GAO: Some progress on Lifeline reform, but much still to do

As Congress’s watchdog, the Government Accountability Office (GAO) does not pull punches when assessing how the federal government spends taxpayer dollars. In March 2015, the agency issued a blistering report on the Federal Communications Commission’s (FCC) efforts to assist low-income families. The report criticized the agency for spending $1.7 billion annually without knowing — or caring — whether any of this money actually helped narrow the digital divide. Its title succinctly summarized its findings: “FCC should evaluate the efficiency and effectiveness of the lifeline program.” Partly in response to this report, the FCC reformed Lifeline in March 2016, which prompted some members of Congress to ask the GAO whether the reforms adequately responded to its criticism. Last week, the GAO answered that question. The new report recognized that the FCC has taken steps to improve the program. But again, its title reveals the GAO’s ultimate conclusion: “Additional action needed to address significant risks in FCC’s lifeline program.”

Evaluation: Is Lifeline actually helping households at risk?

Ostensibly, Lifeline was designed to help low-income people who could not otherwise afford basic telephone service, so they could stay on the telephone network and have access to friends and emergency services. To do so, the program provides a $9.25/month subsidy to eligible consumers, which generally means households that qualify for one of many other safety net programs. The GAO’s 2015 report severely criticized the FCC for failing to evaluate in a measurable way whether the program was achieving this goal. It described two academic studies cited by the FCC that suggested as much as 88 percent of Lifeline funds may go to households that would not cancel telephone service if the subsidy disappeared. At a minimum, the GAO had suggested, the FCC should study whether Lifeline actually reduces the gap between connected and unconnected households and at what cost. As I noted in an AEI study last year, the FCC not only ignored this recommendation but also compounded its error by extending Lifeline to subsidize broadband and telephone service, but without showing that an additional $9.25/month would help households that currently do not subscribe to internet access. The new GAO report echoes this criticism. It notes that even without a Lifeline subsidy, broadband adoption rates for low-income households have steadily increased at rates faster than the population as a whole. The GAO noted that the FCC’s 2016 order provided for an outside, independent, third-party evaluation of Lifeline’s design, function, and administration. But the FCC did not require this review to be completed until December 2020. The order suggests this longtime horizon is necessary so the study can evaluate the effect of the shift from telephone to broadband service. But this is exactly backward. Without studying low-income consumers with no broadband to determine the drivers of non-adoption, the FCC has no idea what amount of subsidy will narrow the digital divide or whether the money is best spent on monthly service, equipment subsidies, or digital literacy initiatives. Instead, the FCC will spend $7 billion or more between 2017 and 2020 without knowing if a single cent has been effective.

Accountability: Who controls the money?

The GAO has also long criticized Lifeline and its parent entity, the Universal Service Fund, for insufficient financial controls. The program has long been a punching bag for potential fraud, waste, and abuse. The new report acknowledges that the FCC has addressed some of these concerns by developing unique identification codes for eligible telecommunications carriers that cut down on the potential for fraud. (In one somewhat amusing aside, the GAO admits that it tested these controls by submitting a reimbursement request from a fictitious company using a fabricated identification code, but that Lifeline administrators “appropriately rejected our application.”) Despite this, the report criticized lax internal control weaknesses that would allow a single employee to create a fraudulent identification code or hijack a dormant code and begin making false claims. The GAO’s recommended changes seem commonsense and simple to make. More significant is the GAO’s criticism of the FCC maintaining the Universal Service Fund —which collects $9 billion annually — in a private bank account outside the US Treasury that lacks the transparency and other regulatory safeguards that usually protect public funds. The FCC has established a preliminary plan to move these funds under the Treasury’s purview, but it has not been finalized. The FCC also conducts an insufficient number of audits and is subject only to a soft, unenforceable budget cap that does little to control runaway expenses. These are valid critiques and point to the reform I advocated last year that Congress eliminate the Universal Service Fund’s shady, self-funding, off-budget funding mechanism and instead make it a line item in the federal budget. This would make the program more transparent and subject to greater congressional oversight, which would help reduce fraud and abuse and keep program expenses tied to a fixed budget. Overall, the GAO report points to the difficulties that the FCC has, and will continue to have, by deciding simply to extend a Reagan-era telephone subsidy to cover broadband access. Unquestionably, the government should offer assistance to low-income consumers at risk of falling on the wrong end of the digital divide. But that assistance should be designed from the ground up, tailored to the needs of the population it seeks to serve, with controls to protect against fraud and abuse. As we have argued before, Lifeline needs revolutionary, not evolutionary, change.

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