Universal Service Funds Are Moved to the United States Treasury Cementing USF Fees as Federal Funds

After almost two decades of operating outside of the U.S. Treasury, FCC Chairman Pai is turning the Universal Service Fund (“USF”) funds collected and administered by the Universal Service Administrative Company (“USAC”) over to the U.S. Treasury, thereby, cementing the universal service fees collected on American’s phone bills as federal funds.

In 2005, the U.S. GAO issued a Report to the Chairman, Committee on Energy and Commerce, House of Representatives, titled Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate Program. Specifically, the GAO raised significant concerns regarding the lack of clarity of federal statutes governing the fiscal controls and accountability with respect to the nature of the E-Rate and other USF funds being administered by USAC outside of the U.S. Treasury. In a piecemeal fashion, the FCC has slowly folded the collection, deposit, obligation, and disbursement of the USF funds into federal statutes. For example, the FCC has deemed USF funds to be appropriated funds and subject to the Antideficiency Act. Furthermore, any monies owed to USAC under the USF Programs are deemed a debt owed to the United States and governed by federal statutes and red light status, if unpaid. Again, in its May 2017 Report titled, Additional Action Needed to Address Significant Risks in FCC’s Lifeline Program (GAO May 2017 Report”), the GAO reiterated that until the USF funds are under the control of the U.S. Treasury, risk of accountability and waste, fraud, and abuse will persist and any benefits thereof will not be realized.

Now, almost two decades later, the great debate ends this month with the transfer of the fees now under the control of the U.S. Treasury. Once under the control of the U.S. Treasury, federal funds become tethered to a host of other federal statutes and regulations, which remain to be further identified. The larger question that now looms is whether this is good for the beneficiaries and service providers who participate in the USF Programs, such as E-Rate, Rural Health Care, and Lifeline. While there is some assurance from the FCC Chairman Pai in his October 24, 2017 Letter to Congressman Butterfield that USF business will run as usual, and that it would be impermissible to use USF funds for anything other than universal service, there is more uncertainty as to what a Republican Congress and President Trump may do with these appropriated funds as was expressed today on the eve of the transfer by ranking Democrat Congressional Representatives.

In the meantime, USAC will continue to administer the USF Programs and has issued guidance on how the transfer of USF funds to the U.S. Treasury will affect contributors, service providers and beneficiaries who participate in the USF Programs. No changes will be made for those receiving disbursements from USAC. However, service providers, contributors, and beneficiaries should read USAC’s guidance carefully for changes in the contributor rules and return of funds rules to USAC as a result of a COMADs, Returned Funds, or Program Recovery Payments.

USAC urges those with questions related to the transfer of the funds to the U.S. Treasury to contact them by e-mailing [email protected] with questions, using the subject line “Treasury.”