E-rate 2.0: Rural vs. Urban – Determining Your Status Under the New Rules

 

First Update to Original Article

On October 10, 2014 the FCC issued an Erratum to its previously released Report and Order and Further Notice of Proposed Rulemaking. This erratum made two important changes to the prior Report and Order. These changes further impact whether a school or library applicant will be eligible for the “rural discount bonus.”

Later in this update is the full text of these amendments with the removed language stricken and the added language in bold. The short version is that any entity classified as an urban area – either an Urbanized Area (UA) or an Urban Cluster (UC) – will not be eligible to receive the rural discount bonus.

It’s also noteworthy that, between issuance of the original Report and Order and the October 10th Erratum, the Rural Broadband Association and the Utah Rural Telecom Association submitted a petition to the FCC asking for clarification on the wording of this new rule. The petition also urged the FCC to interpret this rule in the manner described in the original article’s analysis, and not in the manner described by the erratum’s amendments. You can read more about this petition here.

It’s important for applicants to read the original article below, keeping these amendments in mind. The information contained therein will provide a simple background to this evolving process, as well as tools to determine an applicant’s eligibility for the rural discount bonus, no matter how it’s currently defined.

Full Text of Erratum Amendments

Amendment 1 – Erratum paragraph 29 amends Report and Order and Further Notice of Proposed Rulemaking paragraph 222 as follows:

Our current definition of “rural” for purposes of the E-rate program is outdated. By contrast, the Census Bureau data is relatively new and, the urban boundaries are adjusted annually to remain current. The Census Bureau definition classifies a particular location as rural or urban based on population density and geography, and other criteria involving non-residential development. For the 2010 Census 2010 decennial census, the Census Bureau defined urban areas as the densely settled core of census tracts or blocks that met minimum population density requirements (50,000 people or more for urbanized areas and 2,500 to 50,000 for urban clusters), along with adjacent territories of at least 2,500 people that link to containing non-residential urban land uses as well as territory with low population density included to link outlying densely settled territory with the densely settled core. “Rural” encompasses all population, housing, and territory not included within an urban area. Therefore, beginning with funding year 2015, schools and libraries located in areas that are not located in urban areas, as defined by the most recent decennial Census, will be considered rural for the purposes of the E-rate program. We direct USAC to post a tool on its website that will allow schools and libraries to obtain information regarding whether they are classified as urban or rural under the new definition. We note that the Census Bureau already offers a tool on its website that provides the urban/rural status of any U.S. address.

Amendment 2 – Erratum paragraph 46 amends Report and Order and Further Notice of Proposed Rulemaking § 54.505 (b)(3)(i) as follows:

The Administrator shall designate a school or library as “urban” if the school or library is located in an urbanized urban area as determined by the most recent rural-urban classification by the Bureau of the Census. The Administrator shall designate all other schools and libraries as “rural.”

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For better or worse, E-rate reform is underway. Regardless of your stance on the updates announced so far, one change in particular has been causing a lot of confusion among schools and libraries. The FCC has changed the method they will use to determine which entities qualify for what I call the “rural discount bonus.” Every event I've attended which discussed E-rate 2.0 changes eventually lead to audience questions about this rule. Unfortunately, regardless of the source, the answers given have not been very clear or detailed.

 

Most applicants are confused by this rule change. Even worse, many applicants incorrectly believe they have suddenly been reclassified from rural to urban. The new rule has a distinction which seems simple at first blush, but is actually quite complex and nuanced upon in-depth review. It’s frustrating to see so much uncertainty and disappointment over such an important rule, so I'd like to break it down as completely and simply as possible.

 

 

The old “table of rural areas by state” is listed here:

 

It was last revised on 5/3/2003 and is based on the Metropolitan Statistical Area (MSA) data. This table is still important because it governs E-rate through the currently-active Funding Year 2014. The new rule, which governs E-rate starting with Funding Year 2015, will instead use the “urban-rural classification” data from the U.S. Census Bureau. The Census Bureau designates geography as either an urban area or rural. That sounds pretty straightforward. Here’s the hitch – there are two classifications of an "urban area," and they received different treatment under the FCC’s new rule.

 

Here’s the official language from the Census Bureau website:

 

…an urban area will comprise a densely settled core of census tracts and/or census blocks that meet minimum population density requirements, along with adjacent territory containing non-residential urban land uses as well as territory with low population density included to link outlying densely settled territory with the densely settled core. To qualify as an urban area, the territory identified according to criteria must encompass at least 2,500 people, at least 1,500 of which reside outside institutional group quarters.

 

The Census Bureau identifies two types of urban areas:

“Rural” encompasses all population, housing, and territory not included within an urban area.

 

So, the split is no longer a simple Rural vs. Urban, but rather Rural vs. Urbanized Area (UA) vs. Urban Cluster (UC).

 

 

Under the new rule, just knowing whether an applicant is located in a rural or urban area isn’t necessarily sufficient. In order to determine the correct discount rate, an applicant needs to understand how the FCC treats each of the three classifications under the urban-rural classification data. Here’s the official language of the relevant revised rule, § 54.505 (b)(3)(i) (emphasis added):

 

The Administrator shall designate a school or library as “urban” if the school or library is located in an urbanized area as determined by the most recent rural-urban classification by the Bureau of the Census. The Administrator shall designate all other schools and libraries as “rural.”

 

Under this analysis, there are very few specifically rural areas in the country. However, the split between UAs and UCs is quite large, and the E-rate rules will offer the rural discount bonus to geographic areas designated as either rural or an Urban Cluster. Urbanized Areas are considered urban for E-rate purposes.

 

 

The distinction between UAs and UCs is clearly an important one, as it could mean an additional 5-10% discount rate for the applicant. This makes it vital for an applicant to accurately determine its classification in order to maximize support from the E-rate program in the future.

 

In order to determine this classification, an applicant should refer to the "national, state-sorted list of all 2010 urbanized areas and urban clusters for the U.S., Puerto Rico, and Island Areas first sorted by state FIPS code, then sorted by UACE code" located here.

 

You can download this data in excel (XLS) or text (TXT) format under the "Lists of 2010 Census Urban Areas" section. The area to focus on is the twelfth column (L). This is the legal/statistical area description (LSAD) code for the area listed in the second column (B). LSAD code 75 indicates an  urbanized area (E-rate urban zone), while code 76 indicates an urban cluster (E-rate rural zone). An applicant that does not appear on the list as either a UA or a UC is, by definition, classified as rural. For reference, you can see a table of all the LSAD codes here.

 

Here’s a table condensing all this information into a quick-reference format:

 

 

 

This rule change is almost as confusing as it is important. It’s imperative for school and library applicants to fully understand the distinction to avoid falsely underestimating their discount rate. It would be easy for an applicant that was previously listed as rural to check a list and be discouraged upon finding the area classified as an urban area. With the new FCC rule in place for future funding years, what’s important is no longer the rural/urban distinction, but rather the UA/UC distinction.

 

Finally, it's meaningful to note that the draft Form 471, which is currently under review by the Office of Management and Budget (OMB), is designed to automatically determine an applicant's Rural/Urban status based on the address USAC has for that applicant in its systems. Applicants can override this setting, which will likely trigger further review of the application, thus causing processing delays. Applicants should use the resources above to determine their status ahead of time to be sure the status USAC automatically imports is accurate. Longer application processing time is never good, but improperly diminished discounts can be downright painful to school and library budgets. With the knowledge and resources above, applicants can confidently determine their Rural/Urban status for more accurate budget and reimbursement forecasting.

Author Bio:

Justin A. Volker manages the E-rate program for his rural, central Illinois school district. Aside from being a self-proclaimed tech geek, he has a law degree and finds the ongoing evolutionary fusion of law and technology fascinating. He enjoys analyzing laws and regulations, travel, video gaming, stock investing, and connecting with folks who share similar passions.