C. Funding Commitment From USA
4. Requests for Multi-Year Commitments
· Ownership structure. Explain who will own each material element of the network (e.g., fiber constructed, network equipment, end user equipment). For purposes of responding to this question, “ownership” includes an IRU interest. Applicants should clearly identify the legal entity who will own each material element so that USAC can verify that only eligible entities receive the benefits of program support.705 Applicants should also describe any arrangements made to ensure continued use of such elements by the network members for the duration of the sustainability period.
· Sources of future support. If sustainability is dependent on fees to be paid by eligible HCPs, then the sustainability plan should confirm that the HCPs are committed and have the ability to pay such fees. If sustainability is dependent on fees to be paid by network members that will use the network for health care purposes, but are not eligible HCPs under the
Commission’s rules, then the sustainability plan should identify such entities. Alternatively, if sustainability is dependent on revenues from excess capacity not related to health care purposes, then the sustainability plan should identify the proposed users of such excess capacity. Projects who have multiple sources of funding should address each source of funding and the likelihood of receiving that funding. Eligible HCPs may not receive support twice for the same service. For example, if the Healthcare Connect Fund provides support for a network to procure an IRU to be used by its members, and the network charges its members a fee to cover the undiscounted cost of the IRU, the members may not then individually apply for program support to further discount the membership fee.
· Management. The applicant’s management plan should describe the management structure of the network for the duration of the sustainability period, and the applicant’s budget should describe how management costs will be funded.
293. The Pilot Program required projects to submit a copy of their sustainability plan with every quarterly report.706 Based on our experience with the Pilot Program, we conclude submission of the sustainability report on a quarterly basis is unnecessarily burdensome for applicants, and provides little useful information to the Administrator. We therefore conclude that sustainability reports for the
Healthcare Connect Fund should only be required to be re-filed if there is a material change in sources of future support or management, a change that would impact projected income or expenses by the greater of 20 percent or $100,000 from the previous submission, or if the applicant submits a funding request based on a new Form 461 (i.e., a new competitively bid contract). In that event, the revised sustainability report should be provided to USAC no later than the end of the relevant quarter, clearly showing (i.e., by
redlining or highlighting) what has changed.
level of cost savings that they could receive with multiple years of guaranteed funding. The Pilot Program, on the other hand, provided a lump-sum award over a three-year period, which provided projects with additional leverage in negotiating contracts.
295. In the July 19th Public Notice, the Bureau sought to further develop the record on issues relating to multi-year contracts, including issues relating to upfront payments.708 Commenters
unanimously supported multi-year commitments as a measure that would reduce administrative costs and increase the value of the services procured.709
296. Discussion.We will allow applicants in the Healthcare Connect Fund to receive multi- year funding commitments that cover a period of up to three funding years. The multi-year funding commitments we adopt will reduce uncertainty and administrative burden by eliminating the need for HCPs to apply every year for funding, as is required under the Primary Program, and reduce
administrative expenses both for the projects and for USAC.710 Multi-year funding commitments, prepaid leases, and IRUs also encourage term discounts and produce lower rates from vendors.711 Multi- year commitments will also allow consortium applicants to choose HCP-constructed-and-owned
infrastructure where it is the most cost-effective way to obtain broadband. Applicants receiving support for long-term capital investments whose useful life extends beyond the period of the funding commitment may be subject to additional reporting requirements to ensure that such facilities continue to be used for their intended purpose throughout their useful life. We delegate authority to the Bureau to issue administrative guidance to implement such requirements.
297. Applicants requesting a funding commitment for a multi-year funding period should indicate the years for which funding is required on Form 462 and, for consortia, with the attachment that lists the HCPs and costs for each HCP within the network. If a long-term contract covers a period of more than three years, the applicant may also have the contract designated as “evergreen” if the contract meets the criteria specified in section VI.B.6.d above, which will allow the applicant to re-apply for a funding commitment under the contract after three years without having to undergo additional
competitive bidding.712 In choosing a three-year period, we strike a balance between allowing applicants and the Fund to reap the benefits of long-term contracts, reducing administrative burdens on applicants and the Fund, and ensuring that applicants are not “locked in” to long-term contracts which may prevent them from seeking more cost-effective options when prices drop, or they choose to upgrade to higher bandwidths/newer technologies.713 Three years is also consistent with our requirement that upfront
708July 19 Public Notice, 27 FCC Rcd at 8198, para. 11.
709See, e.g., AHA PN Comments at 4; RWHC PN Comments at 4; MTN PN Comments at 3; CCHCS PN Comments at 5.
710SeeUSAC Observations Letter at 4; MTN PN Comments at 3; CCHCS PN Comments at 5. Multi-year funding commitments will only be available in the Healthcare Connect Fund.
711See, e.g., IRHN PN Comments at 14, 18 (multi-year contracts allow HCPs to lock in cost-effective pricing for high-speed broadband for multiple years, give vendors an improved business case to construct/install/upgrade fiber or other plant, and help make the business case for commercial providers to lower their standard recurring-cost pricing due to the longer-term revenue stream).
712See supra section VI.B.6.d. By having contracts designated as “evergreen,” HCPs will also be able to exercise voluntary extensions without re-bidding as described above. See id.; cf. CHCC/RMHN PN Comments at 4; MTN Comments at 3-4.
713SeeRWHC PN Comments at 4; CHCC/RMHN PN Comments at 4; CCHCS PN Comments at 5; IRHN PN Comments at 14; UTN PN Comments at 4. See also USAC E-rate guidance for technology plans, available at http://www.usac.org/sl/applicants/step01/default.aspx (last visitedDec. 3, 2012) (recommending that in general, e- rate technology plans should not cover more than three years).
payments averaging more than $50,000/site be amortized over at least three years. Commenters generally support a three-year period as being reasonable.714 Consistent with current rules, a multi-year funding commitment cannot extend beyond the end of the contract submitted with the request for funding. For example, if an applicant submits a two-year contract and requests a multi-year funding commitment, USAC will only issue a funding commitment for two years. Similarly, if a contract ends in the middle of the funding year, the funding commitment can only extend to the end date of the contract.
298. In the NPRM, the Commission proposed a $100 million cap for infrastructure projects.715 We institute a single cap of $150 million annually that will apply to all commitments for upfront
payments during the funding year, and all multi-year commitments made during a funding year.716 This approach for the hybrid infrastructure-services program will provide greater flexibility than the $100 million cap proposed in the NPRM for infrastructure projects; it recognizes that upfront payments also can be substantial when purchasing services from a commercial provider who needs to deploy facilities to serve the HCP. This cap takes into account the need for economic reasonableness and responsible fiscal management of the program, and will help prevent large annual fluctuations in program demand. We direct USAC to process and prioritize funding requests for upfront payments and multi-year commitments on a rolling basis, similar to the process we set forth above for funding requests generally. We also direct USAC to periodically inform the public, through its web site, of the total dollar amounts subject to the
$150 million cap that have been (1) requested by HCPs (2) actually committed by USAC for the funding year.717 We may consider adjusting the cap upward if it appears a significant number of Primary Program participants are moving to the Healthcare Connect Fund. Finally, USAC may establish a filing window tailored toward funding requests subject to the $150 million cap, if necessary.718
299. Current Commission rules allow universal service support for state and federal taxes and surcharges assessed on eligible services.719 We recognize that taxes and surcharges can fluctuate over a three-year commitment period. In the Pilot Program, projects were allowed to estimate taxes and surcharges over the commitment period. Similarly, in the Healthcare Connect Fund, we will take into account the year-to-year fluctuation in taxes and surcharges by allowing HCPs and consortia to estimate the expense using either current tax rates or by projecting the tax rate for the commitment period.
Projected taxes and surcharges shall be limited to no higher than 110 percent of the current rate at the
714See, e.g., NCTN PN Comments at 5; RHWC PN Comments at 4; CCHCS PN Comments at 5 (supporting a term of three to five years); SWTAG PN Comments at 11 (stating that a three-year term would allow for changes to maintenance agreements and equipment upgrades if necessary).
715NPRM, 25 FCC Rcd at 9421-22, paras. 128-31.
716We find that a single cap is the most easily administrable, given that some multi-year commitment requests will likely include a component for upfront payments. The Anti-Deficiency Act (ADA) prohibits the Commission from making or authorizing an expenditure or obligation that exceeds the amount available for it an appropriation or fund.
31 USC §1341. The universal service programs, however, have been exempt from the ADA since about 2005, Pub.
L. No. 108-494, Title III, §§ 301-302 (Dec. 23, 2004) and currently are exempt until December 31, 2013 as part of a two-year exemption set forth in the Consolidated Appropriations Act, 2012, Pub. L. No. 112-74, § 510 (Dec. 23, 2011).
717We require USAC to post this information both for the $150 million cap on multi-year commitments and upfront payments, and for the overall $400 program cap. See infra section X.C. If an applicant signs a multi-year contract but funds are no longer available for the funding year for a multi-year commitment, the applicant may choose to simply seek a one-year funding commitment, have the contract designated as “evergreen,” and apply for a multi- year funding commitment in the next funding year.
718See Appendix D, 47 C.F.R. § 54.675.
71947 C.F.R. § 54.609(a).
time that the HCP or consortium files a funding request.720 The funding commitment will be issued based on the tax and surcharge rate provided by the applicant. We note that this does not lead to an additional potential for waste, fraud, and abuse, because disbursements will be based on actual expenses, not the projections.