One approach to solving the E-rate funding problem is to legislatively exempt the fund from the Anti-Deficiency Act. By permitting the SLD to issue formal - or "hard" - commitments without additional unobligated cash on hand, the SLD could return to its previous funding policies. Draft language to so exempt the E-rate fund is being circulated, but is running into opposition from the Office of Management and Budget ("OMB").

Reportedly, the FCC, which had earlier supported a legislative solution, is now seriously considering a "soft" commitment approach. A Tentative Funding Qualification Letter ("TFQL") is being discussed. As drafted, the TFQL would be sent to an applicant whose application had been reviewed. Instead of formally committing dollars to each FRN, however, the letter would simply advise the applicant that based on the SLD's "preliminary review," a certain dollar amount of discounts appears to be "Qualified" for funding (and, possibly, that other dollar amounts appear to be "Not Qualified" or "Under Review").

A number of applicants and vendors are telling the FCC that a "soft" commitment letter would not be sufficient to permit them to proceed with any E-rate dependent projects. Without solving the basic accounting problem, the TFQL can be seen only as courtesy advisory on the status of an applicant's application. That would be better than nothing under the current environment, but it is hardly a solution.

And so the problem remains. Stay tuned.

BEAR reimbursements are just another form of discounts on eligible services. If the supplier had discounted the bills directly, the applicant would have just paid less and there is clearly no requirement that the savings must be used in some special way. Discount reimbursements are similarly unencumbered. As far as the E-rate program is concerned, an applicant can cash a reimbursement check and use the dollars to pave the school parking lot.

That being said, we would offer the following two thoughts:

1. The clear purpose of the E-rate program is to support technology usage. As a result, many applicants, as a matter of their policy, try to use the savings/reimbursements for technology related projects.

2. If E-rate funds are received on services that are also covered by other federal or state grants, applicants need to be careful not to double-dip. As a general rule, E-rate discounts apply first. Financial support from other grants should be based only on the non-discounted costs of the services or products received with E-rate discounts.