FCC Chairman Takes Action to Fix Lifeline | Citizens Against Government Waste
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FCC Chairman Takes Action to Fix Lifeline

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.

It is mind-boggling when the government continues to squander money on a program that has been on the front line of wasteful spending, and program abuse.  Yet, that is exactly what the Universal Service Fund (USF) continues to do with through Low-Income Support program, which provides subsidies to low-income households for telephone and broadband service.         

Created in 1985, the Low-Income Support program provides Lifeline subsidies and Link-Up funding for low-income households.  Over the years, the Lifeline program has been expanded from providing one landline telephone per household in need, to offering a choice among a landline telephone, a wireless phone, or broadband internet service at a reduced cost.  With each expansion, waste, fraud, and abuse, and program costs have increased. 

The USF is funded through fees on consumer telephone bills.  This fee (a hidden form of taxation) provides funding for the four programs administered by the Universal Service Administrative Company (USAC), and is calculated based on quarterly program spending.  Three of the programs funded through USAC – the High-Cost Program, the Rural Health Care Program, and the Schools and Libraries Program –  operate under a budget, and the cost of these programs remains relatively contained.  However, the Lifeline program does not have a spending cap, and its budget fluctuates based on the number of participants in the program.  As the costs of any of these programs rise, so does the USF fee.

On May 30, 2017, the Government Accountability Office (GAO) released its latest report to Congress detailing the continued need for reform and accountability within the Lifeline program.  GAO found that the National Lifeline Accountability Database (NLAD) structure to verify subscriber eligibility is susceptible to risk of fraud, waste, and abuse, as companies have an incentive to enroll as many subscribers under the program as possible.  GAO was unable to confirm 1.2 million individuals of the 3.5 million it reviewed, or 36 percent of the enrollees.  As noted in a June 29, 2017 Washington Post article, “It is unclear how many ineligible subscribers may be in the remaining pool of 8.9 million subscribers GAO did not study.”

On July 11, 2017, Federal Communications Commission (FCC) Chairman Ajit Pai wrote to the USAC ordering it to take action to address the deficiencies found in the GAO report, his own investigations, and the FCC Office of Inspector General.  In his letter, he called upon the USAC to address the deficiencies in the NLAD system; identify and refer oversubscribed addresses to NLAD; identify and ask eligible telecommunications carriers with unexplained discrepancies in subscribers to take action to remediate the issues; check the Social Security Master Death Index each quarter to avoid recertifying individuals into the program who have passed away, and recover Lifeline payments associated with those deceased subscribers; identify and remediate new exact duplicate subscriber entries; and, create a registration of sales agents to disincentivize fraudulent activities, such as inappropriate data manipulation.

GAO first reported on serious problems within the Lifeline and Link-Up programs in October 2010, when it cited a significant increase in demand for the programs from 2008 to 2009, attributable in part to the increased availability of discounted wireless service for eligible individuals.  According to GAO, from 2005 to 2008, payments ranged from between $802 million to $823 million annually.  However, in 2009, these payments increased to approximately $1 billion.  GAO also revealed multiple instances of fraud and abuse within the Lifeline program, including the use of Craigslist to advertise the sale of Lifeline-subsidized phones and services, and beneficiaries signing up for more than the one allotted phone line by registering for service from multiple carriers. 

Following the GAO report, the FCC attempted to crack down on fraud and abuse within the program by codifying the restriction on the number of lines Lifeline subscribers could receive through the program, and ordered that any subscriber receiving multiple benefits in violation of the rule be removed from the program.  On January 31, 2012, the FCC adopted an overhaul plan for the program. 

Changes to the program included setting a savings target of $200 million for 2012; creating the NLAD to prevent multiple carriers from receiving support for the same subscriber; creating an eligibility database; establishing a one-per-household rule applicable to all providers in the program; establishing clear goals and metrics to measure the program’s performance and effectiveness; phasing out support for certain services, such as Toll Limitations; and, establishing a uniform, interim flat rate of reimbursement.  According to the FCC, by July 31, 2012, the reforms from this overhaul had generated $43 million in savings, and were on track to save the USF fund a total of $200 million by the end of December 2012.

On February 11, 2013, The Wall Street Journal reported that government spending on the Lifeline program had reached $2.2 billion despite the efforts to reduce costs through stronger enforcement measures.  The Journal’s review of the program “shows that a large number of those who received the phones haven’t proved they are eligible to receive them.”  On November 1, 2013, the FCC proposed imposing $33 million in penalties against three Lifeline providers for seeking duplicate payments for ineligible subscribers.  Meanwhile, the cost of the Lifeline program continued to increase, reaching more than $1.6 billion annually by the end of 2014. 

On February 13, 2015, FCC Commissioner Michael O’Rielly provided guidelines for further reform of the Lifeline program.  Among his recommendations was putting the Lifeline program on a budget with a cap on spending.  Noting that GAO highlighted the lack of a budget cap for the program, O’Rielly recommended that “setting a ceiling on reimbursements is a prudent step to protect ratepayers.  Dollars lost to fraud may be returned to the federal government, but not to ratepayers who have already footed the bill.”  He also recommended no increase in the reimbursement rate for broadband; limiting services eligible for support; prohibiting double dipping; improved targeting of funding to those who really need it, tightening eligibility requirements; requiring a minimum contribution from beneficiaries; making carrier participation voluntary; implementing automatic safeguards against abuse; and, requiring document retention by providers to reduce abuse and fraud. 

On March 24, 2015, GAO released another report finding that many of the FCC’s 2012 reforms were not working, and the agency still needed to do more to address deficiencies within the Lifeline program.  GAO determined that the FCC lacked an evaluation plan for the data it had gathered from its broadband pilot program. 

On June 12, 2015, a Consumer Reports (CR) exposé revealed how easy it was to get around the restrictions imposed in the 2012 reforms.  CR investigators in Oklahoma and Indiana found that in some cases Lifeline plans were registered with forged signatures, assigned to vacant homes, or using credentials of other individuals.  In Colorado, the CR investigators and a Denver news team found that salesmen “routinely accepted fake food stamp cards, including one with ‘training card’ on it and another clearly printed from an internet file.”  While the FCC continued to fine carriers and vendors (more than $96 million by the time the CR report was filed), the violations appeared to continue.

On March 3, 2016, as the FCC considered further expansion of the Lifeline program, Commissioner O’Rielly called on the agency to put Lifeline on a strict budget to halt the runaway spending.  Noting that without a major change in direction, “the FCC is preparing to expand the size and scope of the Lifeline Program without the necessary inclusion of a hard budget or financial constraints.”  O’Rielly proposed that setting a cap on the Lifeline program allows for proper alignment with other USF programs, and limits costs to consumers. 

On March 31, 2016, the FCC adopted the expansion of the Lifeline program by adding subsidized broadband internet service at the amount of $9.25 per month per eligible household and increased the annual budget for Lifeline from $1.75 billion to $2.25 billion per year, without an annual spending limit or cap.  The decision also stripped the ability of states to designate Eligible Telecommunications Carriers to administer the Universal Service Fund, and gave it to the FCC.  This provision runs contrary to Section 214 of the Communications Act of 1934, which specifically gives states such authority. 

Commissioner O’Rielly noted that the increase to the Lifeline program caused by expanding to broadband internet could amount to $750 million.  Commissioner Pai stated, “It’s telling that the agency is already spending money in anticipation of getting a greater amount of revenue from the Universal Service Fund … That money is already being spent, and it has to come from somewhere.  I would respectfully submit to you that ultimately, it’s going to be in the form of a broadband tax.”

Chairman Pai’s efforts to clean up the program are laudable.  However, because the Lifeline program remains without a budget cap on the program’s budget to keep costs under control, consumers are likely to continue to see ongoing increases in the USF fee until the waste, fraud, and abuse comes to an end. 


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