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).