Updates to Category 2

In the past, Category 2 funds (previously Priority 2) were not guaranteed to be available for everyone so most districts did not even bother applying for them. Now every school, regardless of discount rate or size, has some amount of Category 2 funding available. If you file for cost-effective, Category 2 eligible equipment and services and follow all E-rate filing rules, your Category 2 funding requests will be approved.

Utilizing the Funds

Starting in Funding Year (FY) 2015, each school site received a pre-discount budget of $150 per student to spend on eligible Category 2 equipment and services. Recently, the Federal Communications Commission issued a Report and Order that makes notable changes to the rules for Category Two funding applications.

To ensure a smooth transition to permanent rules effective in 2021, the FCC has extended the “test period” rules used during FY 2015-2019 through FY 2020. In other words, the five-year test period and budget is now a six-year test period and budget for all applicants; even those who began spending their Category Two budget in 2015.

A central outcome is that ALL applicants will be provided with a prorated portion of Category Two funding for that additional year I.e. a pre-discount budget of $150 per student plus an additional prorated 20% (adjusted for inflation dating back to the funding year 2015, over six funding years). If the funds are not used in FY 2020, they expire and do not carry forward.

Remember, when calculating your available funds for FY 2020 you must deduct the pre-discount amount of approved funding through FY 2019 to arrive at the FY 2020 Category Two pre-discount funds.

It is important to note that funds are considered “used” when a district receives a positive funding commitment from USAC. Many times a district may not use all the funds requested for their project due to a variety of reasons (for example a site survey reveals fewer wireless access points were needed or installation costs were less than predicted). Thus, any requested funds that were unused should be returned to USAC so you can use your full budget wisely.

Guidelines for using your budget
There are several guidelines and rules for using your Category 2 budget:

  • Budgets are calculated per school. You cannot average your budget across all schools or shift unused funds between different schools.
  • The exception to this rule is shared equipment. If any equipment is used by multiple entities (for example a router at your hub site) then you can distribute the cost of the shared equipment across all supported school sites. Note that you must be able to prove this equipment is shared if asked by USAC.
  • Non-instructional facilities (NIFs) do not receive Category 2 budgets. However, equipment used to facilitate the delivery of Internet access to classrooms that is housed at a NIF (i.e., a core router in a non-instructional data center) would be eligible.
  • Equipment can’t be moved between schools for a minimum of 3 years from the installation date unless a school is closed down.
  • Spare equipment is not E-rate eligible. Any equipment purchased with your Category 2 budget must be installed by September 30 following the funding year.

If you do not know the remaining budgets for your schools, Funds For Learning has a useful Category 2 Budget Calculator.

Summary: What rules are in place for Funding Year 2020?

  • Category Two budgets will be calculated using the same per-site methodology used in Funding Year 2015-2019.
  • All applicants’ site budgets will be increased by 20% (i.e., one-fifth of the maximum Funding Year 2020 Category 2 budget) for Funding Year 2020.
  • All Category 2 site budgets will expire at the end of Funding Year 2020 and will not carry over to Funding Year 2021.
  • Caching equipment and services, Basic Maintenance of Internal Connections, and Managed Internal Broadband Services are retained as eligible services, with no new services added to the Eligible Services List.
  • Applicants can seek Category 2 discounts up to each site’s maximum budget amount, less any amount utilized in the initial five-year period.

  • Eligible Components and Services

    A variety of wireless and wired network equipment, as well as maintenance and managed services, are eligible for Category 2 funding:

    • Wi-Fi equipment such as access points and controllers (on-premise and cloud).
    • Wired network equipment such as switches, routers, and firewalls.
    • Structured cabling jobs
    • Any software and licenses needed to make eligible equipment functional
    • Installation and configuration of equipment by a vendor
    • Basic maintenance of eligible components
    • Managed Internal Broadband Services

    This is not a comprehensive list on what is eligible. For more details, including caveats and limitations to certain services, you should consult the eligible services list that is published for each funding year.

    FAQs on Eligibility
    • VoIP systems or handsets?
      • No. Funding for voice and telephony related purchases was phased out as of Funding Year 2018.
    • Wi-Fi site surveys?
      • Yes. Site surveys are considered “design and engineering” which is allowed as part of “Installation, Activation, and Initial Configuration” with new purchases.
      • However, standalone site surveys without a purchase of wireless equipment are ineligible.
    • Advanced security products?
      • No. Only basic firewall functionality is eligible for funding.
      • If you are purchasing firewall equipment, you should expect to cost allocate some of the cost as ineligible.
    • User devices, security cameras, or servers?
      • All of these are ineligible, except servers used for caching.

    Managed Internal Broadband Service (MIBS)

    In the past, districts could only use Category 2 funds to purchase internal network hardware such as switches and wireless access points or basic maintenance of these components. Now, districts can outsource this to a vendor. The costs of Managed Internal Broadband Service (also known as Managed Wi-Fi) are eligible for Category 2 funding. There is also the flexibility for the district to lease necessary equipment from the vendor or to have a vendor operate existing equipment purchased by the district. If you already pay a vendor for technology support, then you have already had this service and can start paying for it with E-rate funds.

    Guidelines and Tips for Managed Wi-Fi

    Since Managed Wi-Fi is a service with a recurring cost, as opposed to most Category 2 purchases being one-time equipment purchases, there are some things to keep in mind.

    • If you sign a multi-year contract for services, you have to file for funding each year (similar to Category 1 services).
    • When signing a contract for Managed Wi-Fi, you should ensure that you will have sufficient funding each year to cover the costs of the services. As mentioned above, Category 2 funding is allocated on a per-school basis and funds cannot be shifted or averaged between entities.
    • Remember that there may be one-time costs for new equipment at the start of a contract or replacement equipment if you are seeking managed services on existing equipment.
    • Some contracts allow the district to purchase leased equipment at the end of the contract.
    • Keep in mind that at the end of the contract you will need to go out to bid again for the services per E-rate rules, rather than simply re-sign with the same provider.
    • E-rate will only cover the costs for management of eligible components. If your vendor is also going to be managing servers, student devices, or other ineligible components as part of your service contract, then those costs must be allocated out of your E-rate funding request.

    What rules are in place for Funding Year 2021?

    The changes to the Category Two program will begin with 2021. Although we would have liked to see the FCC add some additional eligible products (such as filtering and security appliances) and increase the per-student budget more substantially, we applaud the changes that they did make to the program. The changes will reduce the administrative burden on applicants, streamline the review process, and incentivize smaller applicants to access their Category Two funding. The most significant changes to the program are as follows:

    The most significant changes to the program are:

    Category Two budgets will be calculated on a school district-wide budget basis

    This is the rule change that was most widely requested, and that will make the most substantial positive impact on applicants. School districts and other multi-site applicants will now have a single Category Two budget to administer, and their decision-makers will now have the ability to allocate internal connections equipment and resources where they are most needed, as opposed to having each school in its own budgetary silo. Applicants will also be free to move already-purchased E-rated equipment from one site to another as needed (although they will still be required to maintain accurate inventories and note when equipment is moved).

    All applicant budgets will be reset, and budget cycles will be fixed

    To facilitate the transition to the new rules, the FCC will reset all budgets to the full amount eligible under the new rules. All applicants will start with a new five-year budget cycle beginning in Funding Year 2021, regardless of whether they completed their previous five-year budget cycle during the test period.

    The adoption of fixed five-year budget cycles means that the first such cycle will run from FY 2021 through 2025. Applicants may submit applications in any Funding Year during this five-year cycle as long as they have funds remaining in their budget.

    The “Funding Floor” has been increased

    There is enhanced support for small and rural schools, as the per-site funding floor will increase from $9,200 to $25,000. In other words, any school with less than 150 students will receive the $25,000 budget. During the initial test period, applicants who were at or near the budget floor were the least likely of all applicants to utilize their Category Two funds. Increasing this minimum while simultaneously simplifying the budgeting and application process provides a solid incentive for these small applicants to get in the game and utilize these funds.

    The Per-student budget multiplier and student counts move to a five-year cycle

    Category Two budgets will be calculated as an inflation-adjusted $167 per student for schools (rounded up for administrative simplicity) for the new five-year funding cycle beginning in Funding Year 2021. No longer will the per-student multiplier be refactored every year; instead, a new multiplier will be issued at the start of each five-year cycle. This will make tracking your budget much easier as well as reducing the administrative burden on USAC.

    Additionally, applicants will only need to provide student counts for schools once at the beginning of each five-year cycle.

    Student counts based on full-time enrollment.

    From 2021, the FCC will base student counts on full-time enrollment only and eliminate the need for schools or school districts to count part-time students in their enrollment numbers. They will also no longer permit school districts to estimate the number of students for buildings under construction because those students will otherwise be accounted for by the district enrollment numbers.

    These new rules will simplify the student count process, but we will be curious to see how it impacts the ability of applicants who are building new campuses to access funds to equip those sites with the necessary technology infrastructure.

    No new eligible services have been added

    The FCC has made permanent the eligibility of managed internal broadband services, caching, and basic maintenance of internal connections. While we are disappointed that the FCC chose not to add mission-critical security devices to the list, we are happy that the basic structure of eligible Category Two products and services has been made permanent. As in the past, the Eligible Services List will continue to be reviewed and updated on an annual basis.