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An Audit:

Universal Service Fund
Public Service Commission

August 2007
Report Highlights
 
The Universal Service Fund was established under 1993 Wisconsin Act 496 to ensure that all state residents receive essential telecommunications services and have access to advanced telecommunications capabilities. The Fund supports telecommunications services and access programs that are provided by several state agencies, including the Public Service Commission (PSC), the Department of Administration (DOA), the University of Wisconsin (UW) System, and the Department of Public Instruction (DPI).

The PSC is responsible for developing the overall policies and procedures related to the Universal Service Fund but is directed by statute to contract with a private firm to administer the Fund. At the request of the PSC, we completed a financial audit of the Universal Service Fund to fulfill audit requirements under s. 196.218(2)(d), Wis. Stats. Our audit report contains our unqualified opinion on the Fund’s financial statements and related notes for the fiscal years ending June 30, 2006 and 2005.

As part of our financial audit, we also reviewed various aspects of the Universal Service Fund’s programs, including:
  • budgetary issues for the PSC-operated programs;

  • implementation of a statewide data and video network that affects the Educational Telecommunications Access Program; and

  • a large increase in the fund balance.


Fund Finances

The Universal Service Fund is funded primarily through assessments paid by telecommunications providers, which totaled $30.2 million in FY 2005-06. It also received $1.1 million in capital lease financing through the State’s master lease program and $535,000 in interest income.

More than $23.0 million was expended during FY 2005-06 for 13 programs supported by the Fund. Eight of these programs are operated by the PSC, with expenditures totaling $4.5 million in FY 2005-06. However the largest program, the Educational Telecommunications Access Program, is operated by DOA.

The Educational Telecommunications Access Program subsidizes data lines and video links for eligible educational institutions. Its expenditures of $11.6 million represented 50.4 percent of the Fund’s total expenditures in FY 2005-06.

During FY 2005-06, the Universal Service Fund also provided $6.2 million for three programs administered by DPI. In addition, it paid more than $700,000 to UW System. That funding helped provide four campuses—River Falls, Stout, Superior, and Whitewater—access to voice, data, and video services through the BadgerNet Converged Network, the State’s voice, data, and video telecommunications infrastructure.

During FY 2005-06, revenue and other financing sources exceeded expenditures by $8.8 million for several of the programs funded through the Universal Service Fund. As a result, the fund balance increased to $15.8 million as of June 30, 2006. Most significantly, assessments and other financing resources received for the Educational Telecommunications Access Program exceeded expenditures by $6.6 million.

Because of billing changes and statutory restrictions, UW System currently is not able to fund expenditures for its BadgerNet Access program through the Universal Service Fund. It is pursuing a statutory change to remove the restricting language and allow funding from the Universal Service Fund to be used for any telecommunications services across UW System. The Legislature is considering the proposed change as part of 2007-09 budget deliberations.

The PSC is responsible for determining the assessment rates that apply to telecommunications providers for all Universal Service Fund programs, based on the need for funds and appropriation amounts.

 

PSC-Operated Programs

The eight programs operated by the PSC include programs that:

  • provide low-income or disabled individuals affordable access to basic telephone and information services;

  • lessen the financial effect of high rate increases on users in the state; and

  • assist nonprofit medical clinics or public health agencies in the purchase of medical telecommunications equipment.

For several years after the first PSC-operated programs were established in 1996, expenditures were significantly less than budgeted.

In 2001, the Legislature limited the amount that telecommunications providers could be assessed to support the PSC-operated programs to $5.0 million in FY 2003-04 and $6.0 million in FY 2004-05 and each year thereafter. Corresponding appropriation expenditure levels were also established in the 2003-05 and 2005-07 biennia.

However, with the addition, expansion, and promotion of PSC-operated programs, expenditures for operations and administration increased to $6.2 million in FY 2004-05. Expenditures decreased to $4.5 million in FY 2005-06, as the PSC reduced costs to meet the appropriation limits. As part of these efforts, the PSC reduced benefits in the program that helps people with disabilities acquire special telecommunications equipment and reduced its promotion efforts.

The Governor’s 2007-09 biennial budget proposal would repeal the limitation on assessments to support the PSC-operated programs. Currently, the Legislature is also considering an Assembly proposal to limit overall Universal Service Fund assessments paid by telecommunications providers to $32.0 million annually.

 

Educational Telecommunications Access Program

The Educational Telecommunications Access Program, which is administered by DOA, pays for equipment, installation costs for data lines and video links, and a portion of monthly service costs for eligible educational institutions. Over $102.3 million has been expended for the program through FY 2005-06.

The data line and video link services are provided by a consortium of telecommunications providers. In March 2005, DOA entered into a new $116.7 million, five-year agreement with the consortium for a new converged statewide data and video network that provides higher-capacity data capabilities and video access to the State of Wisconsin and other public users. Conversion to the new network was completed on September 1, 2006.

The amount expended for the Educational Telecommunications Access Program decreased by $5.2 million, or 31 percent, during FY 2005-06. In addition, the program’s expenditures were $5.7 million less than its spending authority of $17.3 million for the year. DOA attributes the underspending in FY 2005-06 to slower than anticipated conversion to the new network. It expects ongoing annual costs will be close to the current appropriation level.

 

Library Aid

Until FY 2003-04, general purpose revenue (GPR) funded state aid to public library systems. 2003 Wisconsin Act 23 shifted $4.2 million in funding for public library system aid payments from GPR to the Universal Service Fund for the 2003-05 biennium.

2005 Wisconsin Act 25 further reduced GPR funding for library systems by $2.2 million and increased funding from the Universal Service Fund by another $4.2 million over the 2005-07 biennium. Under Act 25, the Fund paid 28.3 percent of the library systems’ state aid in FY 2005-06, and 27.2 percent in FY 2006-07.

The Governor’s 2007-09 biennial budget proposal includes a provision to increase funding from the Universal Service Fund for public library systems by $1.9 million over the 2007-09 biennium. In addition, the Legislature is currently considering a proposal by the Joint Committee on Finance that would direct the PSC to use $9.2 million of the Fund’s available balance to replace a similar amount of GPR funding for public library systems during FY 2007-08.

 

Recommendation

We include a recommendation for the Public Service Commission to:

  •   work with agency staff in DOA and UW System to consider available fund balances when establishing assessment levels for all programs funded by the Universal Service Fund (p. 16).

 

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