Discussion
of Issues
Issue 1:
Should the Commission approve Florida
Telecommunications Relay, Inc.’s (FTRI) proposed budget as presented in
Attachment A for Fiscal Year 2019/2020, effective August 1, 2019, and should
the Commission maintain the current Telecommunications Relay Service (TRS)
surcharge at $0.10 per month?
Recommendation:
Staff recommends that the Commission reduce FTRI’s proposed
budget expenses for Fiscal Year 2019/2020 by $2,300 for Voice
Carry-Over/Hearing Carry-Over-Telecommunications Device for the Deaf
(VCO/HCO-TDD) Equipment, $2,592 for Audio Ringer (ARS) Equipment, and $4,767
for Video Relay Service (VRS) Equipment. Staff also recommends that the
Commission allow FTRI to transfer $285,714 from the Reserve Account to offset a
projected revenue shortfall. Staff recommends that the Commission order all
local exchange companies to continue billing the $0.10 surcharge for Fiscal
Year 2019/2020. (Williams)
Staff Analysis:
Traditional
Telecommunications Relay Service
The traditional TRS cost to
FTRI as approved in Sprint Communications Company, L.P.’s (Sprint) contract is
currently $1.35 per session minute. Sprint’s projections indicate that
traditional minutes will increase by 1.6 percent during Fiscal Year 2019/2020
from the prior fiscal year. Traditional relay users are transitioning to the
following services:
·
Internet Protocol (IP) Relay
·
Video Relay Service (VRS)
·
Captioned Telephone (CapTel) Service
·
Internet Protocol Captioned Telephone Service
·
Internet Protocol Speech-to-Speech (STS) Service
·
Wireless Service
CapTel
Service
The CapTel cost to FTRI as approved in the Sprint contract
is currently $1.69 per session minute. CapTel service uses a specialized
telephone that provides captioning of the incoming call for a deaf or hard of
hearing person. Sprint’s projections show that CapTel minutes of use will decline
by 23 percent during Fiscal Year 2019/2020 from the prior fiscal year. CapTel
users are transitioning to Internet Protocol Captioned Telephone Service.
Florida
Telecommunications Relay, Inc. Budget
The FTRI Fiscal Year 2019/2020 proposed budget projects
total operating revenues of $5,409,709 and total expenses of $5,705,082. Based
on the projected revenue and expenses, FTRI requests that the Commission grant
FTRI authority to transfer $295,373 from the Reserve Account to offset the
shortfall. FTRI also requests that the Telecommunications
Relay surcharge be maintained at $0.10 per access line for Fiscal Year 2019/2020.
Attachment A reflects FTRI’s Fiscal Year 2019/2020 proposed
budget, which was reviewed and adopted by FTRI’s Board of Directors prior to
filing with the Commission. FTRI’s proposed budget represents a projected
decrease in revenue of $383,942 from the Fiscal Year 2018/2019 Commission
approved budget. FTRI’s proposed budget also includes a decrease in expenses of
$350,038 from the Fiscal Year 2018/2019 Commission approved budget.
The projected revenue loss is due to a projected four
percent decrease in access lines that are assessed the current $0.10 surcharge.
Total operating revenue for FTRI’s Fiscal Year 2018/2019 Commissioned approved
budget was $5,793,651. FTRI’s proposed budget projects $5,409,709 in revenue,
based on the projected decline in access lines, resulting in a seven percent
revenue loss from Fiscal Year 2018/2019.
Sprint’s estimated Fiscal Year 2019/2020 traditional TRS minutes
of use are 1,147,727, at a rate of $1.35 per minute for a total of $1,549,431.
Sprint’s estimated CapTel minutes of use for Fiscal Year 2019/2020 are 595,703,
at a rate of $1.69 per minute for a total of $1,006,738.
The estimated expense decrease is primarily attributable
to Category I-Relay Services and Category II-Equipment and Repairs, with both
categories recognizing overall lower cost. The largest estimated decrease in
FTRI’s budget is attributable to lower minutes of use for CapTel service. Similarly,
cost savings are also recognized for equipment and repair expenses. In total,
FTRI’s proposed expenses represent a $350,038 decline from the Fiscal Year
2018/2019 Commission approved budget, representing a six percent decline.
A comparison of FTRI’s Fiscal Year 2018/2019 Commission
approved budget, FTRI’s Fiscal Year 2018/2019 estimated actual revenues and
expenses, and FTRI’s Fiscal Year 2019/2020 proposed budget as filed is shown in
Table 1 below.
Table 1
FTRI Budget Comparison
|
|
Commission
Approved
2018/2019
|
FTRI
Estimated Actual 2018/2019
|
FTRI
Proposed
2019/2020
|
|
Operating Revenue:
|
|
|
|
|
Surcharges
|
$5,695,749
|
$5,537,279
|
$5,315,788
|
|
Interest Income
|
97,902
|
88,652
|
93,921
|
|
Total Operating Revenue
|
$5,793,651
|
$5,625,931
|
$5,409,709
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
Relay Provider Services
|
$2,826,281
|
$2,726,660
|
$2,556,170
|
|
Equipment & Repairs
|
1,040,360
|
1,068,223
|
948,053
|
|
Equipment Distribution & Training
|
705,986
|
727,119
|
707,389
|
|
Outreach
|
546,250
|
546,250
|
535,650
|
|
General & Administrative
|
936,243
|
902,028
|
957,820
|
|
Total Expenses
|
$6,055,120
|
$5,970,280
|
$5,705,082
|
|
|
|
|
|
|
Annual Surplus
|
($261,469)
|
($344,349)
|
($295,373)
|
|
Reserve Account
|
17,398,350
|
17,301,477
|
16,957,128
|
|
Total Reserve
|
$17,136,881
|
$16,957,128
|
$16,661,755
|
Source: FTRI’s Fiscal Year 2019/2020
proposed budget.
Analysis
In its budget filing, FTRI states that access lines have
decreased at the rate of 5.7 percent during the past four years (2015-2018) and
believes that trend will continue as more consumers transition from landline
phones to other technologies. As a result, FTRI’s revenues will be reduced as
the number of access lines decline, holding the surcharge constant. Continued
efforts by FTRI to reduce expenses are important.
Staff developed its own estimate of FTRI’s expenses for
Fiscal Year 2018/2019. This data is presented in Attachment B. Staff used
actual data from July 2018 through March 2019 and estimated the fourth quarter
by averaging the first three quarters of the fiscal year. Staff’s estimates
were then used as one element in evaluating FTRI’s proposed budget. Attachment
B also includes FTRI’s budgeted information for comparison purposes.
Staff also analyzed past Commission approved FTRI budgets
to identify and evaluate ongoing cost reduction measures. Below is staff’s
review of selected items from FTRI’s proposed budget expense by category.
Category I – Relay Services
Category I captures expenses for traditional TRS and
CapTel service currently provided by Sprint. The proposed budget recognizes a $270,111
expense reduction from the Fiscal Year 2018/2019 Commission Approved budget,
primarily due to declining minutes and service cost associated with CapTel
service.
The relay service expenses are based on the minutes of use
as projected by Sprint and relay service contract rates. Sprint’s historical
projections have proven to be reasonable and it has multi-state experience with
such projections. Staff believes that the estimates for Fiscal Year 2019/2020
are reasonable and should be used for budgetary purposes.
Category II – Equipment & Repairs
Category II expenses reflect the purchase of equipment to
be distributed to clients and the repairs that FTRI must make to keep the
equipment in working order. FTRI’s proposed budget represents a $92,307
decrease in expense when compared to the Fiscal Year 2018/2019 Commission
approved budget.
FTRI’s proposed CapTel Phone Equipment expense increased
by $16,875 as a result of expiration of an agreement FTRI had with Sprint to
provide the CapTel 840 PLUS at no cost during Fiscal Year 2018/2019. FTRI
explained that upon expiration of the agreement, it had sufficient inventory
for Fiscal Year 2018/2019. The proposed expense increase would be to purchase
new equipment for projected demand during Fiscal Year 2019/2020. As stated
earlier, FTRI’s proposed budget for Category II expenses represents a decrease
of $92,307 from last year’s approved budget. The expense increase for the purchase
of the CapTel 840 PLUS devices is offset by purchase reductions for other
equipment.
FTRI’s equipment budget reflects declines in equipment
distribution, but includes equipment orders to maintain a sufficient inventory
to serve its clients. FTRI used contract pricing for equipment multiplied by
the number of units it plans to order over the course of the year. These
contracts for equipment between FTRI and equipment vendors are separate from
the contracts for relay service approved by the Commission.
After comparing FTRI’s budget with our estimates for
Fiscal Year 2018/2019, staff identified several line items which we believe
should be adjusted. Staff’s recommended adjustments are presented in the Staff
Adjustments to FTRI’s Proposed Budget section of the recommendation.
Category III – Equipment Distribution
& Training
Category III reflects the cost of distribution of
equipment throughout the state and the training of consumers in the use of the
equipment. FTRI’s proposed budget reflects a slight increase in expense of
$1,403 from the Fiscal Year 2018/2019 Commission approved budget. This increase
is the result of increased freight cost. However, expenses related to the
largest component of Category III, Regional Distribution Centers (RDCs),
decreased by $3,356 from the Fiscal Year 2018/2019 Commission approved budget. By
comparison, the Commission voted to decrease the RDC budget by $81,954 for
Fiscal Year 2017/2018, finding that FTRI’s actual expenditures in that year had
declined at a rate exceeding FTRI’s projection.
FTRI contracts with the non-profit RDCs to perform equipment
distribution and training throughout Florida. Currently there are 27 RDCs. The amount
of funds for FTRI’s contracts with RDCs varies based on the number of clients
they assist. More funds are provided for connecting a new client, while fewer
funds are provided to assist existing clients in the system. Staff believes
FTRI’s proposed budget for Category III expense is reasonable.
Category IV – Outreach
Outreach efforts are designed to promote FTRI phone
distribution services, and to raise awareness about Florida relay service. FTRI’s
proposed Fiscal Year 2019/2020 outreach expense represents a $10,600 decline
from the Commission approved outreach expense budget for Fiscal Year 2018/2019.
FTRI’s outreach budget declined $15,650 in its Fiscal Year 2017/2018
Commissioned approved budget and by $12,726 in its 2018/2019 Commission
approved budget.
FTRI employs various forms of communication in its
outreach strategy. FTRI plans to continue advertising in newspapers using
free-standing insert ads (flyers), in markets where such ads continue to be
effective. However, FTRI acknowledges that it has witnessed rapid changes in
the newspaper industry. In response, FTRI will utilize other print tools such
as direct mail post cards and coupon book advertisements.
FTRI also plans to expand its digital marketing campaign,
including increased use of banner ads on websites, targeted email campaigns,
and social media campaigns. FTRI acknowledges that in Fiscal Year 2018/2019, it
saw the cost per contact of newspaper insert advertising increase, while the
cost of Digital advertising remained stable.
The Commission has previously encouraged FTRI to research
and consider more technologically advanced and cost-effective forms of outreach
in addition to traditional newspaper print. In FTRI’s Fiscal Year 2016/2017
proposed budget filing, FTRI proposed increasing its outreach budget by
$153,674 to initiate a pilot program to expand insert advertisements in traditional
print newspapers. The Commission denied FTRI’s request and directed FTRI to
focus its efforts more on digital advertisements. Staff is encouraged with
FTRI’s efforts to make its outreach strategy more cost-effective. Staff
believes FTRI’s proposed budget for Category IV expense is reasonable.
Category V – General &
Administrative
Category V reflects the expenses associated with FTRI’s
operations, such as office and furnishings, employee compensation, contracted
services (auditors, attorney, and computer consultants), computers and other
operating expenses. Consistent with Fiscal Year 2018/2019, FTRI has proposed a
budget for nine employees for the Fiscal Year 2019/2020. FTRI is proposing a
$21,577 increase in Category V expense for Fiscal Year 2019/2020. In previous
years, the Commission has paid particular attention to this category in an
effort to decrease FTRI’s operating expense.
In 2017, based on a review of supporting documents, staff
communicated concerns regarding FTRI’s legal expense and the structure of
FTRI’s contract for legal services. FTRI had the same law firm on retainer for
many years at a cost of $72,000 per year. Staff’s analysis showed that paying
the attorney an hourly rate may be more cost-effective than paying a retainer. Staff
recommended that FTRI be required to provide itemized legal invoices with date
of services, charges for the services, and a detailed description of the
services provided by legal counsel. In FTRI’s proposed 2017/2018 Fiscal Year
budget line item for legal expense, the Commission reduced legal expense by
$36,000.
Subsequent to the Commission’s
2017 order, FTRI signed a legal services agreement with the attorney
guaranteeing a monthly flat fee of $3,000 per month (12 hours at $250 per
hour), with additional hours billed for specified services as needed at $225
per hour. The negotiated agreement was for a minimum of $36,000, which was the
upper limit of the approved Fiscal Year 2017/2018 budget for legal expense. FTRI’s
proposed budget for legal expenses was $55,823. The Commission reduced FTRI’s
2018/2019 Fiscal Year budget line item for legal expenses by $19,823, to
$36,000.
For Fiscal
Year 2019/2020, FTRI has proposed a budget of $33,500. While this represents a
6.9 percent decrease from last year’s Commission approved budget, staff’s
estimate of Fiscal Year 2018/2019 was lower than this amount using the
methodology explained previously. In order to account for quarterly variations,
staff calculated a second estimate of FTRI’s legal expense using the first
three quarters of expenses from this fiscal year with the fourth quarter from
the prior fiscal year. The result of that estimate was $33,623. Based on this
estimate for Fiscal Year 2018/2019, staff believes that FTRI’s proposed budget
of $33,500 for Fiscal Year 2019/2020 is reasonable.
In recent
years, the Commission has also ordered FTRI to conduct in-house analyses for
retirement and to include quotes from other retirement plans offered by
comparably-sized nonprofit and for profit entities. In response to the Order,
FTRI filed reports with the Commission. The reports were performed by Regions
Institutional Services (Regions) on the plan design, investment returns, and
administrative structure of FTRI’s pension plan. The analysis pointed out that
the plan through NTCA boasts roughly $2 billion in assets with over 17,000
participants. It further stated that the cooperative nature of the plan allows
the assets to be pooled for investment purposes and the large asset base
attracts outside managers not generally available to smaller defined benefit
plans.
Regions
concluded that there are no glaring issues with FTRI’s plan design or
operation. However, Regions did recommend that FTRI continue to review
investment returns, fees, and plan design to ensure that NTCA’s plan remains
cost effect. The Commission ordered FTRI to continue to conduct in-house
analyses for retirement expenses and submit its findings every three years to
present any factors that may have changed.
Retirement
expense is based on salary and related pension costs. For Fiscal Year
2019/2020, FTRI has proposed retirement expense of $80,909. This represents a
2.7 percent increase from the Fiscal Year 2018/2019 Commission approved budget
and 5.4 percent increase from FTRI’s Fiscal Year 2018/2019 estimated expense.
FTRI’s Fiscal Year 2018/2019 estimated expense is lower due to employee
turnover and staffing less than nine full-time positions. FTRI’s proposed
budget is based on staffing nine full-time positions. Based on the increased number
of full-time employees, staff believes that FTRI’s proposed retirement budget
is reasonable.
The
Commission has also previously addressed concerns relating to insurance
expense. In FTRI’s proposed Fiscal Year 2018/2019 budget, it requested $192,496
for insurance expense, which represented an increase of 5.12 percent from FTRI’s
Fiscal Year 2017/2018 estimated expenditures. However, FTRI’s insurance budget
was based on an estimate from its previous insurance provider. In response to
staff’s inquiry, FTRI provided a revised insurance estimate of $153,027, a
decrease of 16.4 percent from its Fiscal Year 2017/2018 estimated expenditures.
FTRI’s proposed Fiscal Year 2018/2019 budget line item for insurance was
reduced by $39,469 to reflect the updated estimate provided by FTRI. FTRI was
also required to continue to conduct in-house analyses for insurance expense
and submit its findings to the Commission every three years. FTRI’s proposed
budget of insurance expense is $165,266. FTRI indicated that this amount
includes a seven percent premium increase based on quotes from their insurance
provider. Employees contribute five percent of the premium for single coverage
plus twenty-five percent for additional dependent costs. Based on the increased
number of full-time employees as noted above and the premium increase, staff
believes that FTRI’s proposed insurance budget is reasonable.
The largest increase in Category V is for employee
compensation. FTRI’s Fiscal Year 2018/2019 budget for employee compensation
included nine positions. However, the Data Entry position was vacant for part
of the fiscal year. The position was also filled on a part-time basis for part
of the year. FTRI has communicated that the position needs to be filled on a
full-time permanent basis. In addition, based on a request from the Commission,
FTRI contracted with Evergreen Solutions, LLC (Evergreen) to perform a comprehensive
compensation analysis and provide a recommendation on updating salary ranges
for each position.
One of Evergreen’s findings was that four of FTRI’s
positions were below the minimum recommended salary range. Evergreen
recommended that FTRI adjust the salaries of the four positions to the new salary
range minimum. The salary range adjustment would represent an increase of
$20,635. In addition, FTRI’s budget includes $13,293, for discretionary merit-based
salary adjustments of up to three percent of the employee’s salary. The line
items for insurance, retirement, and payroll taxes would be directly impacted
by the increase in employee compensation.
FTRI’s proposed budget also contains increases for
Computer Consultation and Office Equipment/Computer Software. In response to
staff’s data request, FTRI explained that the expenditures would include two
new workstation computers, new server installation and operating system
upgrade, Office 365 software, and system security upgrades.
There is a direct correlation between the minutes of use
and related service delivery and equipment distribution expense. As minutes of
use decline and consumers substitute older equipment with newer technologies
such as mobile devices with texting capabilities, the associated expense should
decrease. Although reduced minutes of use and technology substitution do not
impact General and Administrative expense to the same degree, efforts to
control General and Administrative expenses are of equal importance. While
staff recommends that FTRI’s proposed budget for Category V expense is
reasonable, FTRI should continue to pursue cost cutting measures.
Staff Adjustments to FTRI’s Proposed
Budget
In staff’s
analysis, staff used actual expenses for the first three quarters and estimated
the fourth quarter (using an average of the first three quarters) for Fiscal
Year 2018/2019 to compare with FTRI’s proposed budget. Based on this review,
staff recommends the adjustments to the following expense items:
·
Voice Carry-Over/Hearing
Carry-Over-Telecommunications Device for the Deaf (VCO/HCO-TDD) Equipment
·
Audio Ringer Service (ARS) Equipment
·
Video Relay Service (VRS) Equipment
VCO/HCO-TDD
Equipment
FTRI has proposed $2,300 for VCO/HCO-TDD equipment for
Fiscal Year 2019/2020. After reviewing FTRI’s quarterly reports, VCO/HCO-TDD
equipment has not been purchased since January 2018. Staff has inquired regarding current demand
for this equipment from FTRI, but has not received sufficient information to
recommend FTRI’s proposed budget for this equipment. For Fiscal Year 2018/2019,
FTRI had a Commission approved budget for $4,600. However, in response to
staff’s data request, FTRI has indicated that it does not anticipate buying
this equipment in the final quarter of Fiscal Year 2018/2019. As a result,
staff recommends that FTRI’s budget be reduced by $2,300 for VCO/HCO-TDD
equipment.
ARS
Equipment
ARS equipment is budgeted at $2,592 by FTRI for Fiscal
Year 2019/2020. FTRI has not purchased ARS-Signaling equipment since April 2018
based on its quarterly reports. FTRI had estimated that at the time of the
budget development, a demand of eight units per month for distribution for the
second half of the year at a cost of $27 each, for a total of $1,296. Since that
time, no units have been purchased through May 15, 2019. Based on FTRI’s
response to Staff’s data request, FTRI has now indicated that it no longer
anticipates purchasing these units. Therefore, staff recommends that FTRI’s
budget for ARS be reduced by $2,592.
VRS
Equipment
FTRI’s proposed budget is $12,500, which is an increase of
$4,767 over the Fiscal Year 2018/2019 Commission approved budget. In response
to staff’s data request, FTRI explained that it is requesting the increase to
conduct a pilot program with the more advanced Bellman-Symfon device to measure
consumer interest prior to deciding whether to include it in the program on a permanent
basis. The device is multifunctional and uses newer technology. One function
allows a user to control the unit plugged directly into the phone or by transmitter
alerting the user of a ring if the unit is in another room. FTRI’s proposed budget
is for 100 units based on its estimated demand for VRS equipment.
Staff’s estimated expenses for Fiscal Year 2018/2019 was
only $2,880, significantly less than last year’s approved budget for such
equipment. Staff recommends that the amount budgeted for the pilot program be
reduced until FTRI obtains greater insight into consumer demand and product
quality. Staff recommends that the Commission maintain the budget at the
current Fiscal Year 2018/2019 Commission approved budgeted amount of $7,733.
Staff believes that the difference between this amount and last year’s approved
budget will be sufficient for FTRI to evaluate the demand for the
Bellman-Symfon device. Staff recommends that FTRI’s proposed budget for VRS
equipment be reduced by $4,767.
Surcharge
FTRI recommends that the Commission order all local
exchange companies to continue billing the $0.10 monthly surcharge for Fiscal
Year 2019/2020. Staff’s recommended total budget includes a shortfall of $285,714.
FTRI proposed drawing from the Reserve Account to cover the shortfall in their
proposed budget. Staff notes that a $0.01 increase in the surcharge would
produce almost twice the amount of the shortfall of $285,714.
Therefore, staff recommends that rather than increasing the surcharge, it is
appropriate to transfer the funds from the Reserve Account to cover the
budgeted shortfall for Fiscal Year 2019/2020.
Conclusion
Staff
believes FTRI’s expense reductions continue to be steps in the right direction
to better position FTRI in a changing industry. However, a sustained effort is
necessary for FTRI to strategically position itself in a rapidly changing
environment. Staff has identified three expense line items in FTRI’s proposed Fiscal
Year 2019/2020 budget that should be reduced associated with equipment
distribution.
Staff
recommends that the Commission reduce FTRI’s proposed budget expenses for
Fiscal Year 2019/2020 by $2,300 for Voice Carry-Over/Hearing
Carry-Over-Telecommunications Device for the Deaf (VCO/HCO-TDD) Equipment,
$2,592 for Audio Ringer (ARS) Equipment, and $4,767 for Video Relay Service
(VRS) Equipment. Staff also recommends that the Commission allow FTRI to
transfer $285,714 from the Reserve Account to offset the projected
revenue shortfall due to a projected four percent decrease in access lines.
Staff recommends that the Commission order all local exchange companies to
continue billing the $0.10 surcharge for Fiscal Year 2019/2020.
Staff
also notes that FTRI has the flexibility to move budgeted funds within the same
category as a management tool, if needed,
for expense categories II through V, except for employee related expenses in
Category V. (Williams)
Issue 2:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Murphy)
Staff Analysis:
At the conclusion of the protest period, if no
protest is filed this docket should be closed upon the issuance of a
consummating order.
