SLC, and RHCC must submit their quarterly projections of demand and administrative expenses for their respective support mechanisms to the Commission at least sixty days before the start of  X6-each quarter._v6  {O-ԍ  NECA Report and Order, 12 FCC Rcd at 1842627._ The Commission further stated that it would publish those projections and the proposed quarterly contribution factors in a Public Notice and that USAC could not use those  X-contribution factors to calculate individual contributions until those factors were deemed  X-approved by the Commission.iw\ {O@-ԍ NECA Report and Order, 12 FCC Rcd at 18427. In the Fourth Reconsideration Order, the Commission clarified that "the Commission, not USAC, shall be responsible for calculating the quarterly universal service  {O -contribution factors." Fourth Reconsideration Order, 13 FCC Rcd at 5490.i  X-48.` ` Specifically, section 54.709(a) of the Commission's rules requires that the proposed contribution factors appear in the Federal Register when it states that "[t]he projections of demand and administrative expenses and the contribution factors shall be  X~-announced by the Commission in a Public Notice published in the Federal Register and shall"~ w0*''PP2"  X-be made available on the Commission's website."Fx yOy-ԍ 47 C.F.R.  54.709(a)(3).F Also in section 54.709(a), however, the Commission's rules state that the proposed contribution factors will be deemed approved "[i]f  X-the Commission takes no action within 14 days of the date of the Public Notice announcing  X-the projections of demand and administrative expenses."TyX yO-ԍ 47 C.F.R.  54.709(a) (emphasis added).T  X- B.` ` DISCUSSION  Xa-49.` ` The existing rule has caused some confusion because it requires publication of the proposed contribution factors in the Federal Register, but at the same time states that those proposed factors will become effective within 14 days of the date on which the Public Notice is released. Because an item is not published in the Federal Register immediately upon release, and because it is not possible to predict with certainty when an item will be published in the Federal Register, the existing rule creates uncertainty about the date on which the contribution factors are deemed approved.  X -50.` ` We, therefore, amend our rule to clarify that the proposed contribution factors will be deemed approved, in the absence of further Commission action, 14 days after release  X{-of the Public Notice in which they are announced. We conclude that the public is given adequate notice of release of the proposed contribution factors because they are posted on the Commission's website immediately upon release. Moreover, this change will eliminate any ambiguity in the rules and will create certainty about when the proposed contribution factors are deemed approved. Accordingly, we amend section 54.709(a)(3) of our rules, as provided  X-in Appendix A.zd  {O-ԍ We note that several parties commented in response to the Collection Public Notice on certain administrative and access charge reform issues. Because these issues have no substantive bearing on the issues  {O3-addressed in this Order, we do not respond substantively to those comments. See, e.g., AirTouch comments at 3 (enduser surcharges); GTE comments at 8 (same); Sprint comments at 3 (same); SBC comments at 24 (fundamental changes to schools and libraries universal service support mechanism); API comments at 34 (access charge reform and the productivity factor); RUPRI comments at 5 (high cost fund); USTA comments at 5 (high cost fund, SLC administrative expenses, support for telecommunications carriers only); Nassau BOCES comments at 23 (retroactive payments); NTIA comments at 2 (truthinbilling, local plans for Internet use); CTIA comments at 14 (calculation of universal service contributions for wireless providers); USCC comments at 6 (limitation on contributions by CMRS providers); ICA comments at 2 (access charge reform); MCI comments at 4 (pending petition for declaratory ruling); AT&T comments at 1 (support for telecommunications services only).  "z0*''PP"Ԍ X- VII.CONCLUSION  X-51.` ` In conclusion, we note that our colleagues' statements dissenting from this Order raise several issues that are well beyond the scope of this Order. Although we believe it would be inappropriate to include here a pointbypoint analysis of issues that are not  X-presented in the matters before the Commission in this Order, we do not wish our silence to be construed as acquiescence. We are, therefore, compelled to note that several of the issues raised in dissent have been addressed at length in the context of prior Commission orders, after due consideration and based on complete records. For example, although one of the dissenting statements questions the legal basis for providing support to schools and libraries  X -for internal connections,y{  yO -ԍ Statement of Commissioner Harold FurchtgottRoth, dated June 22, 1998, at 911.y the legal basis for that decision was thoroughly established in both  X -the Universal Service OrderC| X yO -ԍ 12 FCC Rcd at 908490 .C and the April 10, 1998 Report to Congress.i}  {O-ԍ April 10 Report to Congress, FCC 9867, at 89, para. 185.i It was further  X -addressed in the Joint Board's Recommended Decision in which the Joint Board unanimously recommended that universal service support be provided to schools and libraries for internal  X -connections.X~ z {O-ԍ Recommended Decision, 12 FCC Rcd at 330.X Similarly, as noted above, the Commission previously has established that  X -universal service contributions do not constitute an unlawful tax.H  {Oh-ԍ See supra section III.B.H  X}-52.` ` One of the dissenting statements also remarks on proposed regulation of  Xf-carriers' billing practices.f {O-ԍ See Statement of Commissioner Harold FurchtgottRoth, dated June 22, 1998, at 45. We are indeed concerned that, when the Commission takes action to reduce carriers' costs of providing service, carriers' bills are creating the false impression that the opposite is true. We note that these matters are not pending before the Commission, and therefore we do not find it practical or appropriate to comment in this context on specific proposals. We do intend to issue in the near future a notice of proposed rulemaking seeking comment on issues relating to the manner in which carriers include billing statements regarding charges relating to universal service support mechanisms. We intend to use that proceeding to develop a complete record on all the relevant issues, including those raised by our dissenting colleague. Only then, after full consideration, would the Commission be able to determine whether it is necessary and appropriate to take any action on these issues, and if so, what action should be taken. Although we remain committed to ensure that carriers include complete and truthful information regarding the contribution amount, we await further consideration of these matters."R 0 0*''PP"Ԍ X-ԙ53.` ` Finally, our dissenting colleagues suggest that the Commission has not acted to  X-fulfill the Act's requirements regarding support for high cost carriers and low-income  X-consumers. {OK-ԍ See generally Separate Statement of Commissioner Michael K. Powell, Dissenting in Part, dated June 22, 1998; Statement of Commissioner Harold FurchtgottRoth, dated June 22, 1998, at 23, 12, 17. Pursuant to the 1996 Act, the Commission has taken significant action to  X-implement the universal service provisions of the Act." yO-ԍ Section 254(a)(2) directed the Commission to complete a proceeding to implement the recommendations from the universal service Joint Board within 15 months after enactment of the 1996 Act (i.e. by May 1997) that would include a "timetable for implementation" of the rules to be adopted. The Commission satisfied this  {O -directive when it released its May 8, 1997 Universal Service Order, including a definition of supported services  {O -and a timetable for implementation. See Brief of FCC, Texas Office of Public Utility Counsel v. FCC and USA,  {Oz -No. 97-60421 (5th Cir. 1997) (appeal pending) pp. 48-51. As we noted earlier, rural, insular, and high cost telephone subscribers continue to receive high cost support at the same level that they have received for years. In addition, one of the first steps in universal service  Xv-reform was to make existing high cost support explicit."v {O-ԍ See, e.g., Universal Service Order, 12 FCC Rcd at 9165 (removing Long Term Support (LTS) from access charges); 12 FCC Rcd at 894041 (stating that "[w]e adopt the Joint Board's recommendation that a subsidy corresponding in amount to that generated formerly by DEM [dial equipment minutes] weighting be recovered from the new universal service support mechanisms"). With respect to lowincome  X_-consumers, we substantially expanded the reach of the Commission's Lifeline and Link Up  XH-programs.H  {O-ԍ See generally Universal Service Order, 12 FCC Rcd at 8952-94; see also supra discussion at para. 18. We are considering petitions for reconsideration of some aspects of our actions, as well as requests from the Joint Board that we refer some issues to it, including the so X -called "25/75" issue.k  {O-ԍ See, e.g., Letter from the Honorable Julia Johnson, Chairman, Florida Public Service Commission, the Honorable Laska Schoenfelder, Commissioner, South Dakota Public Utilities Commission, the Honorable Martha Hogerty, Missouri Public Counsel, the Honorable David Baker, Commissioner, Georgia Public Service Commission, and the Honorable Pat Wood, III, Chairman, Texas Public Utilities Commission to the Honorable  {O -William E. Kennard, Chairman, Federal Communications Commission, dated June 18, 1998 (State Joint Board  {O-letter). k We believe that a second referral to the Joint Board, if clearly defined in terms of issues and timing, could be extremely valuable. We are also actively developing an economic model that will assist us in determining the level of high cost support due to carriers in a way that produces neither a windfall for carriers at the expense of consumers nor a spike in local telephone rates. We are confident that in this manner we will fulfill Congress's goals embodied in section 254. These actions demonstrate the Commission's firm  X-commitment to implementing all parts of universal service. We look forward to working with Congress, the States, the industry, consumers, and our dissenting colleagues, as we move forward in achieving this goal. "K!0*''PPI"Ԍ X- VIII.SUPPLEMENTAL FINAL REGULATORY FLEXIBILITY ANALYSIS  X-54. ` ` In compliance with the Regulatory Flexibility Act (RFA)NZ {OK-ԍ See 5 U.S.C.  604. The Regulatory Flexibility Act, 5 U.S.C.  601 et seq., was amended by the "Small Business Regulatory Enforcement Act of 1996" (SBREFA), Subtitle II of the Contract with America Advancement Act of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996) (CWAAA).N and the Initial  X-Regulatory Flexibility Analysis (IRFA) that accompanied the Collection Public Notice in the  X-Federal Register,M yOA -ԍ 63 Fed. Reg. 27,524 (May 19, 1998).M this Supplemental Final Regulatory Flexibility Analysis (SFRFA)  X-supplements the Final Regulatory Flexibility Analysis (FRFA) included in the Universal  Xz-Service Order,\zz {O -ԍ Universal Service Order, 12 FCC Rcd at 9219.\ only to the extent that changes to that Order adopted here on reconsideration require changes in the conclusions reached in the FRFA. As required by section 603 RFA, 5 U.S.C.  603, the FRFA was preceded by an Initial Regulatory Flexibility Analysis (IRFA)  X7-incorporated in the Notice of Proposed Rulemaking and Order Establishing the Joint Board (NPRM), and an IRFA, prepared in connection with the Recommended Decision, which sought written public comment on the proposals in the NPRM and the Recommended  X -Decision.M  yO-ԍ 61 Fed. Reg. 63,778, 63,796 (1996).M   X - A.` ` NEED FOR AND OBJECTIVES OF THIS REPORT AND ORDER AND  X -THE RULES ADOPTED HEREIN (#`  X-55. ` ` The Commission is required by section 254 of the Act to promulgate rules to implement promptly the universal service provisions of section 254. On May 8, 1997, the Commission adopted rules whose principle goal is to reform our system of universal service  X:-support mechanisms so that universal service is preserved and advanced as markets move toward competition. In this Order, we reconsider five aspects of those rules. First, to ameliorate the concerns of applicants seeking support for internal connections that they will be unable to complete installation before December 31, 1998, we reconsider, on our own motion, the funding cycle for schools and libraries. We conclude that it is in the public interest to change the funding year for the schools and libraries universal service support mechanism from a calendar year cycle to a fiscal year cycle running from July 1 to June 30. Moreover, this change to a fiscal year funding cycle will synchronize the schools and libraries universal service support mechanism with the budgetary and planning cycles of most schools and libraries and will align universal service contribution levels with projected reductions in access charges. Second, in order to reduce financial burdens on all contributors to universal service, we reconsider, on our own motion, the amounts that will be collected during the second six months of 1998 and the first six months of 1999 for the schools and libraries support"&"0*''PP" mechanism, and the amounts that will be collected during the second six months of 1998 for the rural health care support mechanism. Third, we modify the rules of priority for the schools and libraries mechanism to provide for the greatest assurance of support to schools and libraries with the greatest levels of economic disadvantage while ensuring that all applicants filing during a filing window period receive at least some support in the event that the amounts requested for support submitted during the filing window exceed the total support available in a funding year. In addition, we adopt a rule to prorate the distribution of support to health care providers if demand by health care providers exceeds the total support allocated for a given funding year. Fourth, we conclude, consistent with the will of Congress, that the universal service administrator must, as a condition of continued service, compensate all officers and employees of SLC and RHCC at an annual rate of pay, including any nonregular payments, bonuses, or other compensation, that does not exceed the rate of basic pay in effect for Level I of the Executive Schedule under section 5312 of Title 5 of the United States Code, effective July 1, 1998. Fifth, we amend our rule regarding publication of the proposed universal service contribution factors to state that the proposed contribution factors  X -will be deemed approved, in the absence of further Commission action, 14 days after release of the Public Notice in which they are announced. We conclude that this rule change will eliminate ambiguity regarding publication requirements currently existing in our rules.  XK- B.` ` SUMMARY AND ANALYSIS OF THE SIGNIFICANT ISSUES RAISED  X4-BY PUBLIC COMMENTS IN RESPONSE TO THE IRFA (#`  X-56. ` ` No entities commented directly in response to either the September 10 Public  X-Notice {Oj-ԍ September 10 Public Notice. This Public Notice was published in the Federal Register on September 15, 1997. 62 Fed. Reg. 48280 (Sept. 15, 1997). or the Collection Public Notice,2Z" {O-ԍ See Great City Schools comments at 4 (proposing priority rules that would permit full funding for schools and libraries eligible for 80 percent and 90 percent discounts and a proportional scale back of discounts for all other eligible schools and libraries).2 although some commenters urged the Commission to modify the rules of priority to ensure that applicants in all states, including small  X-applicants, would receive some opportunity to receive funding.UD {O-ԍ See Anchorage School Dist. Sept. 10 Public Notice comments at 1 (stating that if sufficient funds are not available to meet all approved applications in subsequent filing periods, the Commission should apply an equal percentage reduction to all approved applicants during period); Mississippi Council for Ed. Tech. Sept. 10 Public Notice comments at 4 (stating that funds should be available first to the most disadvantaged schools and libraries); Montana School Boards Ass'n Sept. 10 Public Notice comments at 3 (asserting that a mechanism similar to the rules of priority should be applied to all funds, not just $250 million); New York City Dept. of IT&T Sept. 10 Public Notice comments at 3 (stating that, if funds are exhausted within the window filing period, distribution of funds should be subject to a prorata reduction based on economic disadvantage, obviating need of a $250 million trigger); New York Pub. Library Sept. 10 Public Notice comments at 1 (advocating a filing  {O%-window and prorata allocation of funds when only $500 million remains for the year). But see Colorado Dept."%0*''+&" of Ed. Spet. 10 Public Notice comments at 2 (opposing any proposal that limits the funds available to schools and libraries in the first six months because the Commission has chosen to collect only $1 billion in the first six months); DataCast Sept. 10 Public Notice comments at 2 (favoring rules of priority that allocate 1/4 of all funds to rural, high cost schools and takes into account "relative economic advantage" in allocating support); Illinois State Board of Dirs. Sept. 10 Public Notice comments at 1012 (favoring granting states greater authority in implementing rules of priority, favors granting priority to schools with the least amount of infrastructure, and favors a higher trigger level because current 10 percent trigger represents insufficient funds); Maine Dept. of Ed. Sept. 10 Public Notice comments at 2 (favoring allocation of support according to the Technology Literacy Challenge Grants formula).U In response to the"#0*''PP"  X-Collection Public Notice, {OI -ԍ Collection Public Notice. This Public Notice was published in the Federal Register on May 19, 1998. 63 Fed. Reg. 27,542 (May 19, 1998). some commenters urged the Commission to ensure that schools  X-and libraries that filed applications within the initial 75day filing window are fully funded,   {O -ԍ See, e.g., Funds for Learning comments at 2 (stating that schools and libraries have spent time completing applications and designing technology plans and have modified or delayed installation schedules, all in reliance on the availability of $2.25 billion); NC Governor comments at 12 (supporting full funding because of tremendous effort, especially in terms of human resources, to participate in universal service); EdLiNC comments at 35 (stating that schools and libraries have devoted substantial resources, made contractual commitments, and issued bonds with the expectation that universal service would be funded up to the amount recommended by the Joint Board and adopted a year ago by the Commission); Great City Schools comments at 3 (stating that the submission of over 30,000 applications is evidence that schools and libraries have relied upon the expectation of full funding and have had to devote substantial resources toward applying for universal service discounts).   X-and to ensure that schools and libraries have a predictable level of funding.  {O-ԍ See, e.g., U.S. Department of Education comments at 1 (stating that schools and libraries require predictability of funding to facilitate longrange technology planning); DTG comments at 45 (stating that "[t]he proposed revision of support collections after the initial round of applications is final imposes new risk and unpredictability on the process at a time when it should become more predictable if the goal of access to advanced telecommunications for all schools is to be met"); NC DPI comments at 3 (changing the rules at this point causes mistrust and economic hardship); Funds for Learning comments at 2 (asserting that schools and libraries need predictability, not more frustration, and that service providers may become disenchanted with the changing rules and potential loss of business has schools and libraries have to delay projects for which they anticipated receiving support). Other commenters disagreed with the Commission's proposal to link access charge reductions with  X-universal service funding for schools, libraries, and rural health care providers.B^ {O -ԍ See, e.g., AirTouch comments at 8 (stating that the Commission should not link access charge reductions to funding for schools, libraries, and rural health care providers); USTA comments at 2 (stating that"[t]here is no legal basis for the Commission to arbitrarily reduce access charges in order to reflect contributions to u.s. or to determine the appropriate level of funding for the schools, libraries and rural health care programs based on the level of access charge reductions"); Time Warner comments at 34 (stating that the Commission should establish a universal service fund that is sufficient to address the policy goals of affordability of basic telecommunications services and support of eligible services for schools, libraries, and rural health care providers, but should not be tied into access charge reduction; access reform policy should instead be based on efficiency principles). "$h"0*''PP"Ԍ X-ԙ C.` ` DESCRIPTION AND ESTIMATES OF THE NUMBER OF SMALL  X-ENTITIES TO WHICH THE RULES ADOPTED IN THIS REPORT AND ORDER WILL APPLY(#`  X-  X-57.` ` In the FRFA at paragraphs 890925 of the Universal Service Order, we described and estimated the number of small entities that would be affected by the new universal service rules. The rules adopted herein may apply to the same entities affected by  Xa-the universal service rules. We therefore incorporate by reference paragraphs 890925 of the  XJ-Universal Service Order._J {O -ԍ Universal Service Order, 12 FCC Rcd at 922743._  X - D.` ` SUMMARY ANALYSIS OF THE PROJECTED REPORTING, RECORDKEEPING, AND OTHER COMPLIANCE REQUIREMENTS AND SIGNIFICANT ALTERNATIVES(#`  X - ` `  X -58.` ` In the FRFA to the Universal Service Order, we described the projected reporting, recordkeeping, and other compliance requirements and significant alternatives associated with the Schools and Libraries section, the Rural Health Care Provider section, and  X-the Administration section of the Universal Service Order. Because the rules adopted herein may only affect those requirements in a marginal way, we incorporate by reference paragraphs  XS-95660, 96871, and 980 of the Universal Service Order, which describe those requirements  X>-and provide the following analysis of the new requirements adopted herein.\>Z {OI-ԍ Universal Service Order, 12 FCC Rcd at 9259.\  X-59.` ` Under the rules adopted herein, we revise the funding year for the schools and libraries support mechanism from a calendar year cycle (January 1 December 31) to a fiscal year cycle (July 1 June 30). This revision will benefit schools and libraries in three ways: (1) it will ameliorate the concerns of applicants seeking support for internal connections that they will be unable to complete installation before December 31, 1998; (2) it will sychronize the schools and libraries support mechanism with the budgetary and planning cycles of most schools and libraries; and (3) it will align universal service contribution levels with projected  Xo-reductions in access charges. These changes will not have a significant impact on the reporting, recordkeeping, and other compliance requirements for the schools and libraries and rural health care universal service support mechanisms.  X-60.` ` In addition, we do not revise the annual caps adopted in the Universal Service  X-Order, but we do adjust the maximum amounts that may be collected and spent during the  X-initial eighteen months of implementation for the schools and libraries support mechanism and during the initial year of implementation for the rural health care provider support mechanism. The Administrator is instructed to collect only as much as required by demand, but in no"!%0*''PP " event more than $25 million per quarter for the third and fourth quarters of 1998 to support the rural health care universal service support mechanism and no more than $325 million per quarter for the third and fourth quarters of 1998 and the first and second quarters of 1999 to support the schools and libraries universal service support mechanism. We also direct the Administrator neither to commit nor disburse more than $100 million for the rural health care support mechanism for 1998 and no more than $1.925 billion for the schools and libraries support mechanism for the eighteen month period from January 1, 1998 through June 30, 1999. These changes will not have a significant impact on the reporting, recordkeeping, and other compliance requirements for the schools and libraries and rural health care universal service support mechanisms.  X -61.` ` In addition, we modify the rules of priority for the schools and libraries support mechanism to equitably provide the greatest assurance of support to the schools and libraries with the greatest level of economic disadvantage while ensuring that all applicants filing during a filing window period receive at least some support in the event that the amounts requested for support submitted during the filing window exceed the total support available in a funding year. We also adopt a rule to prorate the distribution of support to health care providers if demand by health care providers exceeds the total fund allocated for a given funding year. These changes will not have a significant impact on the reporting, recordkeeping, and other compliance requirements for the schools and libraries and rural health care universal service support mechanisms.  X-62.` ` Moreover, consistent with the will of Congress, we conclude that the universal service Administrator must, as a condition of continued service, compensate all officers and employees of SLC and RHCC at an annual rate of pay, including any nonregular payments, bonuses, or other compensation, that does not exceed the rate of basic pay in effect for Level I of the Executive Schedule under section 5312 of Title 5 of the United States Code, effective July 1, 1998. We also amend our rule regarding publication of the proposed universal service contribution factors to state that the proposed contribution factors will be deemed approved, in the absence of further Commission action, 14 days after release of the Public Notice in which  XN-they are announced. Neither of these changes will have a significant impact on the reporting, recordkeeping, and other compliance requirements for the schools and libraries and rural health care universal service support mechanisms.  X- E.` ` STEPS TAKEN TO MINIMIZE THE SIGNIFICANT ECONOMIC IMPACT ON A SUBSTANTIAL NUMBER OF SMALL ENTITIES, AND  X -SIGNIFICANT ALTERNATIVES CONSIDERED (#`  X"-63.` ` In the FRFA to the Universal Service Order, we described the steps taken to minimize the significant economic impact on a substantial number of small entities consistent with stated objectives associated with the Schools and Libraries section, the Rural Health Care  XS%-Provider section, and the Administration section of the Universal Service Order. Because the"S%&0*''PP $" rules adopted herein may only affect those requirements in a marginal way, we incorporate by  X-reference paragraphs 96167, 97276, and 98182 of the Universal Service Order, which describe those requirements and provide the following analysis of the new requirements  X-adopted herein.\ {O6-ԍ Universal Service Order, 12 FCC Rcd at 9259.\  X-64.` ` As described above, our decision to change to a fiscal year funding cycle will benefit schools and libraries, as well as their chosen service providers, who may be small entities, by equitably providing the greatest assurance of support to the schools and libraries with the greatest levels of economic disadvantage while ensuring that all applicants filing  X3-during a window receive at least some support in the event that the amounts requested for support submitted during the filing window exceed the total support available in a funding year. Some schools and libraries that did not file within the initial window in 1998 will not be eligible to receive funding until July 1999, rather than January 1999. We find, however, that on balance, the benefits that will be conferred on the approximately 30,000 applicants that filed within the initial window outweigh this potential sixmonth delay in funding for some applicants. We also find that this approach strikes the best balance between fulfilling the  X-statutory mandate to enhance access to advanced telecommunications and information services for schools and libraries, and fulfilling the statutory principle of providing quality services at  Xd-"just, reasonable, and affordable rates,"DdZ yOo-ԍ 47 U.S.C.  254(b)(1). D without imposing unnecessary burdens on schools and libraries or service providers, including small entities.  X-65.` ` As described above, we adopt the decision to adjust the amount of money to be collected in 1998 and the first and second quarters of 1999 for the schools and libraries universal service support mechanism and in 1998 for the rural health care support mechanism because we do not want to impose unnecessary financial requirements on service provider contributors to universal service, including contributors that are small entities. We find that our decision to adjust the maximum collectible amounts provides substantial support to schools, libraries, and rural health care providers without imposing unnecessary burdens on carriers or subscribers, including small entities.  XP-66.` ` Moreover, our conclusion that the universal service Administrator must, as a condition of continued service, compensate all officers and employees of SLC and RHCC at an annual rate of pay that does not exceed the rate of basic pay in effect for Level I of the Executive Schedule under section 5312 of Title 5 of the United States Code, effective July 1, 1998 will not have a significant impact on the reporting, recordkeeping, and other compliance requirements for the schools and libraries and rural health care universal service support mechanisms on any entities other than SLC and RHCC. For those entities, compliance with the amended rule will have a significant impact on the level of compensation afforded some"!'0*''PP " of their employees, but we conclude that this decision is consistent with the intent of  X-Congress. Our decision to amend our rule regarding publication of the proposed universal service contribution factors will not have a significant impact on the reporting, recordkeeping, and other compliance requirements for the schools and libraries and rural health care universal service support mechanisms.  Xv-  IX.ORDERING CLAUSES  X_-  XH-67. ` ` Accordingly, IT IS ORDERED that, pursuant to the authority contained in sections 14, 201205, 218220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151154, 201205, 218220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, the FIFTH ORDER ON RECONSIDERATION IN CC DOCKET NO. 9645 IS ADOPTED.  X -68. ` ` IT IS FURTHER ORDERED that, pursuant to the authority contained in sections 14, 201205, 218220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151154, 201205, 218220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, the FOURTH REPORT AND ORDER IN CC DOCKET NO. 9645 IS ADOPTED.  X4-69.` ` IT IS FURTHER ORDERED that, pursuant to the authority contained in sections 14, 201205, 218220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151154, 201205, 218220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, Part 54 of the Commission's rules, 47 C.F.R. Part 54, and Part 69 of the Commission's rules, 47 C.F.R. Part 69, ARE AMENDED as set forth in Appendix A attached hereto.  X-70.` ` IT IS FURTHER ORDERED that, pursuant to the authority contained in sections 14, 201205, 218220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151154, 201205, 218220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, effective July 1, 1998, Universal Service Administrative Company shall compensate all officers and employees of Schools and Libraries Corporation and Rural Health Care Corporation at an annual rate of pay, including any nonregular payments, bonuses, or other compensation, that does not exceed the rate of  X-basic pay in effect for Level I of the Executive Schedule under section 5312 of Title 5 of the United States Code.  X!-71.` ` IT IS FURTHER ORDERED that, because the Commission has found good cause, the rule changes set forth in Appendix A ARE EFFECTIVE immediately upon publication in the Federal Register. "h$(0*''PP(#"Ԍ X-72.` ` IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference Operations Division, SHALL SEND a copy of this Fifth Order on Reconsideration and Fourth Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. ` `  hh,FEDERAL COMMUNICATIONS COMMISSION ` `  hh,Magalie Roman Salas ` `  hh,Secretary " )0*''PPN "  X- *  Appendix A Rule Changes ă Part 54 of Title 47 of the Code of Federal Regulations is amended as follows: Part 54 UNIVERSAL SERVICE 1. The authority citation for part 54 continues to read as follows:  XH-Authority:` ` 47 USC Secs. 1, 4(i), 201, 205, 214, and 254 unless otherwise noted.  X -  54.507` `  Cap.  X - 2. Revise section 54.507(a) and add subsections 54.507(a)(1) and (2) to read as follows:  X -(a) Amount of the annual cap. The annual cap on federal universal service support for schools and libraries shall be $2.25 billion per funding year, and all funding authority for a given funding year that is unused in that funding year shall be carried forward into subsequent funding years for use in accordance with demand, with the following exceptions: ` ` (1) No more than $625 million shall be collected or spent for the funding period from January 1, 1998 through June 30, 1998. No more than $325 million shall be collected for the funding period from July 1, 1998 through September 30, 1998. No more than $325 million shall be collected for the funding period from October 1, 1998 through December 31, 1998. No more than $325 million shall be collected for the funding period from January 1, 1999 through March 31, 1999. No more than $325 million shall be collected for the funding period from April 1, 1999 through June 30, 1999. No more than $1.925 billion shall be collected or disbursed during the eighteen month period from January 1, 1998 through June 30, 1999. ` ` (2) The carryover of unused funding authority will not apply for the funding period January 1, 1998 through June 30, 1999. To the extent that the amounts collected in the funding period January 1, 1998 through June 30, 1999 are less than $2.25 billion, the difference will not be carried over to subsequent funding years. Carryover of funds will occur only to the extent that funds are collected but not disbursed in the funding period January 1, 1998 through June 30, 1999. 3. Revise section 54.507(b) to read as follows: * * * * *  Xj$-(b) Funding year. A funding year for purposes of the schools and libraries cap shall be the period July 1 through June 30. For the initiation of the mechanism only, the eighteen"S%*0*''PP $" month period from January 1, 1998 to June 30, 1999 shall be considered a funding year. Schools and libraries filing applications within the initial 75day filing window shall receive funding for requested services through June 30, 1999. * * * * * 4. Amend section 54.507(g) by redesignating the introductory text as 54.507(g)(2), redesignating subparagraphs 54.507(g)(1)(4) as 54.507(g)(2)(i)(iv), adding new introductory text to section 54.507(g) and adding new subparagraphs 54.507(g)(1)(i)(iv), to read as follows:  X -(g)  Rules of priority. Schools and Libraries Corporation shall act in accordance with subparagraph (1) of this section with respect to applicants that file a Form 471, as described in section 54.504(c) of this part, when a filing period described in paragraph (c) of this section is in effect. Schools and Libraries Corporation shall act in accordance with subparagraph (2) of this section with respect to applicants that file a Form 471, as described in section 54.504(c) of this part, at all times other than within a filing period described in paragraph (c) of this section. ` ` (1) When the filing period described in paragraph (c) of this section closes, Schools and Libraries Corporation shall calculate the total demand for support submitted by applicants during the filing period. If total demand exceeds the total support available for that funding year, Schools and Libraries Corporation shall take the following steps: ` `  (i) Schools and Libraries Corporation shall first calculate the demand for telecommunications services and Internet access for all discount categories, as determined by the schools and libraries discount matrix in section 54.505(c) of this part. These services shall receive first priority for the available funding. ` `  (ii) Schools and Libraries Corporation shall then calculate the amount of available funding remaining after providing support for all telecommunications services and Internet access for all discount categories. Schools and Libraries Corporation shall allocate the remaining funds to the requests for support for internal connections, beginning with the most economically disadvantaged schools and libraries, as determined by the schools and libraries discount matrix in section 54.505(c) of this part. Schools and libraries eligible for a 90 percent discount shall receive first priority for the remaining funds, and those funds will be applied to their requests for internal connections. ` `  (iii) To the extent that funds remain after the allocation described in sections 54.507(g)(1)(i) and (ii), Schools and Libraries Corporation shall next allocate funds toward the requests for internal connections submitted by schools and libraries eligible for an 80 percent discount, then for a 70 percent discount, and shall continue committing funds for"Q%+0*''PP $" internal connections in the same manner to the applicants at each descending discount level until there are no funds remaining.  X- ` `   ` `  (iv) If the remaining funds are not sufficient to support all of the funding requests within a particular discount level, Schools and Libraries Corporation shall divide the total amount of remaining support available by the amount of support requested within the particular discount level to produce a prorata factor. Schools and Libraries Corporation shall reduce the support level for each applicant within the particular discount level, by multiplying each applicant's requested amount of support by the prorata factor. ` `  (v) Schools and Libraries Corporation shall commit funds to all applicants consistent with the calculations described herein. ` ` (2) When a filing period described in paragraph (c) of this section is not in effect, and when expenditures in any funding year reach the level where only $250 million remains before the cap will be reached, funds shall be distributed in accordance with the following rules of priority: * * * * *  X4-  54.511` `  Ordering Services. 5. Revise section 54.511(d) to read as follows: * * * * * (d) The exemption from the competitive bid requirements set forth in paragraph (c) shall not apply to voluntary extensions of existing contracts, with the exception that an eligible school or library as defined under  54.501 or consortium that includes an eligible school or library, that filed an application within the 75day initial filing window (January 30, 1998 April 15, 1998) may voluntarily extend, to a date no later than June 30, 1999, an existing contract that otherwise would terminate between December 31, 1998 and June 30, 1999.  X-  54.623 ` `  Cap. 6. Amend section 54.623 by revising paragraph 54.623(a) and adding paragraph 54.623(f) to read as follows:  Xh$-(a) Amount of the annual cap. The annual cap on federal universal service support for health care providers shall be $400 million per funding year, with the following"Q%,0*''PP $" exceptions. No more than $50 million shall be collected for the funding period from January 1, 1998 through June 30, 1998. No more than $25 million shall be collected for the funding period from July 1, 1998 through September 31, 1998. No more than $25 million shall be collected for the funding period from October 1, 1998 through December 31, 1998. No more than $100 million shall be committed or disbursed for the 1998 funding year. * * * * *  XH-(f) Prorata reductions. Rural Health Care Corporation shall act in accordance with this paragraph when a filing period described in paragraph (c) of this section is in effect. When a filing period described in paragraph (c) of this section closes, Rural Health Care Corporation shall calculate the total demand for support submitted by all applicants during the filing window. If the total demand exceeds the total support available for the funding year, Rural Health Care Corporation shall take the following steps: ` ` (1) Rural Health Care Corporation shall divide the total funds available for the funding year by the total amount of support requested to produce a prorata factor. ` ` (2) Rural Health Care Corporation shall calculate the amount of support requested by each applicant that has filed during the filing window. ` ` (3) Rural Health Care Corporation shall multiply the prorata factor by the total dollar amount requested by each applicant. Rural Health Care Corporation shall then  X-commit funds to each applicant consistent with this calculation.  X-  X- 54.709(A)(3) Computations of required contributions to universal service  X(#(#` `  support mechanisms.  Xe- 7. Revise section 54.709(a)(3) to read as follows:  X7- (a) * * * ` ` (1) * * * ` ` (2) * * * ` ` (3) Total projected expenses for universal service support programs for each quarter must be approved by the Commission before they are used to calculate the quarterly contribution factors and individual contribution. For each quarter, the High Cost and Low Income Committee or the permanent Administrator once the permanent Administrator is chosen and the Schools and Libraries and Rural Health Care Corporations must submit their projections of demand for the high cost and lowincome programs, the school and libraries program, and rural health care program, respectively, and the basis for those projections, to  XQ%-the Commission and the Common Carrier Bureau at least 60 calendar days prior to the start of"Q%-0*''PP $" that quarter. For each quarter, the Administrator and the Schools and Libraries and Rural Health Care Corporations must submit their projections of administrative expenses for the high cost and lowincome programs, the schools and libraries program and the rural health care program, respectively, and the basis for those projections to the Commission and the Common Carrier Bureau at least 60 calendar days prior to the start of that quarter. Based on data submitted to the Administrator on the Universal Service Worksheets, the Administrator must submit the total contribution bases to the Common Carrier Bureau at least 60 days before the start of each quarter. The projections of demand and administrative expenses and the contribution factors shall be announced by the Commission in a Public Notice and shall be made available on the Commission's website. The Commission reserves the right to set projections of demand and administrative expenses at amounts that the Commission determines will serve the public interest at any time within the 14day period following release of the Commission's Public Notice. If the Commission takes no action within 14 days of the date of release of the Public Notice announcing the projections of demand and administrative expenses, the projections of demand and administrative expenses, and contribution factors shall be deemed approved by the Commission. Once the projections and contribution factors are approved, the Administrator shall apply the quarterly contribution factors to determine individual contributions. * * * * * Part 69 of Title 47 of the Code of Federal Regulations is amended as follows: Part 69 ACCESS CHARGES  X-  X-  69.620` ` Administrative expenses of independent subsidiary, Schools and  X(#(# X-` ` Libraries Corporation, and Rural Health Care Corporation. 1. Amend section 69.620 by revising the text of section 69.620(a) as indicated and by adding subparagraphs 69.620(a)(1) and (2), to read as follows: (a) The annual administrative expenses of the independent subsidiary, Schools and Libraries Corporation and Rural Health Care Corporation, should be commensurate with the administrative expenses of programs of similar size, with the exception of the salary levels for officers and employees of the corporations. The annual administrative expenses may include, but are not limited to, salaries of officers and operations personnel, the costs of borrowing funds, equipment costs, operating expenses, directors' expenses, and costs associated with auditing contributors of support recipients. ` ` (1) All officers and employees of the independent subsidiary, Schools and Libraries Corporation and Rural Health Care Corporation, may be compensated at an annual rate of pay, including any nonregular payments, bonuses, or other compensation, in an"Q%.0*''PP $" amount not to exceed the rate of basic pay in effect for Level I of the Executive Schedule under section 5312 of title 5 of the United States Code. ` ` (2) The level of compensation described in section 69.620(a)(1) shall be effective July 1, 1998. * * * * * "_/0*''PP'"  X-  r  Appendix B PARTIES FILING COMMENTS dON UNIVERSAL SERVICE SUPPORT DISTRIBUTION OPTIONS FOR SCHOOLS,  LIBRARIES, AND RURAL HEALTH CARE PROVIDERS  X< (SEPTEMBER 10 PUBLIC NOTICE) lX` hp x (#%'0*,.8135@8: 0*&&PP" semiannual or quarterly "crises," in which carriers will announce new charges to recover their universal service obligations, Commission staff will scramble to determine whether the new  X-charges violate any applicable rule, L xPK-#c PE37 P#эIn this regard, I have serious doubts about efforts to address consumer confusion and anger over the addition of universal service line items to their bills by requiring carriers to describe the line items in certain ways or in conjunction with other information about recent regulatory efforts that have lowered carriers' costs. While these efforts may have other merits, they amount to a mere "bandaid" rather than a solution to the fundamental problem of engineering a smooth transition to the new explicit support mechanisms. In particular, it seems likely that carriers will dispute whatever characterization of line items we seek to impose (if not our authority to do so), and I doubt seriously that consumer frustration will be alleviated by billing inserts that describe offsetting regulatory savings to their carriers. Further, as the proposed billing reforms focus primarily on whether long distance companies identify access charge reductions in conjunction with descriptions of universal service line items on consumers' bills, I note that such reductions do not benefit other carriers that also must recover the costs of their universal service obligations, such as wireless providers.  and consumers and the politicians representing them will get more and more confused and angry about what the Act has wrought. And each time this needless drill is repeated, I, for one, will feel a bit like comedian Bill Murray's character in the movie "Groundhog Day," hopelessly destined to live the same events over and over again. If we acknowledge, then, that carriers' universal service obligations are likely to be reflected on consumers' bills, we must take steps to ensure that the imposition of these obligations does not inadvertently thwart achievement of the Act's goal of making quality  X -telecommunications services available at "just, reasonable and affordable rates."q ( L xP-#c PE37 P#э47 U.S.C.  254(b)(1).q In particular, we have an obligation to make some effort to assess and manage how universal service programs, taken together, will impact consumers' bills. This obligation, I submit, will be very difficult, if not impossible, to satisfy if we continue to collect for certain universal service programs before we have a good sense of what we will need to collect for later programs, such as high cost support. In short, I doubt seriously that the Commission will be able to manage effectively consumer expectations regarding how carriers recover their universal service contributions and effect a smooth transition to explicit support mechanisms if we continue to make collection and funding decisions regarding different universal service programs in isolation, without assessing the effect of those decisions on other programs and on consumers. I firmly believe that resolving the funding decisions for all universal service programs simultaneously in an integrated proceeding would better comport with the intent of Congress and more fully exploit what we have learned about the pitfalls of assessing the more explicit universal service obligations contemplated by the Act. "? 0*&&PP"ԌI reject the suggestion that, by continuing to collect for certain programs pending implementation of the high cost support program, we do no harm to consumers or the public interest simply because we allow existing high cost support levels to continue. First, as I have suggested, continuing to collect for some programs while others await implementation raises fears that problems in implementing the earlier programs will undermine support for later programs. Such undermining of support could imperil our overall efforts to carry out the Act's universal service provisions. Second, there are clear costs associated with delays in implementation of the new high cost support program. In passing the Act, Congress wisely recognized that reform of high cost universal service support is one of the linchpins for achieving some of the other procompetitive, deregulatory goals of the Act. As the previous Commission so eloquently stated, our implementation of universal service: Xis part of a trilogy of actions [including the local competition and access charge reform proceedings] that are focused on achieving Congress' goal of  X-establishing a "procompetitive, deregulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans  XK-by opening up all telecommunications markets to competition."KL zP-#c PE37 P#эUniversal Service Order, 12 FCC Rcd 8776,  4.  Identifying and converting existing high cost support to explicit, competitively neutral support mechanisms will play a crucial role in this trilogy. Until we reform high cost support, we will not be able to remove the large implicit subsidies embedded in interstate access charges that distort competition in telephone markets and inhibit new entry into those markets. In short, delay in completing the high cost support piece of universal service (no matter how understandable) will inhibit our efforts to promote competition in telecommunications. Consumers are not held harmless by this failure; rather, they are  Xe-subjected to numerous opportunity costs resulting from having to wait for us to erect the new  XP-competitive regime mandated by Congress. Again, I do not mean to suggest that the Commission's failure to implement the new high cost support program by this time evidences any lack of commitment to this aspect of universal service. But the notion that there is no harm associated with that failure is, to my mind, implausible.  If we cannot bring ourselves to suspend collections for the Schools and Libraries program pending simultaneous resolution of the high cost support issues, I would prefer that the funding levels for the Schools and Libraries program be capped at an even lower quarterly rate than proposed in this Order until we are prepared to establish the new high cost support  X#-mechanism. First, reducing the collection rate further is supported by the language of the"#@Z0*&&PPe"" statute, which with respect to "advanced services" requires only that the Commission  X-"enhance" not guarantee access to such services, and that we enhance access only "to the  X-extent . . . economically reasonable."tL xPM-#c PE37 P#э47 U.S.C.  254(h)(2)(A).t In light of the growing concern over the manner in which carriers are recovering their universal service contributions from end users, I would submit that the more "economically reasonable" course at this time would be to reduce collections significantly until we can better assess the potential impact of other universal service programs on consumers' bills. Second, given the legal controversy surrounding whether the Commission did or did not exceed its legal authority by designating internal connections for Schools and Libraries support, I think the prudent course would be to suspend temporarily collections for internal connections, at least until the Fifth Circuit has an opportunity to decide this question in response to appeals pending before it. Again, I do not believe that such temporary suspension need weaken or destroy the Schools and Libraries program. Indeed, I believe that such strategic retrenchment would, in the long run, better preserve and strengthen support for this important program. Having lodged these criticisms, I would like again to voice my support for the Commission taking, in this Order, some important steps to modify our implementation of universal service, particularly with respect to the Schools and Libraries program. I fully recognize that school and library officials have devoted substantial time and effort to applying for funding and that delay in funding may force some institutions to postpone plans to provide access to advanced services for a few months. But other parties likewise have devoted substantial resources to other aspects of universal service implementation, such as development of the high cost support models. Simply put, the beneficiaries of the Schools and Libraries program do not comprise the Commission's only universal service constituency.  X-Rather, the Act requires that we balance the interests of all constituencies that will benefit from our implementation of universal service, just as the Act requires that we balance the goals of universal service against the other procompetitive, deregulatory provisions of the Act. In this statement, I have begun to sketch how I would strike a different balance than that struck by the majority. I reiterate, however, that I support the general direction of the changes made in this Order regarding the scope and timing for funding the Schools and Libraries program, in particular, and I commend the majority for having the courage to institute these changes. " AX0*&&PP"  Y-  #Xw PE37|XP#`(#(#  Y- `(#3June 22, 1998  Ѓ  X-l EDISSENTING STATEMENT OFlU COMMISSIONER HAROLD FURCHTGOTTROTH lU  W_- Re:XFifth Order on Reconsideration and Fourth Report and Order Regarding the Federal WH-State Joint Board on Universal Service, (CC Docket No 9645 ). (#  Y1-  X -X Introduction and Summary  If love could conquer all, if good intentions always led to good consequences, if hard work were always rewarded with good results, then this Order would be an impeccable work of art. It is the embodiment of immeasurable hard work, good intentions, and, dare I say, love. It embodies hope: hope for a better world in which more funding for new technologies is hoped to lead to better school facilities which are hoped to lead to better education which in turn is hoped to lead to a brighter future for the next generation of America. Good intentions and hard work are not enough for this Order. It is the third in a series of Orders to impose new taxes to support schools and libraries and other partial  Y-implementations of Section 254. I have dissented from these earlier Orders, Yh-ԍ#Xw PE37|XP#Dissenting Statement of Commissioner Harold FurchtgottRoth Regarding Federal  YQ-State Joint Board on Universal Service, CC Docket 9645, Third Order on Reconsideration,  Y<-12 FCC Rcd 22801 (1997); Statement of Commissioner Harold FurchtgottRoth Regarding the Second Quarter 1998 Universal Service Contribution Factors, rel. March 20, 1998. and I unfortunately must dissent from this Order. In my view, the current Order does not accurately or even approximately reflect either the letter or the spirit of the law. I dissent with the utmost respect for the efforts and hopes of my colleagues. But, I dissent also because of my utmost respect for the language of the Telecommunications Act of 1996 and Section 254 in particular. The Telecommunications Act of 1996 embodies the hopes of many Americans: more innovation, more services, more consumer choices, lower consumer prices, less regulation, and universal service. I believe the Act can and will meet these hopes of the American people. But I believe that these hopes will only be met if the Commission is faithful to the language of the Act. I fear the current Order is not."B60*&&PP "ԌNeither are the Commission's actions today faithful to the original intent of Congress or the current demands of Congressional leaders because as I stated only a month ago in  Y-this Commission's last report to Congress: priorities matter.E YK-ԍ#Xw PE37|XP#Dissenting Statement of Commissioner Harold FurchtgottRoth Regarding the Report to Congress in Response to Senate Bill 1768 and Conference Report on H.R. 3579, rel. May  Y-8, 1998.#x6X@`7X@#E I remain convinced that rural, highcost universal service is not just one of many objectives of Section 254; it should be the  Y-highest priority. The federal government has had universal service programs for rural, highcost areas and for lowincome Americans for many years. Section 254 embodied these ideals and set forth goals that emphasize rural, highcost support as well as lowincome support and other objectives. But, despite repeated Congressional demands that the FCC "suspend further collection of funding for its schools and libraries program, and proceed with a rulemaking that implements all universal service programs in a manner that reflects the priorities established  Y -by Congress in the Telecommunications Act of 1996,"Ax K Y-ԍ#Xw PE37|XP#See, e.g., Letter from The Honorable John McCain, Chairman, Senate Committee on Commerce; The Honorable Ernest F. Hollings, Ranking Minority Member, Senate Committee on Commerce; The Honorable Tom Bliley, Chairman, House Committee on Commerce; The Honorable John D. Dingell, Ranking Minority Member, House Committee on Commerce; to The Honorable William Kennard, Chairman, Federal Communications  Yy-Commission, June 4, 1998. #x6X@`7X@#A the Commission continues to proceed with selected universal service programs while at the same time delaying these higher priority issues. Rural, highcost universal service issues should not be resolved and implemented in some dim and distant future after all other universal service issues have been  Y-resolved; rural, highcost universal service issues should be resolved and implemented first. Rural, highcost universal service should not be viewed as the residual after enormous amounts for other federal universal service obligations have been promised; rural, highcost  YO-universal service should receive the lion's share of any increase in the federal universal service fund. To understand fully my other concerns about this Order, one need only read one of  Y-my several statements related to universal service.z1  Y1!-ԍ#Xw PE37|XP#See Dissenting Statement of Commissioner Harold FurchtgottRoth Regarding Federal  Y"-State Joint Board on Universal Service, CC Docket 9645, Third Order on Reconsideration,  Y#-12 FCC Rcd 22801 (1997); Statement of Commissioner Harold FurchtgottRoth Regarding the Second Quarter 1998 Universal Service Contribution Factors, rel. March 20, 1998; Dissenting Statement of Commissioner Harold FurchtgottRoth Regarding the FederalState Joint Board Report to Congress, rel. April 10, 1998; Dissenting Statement of Commissioner"%0*&&%" Harold FurchtgottRoth Regarding the Report to Congress in Response to Senate Bill 1768 and Conference Report on H.R. 3579, rel. May 8,1998; Statement of Commissioner Harold FurchtgottRoth Regarding the Common Carrier Bureau's Proposed Revisions of 1998 Collection Amounts For Schools and Libraries and Rural Health Care Universal Service Support Mechanisms, rel. May 13, 1998; Statement of Commissioner Harold FurchtgottRoth Regarding the Common Carrier Bureau's Clarification of "Services" Eligible for Discounts to  Y-Schools and Libraries, rel. June 11,#Xw PE37|XP# 1998; Statement of Commissioner Harold FurchtgottRoth Regarding the Common Carrier Bureau's Third Quarter 1998 Universal Service  Y-Contribution Factors, rel. June 12, 1998. #x6X@`7X@# My view of universal service is not"C 0*&&PP" universally shared. Not everyone here at the Commission or in the public agrees that Congress' universal service priority was the rural and high cost program. Not everyone here at the Commission agrees that the Telecommunications Act clearly contemplates "a single proceeding" to implement all of the universal service provisions, including both the schools  Y-and libraries and the rural, highcost programs.  Y-ԍ#Xw PE37|XP#47 U.S.C. Section 254(a)(2).#x6X@`7X@#ћ Others have different views. I would call many of these other views "myths." Perhaps others might call my views "myths" as well, or worse. I describe these views as myths not in a pejorative sense, but in the sense of evolved folklore that has not been scrutinized. For, as we shall see, even the slightest scrutiny reveals the fiction of these stories. Below I list 15 of what I consider to be the myths most relevant to this Order. Doubtlessly, there are many more.  X - 1.Longdistance rates have gone down; therefore, we need not worry about new  X -taxes on longdistance services. The real issue is not whether rates have gone up or down, but whether they would have been lower absent the new tax. Longdistance rates have gone down in recent years, but they would have gone down further without unnecessary fees and taxes for the Schools and Libraries Corporation. Under current rules, most support for the Schools and Libraries Corporation is borne by longdistance customers. Phone taxes in general, and longdistance taxes in particular, are some of the most inefficient and punishing taxes faced by the American consumer. Prof. Jerry Hausman of MIT has estimated that consumers lose more than $2 for every dollar in  Y-longdistance taxes.r  Y#-ԍ#Xw PE37|XP#Jerry Hausman, "Taxation by Telecommunications Regulation," National Bureau for  Y$-Economic Research, Working Paper Series 6260, November 1997.#x6X@`7X@# "D 0*&&PP~"ԌTelephone services are already one of the more heavily taxed services based on usage through federal excise taxes, federal universal service taxes, state and local excise taxes far more heavily taxed than the typical 5 percent sales tax that consumers pay for typical goods and services. These heavy excise taxes discourage use, weaken demand, stifle investment, and retard innovation. Ironically, at a time when the federal government is contemplating stiff new taxes on tobacco products partly to reduce demand for what is perceived to be a harmful product, the federal government has also imposed new taxes on telecommunications services. Are telecommunications services perceived to be as harmful as tobacco?  X - 2.Access charge reductions offset any increase in universal service fund  X -contributions. I remain concerned with recent attempts to tie reductions in access charges to the  Y -level of universal service contributions.&  Y -ԍ#XR PjQ|XP#Today's Order does not use access charge reductions to increase universal service obligations. But, the Common Carrier Bureau had proposed using all access charge reductions to fund universal service, and this concept has been referenced when justifying  Y-previous funding increases. See, e.g., footnote 73 accompanying para. 24 of the Collection  Y-Public Notice.  #Xx6X@DQX@#& Even to the extent that federalmandated access charges have been reduced to offset increases in universal service obligations, almost 20% of the schools and libraries contributors do not benefit from reduced access charges. Thus, for example, wireless carriers have paid proportionately higher fees, despite the fact that they have received no access charge reduction. Moreover, there is no assurance that the consumers who benefit from access charge reductions will be the same consumers who will bear the new universal service burden. For example, business consumers could disproportionately benefit from the access charge reduction while residential consumers pay for new universal service fees. The issue should not be whether, despite massive tax increases that just offset decreases in federal access fee and charges, IXCs have no net differences in costs. The issue should be whether, absent massive new taxes, consumers would be better off.  X|-  Xe-3.Line items for new taxes related to universal service are simply a means to develop a "hidden rate increase."  Y - This assertion defies economics and common sense. If long distance carriers could pad their profit margins by simply adding useless line items on their bills, companies would have already done it. But adding line items is not a means to higher profits."E!0*&&PP"ԌIn a competitive market, prices are determined by costs. If a business tries to raise prices above its actual costs, it will lose its customers to competitors that have not raised prices. Many economists believe that longdistance service is a relatively competitive market. Simple economics and market realities dictate that competitive businesses must pass along new taxes to their customers. Competitive businesses take prices as given by costs not by the wishes of outside spectators. Those who claim that a business should not pass along a new tax to consumers are simply saying that the business is not competitive in the first place; only a noncompetitive business has the luxury of not passing all of a tax along to consumers. In addition, a new tax and higher costs will likely reduce net market demand thereby reducing the number of firms that a competitive market can support. Moreover, even if longdistance carriers were not competitive, they would still pass along part of a new tax to consumers. To the extent that taxes raise prices and thereby reduce market demand for a service, profits in an industry are likely to decrease as the result of a new tax. Consequently, a new tax cannot plausibly be a blessing to the longdistance industry, whether it is competitive or not. Line items for new taxes are a means of letting customers understand why rates are not lower than they would be absent the new taxes. These line items are not a means of promoting "hidden rate increases." To the contrary, the only "hidden rate increases" would occur if rates were higher as the result of hidden and unexplained taxes. Only a stupid and foolish firm destined for failure in the American telecommunications market could fantasize about profiting from a new tax. I have yet to meet a viable firm in any market that appeared to be stupid or foolish. I have also never met a stupid or foolish consumer. And I have yet to meet an American consumer who doesn't want to be told about a new tax.  XN- 4.The federal government should tell businesses to inform customers only about net new taxes, not about new taxes that are offset by decreases in existing taxes.  Y - It would be easy to dismiss this myth as a flagrant violation of the First Amendment. But even if government should interfere with truthful communication between a business and its customer an interference that should never happen customers should always know about new taxes, even if other taxes have decreased substantially more. The issue for consumers is not just whether prices have gone up or down, but also whether prices would be lower absent a new tax. Only in Washington could disclosure of such a new tax be considered deceptive. "h$F0*&&PP%"ԌDepriving businesses of the opportunity to converse freely with their customers is a flagrant violation of the First Amendment. Depriving consumers of information about new taxes demoralizes a democratic society. If the British government had successfully hidden new taxes from American colonists in the middle 18th Century, we might today still be saluting the Union Jack. Doubtlessly, the British government of that time may well have tried to hide the series of new taxes and regulation of commerce from the American colonists. Efforts by governments to hide information from the public may work in the short term, but never in the long term.  X - 5.The new tax rates in this Order reflect a reduction in tax rates that would otherwise result.  Y - Technically, absent Commission action, a higher tax rate would result on July 1, 1998 because of the automatic increase for funding the schools and libraries program that would otherwise take place. However, that increase in the tax rate has only been delayed for one year. The Commission does nothing to adjust the annual $2.25 billion cap, which will instead go into effect next July. Thus, on July 1, 1999 there will be another increase in the quarterly contribution to the schools and libraries fund of almost $240 million, or another 75% increase. It should also be noted that while the Schools and Libraries Corporation has  Y-estimated $2.02 billion in demand for the first year of the program Y-ԍ#Xw PE37|XP#Third Quarter 1998 Fund Size Requirements for the Schools and Libraries Universal  Yh-Service Program, dated May 1, 1998.#x6X@`7X@# the Commission's Order today authorizes $1.925 billion to be disbursed over the next 12 months (July 1, 1998 to July 1, 1999). While this amount does not fully meet demand and it precludes funding additional applications, I am not sure how much of the initial demand will go unmet by this "cut." Moreover, even the proposed tax rate for the remainder of 1998 is higher than the most responsible tax rate zero. The Schools and Libraries Corporation has already raised enough revenue to fund practically all requests for telecommunications services in 1998, the only item eligible for discounts under the Act. The real issue is not whether the rate is higher or lower than it would be if an arbitrary deadline is not met; the real issue is whether tax rates are as low as they could be and as low as they should. The answer is a resounding "no!" Rates can and should be zero for the remainder of 1998.  X - 6.There is great urgency to adopt this rule and proceed with wiring the schools immediately."!Gb0*&&PP""Ԍ Y- ęEnormous efforts have been made, probably entirely well intentioned, to rush this item through the Commission by midJune. The rationale given is that carriers need time to adjust their July bills. Last December, rates were changed and carriers somehow managed to change their January bills. Moreover, the rates changed last December did not legally go  Y-into effect until February,|3 Y-ԍ#Xw PE37|XP#The Commission's Third Universal Service Reconsideration Order, adopted in December, 1997, explicitly waived the APA's 30day requirement because it was deemed critical to implement the new schools and library program on January 1, 1998. Thus, the rules that were necessary to calculate the lower universal service contribution factors were to be effective upon publication in the Federal Register. These rules were not published in the Federal Register until January 27, 1998. Moreover, as published, that Order clearly states that "[t]he rules adopted in this Order will become effective February 26, 1998." Thus, technically, the contribution rates were not legally in effect at least until January 27, if not  Yg -until February 26. #x6X@`7X@#| yet billing disasters did not ensue. Further delays may yet occur. Most Senators at last week's hearing encouraged the Commission at least to freeze temporarily this program while the Commission revisits both the substance and the rampup period of these new universal service programs. Indeed, in response to Sen. Wyden's (DOre.) suggestion that FCC take 68 weeks to fix the universal service program, I stated that I would welcome the opportunity. I had hoped that the Commission would follow Sen. Wyden's counsel to suspend the program and make a public commitment to address the entire universal service dilemma including the rural, highcost issues in the next 68 weeks. Xp x (#%'0*,.8135@8:-State Joint Board on Universal Service, at para. 27.pp#Xx6X@DQX@#' As several commenters noted, however, "[b]oth the Congressional Budget Office and the Office of Management and Budget count payments into the fund as federal revenues and payments out of the fund as  Y-federal outlays."b y] Y#-ԍ#Xw PE37|XP#Comments of Sprint PCS, at 7. #x6X@`7X@#ў "Q 0*&&PP"ԌThird, I continue to object to the fact that the contributions for the schools, libraries,  Y-and rural health care support mechanisms are based not only on interstate but also on  Y-intrastate revenues. As I have described on several occasions, the legality of this approach to  Y-calculating contributions is highly questionable.y] Y8-ԍ#Xw PE37|XP#Separate Statement of Commissioner Harold FurchtgottRoth Regarding the Second Quarter 1998 Universal Service Contribution Factors, rel. March 20, 1998; Dissenting Statement of Commissioner Harold FurchtgottRoth Regarding the FederalState Joint Board  Y-Report to Congress, rel. April 10, 1998. #x6X@`7X@#ѻ As I read the Communications Act, it does not permit the Commission to assess contributions for universal service support mechanisms based on intrastate revenues. Rather, the Act makes clear that the power to  Yz-collect charges based on such revenues rests within the exclusive province of the States.z4y] Y_ -ԍ#Xw PE37|XP#Indeed, it has been reported that at least one state Virginia has ordered that MCI stop applying federal surcharges on intrastate long distance calls made in that state and make  Y1-appropriate refunds to customers. Communications Daily, May 11, 1998. #x6X@`7X@#ђ Fourth, I fail to see how the Commission may lawfully differentiate among otherwise "bona fide requests." The Commission's rules already consider a schools' economic status in determining the level of support to which they may qualify. Now the Commission will take economic status into account to determine whether the schools are even eligible for participation at least participation in funding for inside wiring, despite the fact that the schools have submitted an otherwise "bona fide request" under our rules. If the Commission's rules already addressed such discrepancies in economic advantage adequately, then the newest proposal seems, at best, unfair to schools that will now be prohibited from participating, if not altogether arbitrary. Indeed, I do not see how the Commission has the discretion to prioritize among such bona fide applications. The universal service provisions mandate that "upon a bona fide request" the "telecommunications carriers . . . shall" provide  YO-a discount.Oy] Y<ԍ#Xw PE37|XP#47 U.S.C.A. section 254(h)(1)(B)#x6X@`7X@#. All of the applications that met our previous rules are bona fide requests, and the Commission has not determined that its previous rules were incorrect as I have urged. As such, I am concerned that the Commission has failed to establish a system that would fund all such bona fide requests as required. The statute does not endorse differentiating among such bona fide requests; the current plan to fund internal wiring based on need cannot be what Congress intended.  Y- 13.The Schools and Libraries Corporation is efficient . The Common Carrier Bureau Public Notice regarding the third quarter contribution factors also established the administrative expenses for the Schools and Libraries Corporation. In objecting to the second quarter contribution factors, I noted that Schools and"SRh 0*&&PPM" Libraries Corporation was allocated almost four times as much money for administrative expenses as the highcost/low income funds and that the administrative budget increased from $2.7 million to $4.4 million or by 65% in just one quarter. These increased administrative expenses continue in the third quarter, despite the fact that the Schools and Libraries Corporation has still failed to provide an accurate estimate of all its administrative costs for  Y-the first quarter.y] Y-ԍ#Xw PE37|XP#Third Quarter 1998 Fund Size Requirements for the Schools and Libraries Universal  Y-Service Program, dated May 1, 1998.#x6X@`7X@# In contrast the administrative expenses for both the High Cost and Low Income programs combined is only $1.2 million. I cannot endorse such a disparity and certainly not one of this magnitude between the administrative expenses of the Schools and Libraries and those of the other universal service corporations, especially without more adequate safeguards against excessive spending by the schools and libraries program.  X - 14.The FCC's interpretation of universal service reflects the intention of Congress.  Y - As noted above, the FCC's interpretation of universal service does not follow the letter of the law. Based on the recent correspondence from Congress, it is clear that the  Y -FCC's interpretation of universal service does not follow the spirit of the law either.J by] Y-ԍ#Xw PE37|XP#See, e.g., Letter from The Honorable John McCain, Chairman, Senate Committee on Commerce; The Honorable Ernest F. Hollings, Ranking Minority Member, Senate Committee on Commerce; The Honorable Tom Bliley, Chairman, House Committee on Commerce; The Honorable John D. Dingell, Ranking Minority Member, House Committee on Commerce; to The Honorable William Kennard, Chairman, Federal Communications Commission, June 4, 1998; Letter from The Honorable John D. Dingell, Ranking Minority Member, House Committee on Commerce, to The Honorable William Kennard, Chairman,  Y-Federal Communications Commission, June 4, 1998.#x6X@`7X@# In particular, the Commission has failed to complete work on the highest Congressional priority, rural highcost service, while creating massive new unintended grant programs for schools and libraries.  X6- 15. There is no good solution to the problem. There is a good solution to the problem. It is to follow the intent of Congress. That advice is eloquently phrased in the recent letter from the leadership of the Commerce Committees of both the House and the Senate. If we follow the advice of Congress, we will set the collection rate for the schools and libraries program to zero until such time as we can resolve the highest universal service priority: rural, highcost support.  Xg- Conclusion "gSt 0*&&PPN"ԌMost observers of politics and telecommunications regulation in Washington would agree that the Commission's handling of universal service over the past two years has led to a great deal of handwringing. Some would say that we have made substantial progress, but no one would say that we solved all of the problems related to universal service. Some would say that we are not headed in the right direction; many go so far as to say that we should stop and start over again. The problem with the FCC's implementation of Section 254 is not one of intent or effort. Many hardworking, wellintentioned people have dedicated the better part of two years of their lives to working on the implementation of this section. Their efforts have not been in vain. We have learned much about both what is possible and not possible under Section 254; we have learned something about what is not sustainable; we have learned about concerns of consumers who thought that the Telecommunications Act would lead to changes in regulations that would allow rates go down, not merely stay the same or increase; we have learned about the fears and concerns of rural America when its understanding of Section 254 is not adequately addressed. Above all, we have learned that Section 254 is one of the most difficult and most important sections of the Act. Despite good intentions and efforts, some mistakes have been made in the implementation of Section 254 over the past two years. The best outcome would be to learn from those mistakes; the worst outcome would be to ignore them. Congressional leaders have demanded that the Commission suspend the schools and libraries program until all aspects of universal service are resolved. I believe the Congressional leaders are correct. It would be perhaps irresponsible to issue funding commitments, allow public money to be distributed, or to raise consumers rates which is undeniably necessary at least with respect to wireless rates if not overall to pay for these programs before Congressional concerns can be fully addressed. America is a great nation not because we have the most advanced technologies in the world. We are a great nation because we are a nation whose People love liberty, whose government serves the People, and whose government is governed by laws written by the People. When government agencies follow the law as it is written, there is no greater investment in our future.  The proponents of the Erate program often cite its educational value. The Erate, we are told, is an "investment" in the future of America. I believe the FCC can and ought to make a contribution to the education of American children. Our greatest contribution, however, is not in serving as a tax collector, even for the most wonderful of programs. Our greatest contribution is in following the law, and being a showcase for democracy. "h$T0*&&PP%"ԌSome in America believe that all of the parts of Section 254 cannot be implemented, that the section is hopelessly complicated and selfcontradictory. According to these skeptics, it is time to give up. It is time to rewrite the section, or worse, implement only part of it. The inevitability of defeat is palpable among the skeptics. I believe the skeptics are wrong. I believe that Section 254 can be fully implemented. I believe that a strict and narrow reading of the law is not only what Congress intended but also the only way by which Section 254 can be fully implemented. We at the FCC can and must rededicate ourselves to following the letter of the Communications Act, and Section 254 in particular, as written by Congress. We must, as Congressional leaders have suggested, start over. It will be a difficult process, but it is possible, and it is urgent. In the meantime, the American public can rest assured that no new taxes will be levied by the FCC, that universal service will remain accessible to all Americans under existing rules, and that schools and libraries will continue to receive ten billion of dollars of federal support annually for infrastructure in addition to countless billions of dollars from state and local governments and countless billions more from the private sector. In the end, the FCC will have contributed far more to the education of American children than any amount of funds for any educational purpose. The FCC, building on its past good intentions and good efforts, will have taught a lesson that the greatest myths are the myth of inevitable defeat and the myth that government agencies cannot solve difficult problems.