Spending Off the Hook: Free Phones Costing Taxpayers $2.1 Billion Per Year

Spending Off the Hook: Free Phones Costing Taxpayers $2.1 Billion Per Year

You’re probably familiar with the food stamp program which grew from $35 billion in 2008to $75 billion last year. But did you know that getting food stampsalso makes you eligible for a free government cell phone? 

A programcalled Lifeline provides free phones and free monthly minutes to anyoneon food stamps, WIC, Medicaid, Head Start, and several other governmentprograms. And just like food stamps, Lifeline (aka “phone stamps”) has beengrowing by leaps and bounds since 2008, at significant cost to taxpayers.

Lifeline was started in the mid-’80s to reduce the cost of phoneservice to rural and needy customers. The program’s costs are covered by atax included on every monthly phone bill called the Universal Service Charge.The program eventually grew to include discounted cell service but tookoff in 2009, partly because TracFone announced a new program whereby eligibleindividuals could get a free phone and free monthly minutes. As aresult, participation in the program (and costs) skyrocketed:

Program participation was stable from 2005 to 2008, from 6.9 millionto 7.1 million participants, but increased to 8.6 million in 2009.Likewise, support payments were relatively stable from 2005 to 2008,from $802 million to $823 million annually, before increasing toapproximately $1 billion in 2009.

The rapid growth of the program has continued since then. In 2011, the FCC estimated the cost(page 153) of the program would be $2.1 billion and said it would reach$3.3 billion by 2014 absent major reforms. The FCC also found that partof the problem with the program was rampant fraud:

[O]ur ongoing oversight has revealed that a substantial number ofsubscribers are receiving duplicative Lifeline support, which includesindividuals receiving two or more Lifeline benefits from ETCs as well astwo or more individuals in a household receiving benefits from multipleETCs.

How bad is the fraud? A survey conducted by the FCC across 17 states and territories found that, on average, 9% of phone recipientswere ineligible (page 243). In some states like Alabama, New Hampshire, and West Virginia, the ineligibility rate was 18-19%. And all of that isbased on a survey to which 27% of users refused to respond to questions.

In order to combat this problem, the FCC recommending the creation ofa national database to keep track of multiple users. The project wasexpected to cost $7.5-$10 million to set up, though this is much lessthan the amount the government is expected to save by cutting duplicatelines.

And the freebies won’t end with basic calling service. As part of theeffort to extend broadband, the FCC has been discussing makingbroadband service part of the Lifeline program. In otherwords, taxpayers could soon be paying for smartphone features on thesefree government phones.

The real question is why American consumers should be providing freecell phones and free monthly talk time to 10 million people in thefirst place. As you can see in this video reportfrom a Chicago ABC affiliate, some people signing up for these freephones are doing so to replace cell phones they already have (and have to pay for). If thegoal is really to connect individuals to essential services such as fireand police, FCC rules already mandatethat carriers transmit those calls along with detailed location informationregardless of whether an individual has service with a carrier or not. Givenour debt and our deficits, it is time to consider hanging up on this booming,fraud-ridden Lifeline to taxpayer’s wallets.