#58

370 Commerce & Housing Credit:Cut Universal Service Subsidies

Savings in Millions of Dollars
  • 2016
  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
  • 2022
  • 2023
  • 2024
  • 2025
  • 2016-2020
  • 2016-2025

Sources

Taxpayer savings were calculated by adding the costs of the high-cost fund and the schools and libraries fund, along with the proposed $1.2 billion reduction in the Lifeline fund. High-cost spending of $4.17 billion is found on page 35 of Universal Service Administration Company, 2013 Annual Report, Schools and libraries fund costs are found at news release, “FCC Continues E-Rate Reboot to Meet Nation’s Digital Learning Needs,” FCC, December 11, 2014.
Lifeline program costs are found on page 8 of Universal Service Administration Company, 2001 Annual Report.

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Technical Notes on Scoring

CBO Baseline

Unless otherwise noted, calculations for savings for each recommendation relies on the most recent Congressional Budget Office baseline, as found in “An Update to the Budget and Economic Outlook: 2014 to 2024,” published August 27, 2014, has been used.

Savings “Totals”

While totals for the five and 10 year savings are provided by section and for the complete set of recommendations, there are two reasons they should not be viewed as representing total savings for The Budget Book.

First, as noted in the introduction, The Heritage Foundation would recommend that the savings realized in the Function 050 Defense section would stay within the Department of Defense to strengthen the nation’s defense capabilities.

Second, the numbers cannot be deemed to represent the realized savings if every single recommendation were adopted because policy changes made in one program can impact spending levels in other programs.  Thus, the numbers in the table do not reflect any potential interactions between the various policy changes affecting spending or savings.

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Heritage Recommendation:

Eliminate telecommunications subsidies for rural areas, phase out the schools and libraries subsidy program, and reduce spending on the Lifeline program by reducing fraud and waste.
Although this proposal will have no impact on the budget deficit, it will save taxpayers approximately $9.3 billion annually, and $92.7 billion in taxes and fees over 10 years, since these programs are supported by fees.

Rationale:

Send taxpayers a lifeline. Cut universal service subsidies to reduce fraud & waste.

The Universal Service Fund (USF) was created in 1996 to replace a system of implicit subsidies administered by telephone companies. Run by the Federal Communications Commission (FCC) through the Universal Service Administrative Corporation, the program is financed by a dedicated fee paid by all telecommunications service users. The program funds a number of subsidy programs, including those for rural telephone companies, schools and libraries fund, and for low-income consumers:

  • The “high-cost fund,” which cost $4.17 billion during the 2013 funding year, largely supports rural areas where the cost of providing telecom connections is high. Under reforms adopted by the FCC in summer 2014, the USF, which traditionally subsidized rural phone companies, will be replaced by a new fund focusing on rural broadband and wireless service. Even after that reform, however, the program will remain fundamentally flawed, because it provides federal cash regardless of need. Residents of Aspen, Colorado, and Jackson Hole, Wyoming, for instance, receive support regardless of need at the expense of poorer Americans elsewhere. The program should be ended.
  • The schools and libraries (E-Rate) fund—which, based on increases approved by the FCC in December 2014, now costs $3.9 billion per year—was originally intended to finance the connection of schools and libraries to the Internet.1 For the most part, that task was completed years ago. But rather than declare victory, the program has been expanded to fund other Internet-related goods and services. This program is not needed. If any federal funding is needed by schools, it should be managed by the Department of Education—not the FCC—and should compete with other education priorities.
  • The “Lifeline” fund provides discounted phone service and equipment to low-income Americans. While well-intended, the program has been plagued by fraud and abuse, as costs tripled from under $600 million in 2001 to almost $1.8 billion in the 2013 funding year.2

Endnotes

  1. News release, “FCC Continues E-Rate Reboot to Meet Nation’s Digital Learning Needs,” Federal Communications Commission, December 11, 2014, (accessed January 6, 2015).  

  2.  Universal Service Administration Company, 2001 Annual Report, p. 8, (accessed January 6, 2015).  

Send taxpayers a lifeline. Cut universal service subsidies to reduce fraud & waste.

Contributing Expert

James L. Gattuso handles regulatory and telecommunications issues for The Heritage Foundation as a Senior Research Fellow in its Roe Institute for Economic Policy Studies.

See publications by James L. Gattuso

James L. GattusoSenior Research Fellow in Regulatory Policy

Heritage Expert

Diane Katz, who has analyzed and written on public policy issues for more than two decades, is a research fellow in regulatory policy at The Heritage Foundation.

See publications by Diane Katz

Diane KatzResearch Fellow in Regulatory Policy

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