E-Rate and the Digital Divide

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

This report was prepared for the U.S. Department of Education as part of a subcontract with SRI International, Arlington, VA. The project monitor was Jeffery Rodamar. Any opinions, observations, findings, conclusions, and recommendations expressed in this report are those of the authors and do not necessarily reflect the views of the U.S. Department of Education.

This report is available in its entirety in the Portable Document Format (PDF), which many find convenient when printing.

Executive Summary

The E-Rate Program

The Universal Service Fund for Schools and Libraries-commonly known as the "E-Rate"—was created in 1996 as part of Public Law 104-104, the Telecommunications Act of 1996, to provide discounts on the cost of telecommunications services and equipment to all public and private schools and libraries. Eligible services range from basic local and long-distance phone services and Internet access services, to the acquisition and installation of equipment to provide network wiring within school and library buildings. Computer hardware and software, staff training, and electrical upgrades are not covered, however. Discounts range from 20 percent to 90 percent, depending on economic need and rural location.

While the U.S. is in the forefront of the technological revolution, there are segments of our society—particularly the poor and minorities—for whom access to computers and the Internet is significantly lower. For many of those separated by this "digital divide," the targeting of schools and libraries by the E-Rate program is important because these institutions are their primary means of gaining access to what the new technology has to offer, and in particular, to the dramatic changes in the education of the nation's children being foreseen by many of the proponents of educational technology. In particular, there are some early indications that when used correctly, by trained and well-supported teachers, the new technology can improve learning, especially for the most disadvantaged children. But, this new technology is expensive and can force school officials to make difficult choices between investing in technology and investing in other things that will improve learning, such as professional staff development, smaller classes, and better curriculum. This is where E-Rate has its greatest potential effect on education—by helping to build the necessary infrastructure it can ensure that all communities have access to the latest technology, while allowing them to use their scarce resources to support other critical aspects of modern schools.

The Formative Evaluation of the E-Rate

This early look at the E-Rate is part of a new initiative, funded by the Department of Education, intended to expand our knowledge of how technology is changing American education.¹ The report is based on an analysis of E-Rate administrative records covering the first two years of program operation, that were linked to detailed national data on all public and private schools and libraries in the U.S. (a combined total of nearly one million records).² More in-depth reports will be released late in 2001 after the completion of large national surveys of states, districts, schools, and teachers.

Findings

The key findings from this initial study are as follows:

• Public Schools Have Taken The Most Advantage Of The E-Rate Program. In the first two years, the E-Rate has committed³ nearly $4 billion (and 3^rd year requests alone have exceeded this total), with 84 percent going to the nation's public schools (see Exhibit 1). In part, this is due to differences in the program's penetration—more than three-fourths of all public districts and schools applied for E-Rate funds, compared to about half of public libraries and 15 percent of private schools. Thus, there were about 13,000 public school districts, 70,000 public schools, 5,000 private schools, and 4,500 library systems participating in the 2nd year of the E-Rate program.
• The E-Rate Has Targeted Poor Communities. Given the intent of the E-Rate it is important to see that it has met its goals by encouraging higher rates of application from the poorest communities and getting funds to the places with the greatest need. As shown in Exhibit 2, for example, per student funding to school districts increases dramatically with poverty, and the most disadvantaged districts receive almost ten times as much per student as the least disadvantaged. Similar patterns hold for application rates, total funding, and other types of entities (schools and libraries).
• Digital Divide. Application rates of the most impoverished public school districts were lower than those of most other school districts in the first year of the program. This may be a consequence of lower capacity in these communities. However, application rates rose for all types of entities in the second year of the program,⁴ and by even more for high-poverty districts than for other types of districts.
• Size Matters. Larger districts, schools, and libraries are more likely to apply for E-Rate discounts, and when approved receive the largest total amount of E-Rate funds and higher average funding per student (or person). This pattern also holds for application rates even after controlling for poverty or urban location, suggesting that larger organizations may have more of the human, technical, and fiscal capacity needed to apply for, and make effective us of, the E-Rate program.
• Urban Areas Benefit From The E-Rate Program. Urban schools and libraries, which tend to have greater concentrations of poor children and to be larger in size, receive larger average funding levels and higher funding per student. Similarly, while there are no clear relationships between E-Rate applications and the concentration of minority students, because funding is strongly tied to poverty and minority concentration is highly correlated with poverty, total and average per-student E-Rate funding generally increases with increasing concentrations of minority (nonwhite) students.
• Rural Areas Also Benefit. Because the E-Rate funding formula favors rural applicants with up to half of their students receiving subsidized school meals, these rural districts receive higher funding per student than equally poor urban districts. The funding formula does not distinguish between urban and rural communities with greater concentrations of poor children and, as a consequence, no clear rural-urban differences are found in funding per student among higher-poverty districts.
• Most E-Rate Funds Are Used For Internal Connections. The largest share of E-Rate funds (58 percent) has supported the acquisition of equipment and services for internal building connections, while 34 percent is used for telecommunications services, and eight percent is allocated to the cost of Internet access. Funding per student for internal connections was especially high in the higher-poverty districts (and even more pronounced in Year 2). This greater E-Rate spending for internal connections in high-poverty districts may, in part, be due to particularly poor infrastructure needed to support the development and effective use of telecommunications services. Once these poorest communities have made the upgrades, funding requests for internal connections may decrease in future years of the program.
• States Vary Greatly In Their Use Of E-Rate. State differences in application rates and funding levels reflect a variety of factors including poverty, rural location, and prior investments in technology infrastructure. School participation rates may also reflect state and local priorities and leadership. The fraction of state schools applying for the second year of the E-Rate program ranged from a low of 41 percent in Montana to highs of 93 percent in Georgia, 94 percent in Tennessee, 95 percent in Rhode Island, 96 percent in Arkansas (and 99 percent in Hawaii's single school district).
• State Differences Are Related To Poverty And Rural Location. On a per capita basis the big "winners" include Alaska, Kentucky, Puerto Rico, Mississippi, New Mexico, and the District of Columbia. These differences are driven by the E-Rate funding formula, which favors poverty and rural location. Indeed, as shown in Exhibit 3, most of the states in the South, where child poverty is often more than 20 percent, have high funding (over $5,600 per 1,000 population), while the reverse is true in the North, where child poverty is much lower. California and New York also have high child poverty rates and high E-Rate spending per person. At the other end of the spectrum Colorado, Indiana, Iowa, Nevada, New Hampshire, North Dakota, Maine, Utah, Vermont, and Wisconsin all have comparatively low E-Rate funding (under $5,600 per 1,000 population) and low child poverty (under 14 percent). Finally, Alaska, which has high spending but low child poverty, is a very rural state with significantly higher market costs for equipment and services.
• Other Factors Also Play A Role In State Differences. These variations also reflect differences in the local market cost of E-Rate-eligible equipment and services, and the extent to which institutions in different states need different types of services, especially the high-cost internal connections. That is, states with a well-developed technology infrastructure (e.g., Delaware) may be less able to obtain large amounts of E-Rate funding than those states where schools and libraries are at an earlier stage of technology development. Each state has its own story to tell, and what may be the case for public schools in a particular state may be very different for the state's public libraries or for public schools in another state. To get a better understanding of these state-level differences will require more in-depth study of individual states than is possible with the data used in this report. At best we can point out the patterns and suggest avenues for further research.

Recommendations for Future Analysis

The ability to quickly collect and analyze these data has provided an unparalleled opportunity to evaluate the efficacy of an ongoing and newly developed policy initiative in a very timely fashion. Improved collection of identification information, as part of the E-Rate application, from districts, schools, and libraries could make this process even faster and more cost-effective for ongoing program monitoring.

The data already collected, however, are invaluable. While an extensive analysis of these data has been conducted in a short time period, the data contain a great deal of rich information that has yet to be completely analyzed. For instance, more work should be done to estimate the likely increase in spending on technology caused by the E-Rate program. In addition, these data could be looked at to analyze whether entities that applied for a high level of funding per person for internal connections in one year continued to apply for high levels in subsequent years. (If not, this would suggest that internal connections are generally a one-time expense.) Finally, these data could be used to look at specific types of entities of particular concern to policymakers, such as schools operated by the Bureau of Indian Affairs and schools and libraries located in Empowerment Zones.

While these data are extremely valuable, they also have important limitations, many of which will be addressed by the ISET study described above. By collecting additional data directly from districts and schools, and specifically from E-Rate coordinators, a much more complete picture of the E-Rate program will be available including, how E-Rate funds have enabled schools to leverage other technology resource, and how the funds (and the technology acquired) has changed classroom instruction.

Notes

1. The multi-year Integrated Studies of Educational Technology (ISET) is being funded by the U.S. Department of Education's Planning and Evaluation Service (PES) and Office of Elementary and Secondary Education (OESE) as part of the continuing evaluation of Technology Literacy Challenge Fund (TLCF). ISET is being conducted in collaboration with the Department's Office of Educational Technology (OET) and the Schools and Libraries Division (SLD) of the Universal Service Administrative Corporation, which, under the direction of the Federal Communications Commission, administers the E-Rate program.

2. Available from the U.S. Department of Education's National Center for Education Statistics.

3. This report focuses on funding commitments rather than distributed funds.

4. From 73 to 78 percent for districts, from 74 to 78 percent for public schools, from 15 to 16 percent for private schools, and from 50 to 52 percent for libraries.

This report is available in its entirety in the Portable Document Format (PDF), which many find convenient when printing.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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