BOISE – There’s an unexpected $14.5 million hole in Idaho’s state budget, as lawmakers are being asked to dip into state funds to make up $14.5 million in missing federal payments to a group of vendors who are providing broadband service to Idaho high schools.
“They’re business people and they’re not going to do it for free,” state Department of Administration Director Teresa Luna told the Legislature’s joint budget committee on Thursday. If lawmakers don’t ante up $14.45 million in state funds, she said, the network serving all of Idaho’s high schools “will be shut down.”
Lawmakers were thunderstruck. The state has spent millions to set up the Idaho Education Network, run by Education Networks of America and CenturyLink; that included $3 million in federal stimulus funds in fiscal year 2010, two $3 million grants from the Albertson Foundation in 2011 and 2012, and roughly $3 million in state funds last year and a like amount this year.
“At the end of the day, we have to do the right thing, and I don’t think the right thing is to shut off the Idaho Education Network,” said Sen. Dean Cameron, R-Rupert, co-chairman of the Joint Finance-Appropriations Committee. “We’ve got kids taking classes through it. We’ve got school districts that need to be protected.”
But he and other lawmakers said they were frustrated that they’ve just learned of the problem now – nine months after it arose and in the middle of the school year. The $14.5 million budget hole could jeopardize other budget priorities, Cameron said, including a $3.5 million planned expansion of the broadband network to Idaho elementary and middle schools next year.
Sen. Dean Mortimer, R-Idaho Falls, said, “I’m very, very concerned with the sense of urgency and the timing … particularly when we have such a large amount of money at stake.”
The costs Idaho has been covering thus far reflected only about 25 percent of the cost of the service, Luna said, because the remaining 75 percent was coming from federal “e-rate” funds administered by a division of the Federal Communications Commission to provide internet access to schools and libraries. That money was paid directly to ENA, which then distributed it to subcontractors including CenturyLink.
Since March, none of that federal money has shown up, Luna told lawmakers, and she’s not sure why not.
It may have to do with an ongoing lawsuit over the original contract award for the IEN; Syringa Networks sued the state in 2009, contending that then-Administration Director Mike Gwartney improperly cut the company out of $60 million in business when he awarded the contract to CenturyLink. Syringa had partnered with ENA to try to win the big contract; Gwartney awarded it to CenturyLink and ENA.
“It’s our belief, based on the questions that they’re asking us, that they’re reviewing the contracting and purchasing process to make sure that it meets their standards,” Luna said. “Even without full payment, the vendors have been providing services to the IEN since March. We are obligated for the services they have provided since that time.”
An FCC spokesman said Thursday that the funds are being held up in light of last spring’s Idaho Supreme Court decision in the Syringa case, while the agency investigates whether the IEN contract followed federal procurement rules; there’s no telling how long that review might take.
Luna said she expects the feds to eventually pay up and reimburse the state, but there’s no guarantee.
Luna, who is the sister of state schools Superintendent Tom Luna, said she first learned of the non-payment from ENA on July 31, “that they had not been paid e-rate funds in about 3 months. At the time, it did not raise a lot of concerns,” she said. “The e-rate funds is typically a slow pay. We had heard nothing to tell us the funds had been withheld.”
She said she arranged to pay the state portion of the vendors’ fees in advance for several months, “essentially to put a little bit more money into the vendors’ pockets for the 75 percent that they weren’t getting paid. That amounted to $550,000, and it was paid out of general funds that are used for the IEN.”
A couple of months later, the federal agency that administers the e-rate funds sent an email asking if Idaho’s contract with ENA was valid, in light of the lawsuit from Syringa Networks challenging the contract award. “We answered the question yes, based on the district court ruling and the Supreme Court ruling, these contracts are valid, and sent that back to them,” Luna said. “That review was due to be completed Dec. 23. We do these all the time, we always get the OK, everybody moves on. When Dec. 23 rolled around and we hadn’t heard anything, we thought, well, it’s Dec. 23rd. We weren’t that concerned about it until Jan. 12, when we learned again through an informal contact … that our funds were being withheld pending resolution of the case.”
Sen. Dan Schmidt, D-Moscow, said he was shocked to hear the state wasn’t keeping track of the federal payments.
“It never comes through our hands,” Luna responded. “So I think that’s where the communication issue could be better, if we did a monthly reconciliation to make sure that they’re getting their payments.”
Sen. Shawn Keough, R-Sandpoint, noted that when the IEN was established, many school districts already were receiving federal e-rate funding for their own contracts for broadband service. “The state disrupted a previous relationship with many of our school districts on e-rate funding,” she said. “We built the IEN and it’s been a marvelous tool, but now, because of this lawsuit dragging on, that funding is in jeopardy.”
Keough called it “disheartening” that lawmakers are only now learning of the problem.
“The ability to move forward into expansion that has great support into elementary and middle schools is in jeopardy,” she said, as lawmakers can’t responsibly support that without knowing the status of the federal funding.
Gov. Butch Otter sent the Legislature a budget revision request Thursday, asking for the additional state funds; lawmakers haven’t yet set a date for a vote on that. Otter recommended shifting the money from a $29 million deposit he’d called for into the state’s Public Education Stabilization Fund, a savings account for schools, at the end of the current fiscal year on June 30.
At issue is $7.15 million for the current year and $7.3 million for the next fiscal year, which starts July 1; together, the request comes to $14.45 million.
Otter’s budget chief, Jani Revier, wrote in a memo to lawmakers, “If the obligation to the vendors is not fulfilled, the districts that rely on the IEN for broadband will have no service until they are able to arrange for access independently. Districts with a secondary source will have broadband, but the delivery of the content will be disrupted. There will be at least an 18 month gap before districts could begin receiving e-rate funds, severely disrupting broadband access for schools.”
Schmidt said Idaho lawmakers received a state report three years ago recommending beefing up the state’s contracting oversight functions. “I think it’s time to get to work on it,” he said. “How many of these contracts does our state have that are this big? Quite a few.” He said, “We need to serve our state with appropriate governance, appropriate oversight. It’s the taxpayer’s dollar.”