The Biden administration has asked the U.S. Supreme Court to overrule a lower court and reinstate the funding mechanism for the Universal Service Fund, which distributes some $2 billion annually under the E-rate program for connecting schools and libraries to the internet.
A federal appeals court in July ruled that the USF’s funding mechanism was unconstitutional. It said that Congress’ delegation of its taxing power to the Federal Communications Commission, and the FCC’s “subdelegation” of that power to the Universal Service Administrative Company, the private, nonprofit corporation that manages the USF and recommends the contribution amounts charged to telecommunications carriers, violated separation-of-powers principles under Article I of the U.S. Constitution.
The telecom providers recoup their contributions to the fund by passing along such costs to their customers, which critics of the funding mechanism say makes it a tax.
“American telecommunications consumers are subject to a multi-billion-dollar tax nobody voted for,” the full U.S. Court of Appeals for the 5th Circuit, in New Orleans, said in its 9-7 decision on July 24. “The size of that tax is de facto determined by a trade group staffed by industry insiders with no semblance of accountability to the public. And the trade group in turn relies on projections made by its private, for-profit constituent companies, all of which stand to profit from every single tax increase.”
The decision has sparked alarm among school groups over the future of the E-rate program, which as part of the USF was established under the Telecommunications Act of 1996 and has provided billions of dollars for telephone service and internet connections for schools.
U.S. Solicitor General Elizabeth Prelogar, in her Sept. 30 petition for review in Federal Communications Commission v. Consumers’ Research said the 5th Circuit’s decision “threatens to nullify the universal service programs—to the detriment of the millions of Americans whom those programs serve.”
“If the 5th Circuit’s decision is allowed to take effect, carriers in that circuit (and perhaps elsewhere) are likely to argue that they no longer have a legal obligation to make universal service contributions because the FCC and the administrator lack the power to collect such payments,” Prelogar said. “Such a development would devastate the FCC’s ability to ensure sufficient funding for universal service subsidies going forward.”
The solicitor general and the FCC argue that the commission retains oversight and control over USAC, noting that the nonprofit organization makes financial projections about the contributions telecom providers must make, but that the FCC approves the amounts. Prelogar said USAC does not exercise any independent regulatory authority.
Two other federal appeals courts have upheld the funding mechanism for the Universal Service Fund, and the Supreme Court last spring declined to review those decisions.
But the decision by the 5th Circuit, which covers Louisiana, Mississippi, and Texas, creates a circuit conflict over the question and likely increases the chances the high court would take up the issue.
The challenger of the funding mechanism in all three cases is Consumers’ Research, a Vienna, Va.-based watchdog group that contends the USF funding mechanism is an unprecedented and illegal delegation of federal taxing power to an “unelected agency bureaucracy.”
That mechanism now raises some $10 billion per year overall for the fund, which in addition to schools and libraries also aids low-income families, broadband in remote areas, and rural healthcare facilities.
The group has until Oct. 30 to file a response to the Biden administration’s petition for review. After the 5th Circuit decision in July, Consumers’ Research urged the Supreme Court to reopen its appeals of the two lower-court decisions that upheld the funding mechanism.
Prelogar said in her own filing that it would make more sense for the Supreme Court to simply grant review of the 5th Circuit decision.
