Original Post (March 14, 2011):

 

Nicolle Steffen (CO)

 

Quick question about e-rate…

One library wrote: “we always included E-rate here [federal revenue] because we received $$ back – this year we are only paying discounted amounts to vendors – they receive the funds from the Feds and we never see it.  Should we calculate what the amount is that the vendors receive on our behalf?”

 

My initial reaction was to not count the discount. I don’t think the intention of the report is to include discounts only revenue, so there is no need for the library to calculate the discount and include it in revenue.  Anybody else have a different take? 

 

(I thought this might have been discussed before, but I couldn’t find it on the wiki.)

 

Thanks in advance.

 

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IMLS Response:

Deanne Swan

 

Hello all,

 

Thank you, Nicole and all the SDCs who responded, for the question and comments.  We have done some research, and together with your comments, this is what we have found.

 

As several of you have mentioned, e-rate funds are not federal funds.  Although the FCC, a federal agency, sets the rules for the allocation and disbursement of e-rate funds and approve the annual expenditures, the funds themselves do not come from or through the FCC. E-rate is not part of a budget that is passed by the U.S. Congress or signed by the President. The funds do not come from taxes, but from a fee attached to services from telecommunications companies which are then put into the USF (Universal Service Fund) that is administered by the USAC (Universal Service Administrative Company), an independent, not-for-profit corporation specifically designated to deal with these funds (47 CFR 54).

 

Part of the problem arises because of the way e-rate is administered.  E-rate operates either as a discount or reimbursement. To that end, some libraries never see the funds and may never know the actual amount of the discount,  whereas others pay the money and are reimbursed.  Thus, for some libraries, the amount may be buried on a document which they never see, but others have clear documentation associated with the exact amount for which the library was reimbursed.  This exacerbates a problem in the reporting on the PLS.  If the discounts are not reported as expenditures, this results in an under-representation of the cost to run a library. If the funds are put in the expenditures, but not in the revenue, the library may appear to be running a deficit, which would be inaccurate.

 

It is clear, at the very least, that e-rate funds should not be counted as Federal Revenue (#302); they are best reported under Other Revenue Sources (#303).

 

Regarding the reporting under expenditures, one thing that might help is the description of the data elements for expenditures:

 

OPERATING EXPENDITURES

Operating expenditures are the current and recurrent costs necessary to support the provision of library services. Significant costs, especially benefits and salaries, that are paid by other taxing agencies (government agencies with the authority to levy taxes) "on behalf of" the library may be included if the information is available to the reporting agency. Only such funds that are supported by expenditure documents (such as invoices, contracts, payroll records, etc.) at the point of disbursement should be included. Do not report the value of free items as expenditures. Do not report estimated costs as expenditures.

 

Thus, if there is an invoice sent to a library that indicates the amount of the e-rate discount (i.e., supported by documentation), then the library can report this as an expenditure under Other Operating Expenditures (#357). In such a case, the library should also report the e-rate funds that supported the discount in Other Revenue (#303). If no such documentation can be identified, then the amount should not be reported in either revenue or expenditure.

 

Although this might lead to inconsistent reporting across libraries, it has the benefit of maintaining the correct balance between revenues and expenditures, such that no library reports figures with e-rate in one category but not the other. In addition, it also allows for libraries with the information to report data that more fully reflects the funds expended to run the library, without putting an undue burden on those libraries for which the amount of the e-rate discount is not reasonably recoverable for reporting purposes.

 

I have also attached a Word document that includes the original post, the comments, and some of the research we found.  We hope you will find this useful as you understand this issue.

 

If you have any questions, please do not hesitate to ask.

 

Best,

____________________________________________________________________________________________________

 

Comments from SDC List:

 

 Scott Dermont (IA)
 

 

I never count the discount. I only have them count e-rate if they actually receive the funds directly. This happens very rarely, at least in Iowa.

 

Scott.

 

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Katina Jones (MO)

 

Nicolle,

 

I would not count the discount. As you mentioned, the intent is to consider revenue, not what was not paid.

 

On another note for the group, I just had a discussion with the person here who helps our libraries with E-rate and she said we should NOT count it as Federal Income and list it as Other Income. What do other folks do??

 

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Scott Dermont (IA)

 

I’ve always counted it as federal as I thought that was the source. I thought it was a pass through.

 

 

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Bruce Pomerantz (MN)

 

I differ from Scott and Katina:

 

1)       I do not consider E-rate as federal funds. Tax money is not involved.  Federal law requires that the vendor either provide a rebate or a discount. 

2)      To me, the discount is akin to funds expended “on behalf of” (Page 46, Operating Expenditures explanation), which we include in Expenditures.

3)      For every “on behalf of” dollar in the expenditures, my libraries indicate an equal amount as revenue, typically in the “Other Operating Revenue” category.   

 

 

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 Scott Dermont (IA)

 

So, does that mean that vendor is not reimbursed at all? I thought this money came from federal funds? Now I’m confused.

 

 

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 Katina Jones (MO)
 

 

Here is the explanation I referred to earlier in response to me trying to figure out if E-rate reimbursements were Federal funds (i.e., tax money):

 

This is a common misconception, but no, E-rate funds are not Federal Tax dollars. The charge to everyone’s telephone and cellular bill goes into an independent fund administered by the Universal Service Administrative Company (USAC), a not-for-profit organization set up to oversee the fund. The only connection to the Federal Government is that the FCC sets the rules that USAC uses to administer the fund. The Federal government cannot touch the money, but the FCC rules sets and can change rules that USAC must abide by and how much can be spent out of the fund for the programs that draw money out of it annually. The FCC also has to approve the expenditures annually before the awards can be announced or released to the recipient schools and libraries (and the other programs supported by the fund). Auditors that perform the audits are independent contracting firms that are not under the control of USAC or the FCC, but the FCC processes the contract and USAC pays for it out of the E-rate fund. It is a very different relationship.

 

Missouri has an amount taken out of telephone bills for a Missouri Universal Service fund as well that pays a set amount for low income and disabled people on their telephone bills.  It’s guiding agency is the Missouri Public Service Commission and Central Bank administers the program.

 

Clear as mud, right? If nothing else, E-rate reimbursements should not be listed as Federal GOVERNMENT revenue because it is not government money. Our definitions for Operating Revenue (300-304) don’t specify tax money, but I’ve made the assumption that government money = tax money.

 

Thanks.

 

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  John DeBacher (WI)

 

Unless it helps with job security, I think ferreting out whether revenues are truly tax $ or not is unnecessarily complicated and frustrating. For revenues, if it swims like a duck and it quacks like a duck, and it is legislated funds collected and appropriated by a governmental body, then the revenue should follow the appropriating source.

 

Trying to track discounts as some kind of in-kind funding would put me over the edge. And in our case, much of the e-rate discount is aggregated and applied for wide-area-networks at the state and cooperative level.

 

I agree with Nicole’s inclination to have libraries report e-rate funds received as revenue under federal—it is a federally legislated program.

 

Bruce—I don’t know how local appropriations are done and tracked in MN (maybe each city or town has to set a mill rate for library support), but in WI it would be very difficult to determine whether the source of the library appropriation is all from tax levy and not fees, state aid to local communities, or fund balance. It’s just an appropriation, and libraries report it as local revenue. At the state level, our major source of library support (for regional system aid, BadgerLink databases, and some grants) is not tax money, it is from the state universal service fund, and it is appropriated by the legislature in each biennial budget. The way I see it, those “fees” are not fundamentally different from sales taxes paid by end users then distributed according to the legislative action that set them up. They are revenues from the state. They swim and quack and we hope they don’t fly away.

 

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  Bruce Pomerantz (MN)

 

A U.S. Court of Appeals ruled that even though E-rate seemingly quacked like a duck and seemingly walked like a duck, E-rate was not a duck, i.e. federal funds. That’s how Clinton finessed it around Congress, which is the sole authority for levying taxes. 

 

It took me several years to get the libraries to list their “on behalf of” in (a) expenditures and also (b) list it as revenue. My winning argument for (a) was if you lost that revenue source, you would have no proof of how much it costs to truly operate the library and for (b), that if they did not include it, it would appear that they were running annual deficits in many cases.

 

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 Diana Very (GA)
 

 

But these funds are not revenues, they are a reduction of an expense. They should not be included in revenue from the federal government.

 

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 Robert Keith (NJ)
 

 

I agree with you Diana.  The E-rate program “provides discounts to assist most schools and libraries in the United States to obtain affordable telecommunications and Internet access.” (http://www.usac.org/sl/about/overview-program.aspx)  Calling it federal funds is also a misnomer.  The funds pass through USAC but are not raised through taxes as such. 

 

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 Katina Jones (MO)
 

 

Bob and Diana – some libraries in Missouri do choose to get a reimbursement instead of a discount.

 

Thanks.

 

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 Diana Very (GA)

 

Even if it's a reimbursement, it's still not revenue. It will be applied as a discount or reduction to the expense.

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 Scott Dermont (IA)

 

Yes, we have some in Iowa that do as well. But they are very few. Most see it as a discount and we tell them to not report it as revenue. I would be hesitant to ask them to report it as revenue as they may not actually see what the full amount of their non-discounted bill is. Some vendors may show it, and some may not, I’m not sure. Iowa has lots of local phone companies and my guess is they all do things differently.

 

 

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  Nicolle Steffen (CO)

 

Thanks for all the input. I appreciate y’all sharing your expertise.

 

Since posting the question to the SDC listserv I’ve received feedback from several libraries that it would indeed be nearly impossible to calculate their e-rate discounts accurately and comparably. Most thought it was not worth the effort. Translation: some respondents simply won’t do it.

 

Maybe this one isn’t worth torturing ourselves over, especially if we suspect the data collected is dodgy.

 

Thanks again!

 

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  Scott Dermont (IA)

 

Deanne,

 

Thank you for clearing this up. I clearly did not understand the basics of E-rate funding. This has not been a huge deal for me as I’d say 99% of my E-rate libraries receive this as a discount. I’ve always told them to not report it as revenue or expenditures. I’m not sure that I want to encourage them to start reporting it now as I think they are pretty well trained not to. I’ll have to give this some thought on how I want to deal with it in the future…

 

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 Nicolle Steffen (CO)

 

Thank you, Deanne! Your explanation is very helpful. I appreciate all your research and the detailed explanation. This will help me explain the PLS reporting to my colleagues.

 

That being said, I worry about comparability across libraries. If all the libraries aren’t reporting the same thing (intentionally or unintentionally) it compromises the data element.

 

[As an aside, I understand the difference between the “fees” versus “taxes.” (A great explanation, by the way.) But there is a lingering feeling of it being a distinction without a difference. I can hear ducks quaking…]

 

Thanks again everyone…especially Deanne.

 

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  Edie Huffman (IN)

 

We have 3 kinds of e-rate income in Indiana.  1 is state reimbursement of erate expenses, the 2nd comes from the federal government paid directly to individual libraries (federal is federal, I believe) and apparently some few libraries get erate money directly from the vendor?  --Edie

 

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Edie Huffman (IN)

 

Sounds like some discussion is needed!

 

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Edie Huffman (IN)

 

John:

What a well thought out, clear response.  That’s why we have public libraries in Indiana report something as state money that is not, but it is collected and distributed by the state.  So, I buy the duck analogy.  Best, Edie

 

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 Lynn Shurden (MO)

 

Just weighing in on this post after having been in Philadelphia for a week.

 

In Mississippi, because some libraries received discounts and some reimbursements after payment, we've always posted these funds as "other" income, IF the library actually received money from the phone company, etc. for reimbursement.  I actually have a line item in my public library budget for telecommunications expenditures and phone services, and one for e-rate reimbursements, which then is reported as other income.

 

Don't know what others are doing, but this is the way we've been handling it for some years now.

 

Lynn F. Shurden, State Data Coordinator, Mississippi

 

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Other research:

Kim Miller (IMLS)

 

Deanne,

 

The mentor list is what you want to look at.  Peter Haxton is Colorado’s mentor. 

 

The Mentor list is located on: http://www.imls.gov/assets/1/AssetManager/PLSMentors.pdf   (I have a hard time viewing the PLSC wiki on IE so I use Firefox.) 

Also located at: S:\OPRE\Statistical Program\Library Statistics\Library Statistics Surveys\PLS and StLA Surveys\PLS\PLS Directory\PLS Mentors 2012 - geo.doc

 

The LSWG list is located on the LSWG wiki: http://lswg.wikispaces.com/Members

and also at: S:\OPRE\Statistical Program\Library Statistics\Library Statistics Surveys\LSWG\LSWG Directory\LSWG directory - 2012.doc

 

Please see this page for FAQs about E-Rate, the Universal Service Fund and the Universal Service Administrative Company.

http://www.universalservice.org/about/resource-room/faq/    See Q4 & Q5. 

 

Kim

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http://www.edlinc.org/get_facts.html

How do schools, libraries and consortia receive E-Rate discounts? 
Applicants do not receive funds directly. They receive a discounted price. Once an application is approved, the school, library or consortium accepts a bid from the telecommunications service provider of its choice. The provider receives funds from the federal government to make up the difference between the discounted price and bid price. If no local telecommunications providers bids on the work, the local telephone company is required to provide the requested telecommunications service as the carrier of last resort. For more information about the E-Rate program, visit the FAQ page at the Universal Service Administrative Company (USAC) where general questions about the Universal Service Fund are posted.

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From USAC website FAQ:

http://www.universalservice.org/about/resource-room/faq/

 

USAC is an independent, not-for-profit corporation designated as the permanent administrator of the federal Universal Service Fund (USF) by the Federal Communications Commission pursuant to Part 54 of Title 47 of the Code of Federal Regulations.

USAC is not a federal government agency or department or a government controlled corporation as that term is defined in Sections 9101-02 of Title 31 of the United States Code. USAC administers the USF and its four programs for high cost companies serving rural areas, low-income consumers, rural health care providers, and schools and libraries. The USF helps provide communities across the country with affordable telecommunications services.

 

Q2: What is the Universal Service Fund? 

A2: The Universal Service Fund (USF) is money collected from telecommunications companies and dedicated to fulfilling the goals of universal service. Under the authority of the 1996 Telecom Act, the Federal Communications Commission (FCC) created the USF as well as the Universal Service Administrative Company (USAC), the organization charged with administering the USF. Telecommunications companies make contributions to the USF based on revenues from providing international and interstate telecommunications services.

In 2009, the USF totaled over $7.3 billion and was divided among the four USF programs: High Cost, Low Income, Rural Health Care, and Schools and Libraries. USAC manages the collection and distribution of money in the USF. Below are brief descriptions of each program, along with 2009 levels of USF funding:

The Schools and Libraries Program, commonly known as E-rate, provides discounts to schools and libraries in every U.S. state and territory for telecommunications, Internet access, and internal connections. In 2009, the program provided about $1.9 billion in support.

Q4: Who pays for the USF? 

A4: As required by the 1996 Telecom Act, all telecommunications carriers providing international and interstate service make contributions to the Universal Service Fund. Consumers may notice a "Universal Service" line item on their telephone bills. This line represents a charge by a telephone company to recover its mandated contributions to the USF. USAC collects these contributions and then allocates the proceeds to the four USF programs: High Cost, Low Income, Rural Health Care, and Schools and Libraries.

Q5: How does USF funding work?

 

A5: Paying into the USF (Collections):
All telecommunications carriers that provide international and interstate service make contributions to the USF. The amounts of these contributions are determined by projections of the aggregate demand for USF support, which USAC submits each quarter to the FCC. The FCC reviews these projections and determines the percentage of international and interstate revenues that carriers must pay into the fund.

Paying out of the USF (Disbursements):
USAC allocates money from the USF to fund the High Cost, Low Income, Rural Health Care, and Schools and Libraries programs. Entities eligible for support from these programs submit information to USAC for processing and evaluation, leading to disbursement of USF support to those approved for funding.

Schools and Libraries: Eligible applicants in this program open a competitive bidding process to receive bids on the products and services they seek. Service providers submit bids, which are reviewed by applicants under applicable program rules. Applicants select the service provider for the service or product and submit the appropriate forms to USAC for review. USAC then makes a funding commitment decision based on the program rules. Once funds are committed, applicants file invoices for the products and services they use.

 

More resources: 

http://www.e-ratecentral.com/default.asp

 

http://www.e-ratecentral.com/resources/help/erateTerms/default.asp

 

E-rate coordinators for libraries: http://www.e-ratecentral.com/us/stateCoord.asp?filter=L

 

E-rate facts:  http://www.edlinc.org/get_facts.html

 

http://www.gpo.gov/fdsys/pkg/CFR-2010-title47-vol3/pdf/CFR-2010-title47-vol3-part54-subpartF.pdf

 

Stated on page 11 in A Catalyst for Change: LSTA Grants to States Program Activities and the Transformation of Library Services to the Public:

 

Other Sources of Technology Support

Two other major sources of support help address connectivity and information technology needs in

U.S. libraries. The first is the investment made by the Bill & Melinda Gates Foundation, through its

U.S. Libraries Program. This program, which has been in existence since 1997, provided an estimated

$31 million in program and technology support to libraries across United States in 2007. The

program supports the purchase of computer hardware and connectivity including upgrades, training

for staff, and helping libraries advocate for local funding.

 

The second source of support for library technology is the E-Rate program.12 Established in 1996

in the Telecommunications Act (P.L. 104-104), this program allows libraries to apply for telecommunications

discounts for the connections and services needed to fulfill educational purposes. The

discounts range from 20 percent to 90 percent, depending on the eligibility of the school or library

applicant.13 The program is administered by the Universal Service Access Company (USAC), and is

not supported with federal funds but with contributions from interstate telecommunications providers.

Because E-Rate administration does not disaggregate expenditures to libraries from those of

schools, the Federal Communications Commission does not report on number of libraries served

through E-Rate or the total program expenditures for improved library service.14

 

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From the PLS data documentation

 

OPERATING REVENUE

Report revenue used for operating expenditures as defined below. Include federal, state, local, or other grants. DO NOT include revenue for major capital expenditures, contributions to endowments, revenue passed through to another agency (e.g., fines), or funds unspent in the previous fiscal year (e.g., carryover). (Funds transferred from one public library to another public library should be reported by only one of the public libraries. The State Data Coordinator shall determine which library will report these funds.)

 

301 State Government Revenue

 

These are all funds distributed to public libraries by state government for expenditure by the public libraries, except for federal money distributed by the state. This includes funds from such sources as penal fines, license fees, and mineral rights. Note: If operating revenue from consolidated taxes is the result of state legislation, the revenue should be reported under state revenue (even though the revenue may be from multiple sources).

 

302 Federal Government Revenue

 

This includes all federal government funds distributed to public libraries for expenditure by the public libraries, including federal money distributed by the state.

 

303 Other Operating Revenue

 

This is all operating revenue other than that reported under local, state, and federal (data elements #300, #301, and #302). Include, for example, monetary gifts and donations received in the current year, interest, library fines, fees for library services, or grants. Do not include the value of any contributed or in-kind services or the value of any non-monetary gifts and donations.

 

 

OPERATING EXPENDITURES

Operating expenditures are the current and recurrent costs necessary to support the provision of library services. Significant costs, especially benefits and salaries, that are paid by other taxing agencies (government agencies with the authority to levy taxes) "on behalf of" the library may be included if the information is available to the reporting agency. Only such funds that are supported by expenditure documents (such as invoices, contracts, payroll records, etc.) at the point of disbursement should be included. Do not report the value of free items as expenditures. Do not report estimated costs as expenditures. Do not report capital expenditures under this category.

 

357 Other Operating Expenditures

 

This includes all expenditures other than those reported for Total Staff Expenditures (data element #352) and Total Collection Expenditures (data element #356). Note: Include expenses such as binding, supplies, repair or replacement of existing furnishings and equipment; and costs of computer hardware and software used to support library operations or to link to external networks, including the Internet. Report contracts for services, such as costs of operating and maintaining physical facilities, and fees paid to a consultant, auditor, architect, attorney, etc.