Effective October 1st, however, the program became subject to Federal accounting standards. Although initially viewed as a technicality, the FCC and/or OMB - no one now wants to take credit - decided that the FCDLs, themselves, constituted legal obligations that must be backed by cash. While the program has about $3 billion in cash, it also has about $3 billion in previous unused commitments. This apparently meant that, without new cash contributions (and/or the cancellation of earlier commitments) no new funding commitments could be made. As this and related complications were and are still being ironed out - a process that is becoming increasingly political - the SLD stopped issuing new FCDLs.

The question is what happens next, and when? We see three possibilities.

(1) Under political pressure, the decision to define FCDLs as legal obligations requiring cash on-hand might be reversed. Although viewed as a low probability, this would permit the immediate resumption of funding. Since the SLD has continued its review of applications since the freeze began, a large initial wave of commitments (more than $300 million) would be expected.

(2) A related possibility being given serious consideration is to weaken the language of the current FCDLs to make it clear that the funding being awarded is dependent upon the availability of cash at the time invoices are filed. If the SLD can issue weaker FCDLs - perhaps we can think of them as "Funding Authorization Letters" - that are not legally considered obligations, then the funding waves could again be resumed much as before. The major concern with this approach is whether applicants and/or service providers will be willing to accept these authorizations as the basis for the initiation of new projects and/or the extension of discount-dependent credits.

(3) If no changes are made, then the resumption of funding will depend on the availability of uncommitted cash. The SLD has been actively working to free up earlier commitments by encouraging applicants to file Form 500s to cancel existing funding awards that will not be used. Additional uncommitted cash is expected to be generated after October 29th, the invoice deadline for recurring services, to the extent that applicants do not actually use all the funds awarded for FY 2003. The primary source of new cash, however, are contributions that flow into the Universal Service Fund on a quarterly basis - a flow that has unfortunately been reduced by FCC actions as recently as last month (see ERC Comments). In this case, the funding schedule will be tied primarily to new cash inflows and may require new rules and procedures to establish funding priorities.

Under any scenario, we might expect at least a modest resumption of funding in November, if only to relieve political pressures. Stay tuned.

(1) The Block 4 discount rate worksheet of the new Form 471 for FY 2005 will require NCES Codes (or the equivalent for libraries and private schools) in addition to the regular SLD Entity Numbers. The return to NCES Codes, last used in FY 1999, is the result of a request by the U.S. Department of Education, which is now reviewing E-rate forms.

NCES Codes for most entities - public schools, public districts, private schools (PSS Codes), and public libraries (FSCS Codes) - can be found by searching the NCES Web site (see the Online Data section at NCES Site Index). The searchable data on the NCES site is for the 2002-2003 year. New or recently assigned NCES Codes may have to be obtained from state education departments.

Non-instructional facilities, now required to be listed in Block 4, do not have NCES Codes. Draft instructions for the Form 471 do not yet indicate how the NCES fields should be completed for such entities. The SLD is expected to provide additional guidance specifying that the NCES fields for these entities can either be left blank or include a "dummy" number.

(2) FCC Registration Numbers ("FRNs") are required for all E-rate applicants, vendors, and consultants under the Debt Collection Improvement Act ("DCIA").

While the draft forms for FY 2005 do not contain fields for FRNs, the Act does become effective November 1, 2004. Although we do not expect penalties to be assessed against applicants without FRNs after this date, at least until the SLD provides additional guidance, we note that a Registration Date is recorded when a number is obtained. We therefore suggest that every E-rate applicant obtain at least a number for their Billed Entity as soon as possible to conform to the DCIA.

Additional information on FRNs can be found at Weekly News 9/20/04. As discussed, please note: (a) that many applicants may already have FRNs because of FCC licenses held for other services; and (b) that the FCC is ultimately planning to replace Entity Numbers with FRNs (which means FRNs will be required for all facilities).

The SLD has also announced plans to conduct three 1½-day workshops for service providers and consultants. The first will be held in New Orleans October 26-27. Two others, with dates yet to be announced, are planned in Chicago and San Francisco. Additional information can be found at SP Training.

Although the application window has not yet been set for FY 2005, we suggest that applicants plan for a similar schedule. There are, however, several uncertainties this year.

(1) New versions of Form 470 and Form 471 are still in draft form (see above). The SLD, however, is currently accepting Form 470s in the existing format (May 2003), so there is no reason to delay filing.

(2) The new Eligible Services List is also still in draft form (see ESL Draft). Under FCC rules, which the FCC can waive, the List must be formally released at least sixty days before the Form 471 application window opens. Without a waiver (which we would expect), the opening would have to be delayed until, at the moment, early December.

(3) The current funding freeze is not expected to impact next year's application cycle, but remains an unknown.

(4) A new FCC E-rate Order, which may address changes to the discount rate matrix, is reportedly set to be released within the next couple of months. Hopefully, the FCC will not allow an Order issued this late in the year to apply to FY 2005.

One major change for FY 2005, which will require careful planning for Internal Connections applicants, is the implementation of the new "2 in 5" rule that limits funding for new equipment installations, on a site-by-site basis, to twice every five years. Since funding of even one dollar counts for that year, applicants need to carefully plan what services will be needed, and when, for individual schools and libraries. Big city applicants and those who apply using shared discount rates need to pay special attention to this rule. Additional information on this is available on the SLD's Web site at 2/5 Rule .