e-Texas e-Texassmaller smarter faster governmentDecember, 2000
Carole Keeton Rylander
Texas Comptroller of Public Accounts

Recommendations of the Texas Comptroller

Chapter 1: Electronic Government

Address the Digital Divide in Rural Texas


The “digital divide” is the technological gap that exists between those who have access to computers and the Internet and those who do not. As our economy becomes more reliant on information technology for transacting business and communicating needs and services, rural Texas cities without the proper tools will be at an economic, technological, and educational disadvantage. Rural Texas needs the same level of Internet access available in urban areas if its economy is to remain healthy. To meet this need, the state should allow local governments to compete for grants from the Telecommunications Infrastructure Fund. The state also should allow cities to fund telecommunications-related initiatives by giving them the authority to issue bonds or increase local sales taxes for such projects.


The “digital divide” is the technological gap between those who have Internet access, up-to-date computer hardware and software, and the ability to use them—and those who do not. It exists in the inner city and rural areas alike, and disproportionately affects minorities, low-income persons, the elderly, and those with disabilities. In short, it is the divide between those who can participate in the Information Age and those who cannot. Those without the proper tools will be at a tremendous economic, technological, and educational disadvantage as the economy becomes more reliant on information technology (IT) for transacting business and communicating needs and services.

A 1999 report by the National Telecommunications and Information Administration (NTIA) cites several statistics that capture the essence of the digital divide:

  • Households with incomes of $75,000 and more are 20 times more likely to have access to the Internet than those at the lowest income levels, and more than nine times as likely to have a computer at home.
  • College graduates are nearly 16 times more likely to have home Internet access than those with an elementary school education. In rural areas, college-educated households are 26 times more likely to have Internet access.
  • Rural residents across all income levels are less likely to have Internet access than households of similar incomes in urban areas and central cities. A low-income household in a rural area has a less than one-in-30 chance of having Internet access at home.[1]

The University of Texas’ Telecommunications and Information Policy Institute (TIPI) recently completed a survey for the Public Utility Commission and the Department of Information Resources. The survey was conducted to assess factors that could influence the development of e-government in Texas. The survey results indicate that:

  • 67 percent of Texans use a computer, and 60 percent use the Internet,
  • People who do not use the Internet tend to be older, poorer, and members of a minority group,
  • Hispanics and African-Americans (especially those with incomes below $40,000) are less likely to use the Internet,
  • Rural residents have less Internet access, and it is more costly for them to obtain it, and
  • Those without access to the Internet at home or work are more likely to go to libraries rather than community centers to obtain access.[2]

Studies indicate access to high-speed lines continues to increase. The latest FCC statistics indicate high-speed subscribers are “present in 96 percent of the most populated zip codes and in 40 percent of zip codes with lowest population densities. The number of sparsely populated zip codes with high-speed subscribers increased by 69 percent during the first half of the year [2000] . . .”[3]

Accessibility and Technology Issues

The Federal Communication Commission defines “broadband” Internet access as the ability to support at least 200 kilobits/second in the consumer’s connection to the network (the so-called “last mile”).[4] This ability applies both to downstream (provider to consumer) and upstream (consumer to provider) communications.[5]

Basic telephone use is not quite universal, despite long-standing government programs to encourage development of this infrastructure. Across the US, 94 percent of Americans have telephones. The percentage of households with telephone service is commonly referred to as penetration.[6] This means that 6.3 million American households do not have a telephone connection.[7] Texas ranks in the bottom 15 states for telephone connections, with 91.4 percent of households having a telephone; some 624,000 Texas households do not.[8]

Sixty-one “incumbent” companies provide telephone service in Texas. Incumbent companies are required to serve everyone in their areas as “carriers of last resort.”[9] These companies may provide service to customers near but outside of their areas, and may charge them for expenses incurred while providing the service. Some areas in Texas do not have access to continuous landline service because they are in areas not served by an incumbent company.

The US previously intervened to address similar issues related to infrastructure penetration. In the 1930s, only 10 percent of rural residents had access to electricity, compared to 90 percent of urban residents.[10] Private utility companies, who supplied electric power to most of the nation’s consumers, argued that it was too expensive to string electric lines to isolated rural farmsteads. President Roosevelt’s administration asked Congress to develop a program that would allow rural areas to obtain electricity. The Rural Electrification Administration (REA) was formed in 1935 to administer affordable loan programs for electrification and telephone service in rural areas. It was reorganized in 1939 as a division of the US Department of Agriculture. The REA made long-term, self-liquidating loans to state and local governments, farmers’ cooperatives, and nonprofit organizations. By the early 1970s, about 98 percent of US farms had access to electricity.[11]

The digital divide raises the issue of whether society’s traditional commitment to universal access to telecommunications can keep pace with changing technology. It is hard to access the Internet in most rural areas, and very few have broadband access. The cost to access the Internet usually is higher in rural than in urban areas.

Access to the Internet can be obtained through cable, phone lines, or wireless avenues (including satellite). California has experimented with using power lines to provide access to the Internet. Developing the infrastructure to provide Internet access can be very costly. If a cable system wants to provide Internet access, the cable must be upgraded to 550 megahertz and have an interface that can cost at least $200,000. At this time, fewer than 50 cable systems provide Internet service in Texas’ rural areas.[12] And, according to a recent Department of Commerce report, “about 1 percent of towns with fewer than 10,000 people had cable modem service compared with 72 percent of cities with more than 250,000 residents.”[13] Most rural areas also lack access to Digital Subscriber Line (DSL) service, a broadband service available through phone lines; as with cable, the lines must be upgraded to support broadband connectivity.

Educational Issues

The American adult illiteracy rate is 25 percent. About 40 million adults are functionally illiterate, while another 50 million have limited literacy skills.[14] Functionally illiterate American adults have very basic literacy skills and “generally function below a fifth grade reading level.”[15] The organization Literacy Instruction for Texas states that 23 percent of adult Texans read at the lowest literacy level (below the fifth grade).[16] Most of today’s Web sites are based on a tenth-grade reading level. Access to the Internet won’t help those who can’t read. To cross the digital divide, communities must place a higher emphasis on adult literacy training.

Adults must learn how to use the Internet to be prepared to compete in the marketplace. Companies are looking for technologically trained staff or people who are capable of being trained. According to NTIA statistics, “telecommunications and information-related industries will account for approximately 20 percent of the US economy” in the 21st century.[17] Literacy plays an integral role in developing employees for the Information Age.

Federal Efforts: National Telecommunications and Information Administration

The National Telecommunications and Information Administration (NTIA), a part of the US Department of Commerce, works primarily with domestic and international telecommunications and information technology issues. NTIA administers the Technology Opportunities Program (TOP) that provides grants for projects demonstrating innovative uses of network technology. To date, TOP has awarded 421 grants totaling $135.8 million, in all 50 states.[18]

Educational Rate (E-Rate) Program

The federal Telecommunications Act of 1996 created the E-Rate (Educational Rate) program, which provides schools and libraries with federal subsidies of 20 to 90 percent on telecommunication services, Internet access, and internal connections.[19] School E-Rate discounts are based on eligibility (not participation) for the federal Free and Reduced Federal Program, an indicator of poverty in the area. Public libraries’ eligibility is based on the school district in which they are located. As of November 1999, the federal government had committed $1.9 billion to E-Rate programs across the nation.[20]

Technology Literacy Challenge Fund

Congress approved the Technology Literacy Challenge Fund (TLCF) in 1996 to help state, local, and private-sector efforts to improve teaching and learning through the use of technology. All 50 states have received awards through the TLCF.[21]

US Department of Education

The US Department of Education oversees the development of community technology centers in various parts of the country. In 1999, the department awarded 40 three-year grants for various programs, including two in Texas (College Station and Carrizo Springs); five new Texas programs will receive funding in 2000.[22] The purpose of this program is to promote the development of educational programs related to technology in urban and rural areas and economically distressed communities. These centers provide access to information technology and related learning services to children and adults.

Corporation for National Service

The Corporation for National Service, created by the federal government in 1993, provides grants through its Americorps and Learn and Serve programs to help address digital divide issues. The corporation has provided $12.5 million for grants to train teachers, staff and volunteers; community-based programs that provide tutoring in the use of the Internet and other computer technology; and programs designed to wire community centers.[23]

States’ Efforts

In 2000, the State of Washington completed a three-year, $54.8 million program to provide high-speed Internet access to all of its public schools, from kindergarten through graduate school. The next phase of the plan calls for the state to provide similar connections to its public libraries; eventually, the state’s Department of Information Services plans to connect private colleges to this network as well.[24]

North Carolina has created NCexChange, a project to promote electronic technologies by nonprofit organizations and low-income communities. As part of this project, North Carolina has developed Community NETworker, a “national demonstration project” for disadvantaged communities. NETworker is a collaborative effort among small businesses, local governments, schools, libraries, and nonprofit organizations focused on providing training and technical support rather than infrastructure.[25]

Texas’ Efforts

Texas state agencies oversee several efforts to provide the infrastructure and equipment necessary to provide greater access to electronic information. The Texas Education Agency (TEA) coordinates the federal E-Rate program in Texas; the state’s schools received more than $260 million during the first two years of the program.[26] TEA also coordinates the Technology Integration in Education (TIE) program, funded through the federal Technology Literacy Challenge Fund (TLCF). To date, TIE has distributed $80 million to school districts in Texas, $33 million in 1999 alone.[27]

The Texas Telecommunications Infrastructure Fund (TIF) Board, created in 1995, administers grant and loan programs to fund technology projects including cabling and Internet access.[28] The Legislature has authorized $1.5 billion over 10 years for grants to public schools, public libraries, institutions of higher learning, and public nonprofit health care facilities. Funds are derived from annual assessments on telecommunications utilities and commercial mobile service providers. The assessments are based on 1.25 percent of receipts from telecommunications services subject to the state’s sales tax.

As of the end of fiscal 1999, the TIF Board has provided funding to:

  • 2,300 public school grants,
  • 562 of 578 rural school districts,
  • 227 school districts (for distance learning),
  • 57 of the state’s community colleges,
  • 67 universities,
  • 592 Texas public libraries and branches,
  • 410 public and nonprofit healthcare facilities, and
  • 26 collaborative model projects.[29]

A typical TIF grant averages $75,000 and purchases telecommunications equipment, wiring, servers, computers, distance-learning equipment, printers, and related peripheral items.

The Texas Legislature created the Development Corporation Act in 1979. This act allows certain cities and counties to establish development corporations to promote expansion of industry and manufacturing. A development corporation can be funded with a local sales and use tax, if approved by voters.

The state’s Public Utilities Commission administers the Texas Universal Service Fund (TUSF) through its agent, the National Exchange Carrier Association (NECA).[30] This fund was created outside the state Treasury to reimburse telephone companies for specific projects, including programs for the hearing-disabled and services to low-income customers (Tel-Assistance and Lifeline). Every telephone company operating in Texas (long distance, local, cell phone, etc.) contributes 3.96 percent of its taxable receipts to this fund. Companies submit a monthly report to NECA listing the number of Tel-Assistance and Lifeline participants they support, and receive reimbursements for their costs.

The largest portion of the TUSF is used to provide assistance to local telephone companies providing basic service in high-cost and rural areas. The estimated projection for TUSF spending in fiscal 2000 is $550 million. Of that amount, about 90 percent will be allocated to local telephone companies serving high-cost and rural customers; 3 percent will fund discounts to low-income customers; and a little under 3 percent will fund programs for the hearing-disabled.[31]

The primary technology issue facing rural Texas is the penetration rate of high-speed access to the Internet. Cities need funding options to allow flexibility to meet their telecommunication needs and give them tools to participate in future economic development trends.

Another issue in this report recommends that local governments be eligible to apply for Technology Infrastructure Fund grants under certain conditions.

In a separate policy document, the E-Commerce Technology Advisory Group (ETAG), a committee of industry and local government representatives advising the Comptroller of Public Accounts, supports the phase-out of the sales and use tax on equipment used to provide broadband services, including items to upgrade cable television and wireless communications. The ETAG recommendation states that this exemption would apply to investments in strategic investment areas within a fixed time frame.[32]


Texas’ Development Corporation Act should be amended to alter the definition of “project” to include telecommunications infrastructure.

The 1979 Legislature enacted the Development Corporation Act to allow cities and counties to expand economic development in their areas. Designated cities and counties were allowed, with voter approval, to implement a sales tax to create or expand economic development by supporting specific projects related to economic development. Examples of eligible projects include the development of transportation facilities, sewage or solid waste disposal facilities, and similar projects.[33]

This amendment would allow cities to develop projects related to supplying the infrastructure necessary to provide broadband or similar access to the Internet. It would allow cities to pass bonds or implement a sales tax option (based on voter approval) to fund programs that meet their specific needs.

Fiscal Impact

These recommendations would not affect state funds. Local revenue could be affected if local governments choose the additional local tax option, but this fiscal impact cannot be estimated. Based on historical fund balances in the Telecommunications Infrastructure Fund, the existing revenue stream should cover grants to rural local governments.


[1] National Telecommunications and Information Administration, Falling Through the Net: Defining the Digital Divide (Washington, DC, July 8, 1999) (http://www.ntia.doc.gov/ntiahome/digitaldivide/). (Internet document.)

[2] University of Texas Telecommunications and Information Policy Institute, “E-Government Services and Computer and Internet Use in Texas” June 2000 (http://www.utexas.edu/research/tipi/). (Internet document.)

[3] Federal Communications Commission, “Federal Communications Commission Releases High Speed Services for Internet Access,” October 31, 2000 (http://www.fcc.gov/bureaus/common_carrier/news_releases/2000). (Internet document.)

[4] National Telecommunications and Information Administration and Rural Utilities Services, “Advanced Telecommunications Services in Rural America,” April 2000 (http://www.ntia.doc.gov/reports/ruralbb42600.pdf). (Internet document.)

[5] Federal Communications Commission, “Deployment of Advanced Telecommunications Capability Second Report,” August 2000 (http://www.fcc.gov/Bureaus/Common_Carrier/Orders/2000/fcc00290.pdf). (Internet document.)

[6] “Challenges of Correcting Data in the Use of Information Technology: Telephone, the Census, and the Current Population Survey” (http://www.nap.edu/readingroom/books/esi/box3-6.html). (Internet document.)

[7] “Universal Service Update,” The Digital Beat (February 2, 2000) (http://www.benton.org/DigitalBeat/db022900.html). (Internet document).

[8] Based on the total number of households in Texas (7,260,600) in 1999. Telephone interview with Gary Preuss, analyst, Revenue Estimating, Texas Comptroller of Public Accounts, Austin, Texas, May 30, 2000.

[9] Telephone interview with Claudia Morgan, director of Regulatory Affairs, Texas Telephone Association, Austin, Texas, May 15, 2000.

[10] The New Deal Network, “TVA: Electricity for All – Rural Electrification” (http://www.newdeal.feri.org/tva/tva10.htm). (Internet document.)

[11] The Learning Network, “Rural Electrification Administration” (http://www.kids.infoplease.com/ce6/history/A0842689.html). (Internet document.)

[12] Telephone interview with Bill Arnold, president, Texas Cable and Telecommunications Association, Austin, Texas, May 11, 2000.

[13] Catherine Greenman, “Life in the Slow Lane,” New York Times (May 18, 2000) (http://www.nytimes.com/library/tech/00/05/circuits/articles/18rura.html). (Internet document.)

[14] Andy Carvin, “Mending the Breach: Overcoming the Digital Divide,” May 1, 2000 (http://www.edu-cyberpg.com/Teachers/andycarvin1.html). (Internet document.)

[15 ] National Institute for Literacy, “Adult and Family Literacy in the United States: Key Issues for the 21st Century” (http://www.nifl.gov/policy/whpap.html). (Internet document.)

[16] Literacy Instruction for Texas, “About Literacy” (http://www.lift-texas.org/frame.html). (Internet document.)

[17] National Telecommunications and Information Administration, “NTIA” (http://www.ntia.doc.gov/ntiahome/ntiafacts.htm). (Internet document.)

[18] National Telecommunications and Information Administration, “Technology Opportunities Program: About TOP” (http://www.ntia.doc.gov/otiahome/top/grants/briefhistory_gf.htm). (Internet document.)

[19] School District of Philadelphia, “E-Rate” (http://www.tng.phila.k12.pa.us/e-rate.htm). (Internet document.)

[20] US Department of Education, National Center for Education Statistics, “Stats in Brief: “Internet Access in US Public Schools and Classrooms, 1994-1999,” Washington, DC, February 2000.

[21] Northwest Educational Technology Consortium, “Technology Literacy Challenge Fund” (http://www.netc.org/tlcf/). (Internet document.)

[22] Community Technology Centers, “Grant Recipients, 2000” (http://www.ed.gov/offices/OVAE/CTC/ctcgrant.html). (Internet document.)

[23] Corporation for National Service, National Service News Press Release, “Creating Digital Opportunities Through National Service,” April 3, 2000. (http://www.nationalservice.org/news/nsn/103.html). (Internet document.)

[24] Daniel Keegan, “Washington Connects All Public Schools,” Civic.com (May 9, 2000) (http://www.civic.com/civic/articles/2000/0508/web-1wash-05-09-00.asp). (Internet document.)

[25] North Carolina, The Community NetWorker Project (http://www.ncexchange.org/networker/). (Internet document.)

[26] Telephone interview with Richard LaGow, Texas Education Agency, Austin, Texas, May 9, 2000.

[27] Telephone interview with Delia Duffey, Texas Education Agency, Austin, Texas, May 9, 2000; and Texas Education Agency Press Release, “TEA Awards $33 Million in Federal Funds for Programs That Will Use Technology to Improve Student Learning,” June 2000 (http://www.tea.state.tx.us/press/pr000621.html). (Internet document.)

[28] Telephone interview with Michael Brown, Telecommunications Infrastructure Fund Board, Austin, Texas, May 9, 2000.

[29] Telecommunications Infrastructure Fund Board, “Annual Report for 1999” (http://www.tifb.state.tx.us/grantloan/99Annual/Annual%20Report%201999.htm). (Internet document.)

[30] Telephone interview with Karen Curso, Public Utilities Commission, Austin, Texas, May 12, 2000.

[31] Public Utilities Commission, “Texas Universal Service Fund Surcharge (TUSF)” (http://www.puc.state.tx.us/ocp/telephone/txunivserv.ctm). (Internet document.)

[32] E-Commerce Technology Advisory Group, “Policy Proposal for Taxation of the Internet and the Technology Industries,” December 2000.

[33] Economic Development Corporation Act of 1979, Vernon’s Civil Statutes, Title 83, Labor, Chapter 10, Article 5190.6, Sec. 2(11)(A).

e-Texas is an initiative of Carole Keeton Rylander, Texas Comptroller of Public Accounts
Post Office Box 13528, Capitol Station
Austin, Texas

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