SACRAMENTO, CA. (September 13, 2006) A warning today for consumers in California:  You stand to be the biggest losers in the United States under a widely criticized plan to shift the burden of who pays the federal “Universal Service Fund” (USF) tax on long-distance phone bills.  A proposal backed by America’s biggest telephone companies could saddle California with a $582.43 million annual tax hike, according to the urgent warning from the Consumer Federation of California, the California Alliance of Retired Americans, and California League of United Latin American Citizens (LULAC).

Under a major push now being mounted in Washington by AT&T, BellSouth, USTelecom, Verizon, IDT Corporation and others, California easily exceeds Texas as the biggest “loser” state under the anti-consumer proposal to shift the USF from a consumer-friendly, pay-for-what-you-use tax on long-distance to a regressive per-connection charge that would be imposed on every phone line whether or not consumers made any long-distance calls at all.   In recent weeks, Verizon and BellSouth were forced by pressure from consumer groups, the Federal Communications Commission (FCC) and others to back off plans to create a new “mystery fee” to replace most of the USF tax recently eliminated for DSL broadband connections.

According to research from the Keep USF Fair Coalition, senior, Latino, low-income and rural consumers in California and elsewhere would pay the most in additional USF taxes under the controversial per-connection approach.    For California, the change in USF to a per-connection tax would mean an increase in taxes of $184 million per year at the rate of $1 per connection or, as would be more likely, $582 million at the rate of $1.50 per connection.  Californians currently pay $613.11 million in USF taxes and get back only $575.75 million in USF expenditures.  Under the $1.50 per-connection tax switch for USF the California “deficit” would soar from the current $37.35 million to $582.43 million.  For full state-by-state data, see the chart at
http://keepusffair.org/KeepUSFFair/release_033006_graph.html.

Richard Holober, executive director, Consumer Federation of California: “We support the Universal Service Fund, but that certainly does not mean that we want to see the funding shift to a system that disadvantages California seniors, rural residents, Latinos, the poor and others.    It is critically important that USF funding remain on a basis where those who use the most long distance pay their fair share.  It makes no sense to start taxing California consumers for long-distance service when many of them are not even using it.”

Mel Risher, deputy state director, California LULAC, said:  “We believe that all users of communications in California should pay their fair share to the USF.  Latino and other predominantly low-volume and low-income phone users should not be disproportionately burdened by USF.  This turns the current system on its head in a way that would unfairly disadvantage millions of Latino consumers in California and around the nation.”

Jacki Fox Ruby, legislative director, California Alliance for Retired Americans, said:  “It is estimated that California consumers would pay $582 million more in USF taxes than is now the case under the phone industry’s plan for the Universal Service Fund tax.  That is obviously a ‘wrong number’ for consumers in California, particularly when the burden would shift so sharply from high-income/high-volume long-distance callers to low-income/low-volume long-distance users.  Our message to Washington is clear:  Hang up now on this anti-consumer plan from the phone industry.”

Maureen Thompson, executive director, Keep Universal Service Fund Fair Coalition, Washington, D.C., said: “The plan of big telephone companies for the Universal Service Fund is bad news for consumers because it would significantly worsen the inequities in terms of who foots the bill for USF and who reaps the benefits of the Fund. The data for California point out how no one in the industry has really taken the time to explore the implications for consumers of changing the USF funding scheme. It is increasingly obvious that they have not been forthcoming with this information because it paints such a damning portrait of switching to ‘numbers’ or line-based funding methodology.  It also is important to make sure that the extensive waste and inefficiency in the USF is stamped out so that the money that is spent actually reaches those who need it.”

The Keep USF Fair Coalition emphasized that the “biggest loser” calculations for California consumers and those in other states are appropriate, since the lower $1 per-connection charge would only cover about $6.5 billion of the $7.1 billion currently being spent out of the Universal Service Fund. At the more likely $1.50 per-line charge level, all 50 states would end up paying in more than they are getting back. Even at the more modest $1-per-line level, only consumers in Alaska, North Dakota, South Dakota, Wyoming, Mississippi, Montana, Oklahoma, New Mexico, West Virginia, South Carolina and Connecticut would get more out of the USF than they are paying into it.

On November 17, 2005, the Keep USF Fair Coalition released a report entitled “Losing Numbers: How America’s Most Vulnerable Consumers Could Suffer Under Universal Service Fund (USF) ‘Reform’.” That report concluded: “The currently consumer-friendly ‘pay for what you use’ approach to funding the Universal Service Fund would be replaced under the...(connections-based) plan with a regressive, flat-fee arrangement of $1-$2 or more per phone line – regardless of whether or not consumers even make a long-distance call. For a consumer who now dials only a handful of long-distance calls per year and pays correspondingly low USF taxes, the effective tax rate under the...(connections-base) plan would soar by more than 1,000 percent on an annual basis! With low-income and elderly consumers already socked with high gas prices, higher home energy costs and the prospect of soaring summer cooling bills and continued inflation in medical prescriptions, the wide range of diverse groups in the Keep USF Fair Coalition are opposing the (industry-backed) ‘numbers’ based plan. These groups caution against balancing USF finances on the backs of the very consumers who use long-distance the least and are unable to afford phone bills that would rise under ‘numbers’ simply in order to subsidize high-income/high-volume callers.”

On February 9, 2006, the Keep USF Fair Coalition reported:  “Millions of Latino and Hispanic long-distance phone customers in the United States would be socked with higher federal fees on their phone bills under a widely criticized proposal...to force phone users who make few long-distance calls or use pre-paid wireless phones to either start paying or pay more into the Universal Service Fund...Other than older Americans, Latinos and Hispanics account for the largest number of Americans who would end up paying more under the (industry) plan for USF...Three to five million Hispanic and Latino households in the United States could be included among the 43 million Americans paying more in federal phone fees..."

ABOUT THE GROUPS

Established in 1960, the Consumer Federation of California (CFC) is a non-profit consumer rights advocacy organization.  CFC  campaigns for state and federal laws that place consumer protection ahead of corporate profit.  Each year, CFC representatives testify before the California Legislature on dozens of bills that affect millions of the State’s consumers.  CFC representatives also appear regularly before state agencies in support of consumer regulations.  CFC may be found on the Web at http://www.consumercal.org.

The California Alliance for Retired Americans (http://www.californiaalliance.org) is an umbrella organization of more than 100 affiliated groups representing more than 750,000 Californians.  Its broad-based membership includes senior centers, tenant associations, retired public employee organizations, trade union retirees and other agencies and associations.  CARA’s mission is to unite retired workers and community groups to win social and economic justice, full civil rights, and a better, more secure future for their members, families and future generations.  CARA is the official state affiliate of the Alliance for Retired Americans.

California LULAC (http://www.calulac.org) is the official state affiliate of the League of United Latin American Citizens (LULAC) based in Washington, DC.  With approximately more than 100, 000 members throughout the United States and Puerto Rico, LULAC is the largest and oldest Hispanic organization in the United States. LULAC advances the economic condition, educational attainment, political influence, health and civil rights of Hispanic Americans through community-based programs operating at more than 700 LULAC councils nationwide. The organization involves and serves all Hispanic nationality groups.

The Keep USF Fair Coalition (http://www.keepusffair.org) is committed to keeping the Universal Service Fund collection method fair, and opposing proposals to move to a regressive, per-line flat fee.  Now counting more than 115,000 members in its ranks, The Keep USF Fair Coalition was formed in April 2004. Current members include Alliance for Public Technology, Alliance For Retired Americans, American Association Of People With Disabilities, American Corn Growers Association, American Council of the Blind, Black Leadership Forum, Consumer Action, Deafness Research Foundation, Gray Panthers,  Latino Issues Forum, League Of United Latin American Citizens, Maryland Consumer  Rights Coalition, National Association Of The Deaf,  National Consumers League, National Grange, National Hispanic Council on Aging, National Native American Chamber of Commerce, The Seniors Coalition, Virginia Citizen’s Consumer Council and World Institute On Disability. The NAACP is a supporter of the Keep USF Fair Coalition, and is among the many national organizations that have filed comments with the FCC in support of a non-regressive USF collection method. 

CONTACT: Ailis Aaron Wolf, (703) 276-3265, or aaaron@hastingsgroup.com.

EDITOR’S NOTE: A streaming audio recording of a related news event is available here.