Around the time of the modernization order of the E-rate program in 2014, I published an empirical study on distribution effects of program rules between 1998 and 2012. I found that the old rules, particularly the discount rate matrix, had distribution effects that perhaps needed reform. Since the Universal Service Administrative Company (USAC) abides by administrative order to run the E-rate program, it was a natural question to ask whether the rules were causing particular outcomes.
My data analysis showed that per-student and per-school estimates of cumulative internal connection funds were higher in New York, California and Texas than the other 48 states, including Washington D.C. I chose to study “internal connection funds” which supports payments for new Wi-Fi equipment. I found that large school districts in major cities benefited more than the smaller districts in suburb, town, and rural schools.
For instance, my estimates showed that funds to New York, California and Texas recipients amounted to an estimated $826 per student enrolled in the National School Lunch Program. In the other 48 states, students in the same lunch program received less than half, at an estimated $302 per student. The rules created disparities at the per-school level as well. In New York, California, and Texas, schools received an average of $251,399 in cumulative funds, while the other 48 states received an average of $75,340 each. These three states enroll approximately 14 million children in over 27,000 schools each year, which is less than half of the 38 million children in over 91,000 schools in the other 48 states.
There is greater need in New York, California and Texas than the other 48 jurisdictions. For those familiar with the E-rate rules, an average discount rate of 80 in those states shows a higher level of need compared to 76 in the rest of the country. However, New York students with a discount rate of 77 reaped far more funds than students in the other 48 states with a slightly better discount rate of 76. For every pupil enrolled in the school lunch program in New York, an estimated $1,285 has been spent, while an estimated $302 has been spent per student enrolled in the same national school lunch program in the other 48 jurisdictions.
Funding discrepancies do not disappear by simply increasing E-rate funds. The rules created distribution effects even though the discount matrix carefully incorporated school lunch program demographics and urban and rural locations. Perhaps administrative resources at the school district level contributed to these outcomes. The New York City Department of Education applied for and received $1.7 billion in E-rate internal connection funds over fifteen years, Los Angeles Unified School District $738 million, San Diego Unified $114 million, Dallas, Houston, and Laredo Independent School Districts $145, $141, and $89 million each. School districts with larger operations perhaps benefited from greater administrative know-how and organizational resources able to navigate a complicated process. Perhaps smaller school districts in other states are limited by smaller economies of scale. Might an intermediary be created to help these smaller schools?
The FCC’s data-driven modernization order of December 2014 will improve broadband connectivity in schools and libraries. A recent annual target by the FCC to distribute $1 billion for Wi-Fi internal connections infrastructure will connect more schools and school districts around the country. Continued scrutiny could increase the effectiveness of Universal Service Funds by making sure funds are sent to smaller school districts around the country.
Sarah Oh is a graduate student at George Mason University, where she studies economics.
The opinions expressed in this piece are those of the author and may not necessarily represent the view of the Aspen Institute.
