Sec.  54.507   Cap.

   (a) Amount of the annual cap. The annual funding cap on federal universal
   service support for schools and libraries shall be $2.25 billion per funding
   year. All funding authority for a given funding year that is unused in that
   funding year shall be carried forward into subsequent funding years for use
   in accordance with demand. All funds collected that are unused shall be
   applied to stabilize universal service contributions in accordance with the
   public interest and consistent with  Sec. 54.709(b) for no more than three
   quarters, beginning with third quarter 2002. Beginning no later than second
   quarter 2003, all funds collected that are unused shall be carried forward
   into subsequent funding years for use in the schools and libraries support
   mechanism in accordance with the public interest and notwithstanding the
   annual cap.

   (1) Amount of unused funds. The Administrator shall report to the
   Commission, on a quarterly basis, funding that is unused from prior years of
   the schools and libraries support mechanism.

   (2) Application of unused funds. On an annual basis, in the second quarter
   of each calendar year, all funds that are collected and that are unused from
   prior years shall be available for use in the next full funding year of the
   schools and libraries mechanism in accordance with the public interest and
   notwithstanding the annual cap, as described in paragraph (a) of this
   section.

   (b) A funding year for purposes of the schools and libraries cap shall be
   the period July 1 through June 30. For the initiation of the mechanism only,
   the eighteen month period from January 1, 1998 to June 30, 1999 shall be
   considered a funding year. For the 1998–99 funding year:

   (1) Schools and libraries filing applications within the initial 75-day
   filing window, and receiving approval for discounts on recurring services,
   shall receive funding for requested recurring services through June 30,
   1999; and

   (2) Schools and libraries filing applications within the initial 75-day
   filing window, and receiving approval for discounts on eligible nonrecurring
   services, may receive those nonrecurring services subject to the approved
   discount amounts through September 30, 1999.

   (c) Requests. Funds shall be available to fund discounts for eligible
   schools and libraries and consortia of such eligible entities on a
   first-come-first-served basis, with requests accepted beginning on the first
   of July prior to each funding year. The Administrator shall maintain on the
   Administrator's website a running tally of the funds already committed for
   the existing funding year. The Administrator shall implement an initial
   filing period that treats all schools and libraries filing within that
   period as if their applications were simultaneously received. The initial
   filing period shall begin on the date that the Administrator begins to
   receive applications for support, and shall conclude on a date to be
   determined by the Administrator. The Administrator may implement such
   additional filing periods as it deems necessary.

   (d) Annual filing requirement. Schools and libraries, and consortia of such
   eligible entities shall file new funding requests for each funding year no
   sooner than the July 1 prior to the start of that funding year. Schools,
   libraries, and eligible consortia must use recurring services for which
   discounts have been committed by the Administrator within the funding year
   for which the discounts were sought. The deadline for implementation of
   non-recurring services will be September 30 following the close of the
   funding year. An applicant may request and receive from the Administrator an
   extension of the implementation deadline for non-recurring services if it
   satisfies one of the following criteria:

   (1) The applicant's funding commitment decision letter is issued by the
   Administrator on or after March 1 of the funding year for which discounts
   are authorized;

   (2) The applicant receives a service provider change authorization or
   service substitution authorization from the Administrator on or after March
   1 of the funding year for which discounts are authorized;

   (3) The applicant's service provider is unable to complete implementation
   for reasons beyond the service provider's control; or

   (4) The applicant's service provider is unwilling to complete installation
   because funding disbursements are delayed while the Administrator
   investigates their application for program compliance.

   (e) Long term contracts. If schools and libraries enter into long term
   contracts for eligible services, the Administrator shall only commit funds
   to cover the pro rata portion of such a long term contract scheduled to be
   delivered during the funding year for which universal service support is
   sought.

   (f) Date services must be supplied. The Administrator shall not approve
   funding for services received by a school or library before January 1, 1998.

   (g) Rules of priority. Administrator shall act in accordance with paragraph
   (g)(1) of this section with respect to applicants that file a Form 471, as
   described in  Sec. 54.504(c) of this part, when a filing period described in
   paragraph (c) of this section is in effect. Administrator shall act in
   accordance with paragraph (g)(2) of this section with respect to applicants
   that file a Form 471, as described in  Sec. 54.504(c) of this part, at all times
   other than within a filing period described in paragraph (c) of this
   section.

   (1) When the filing period described in paragraph (c) of this section
   closes, Administrator shall calculate the total demand for support submitted
   by applicants during the filing period. If total demand exceeds the total
   support available for that funding year, Administrator shall take the
   following steps:

   (i) Schools and Libraries Corporation shall first calculate the demand for
   telecommunications services, voice mail, and Internet access for all
   discount categories, as determined by the schools and libraries discount
   matrix in  Sec. 54.505(c). These services shall receive first priority for the
   available funding.

   (ii) Schools and Libraries Corporation shall then calculate the amount of
   available funding remaining after providing support for all
   telecommunications services, voice mail, and Internet access for all
   discount categories. Schools and Libraries Corporation shall allocate the
   remaining funds to the requests for support for internal connections,
   beginning with the most economically disadvantaged schools and libraries, as
   determined by the schools and libraries discount matrix in  Sec. 54.505(c) of
   this part. Schools and libraries eligible for a 90 percent discount shall
   receive first priority for the remaining funds, and those funds will be
   applied to their requests for internal connections.

   (iii) To the extent that funds remain after the allocation described in
    Sec. 54.507(g)(1) (i) and (ii), Schools and Libraries Corporation shall next
   allocate funds toward the requests for internal connections submitted by
   schools and libraries eligible for an 80 percent discount, then for a 70
   percent discount, and shall continue committing funds for internal
   connections in the same manner to the applicants at each descending discount
   level until there are no funds remaining.

   Note to paragraph (g)(l)(iii): To the extent that there are single discount
   percentage levels associated with “shared services” under  Sec. 54.505(b)(4), the
   Administrator shall allocate funds for internal connections beginning at the
   ninety percent discount level, then for the eighty-nine percent discount,
   then for the eighty-eight percent discount, and shall continue committing
   funds for internal connections in the same manner to the applicants at each
   descending discount level until there are no funds remaining.

   (iv) If the remaining funds are not sufficient to support all of the funding
   requests within a particular discount level, Schools and Libraries
   Corporation shall divide the total amount of remaining support available by
   the amount of support requested within the particular discount level to
   produce a pro-rata factor. Schools and Libraries Corporation shall reduce
   the support level for each applicant within the particular discount level,
   by multiplying each applicant's requested amount of support by the pro-rata
   factor.

   (v) Schools and Libraries Corporation shall commit funds to all applicants
   consistent with the calculations described herein.

   (2) Rules of priority. When expenditures in any funding year reach the level
   where only $250 million remains before the cap will be reached, funds shall
   be distributed in accordance to the following rules of priority:

   (i) The Administrator or the Administrator's subcontractor shall post a
   message on the Administrator's website, notify the Commission, and take
   reasonable steps to notify the educational and library communities that
   commitments for the remaining $250 million of support will only be made to
   the most economically disadvantaged schools and libraries (those in the two
   most disadvantaged categories) for the next 30 days or the remainder of the
   funding year, whichever is shorter.

   (ii) The most economically disadvantaged schools and libraries (those in the
   two most disadvantaged categories) that have not received discounts from the
   universal service support mechanism in the previous or current funding years
   shall have exclusive rights to secure commitments for universal service
   support under this subpart for a 30-day period or the remainder of the
   funding year, whichever is shorter. If such schools and libraries have
   received universal service support only for basic telephone service in the
   previous or current funding years, they shall remain eligible for the
   highest priority once spending commitments leave only $250 million remaining
   before the funding cap is reached.

   (iii) Other economically disadvantaged schools and libraries (those in the
   two most disadvantaged categories) that have received discounts from the
   universal service support mechanism in the previous or current funding years
   shall have the next highest priority, if additional funds are available at
   the end of the 30-day period or the funding year, whichever is shorter.

   (iv) After all requests submitted by schools and libraries described in
   paragraphs (g)(2) and (g)(3) of this section during the 30-day period have
   been met, the Administrator shall allocate the remaining available funds to
   all other eligible schools and libraries in the order in which their
   requests have been received by the Administrator, until the $250 million is
   exhausted or the funding year ends.

   [ 62 FR 32948 , June 17, 1997, as amended at  62 FR 40748 , July 30, 1997;  62 FR 41304 , Aug. 1, 1997;  62 FR 56120 , Oct. 29, 1997;  63 FR 2130 , Jan. 13, 1998;
    63 FR 3832 , Jan. 27, 1998;  63 FR 45958 , Aug. 28, 1998;  63 FR 70572 , Dec. 21,
   1998;  64 FR 22810 , Apr. 28, 1999;  64 FR 30442 , June 8, 1999;  64 FR 33788 ,
   June 24, 1999;  66 FR 38378 , July 24, 2001;  67 FR 41866 , June 20, 2002;  68 FR 36942 , June 20, 2003;  69 FR 6191 , Feb. 10, 2004]