September 25, 1994

September 25, 1994 | FYI on

CBO Says Telecom Bill (S.1822) will Increase Spending and Bureaucracy

(Archived document, may contain errors)

September 25, 1994 CBO SAYS TELECOM BILL (S, 1822) WILL INCREASE SPENDING AND BUREAUCRACY

Adam D. Thierer Policy Analyst The Communications Act of 1994 (S. 1822) may be considered by the Senate before the close of the 103rd Congress. According to its sponsors, the bill would effectively deregulate the industry and ensure a competitive marketplace. I But an analysis of the bill prepared by the Congressional Budget Office (CBO), released last week, warns that the bill will impose costly surcharges on the telecom- munications indust9r, increase federal spending and staffing, and impose new mandates on state and local governments. The CBO found that, if implemented, the bill would:

Create a new tax. The Universal Service Fund, which collects and distributes funds from carriers to subsidize telephone service, will be significantly expanded under S. 1822. New collections will be required to pay for the many services that legislators want all consumers to have access to, such as on-line home computer services. Al- 3 though the CBO does not label these changes a tax , these new collections effectively create a new tax since revenues will be generated for a federal government subsidy program through charges on carriers and their customers. Some estimates of the size of this tax are as high as $20 billion over a few years. 4 V, Increase government spending. Overall federal outlays would increase by $154 mil- lion over a five-year period from 1995-1999. In 1995, the current budget of the Federal Communications Commission (FCC) will increase by roughly 25 percent.

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Increase regulatory staffing. This $154 mil- FCC Spending to Surge Under S. 1822 lion would pay for In FY 1995 significant staffing in- Millions of Dollars creases at the FCC and $250 the Department of Jus- $208 tice. Thomas J. 200 - - - - - - - - - - - - - - - - - - - Duesterberg, former As- $168 sistant Secretary of the ISO Department of Com- +; merce and current 100 Senior Fellow at the Hudson Institute, esti 50 mates these new responsibilities could boost FCC staffing by approximately 40 per- Current FCC Spending FCC Spending with S. 1822 cent.5 L.- I I Place expensive new mandates on state and local governments. The CBO analy- sis estimates S. 1822 will require between $25 million and $50 million more in mandated state and local government spending for 1995 to accommodate new require- ments. For example, state and local governments would be forced to expand their staffs to comply with the new universal service provisions. In addition, they will be forced to conduct audits and promulgate new regulations on certain providers. Thus, each state will face an unfunded mandate costing between $500,000 and $1 million next year.

Faulty Criticisms of the CBO Analysis. Supporters of S. 1822 are likely to claim that the CBO is overstating the costs of the bill while underestimating its beneficial impacts. They are incorrect on both counts. The costs of the bill actually are likely to be as high if not higher than CBO estimates since S. 1822 contains approximately 50 new policy-making requirements for the FCC. The CBO analysis correctly assumes that the many new policy-making procedures mandated by the bill will require a considerable increase in staffing at the FCC, and therefore, will require an in- crease in overall government spending Total New Government Spending Due to S. 1822 to support such initiatives. Additional (in millions of dollars) costs arise from the new staff needed by 1"5 1996 IM Me 1999 5-Year Total the Department of Justice to comply _T -_ $19 $154 million with a handful of requirements. 1[ Z $42 $29 $19 11 For example, the bill establishes new penalties that will require additional spending on enforce- ment. The bill would make it illegal for the "Baby Bells" to purchase foreign-made components for the telephone equipment they manufacture. If they violate this provision, the Baby Bells could be subject to civil actions in court. In addition, the bill creates a Federal-State Joint Board to administer the costly new universal service goals Congress hopes to establish. Besides increasing the size of the FCC bureaucracy, Thomas Duesterberg also notes that since the bill's method of subsidy collec- tion is effectively a tax, the bill is, "on shaky constitutional grounds." This is because the Senate Commerce Committee, which recently passed the bill, does not have the authority to originate a tax bill.6 Finally, the CBO analysis also finds no significant offsetting revenues from the new fees imposed by the bill. For example, broadcasting fees required under S. 1822 for new uses of radio spectrum would bring in little revenue to offset the enormous costs of the bill. Hence, such fees not only fail to generate offsetting revenue, but their presence in the bill discourages innovative and efficient uses of the radio spectrum.

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September 25, 1994 CBO SAYS TELECOM BILL (S. 1822) WILL INCREASE SPENDING AND BUREAUCRACY

Adam D. Thierer Policy Analyst The Communications Act of 1994 (S. 1822) may be considered by the Senate before the close of the 103rd Congress. According to its sponsors, the bill would effectively deregulate the industry and ensure a competitive marketplace. But an analysis of the bill prepared by the Congressional Budget Office (CBO), released last week, warns that the bill will impose costly surcharges on the telecom- munications industry, increase federal spending and staffing, and impose new mandates on state and local governments. ZThe CBO found that, if implemented, the bill would: Create a new tax. The Universal Service Fund, which collects and distributes funds from carriers to subsidize telephone service, will be significantly expanded under S. 1822. New collections will be required to pay for the many services that legislators want all consumers to have access to, such as on-line home computer services. Al- 3 though the CBO does not label these changes a tax , these new collections effectively create a new tax since revenues will be generated for a federal government subsidy program through charges on carriers and their customers. Some estimates of the size 4 of this tax are as high as $20 billion over a few years. increase government spending. Overall federal outlays would increase by $154 mil- lion over a five-year period from 1995-1999. In 1995, the current budget of the Federal Communications Commission (FCC) wiH increase by roughly 25 percent.

Nothing written here is to be construed as necessarily reflecting the 11cws of Ibc Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

Increase regulatory staffing. This $154 mil- FCC Spending to Surge Under S. 1822 lion would pay for In FY 1995 significant staffing in- Millions of Dollars creases at the FCC and $250 the Department of Jus- $208 tice. Thomas J. 200 - - - - - - - - - - - - - - - - - - - --- Duesterberg, former As- $168 sistant Secretary of the --- ISO Department of Com- .vn merce and current 100 Senior Fellow at the Hudson Institute, esti- mates these new so responsibilities could boost FCC staffing by approximately 40 per- Current FCC Spending FCC Spending with S. 1822 cent.5 1

Place expensive new mandates on state and local governments. The CBO analy- sis estimates S. 1822 will require between $25 million and $50 million more in mandated state and local government spending for 1995 to accommodate new require- ments. For example, state and local governments would be forced to expand their staffs to comply with the new universal service provisions. In addition, they will be forced to conduct audits and promulgate new regulations on certain providers. Thus, each state will face an unfunded mandate costing between $500,000 and $1 million next year.

Faulty Criticisms of the CBO Analysis. Supporters of S. 1822 are likely to claim that the CBO is overstating the costs of the bill while underestimating its beneficial impacts. They are incorrect on both counts. The costs of the bill actually are Hkely to be as high if not higher than CBO estimates since S. 1822 contains approximately 50 new policy-making requirementsfor the FCC. The CBO analysis correctly assumes that the many new policy-making procedures mandated by the bill will require a considerable increase in staffing at the FCC, and therefore, will require an in- crease in overall government spending Total New Government Spending Due to S. 1822 to support such initiatives. Additional (in millions of dollars) costs arise from the new staff needed by I"S 1"6 IM Me 1"9 S_Yeawr Total the Deparunent of Justice to comply $45 $42 $29 $19 $19 $154 million with a handful of requirements. 11 For example, the bill establishes new penalties that will require additional spending on enforce- ment. The bill would make it illegal for the "Baby Bells" to purchase foreign-made components for the telephone equipment they manufacture. If they violate this provision, the Baby Bells could be subject to civil actions in court. In addition, the bill creates a Federal-State Joint Board to administer the costly new universal service goals Congress hopes to establish. Besides increasing the size of the FCC bureaucracy, Thomas Duesterberg also notes that since the bill's method of subsidy collec- tion is effectively a tax, the bill is, "on shaky constitutional grounds." This is because the Senate Commerce Committee, which recently passed the bill, does not have the authority to originate a tax bill.6 Finally, the CBO analysis also finds no significant offsetting revenues from the new fees imposed by the bill. For example, broadcasting fees required under S. 1822 for new uses of radio spectrum would bring in little revenue to offset the enormous costs of the bill. Hence, such fees not only fail to generate offsetting revenue, but their presence in the bill discourages innovative and efficient uses of the radio spectrum.

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