Texas USF Imminent Insolvency Raises Lawmaker Concern
Texas state legislators, small telcos and rural educators sounded the alarm about the possibility of the Texas USF (TUSF) becoming insolvent by year-end. The Public Utility Commission over the summer declined to double the surcharge on consumer phone bills, with Chair DeAnn Walker instead asking legislators to stabilize the fund when it reconvenes in January (see 2008110047). With TUSF expected to become insolvent in about 60 days, "some of our companies are in a full-on panic,” said Texas Telephone Association (TTA) Executive Director Mark Seale in an interview. State Rep. Brooks Landgraf (R) told us Friday he sees opportunity to revamp TUSF to support broadband.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The PUC would need to collect an extra $100 million annually to keep the fund solvent, by doubling the revenue-based surcharge on intrastate revenue to 6.4%, Walker wrote July 30. The chair didn’t want to do that during economic hardship from the pandemic. Walker suggested the legislature consider next year shifting to a connections method or requiring VoIP customers to pay in (see 2008110047).
State legislators urged PUC action in seven letters sent after July 30 in case 50796. “We are aware of a number of options available to Commission to adjust TUSF to keep the Fund solvent, including some options the Commission has used on numerous prior occasions,” wrote Texas Legislative Rural Caucus Chairman Doc Anderson (R) and 24 other members in an Aug. 21 letter. Failure to act “endangers the viability of several small cooperative phone companies in our districts.” The House State Affairs Committee hosted a TUSF webinar Sept. 16, said a Sept. 25 letter by four state representatives. Asking many detailed questions, the members noted the PUC “waited until funds almost ran out before even considering increasing the assessment rate.” TTA, the Texas Border Sheriff’s Coalition and multiple Texas education associations also sent letters.
“It’s alarming that they’re on the brink of insolvency with that fund,” but it creates an opportunity to update TUSF to support broadband, said Landgraf, who criticized the PUC for punting to the legislature in a Sept. 3 letter. Landgraf contacted providers and sees “tremendous” appetite among his colleagues for TUSF changes in the coming session of the legislature, which meets in odd-numbered years. Landgraf shares concerns about raising the TUSF surcharge and has no issue with the PUC seeking legislative guidance. The agency should gather more information for lawmakers now before session starts, he said.
Landgraf and 87 other state lawmakers sought a Texas broadband plan in a Sept. 11 letter to Gov. Greg Abbott (R). The members represented both chambers and political parties and came from rural, suburban and urban areas. The pandemic “underscored some of our deficiencies when it comes to broadband access” in rural and urban areas, and it’s “hard to not see” broadband as a utility like telephone or electricity, Landgraf said. The technology is different, he said, and whether it should be regulated the same as other utilities “is a topic that’s still being discussed.”
Texas PUC responses to legislators’ written questions are “forthcoming,” a commission spokesperson emailed Friday. “As part of a project opened today, PUC staff will be filing/posting questions on Monday for companies who receive high-cost-support USF funds to learn their approaches and concerns.” Texas PUC projections about TUSF’s impending insolvency “remain unchanged,” said the spokesperson, noting commissioners “indicated a desire to continue funding the social programs receiving TUSF dollars,” including for low-income households and the deaf or hard of hearing. “Texas law prohibits applying TUSF funds to broadband,” which isn’t regulated by the state agency.
Insolvency?
Without state USF funding, the budgets of several of TTA's small, rural, independent and cooperative members will be cut by more than half, said Seale, who represents such telcos. "The net effect of that is these companies are going to have to close or they're going to have to find another source of revenue." It would mean "no new capital deployment," layoffs that will lead to "extremely long" service times, and increased phone rates, he said.
Seale spoke to Walker about TTA’s concerns. “We have almost 50 legislators who have written her letters begging her to raise” the surcharge, “but she has not done so,” he said. The surcharge would become about $1 a month, which isn’t that much, he said.
The pandemic means the legislature will be "very limited in what they can do legislatively because they can't meet in person, and they're going to have severe limitations on the number of bills that are going to be filed and passed,” said Seale. “We are worried that there won't be any legislative activity and this fund is going to be left to just go to zero.” Lawmakers might be able to take emergency action to keep the fund sound, but Seale doubts there will be enough time in the 2021 session to do a broader TUSF revision or create a state broadband plan. The PUC can revamp TUSF now under its existing statutory authority to require VoIP to pay into the fund or shift to a connections-based contributions mechanism, he said.
The Texas PUC doesn’t know the economics of the concerned TTA members, but they “can request a comprehensive rate case and associated interim rates at any time,” the commission spokesperson responded: Commissioners have authority to revamp TUSF, but “they have expressed a strong deference to the convened legislature on the issue given its potential impact on Texas ratepayers and the perceived need for updated definitions and parameters.”
“Modern education requires reliable and high capacity connectivity,” emailed Texas Association of Rural Schools Executive Director Michael Lee. Rural school districts rely on rural telcos and co-ops that get TUSF support, he said. “Loss or a reduction in access to telecom services could have a disastrous effect.”
Some in the telecom industry warn against a higher assessment. “Any increase in the surcharge is disproportionately shouldered by underserved urban residential customers who are already paying much higher local rates than many rural customers,” emailed an AT&T spokesperson Friday. “An increase in the assessment, without first looking at small company local rates, could result in a serious imbalance in who bears the burden of affordable local phone service.”
The Texas Cable Association urged the PUC to find alternatives to raising the surcharge, in May comments. “Focus on reducing the TUSF spending and limit funding increases to a last resort used only to secure the funding necessary to keep the TUSF solvent until the end of the Legislative Session,” it said. The PUC doesn’t have authority to assess VoIP, nor is that required, and connections-based contribution raises similar legal issues, said TCA. CTIA also resisted connections-based contribution, supporting increasing the surcharge for now to keep TUSF solvent. TCA and CTIA declined to comment now.