FCC Proposes to Keep Category 2 Budget Approach and Further Refine Category 2 Rules in the E-rate Program

On July 9, 2019, the FCC released a new rulemaking proceeding in which it proposed several changes to its E-rate rules to further modernize and streamline funding for connectivity services within schools and libraries. E-rate funding is divided into two broad categories: Category 1 supports the provision of connectivity from the service provider’s network to the school or library campus, whereas Category 2 supports connectivity within the building, such as Wi-Fi. Requests for Category 1 are funded first and then Category 2 requests are considered, up until the program reaches its funding cap for the year.

E-rate participants receive funding on a sliding scale, whereby schools and libraries located in lower-income areas have a lower co-pay (or higher “discount” in E-rate terminology). For a number of years, only those schools and libraries with the lowest co-pay levels successfully obtained Category 2 funding before the program hit the cap. This was exacerbated by the FCC’s “two-in-five” rule, which restricted the receipt of Category 2 funding to two years out of a given five-year period. This meant that schools or libraries with somewhat higher co-pays could not even submit a request for Category 2 funding in most years.

In 2014, the FCC issued an order shifting to a new budget-based approach on a trial basis for five years. Under this approach, each school and library has a per student or per patron budget for Category 2 funding. The budget is $150 per student for schools and $2.30-$5.00 per square foot for libraries for a five-year period. The result has been that more schools and libraries have been able to obtain some amount of Category 2 funding, despite most not using up the entirety of their budgets.

The FCC has proposed to make this budget approach permanent, and seeks comment on further reforms to its Category 2 funding rules. Some of the more notable proposals and possible changes include:

• Making permanent the availability of Category 2 funding for managed Wi-Fi services and caching,
• Changing the calculation of the budgets from an individual school/library basis to a district-wide basis,
• Increasing the budget floor from $9,200 to $25,000 every five years,
• Replacing the requirement for an annual student count and, instead, presume that a count conducted in one of the last four funding years is valid absent a school request to increase the budget,
• Permitting unused funds to roll over to subsequent funding years, and
• Changing the budget process so that it either functions on a rolling five-year cycle, or alternatively, shifts to fixed five-year cycles that would begin for all participants in 2020.

Interested parties may file comments 30 days after the rulemaking is published in the Federal Register; reply comments are due at the 45-day mark. We will update this post with the due dates as they become available.