USF: Where the Money Goes

Published July 1, 2007

The Federal Universal Service Fund (FUSF) provides for four principal funding mechanisms: High Cost, Low Income, Schools and Libraries (also known as the E-Rate program), and Rural Health Care.

The High Cost Fund finances construction of telecom facilities in rural areas where construction costs are higher and revenue streams, because of low population density, are lower. The High Cost Fund accounts for the majority of FUSF disbursements–64.1 percent of the total $6.4 billion FUSF budget in 2005–according to the Pacific Research Institute. Payments are made to carriers, not individuals.

Although the purpose of the FUSF is to keep rates low for rural users, funding decisions are based purely on geography, not customers’ per-capita income. Phone companies that serve tony enclaves such as Jackson Hole, Wyoming receive FUSF funds along with those serving much poorer rural areas.

The Low Income Fund also distributes payments to carriers, not individuals, based on the number of customers they have who participate in qualified means-tested public assistance programs. There is no independent certification or accounting–telephone companies simply report what their customers claim. Low Income distributions accounted for 14 percent of the 2005 FUSF outlays, PRI reported.

The Schools and Libraries Fund, which subsidizes service to public schools and libraries, consumes 21.6 percent of the FUSF budget. The remaining 0.3 percent goes to Rural Health Care. As with the High Cost and Low Income funds, FUSF payments from these funds go to telephone companies, not schools, libraries, or rural hospitals.

Steven Titch