NCPA - National Center for Policy Analysis

Fraud and Malfeasance Plague E-Rate Program

February 26, 2004

Government subsidies that used to provide computers in poor schools are being abused, according to the General Accounting Office. The program, known as e-rate (for education rate), was passed as part of the 1996 Telecommunications Act, in the form of a tax on consumer phone bills. The "universal service fee" tax was designed to narrow the technology gap between rich and poor schools. However, the program has been plagued with inflated costs and fraud, says Todd Oppenheimer of the Nation:

  • In San Francisco, school officials discovered that the $68 million price of a networking project by a private company would actually cost less than $18 million if done by district technicians.
  • A New York company was charged with eight counts of federal crimes after the firm bought expensive equipment beyond what the schools could pay for, then created phony invoices for its own reimbursement.
  • An $18 million e-rate project in Ysleta, Texas, was ended after federal auditors discovered that the firm contracting with the Ysleta schools had precluded other Internet companies from the bidding process.

The Federal Communications Commission is now proceeding with caution in approving e-rate grants. However, the program rested on a premise during the Clinton Administration that there exists a "digital divide" between the rich and poor. But the Education Department points out that poor schools now have almost as many computers as rich schools. Additionally, the program is creating somewhat of a hassle in the classroom, as teachers in overcrowded schools must spend time managing technical glitches and preventing students from cheating or viewing inappropriate material on computers.

Moreover, Oppenheimer believes that dependence on computers in the classrooms takes away from real intellectual challenges for students, and that successful schools often downplay technology in favor of teaching the basics.

Source: Todd Oppenheimer, "The Internet School Scam," The Nation, February 16, 2004.


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