July 18, 2000 Minutes

Twelve of the eighteen members (there is one vacancy) were present representing a quorum:

Bryant, Anne

Marockie, Hank

Eichler, Edwin H.

Ouye, Kathleen G.

Gumper, Frank

Parrino, Cheryl

Hess, Kevin

Sanders, Dr. Jay

Hogerty, Martha

Talbott, Brian

Jackson, Jimmy - by telephone

Thoms, Allan

Three members joined the meeting in progress:

Abramson, David

Lineberry, Isiah

Gold, Heather

Three members were absent:

Butler, John (Tony)

Wheeler, Tom

Rosenblum, Lisa

Officers of the Corporation present:

Barash, Scott

Assistant Secretary

Haga, Robert

Assistant Treasurer

Others present for the meeting:

Name

Company

Blackwell, Mel

USAC

Claremont, Susan

Arthur Andersen LLP

Eagan, Mark

Arthur Andersen LLP

Garman, Matt

Arthur Andersen LLP

Howard, Cathy

USAC

Moore, Kate

USAC

Nadel, Mark

FCC

Rich, Rhyner

NECA

Rodda, Jim

USAC

a1.

Approval of the Minutes. On a motion duly made and seconded, the Board approved the minutes, as distributed, of the USAC Board of Directors' meetings of Tuesday, April 18, 2000, and Friday, May 5, 2000.

a2.

Reports from the Committee Chairs. Each of the Committee Chairs reported the activity from the July quarterly Committee meetings: Dr. Sanders - Rural Health Care Committee; Ms. Ouye - Schools & Libraries Committee; Ms. Gold - High Cost & Low Income Committee; and Mr. Gumper - Executive Committee.

a3.

Approval of Amendment to the USAC By-Laws to Enable Board of Directors Members Whose Tenure Has Expired to Continue to Serve Until a Replacement Has Been Selected. Mr. Barash discussed the possibility that the FCC Chairman may not select new Board members in time to fill the vacancies of Board members whose terms expire. Should this occur, the Board's ability to maintain a quorum to conduct business could be jeopardized. As discussed at the last Board meeting, in order to address this issue, the USAC By-laws should be revised to allow a Board member to continue to serve on the Board after his or her term has expired until the FCC appoints a replacement or re-appoints the incumbent. Terms begin on January 1 or later if appointed at a later date.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendation made by the Executive Committee to approve the amendment to USAC's corporate By-laws to enable Board Members whose tenure has expired to continue to serve until a replacement has been selected, as set forth in this action item.

The Board members DETERMINED to hold a special meeting of the Board of Directors once appointments have been made by the FCC in order to elect the appointees to the USAC Board of Directors, as set forth in the USAC By-laws.

a4.

Approval of Amendment to the USAC By-Laws to Revise the Responsibilities of the High Cost & Low Income Committee. Mr. Barash explained that this resolution is a technical matter necessary to amend the USAC By-laws to confer the authority to the High Cost & Low Income Committee to administer the new Interstate Access universal service support mechanism as directed by the FCC. The High Cost & Low Income Committee amended the original resolution to include generic language covering the possibility of future mechanisms.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the High Cost & Low Income Committee and hereby approves the amendments to USAC's corporate By-laws to confer the authority to the High Cost & Low Income Committee necessary to administer the Interstate Access universal service support mechanism enacted by the FCC on May 31, 2000, and to perform any other duties assigned to the Committee by the Federal Communications Commission.

a5.

Approval of Clarification of Revenue Base for Calculation of Penalty for Late Filing Fees. Ms. Bryant informed the Board that staff is seeking formal approval to calculate late filing fees based on the same revenues used for determination of the contribution base. Mr. Haga added that staff used the waiver discretion granted in the original resolution to waive any portion of the assessment of the fee for the April 2000 FCC filing that was calculated on total revenues. He noted that he had reviewed this approach with Mr. Gumper, the USAC Board Chair, and Ms. Bryant, the USAC Treasurer, before taking such action and is now requesting a change to the policy and affirmation from the Board that the correct revenue base was indeed used.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors, upon the recommendation of the USAC Executive Committee, hereby directs staff to calculate late filing penalty amounts based on the same carrier reported revenue as used to determine the universal service contribution base; and

RESOLVED FURTHER, That the USAC Board of Directors, upon the recommendation of the USAC Executive Committee, hereby affirms and ratifies the USAC staff determination that the late filing penalty amounts applied to the April 1 revenue data collection were properly calculated on the same carrier reported revenue as is used to determine the universal service contribution base.

a6.

Approval of the 1999 Universal Service Administrative Company Financial Audits and Company Agreed Upon Procedures Reviews. A revised issue paper was distributed at the meeting. With the consent of the Board, the Chair deferred this item until the end of the Agenda. See Executive Session.

a7.

Authorization to File Draft USAC 2000 Financial and Operational Audit Plan with the FCC. Ms. Parrino reported that the draft 2000 audit plan is very similar to the 1999 audit plan with the exception of incorporating the new universal service support mechanism (Interstate Access), the new High Cost Model, the Tribal Lands initiative, and a few specific items requested by the FCC. Ms. Parrino indicated that USAC would be seeking an extension of the annual due date for filing USAC's annual audit as soon as USAC receives supporting documentation from Arthur Andersen. Through informal discussions, FCC staff is aware of the issue and has not indicated any opposition to granting the waiver once it is filed.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendations of the Executive Committee and the programmatic committees to authorize USAC to file with the FCC audit staff the proposed draft USAC 2000 Financial and Operational Audit Plan.

a8.

Status of the Form 457 Audit and Plan for Continuing Form 499 Audits for 2000 and Future Years. Ms. Parrino reminded the Board that in 1998 the FCC encouraged USAC to audit a number of carriers to determine the reliability of the revenue data that constitutes the contribution base. Arthur Andersen LLP was engaged to perform the audit. There is still one carrier that needs to submit information to the auditor and they have committed to submit the information by July 19, 2000. USAC's internal auditor will continue the Form 499 audits on an on-going basis.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, that the USAC Board of Directors authorizes staff to conduct ongoing audit reviews of carrier revenues reported on Form 499 based on the selection criteria presented to the Board and appropriate revisions to the 1999 Form 457 audit plan; and

RESOLVED FURTHER, that the USAC Board of Directors directs staff to report the results of the review to the Board and the FCC audit staff each year.

a9.

Approval of 4^th Quarter 2000 USAC Common and Consolidated Budgets. Ms. Parrino reviewed the common and consolidated budgets. She reported that the annual budget is $804,000-or 1.8 percent-greater than last year due to several factors as outlined in the issue paper. The annual budget is also $2,524,000-or 6 percent-greater than the original budget estimate for 2000. The current estimate of the ratio of administrative costs to the overall size of the Universal Service Fund for 2000 is .88 percent, as compared to 1.0 percent for 1999.

Ms. Parrino also stated that the FCC would continue to include the Universal Service Fund in its financial statements. Because USAC's fiscal year is the calendar year and the FCC's fiscal year ends on September 30, an additional audit of the fund may be needed. Board members questioned the reasonableness of this audit given the number of audits that USAC has faced. The Board DIRECTED USAC staff to further investigate this matter.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the Executive Committee to increase the 2000 annual Consolidated and 4^th Quarter 2000 USAC Common budgets by $50,000 for the additional USAC audit required by the FCC; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve a revised 2000 annual common budget of $2,930,300 and a 4^th Quarter 2000 USAC Common budget of $689,200; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve a revised 2000 annual Consolidated budget of $43,746,000 and a 4^th Quarter 2000 USAC Consolidated budget of $12,112,800.

a10.

Approval of 4^th Quarter 2000 Revenue Projections and Resolution on the August 2000 FCC Filing. Mr. Haga reported that USAC estimated the revenues for 877 carriers that have not yet returned the Form 499A. Of these carriers, 48 are estimated to not be de minimis; their estimated revenues were less than 0.4 percent of the contribution base. USAC expects to receive some additional forms before the August 2000 quarterly filing is due, and will adjust the estimated revenues to account for any such submissions.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors, having reviewed a summary of the current status of telecommunications service provider revenues for July through December 1999, authorizes staff to proceed with the required August 2, 2000, filing to the FCC on behalf of USAC. Staff may make adjustments in accordance with approved variance thresholds.

a11.

Update and Possible Action on USAC's Financial Reporting Issue. With the consent of the Board, the Chair deferred this item until the end of the Agenda. See Executive Session.

a12.

Authorization to Renew the Request with the FCC to Permit Mandatory Netting in the High Cost and Low Income Universal Service Support Mechanisms. A revised issue paper was distributed at the meeting. Mr. Haga reviewed the history of this request, indicating that it has been two years since the original request was filed with the FCC asking for mandatory netting for all the universal service support mechanisms. The FCC approved mandatory netting for the Schools and Libraries and the Rural Health Care programs, but was silent on the High Cost and Low Income programs. USAC staff would like to reissue the request in an effort to resolve the issue.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, that the USAC Board of Directors accepts the recommendation of the High Cost & Low Income and the Executive Committees and hereby authorizes staff to renew the request with the FCC to permit mandatory netting in all the Universal Service Support Mechanisms, as necessary, to offset program disbursements to delinquent carriers against the delinquent carriers contribution obligation.

a13.

Approval of Draft Criteria and Process for Recommending that the FCC Initiate Enforcement Action Against a Participant in the Universal Service Support Mechanisms. Mr. Barash explained that the issue paper sets out criteria USAC would use when it would need to submit issues to the FCC for enforcement action. This is a work in progress and staff is seeking affirmation from the Board to continue refining the criteria as well as continuing to work with the FCC on enforcement matters.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the finding of the Schools & Libraries Committee that the proposed draft criteria for recommending FCC enforcement action against a participant in the universal service support mechanisms comport with the sense of the Schools & Libraries Committee, and hereby agrees that proposed criteria comport with the sense of the Board of Directors as well, and agrees that USAC staff should continue to refine the criteria and process set forth in this issue paper.

a14.

Approval of Revised Contracting and Bidding Timetable. With the consent of the Board, the Chair deferred this item until the end of the Agenda. See Executive Session.

a15.

Miscellaneous.

• Approval of CEO Compensation for 2000 to Conform with Calendar Year requirements of the Federal Executive Level I Salary Cap. With the consent of the Board, the Chair deferred this item until the end of the Agenda. See Executive Session.

i1.

Contract Award for ProgramReport of Legislative and Media Activity. For information only. No discussion held.

i2.

Assistant Treasurer's Report. For information only. No discussion held.

i3.

Regulatory Report. For information only. No discussion held.

i4.

Report on Accounts Receivable and Collection Efforts - Action required. Mr. Haga reported that USAC's collection efforts continue to improve. Of the $50 million that is outstanding, almost $20 million is with companies that have filed for bankruptcy protection. Staff will be bringing a proposal to the Board in the future on how to write-off such money and remove it from the books. The FCC has the ultimate decision-making power on this issue, and such action would likely be part of a rulemaking proceeding. The newly constituted Enforcement Bureau of the FCC is very interested in USAC's efforts to collect funds, and has sent out letters under its signature to many carriers that have not paid. Nearly $1 million was collected by USAC within weeks of the letters being issued. Staff recommends that USAC send a letter to the Enforcement Bureau thanking them for their efforts and informing them of the positive outcomes of their efforts.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors directs staff to send a letter to the FCC Enforcement Bureau thanking them for their enforcement efforts on behalf of USAC and informing them of the positive outcomes of the Bureau's efforts.

i5.

Bankruptcy Report. For information only. No discussion held.

i6.

Status of the Consolidation of Data Collection. For information only. No discussion held.

i7.

Status of USAC Clarification Requests at the FCC. For information only. No discussion held.

i8.

Report on USAC Program Enforcement Issues. For information only. No discussion held.

i9.

Comparison of the 1999 USAC Budget to Preliminary Actual. For information only. No discussion held.

i10.

Report on AT&T's Proposed Revenue Base Change. For information only. No discussion held.

i11.

USAC Timeline and Key Dates. For information only. No discussion held.

i12.

Miscellaneous.

• New USAC Logo. Ms. Parrino distributed samples of USAC's new logo.

i13.

Rural Health Care Program Status Report. For information only. No discussion held.

i14.

Review of 4^th Quarter 2000 Rural Health Care Programmatic Budget. For information only. No discussion held.

i15.

Review of 4^th Quarter 2000 Rural Health Care Projections and Resolution on the August 2000 FCC Filing. For information only. No discussion held.

i16.

Miscellaneous. None.

i17.

Schools and Libraries Program Update. For information only. No discussion held.

i18.

Review of 4^th Quarter 2000 Schools and Libraries Programmatic Budget. For information only. No discussion held.

i19.

Review of 4^th Quarter 2000 Schools and Libraries Projections and Resolution on the August 2000 FCC Filing. For information only. No discussion held.

i20.

Miscellaneous.

• Reception with the FCC to Celebrate Success of the Schools and Libraries Program. Ms. Ouye reported that members of the Schools & Libraries Committee and staff of the Schools & Libraries Division joined FCC Chairman Kennard and Secretary of Education Riley along with previous FCC and Congressional staff who helped initiate the Schools and Libraries program at a reception at the FCC the afternoon of Monday, July 17, 2000, to celebrate the great success of the Schools and Libraries program. Many positive comments were given to the USAC staff and Board of Directors for all their hard work in helping to make the Program a success.

i21.

Report on the Implementation of the Coalition for Affordable Local and Long Distance Services ("CALLS") Interstate Access Support Mechanism. For information only. No discussion held.

i22.

Report on the Implementation of Tribal Lands Telecommunications Access Support Mechanism. For information only. No discussion held.

i23.

Review of 4^th Quarter 2000 High Cost and Low Income Programmatic Budget and Review of Revised Budget for 2000. For information only. No discussion held.

i24.

Review of 4^th Quarter 2000 High Cost and Low Income Projections and Resolution on the August 2000 FCC Filing, and Quarterly Status Report on the High Cost and Low Income Program Operations. For information only. No discussion held.

i25.

Miscellaneous. None.

Twelve of the nineteen elected members were present, representing a quorum.

Bryant, Anne

Lineberry, Isiah

Eichler, Edwin H.

Ouye, Kathleen G.

Gumper, Frank

Parrino, Cheryl

Hess, Kevin

Sanders, Dr. Jay

Hogerty, Martha

Talbott, Brian

Jackson, Jimmy - by telephone

Thoms, Allan

Three members joined the meeting in progress:

Abramson, David

Marockie, Hank

Gold, Heather

a6.

Approval of the 1999 Universal Service Administrative Company Financial Audits and Company Agreed Upon Procedures Reviews. Ms. Bryant introduced the auditors from Arthur Andersen LLP who were attending the meeting to give a presentation of their review of the USAC audits. Each Board member and staff introduced themselves to the auditors.

a6.

Approval of the 1999 Universal Service Administrative Company Financial Audits and Company Agreed Upon Procedures Reviews. The auditors from Arthur Andersen distributed presentation materials concerning its 1999 audits and agreed upon procedure reviews of USAC and reviewed the document with the Board.

a11.

Update and Possible Action on USAC's Financial Reporting Issue. Mr. Haga reminded the Board that the United States Office of Management and Budget has determined that moving the Universal Service Fund (USF) into the federal Treasury is not necessary. USAC staff continues to research this issue extensively along with FCC staff to ensure that USAC is complying with federal rules for management of the USF. At this point, USAC appears to be in full compliance with applicable law. Because the USF is appropriately maintained outside of the Treasury, it is no longer necessary to keep the 30-day limitation on the timeframe for investments.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, that the USAC Board of Directors authorizes staff to utilize investment time frames adopted in the Temporary Investment Guidelines to manage the funds of the Corporation.

a6.

Approval of the 1999 Universal Service Administrative Company Financial Audits and Company Agreed Upon Procedures Reviews. Mr. Gumper led a question and answer session amongst the Board members and staff about USAC's internal controls and the recommendations made by Arthur Andersen.

a11.

Update and Possible Action on USAC's Financial Reporting Issue. Mr. Gumper referenced the attachments to this issue paper and stated that the information contained therein had not been released to the public; therefore, the attachments were being referenced in Executive Session at this time for Board member comments or questions. There was no discussion.

a14.

Approval of Revised Contracting and Bidding Timetable. Mr. Barash explained to the Board that the extensive staff resource commitments and the uncertainties in the billing and collection aspect of the programs as a result of the FCC financial reporting issues and the addition of the new interstate access universal service support mechanism, it was not feasible or advisable to subject the contracts for billing, collection, and disbursement and the administration of the High Cost and Low Income programs to a competitive bidding process in 2000. Staff also proposes to stagger more fully the expiration of the contracts in the future so that USAC will not be in the position of having to conduct several procurement efforts simultaneously.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendation made by the Executive Committee and hereby approves the revised contracting and bidding timeframe set forth herein.

a15.

Miscellaneous.

• Approval of CEO Compensation for 2000 to Conform with Calendar Year Requirements of the Federal Executive Level I Salary Cap. Mr. Gumper explained that the CEO's employment contract runs from June to May of each year. However, for purposes of determining federal Executive Level I salary caps, the calendar year is used. As a result, due to the issuance of the 1998 bonus to the CEO in 1999 (per the 1998-1999 CEO employment contract) coupled with the increase in salary per the revised second year CEO employment contract, the CEO's compensation for 2000 would exceed the allowable cap. Adjustments to the CEO's compensation must be made to prevent an excess in the federal cap from occurring.
  
  On a motion duly made and seconded, the Board adopted the following resolution:
  
  RESOLVED, that the USAC Board of Directors directs the USAC Executive Committee to take the necessary steps to revise the CEO's compensation and scheduled payments for 2000 consistent with the federal Executive Level I salary cap.

a6.

Approval of the 1999 Universal Service Administrative Company Financial Audits and Company Agreed Upon Procedures Reviews. On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve the 1999 financial audits of the Universal Service Company and the Universal Service Fund; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive and the High Cost and Low Income Committees to approve the USAC agreed upon procedures reports as they relate to the High Cost and Low Income Program; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive and the Rural Health Care Committees to approve the Rural Health Care Program agreed upon procedures reports; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive and the Schools & Libraries Committees to approve the Schools and Libraries Program agreed upon procedures reports; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to authorize the CEO to send a management response to Arthur Andersen accepting the financial audits and agreed upon procedures reports and committing to take corrective action to address the technical and process issues that were identified in the agreed upon procedures audits.