Sen. Ron Johnson (R-Wis.)

Lifeline Service Gets Hammered in Senate Hearing

Legislators say FCC, Universal Service Fund must reduce waste, fraud and abuse

Bipartisan frustration with the Lifeline communications subsidy program was vented Thursday, Sept. 14 at a Senate Homeland Security and Government Affairs Committee hearing.

Witnesses taking some of that heat were FCC chair Ajit Pai; Seto Bagdoyan, director of audit services, forensic audits and investigative service at the Government Accountability Office; and Vicki Robinson, acting CEO of the Universal Service Administration Co.

The hearing title telegraphed that frustration, “FCC’s Lifeline Program: A Case Study of Government Waste and Mismanagement.” But while that title is the responsibility of the majority, both Republicans and Democrats took aim at the program.

Related: Groups Pressure Senate to Preserve Lifeline Program

The Lifeline program is the Universal Service Fund subsidy that goes to low-income residents to support basic lifeline communications service, previously phone service and now, increasingly, broadband internet service.

Sen. Ron Johnson (R-Wis.), the committee chairman, said he would recommend the USF undertake a forensic audit of the top 30 providers participating in the program.

Johnson pointed to evidence that many people getting subsidized wireless service had other means of communications, so it was not really a lifeline. He suggested that ending the program was on the table, with the money perhaps better spent on paying down the deficit.

But Sen. Heidi Heitkamp (D-N.D.) said she did not want the baby thrown out with the bathwater. Heitkamp argued that the USF program was crucial, and that while officials need to get a handle on waste, fraud and abuse, she did not want the fund raided for deficit reduction, including by moving it from private banks to the U.S. Treasury as some have suggested.

Pai said moving the USF to the Treasury would be a way to better protect the money.

Arguably the legislator most incensed by the program's waste, fraud and abuse was ranking member Sen. Claire McCaskill (D-Mo.). The GAO witness was in attendance because of a GAO report (the "case study" of the hearing's title) McCaskill had asked for showing widespread waste, fraud and abuse in the program.

For example, the GAO was unable to confirm whether 36% of the 3.5 million individuals it reviewed (or some 1.2 million) actually participated in any of the qualifying programs, like Medicaid, that they stated on their applications for the subsidy.

“I don’t know where to start,” she said, then picked one of many issues: The $90 million owed by participating companies who were still receiving Lifeline money. Over the past two years, McCaskill pointed out, the FCC had written checks totaling more than $2 billion to the 10 carriers that owed it money, asking how in the world that was possible.

Pai said it was a great question, and he was committed to stopping that.

But McCaskill shot back that he wasn't, that there was no enforcement, and that they continued to get away with it. She conceded three Lifeline related settlements the FCC had struck, but the former DA said nobody had gone to jail. "It is outrageous that they have gotten away with this level of fraud," she said.

Pai said that it was a top enforcement priority and they would not be "falling through the cracks" on his watch.

McCaskill was also nonplussed that companies were able to override the local verification process, essentially saying that folks who had been deemed ineligible for the subsidy were eligible anyway. GAO found that 63% of the time it applied for the subsidy under fake names, it got one.

Robinson pointed out that a new national verifier could not be overridden, but that the program always had to balance integrity with participation. McCaskill shot back that the integrity of the process had already been lost.

Related: Senate Leaders Want Lifeline Abuse Investigations

McCaskill said she would personally help put some of the fraudsters in jail and asked Pai why the FCC was not doing more to weed out the waste and fraud. 

Pai said he was trying to, but that he was addressing issues that had essentially festered under previous management due to an unwillingness to crack down on the program's abusers. Pai actually launched his own investigation into Lifeline abuses when he was a commissioner, and has long argued the FCC needed to do more to rein in those abuses. As chairman, he rescinded some Lifeline eligibilities while the FCC figures out how to better verify that eligibility. 

Pai said the key is that the subsidy — $9.25 per month — should only go to those who would otherwise not have basic communications and that ensuring that was a top priority of his FCC.

Asked by McCaskill for three things he could talk about that would bring some "urgency" to the issue of waste fraud and abuse, Pai said that 1) verification needed to be upfront, rather than follow an after-the-fact "pay and chase" model; 2) there needs to be a "meaningful" budget mechanism; and 3) the FCC must clearly define the goal of the program, then measure how and if it is meeting that goal.

McCaskill suggested handing out phones when folks apply for unemployment or SNAP (the Supplemental Nutrition Assistance Program), so their eligibility would already be established. 

At a couple of points during the hearing, it was Johnson who eased the tension by pointing out that while they were clearly venting on the program, they considered the witnesses as wearing "white hats," and that they were all there to work with the committee to improve it.

“It’s worth noting that on the day a Senate committee is examining the FCC’s Lifeline program to try to ensure that waste, fraud, and abuse is curtailed, the FCC has just announced that the new USF fee, in effect a tax on their phone service paid by all consumers, will be 18.8%," said Randolph May, president of free market think tank, The Free State Foundation. "I am a long-time supporter of a properly-formulated and properly-run Lifeline program to provide a safety net for low income persons. But this tax of almost 19%— the highest ever —  on all phone bills shows why it is so important to curtail fraud and abuse if support for the program is to be sustained."