Computer games the crime of Internet subsidThe crime of Internet subsidies

Computer games the crime of Internet subsidThe crime of Internet subsidiesThe Internet is a wonderful tool. Say you want to write. an article on the role of criminal sanctions in the plan to subsidize Internet connections for schools and libraries. Without leaving an air-conditioned study you can download the Telecommunications Act of 1996, the 824-page Federal Communications Commission Report and Order implementing it, and a deluge of backup material.

Because the Internet is so useful, the idea of subsidizing educational connections to it seems like a Great Idea to Make the World a Better Place. As with most such ideas embraced by the government, debate over the policy was superficial, and schools and libraries now gleefully anticipate $2.25 billion a year in subsidies. But their thirst for loot has led them into a danger zone. Government subsidy programs come with tangled strings of conditions and regulations. These are enforced by sanctions, including not only criminal fines and jail terms, but also civil monetary penalties, punitive damages, hefty remedial payments, and asset forfeitures. Many of these are not formally "criminal," but a "civil" penalty of $10,000 stings just as much as a "criminal" fine.

The schools and libraries aren't worried, remaining confident of their own probity. But they should be worried. A growing number of middle-class managers, professionals, entrepreneurs, and land owners are finding themselves in trouble as a result of their participation in government largess. Medicare is a prime example, as the political pressure to hold down "fraud and abuse" makes the government downright grumpy. Doctors at 125 teaching hospitals are in jeopardy from audits for Medicare fraud. Two hospitals already audited have been nicked for $42 million in repayments and fines. Some hospices are also in trouble for collecting Medicare payments for patients who then stayed alive longer than the six months the government allows for terminal illness.

Other programs follow the same trajectory. Savings and loan executives profited for years from government restrictions on competition and other benefits, then got bitten by the hand that fed them. Over 6,000 executives and owners were charged with crimes in the fallout from the S&L mess, including 3,700 who went to jail, despite estimates by Bert Ely, the recognized guru of finance in Washington, D.C., that only about 3 percent of the losses were due to fraud.

The basic idea of the Internet subsidy program seems simple. The part of the law creating it is short, about a page. It says that telecommunications carriers, "upon receiving a bona fide request," must provide services to schools and libraries for educational purposes at a discount specified by the government. The carrier then treats the discount as an offset to other obligations created by the act. The law gives the FCC rule-making authority, specifies that the services provided may not be resold, and excludes for-profit schools and those with endowments of more than $50 million.

Passing a general statute is easy, but the real work of implementation is up to the FCC. The initial FCC Report and Order on this program runs 86 densely written pages - and that's only the beginning. Soon these initial texts will become thickly crusted with interpretations, caveats to the interpretations, amendments, reversals, exceptions, court cases, and informal guidance. Hot lines for advice will be set up, staffed by summer interns and 22-year-old English B.A.'s willing to work cheap.

People who have not dealt with regulatory programs don't fully comprehend how complicated and difficult the process becomes. It helps to look at the statute with an implementer's eye, dreaming up questions that must be answered: What is a bona fide request? What is a school? What is a library? What do you do with a library that is a sub-unit of a non-eligible school, such as a college? What if a college spins off its library into a free-standing corporation - does that render it eligible? What about a consortium of libraries, some of which are eligible and some not? Or a consortium of schools? Or of both? What is an endowment of $50 million - does this include the value of a school's land and buildings, and, if so, must the real estate be priced to market? What are "educational services"? If a student uses the Internet connection to look at pornography or to run a business on the side, is his school liable for refunding the discount? Does his action taint the school's entire discount, or only that part of the service fairly allocable to the violation? If it is allocable, do you allocate by full cost or variable cost?

Does a library violate the provision against resale of the service if a student works part time for a private company and uses a library Internet connection at night to do paid research? What if the library doesn't know what the student is doing - does that matter? Can the carrier insist that a school police its students to be sure they do not look at Penthouse (except to read articles on free speech, of course) and do not resell the service? Can other schools and libraries insist on policing, on the ground that the total subsidy is capped at $2.25 billion, so if one school diverts services to noneducational uses other schools may be deprived?

These are not abstract issues. Every one of them must be addressed, and this list is a bare start. The FCC has reached some initial conclusions. For example, a college can indeed spin off its library into an eligible entity, and carriers must grant a discount on the cost of wiring individual classrooms within a school, not just on the cost of connecting to the wall of the building. (After all, says the commission, the president said that we should wire 2 million classrooms, not just schools. This closes the inquiry into whether this policy makes sense.) The FCC has also established a schedule setting six different levels of discounts depending on the economic need of the locality, and decided that the applicable level should be self-certified by the school or library. Other questions are answered as well, but there is still a long way to go, and every answer will raise new questions.

The commission rules resolving these issues - or leaving them maddeningly uncertain - are criminal statutes. It says so fight there in Title V of the act. Anyone can be fined and jailed for one year for "willful and knowing" violations of the act or of FCC rules. Anyone who "willfully or repeatedly" violates rules is also subject to civil penalties, which can be imposed by the commission itself under procedures and standards of proof looser than those applicable in courtrooms. For schools and libraries, the penalties can go up to $10,000 per day for a continuing violation. Carriers and others who are in the business face considerably higher civil penalties.

This blend of command-and-control, subsidies, and enforcement through serious penalties guarantees future trouble for the schools and libraries. By now we have enough experience with this blend that the result has a certain inevitability. Judging by the history of other regulatory programs, details will soon proliferate to the point where no one can fully understand the rules. Even the most honest beneficiary will find it difficult to judge what he must do. For many, the transaction costs of figuring out the program's requirements will outpace its benefits. As a result, they will try to use common sense - a treacherous guide in any regulatory program. Even seeking official help is often little real help. If the English B.A. at the other end of the hot line tells you a bureau letter interpreting a commission rule defining a statutory term means X, are you bound? Is this The Law? Probably, but there is no clear legal answer.

Initially, the FCC is likely to spend little to enforce the provisions of this program, given all the other demands on its resources, and given that the commission does not really care about the details now that the public relations harvest has been reaped. That might seem good for schools and libraries. But if you cannot get an answer to a question, and it seems unlikely that you will be caught if you err, the obvious course is to make doubtful calls in your own favor.
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