A federal appeals court ruling has thrown more than $2 billion in annual funding for internet connectivity for schools and libraries into legal jeopardy.
The funding mechanism for the Universal Service Fund or USF, which finances the E-rate, a federal program critical to K-12 broadband connectivity, amounts to a “misbegotten tax” and is therefore unconstitutional, the 5th U.S. Circuit Court of Appeals ruled 9-7 on July 24.
It’s hard to overstate the importance of the E-rate—the largest federal investment in education technology—to teaching, learning, and basic school operations, said Doug Levin, the co-founder and national director of the K12 Security Information Exchange.
“We are in a post-textbook world where the vast majority of students in the country are using devices in the classroom,” he said. On top of that, “internet access is required to route the buses, operate physical security systems, serve lunches to kids,” he said.
The Education Networks and Libraries Coalition—which includes more than a dozen education organizations such as the Consortium for School Networking and AASA, the School Administrators Association—called the ruling “absurd.”
The decision “could lead to cutting off broadband access for tens of millions of students, educators, and library patrons,” a statement from the coalition said.
Court majority says the program is ‘laudable’ but not legal
The lawsuit was brought against the Federal Communications Commission, which oversees the USF, by Consumers’ Research, a nonprofit watchdog organization. Its website encourages readers to report “companies who are going woke to distract from bad business practices or engaging in political activity not aligned to their mission.”
The USF, which is financed through fees on certain telecommunications services, funds four different programs aimed at providing telecommunications services—including broadband—to schools, libraries, rural hospitals, those in poverty, and people living in remote rural areas. In 2022, the program disbursed more than $7.4 billion, including about $2 billion for the E-rate.
“Each program has a laudable objective,” Judge Andrew Oldham, who was nominated to the 5th Circuit by former President Donald Trump, wrote for the majority.
But he added that the telecommunications fees that finance the USF unconstitutionally delegates congressional taxing authority to the FCC and a private entity tapped by the agency, the Universal Service Administrative Company, which determines how much to charge telecommunications companies.
Under that logic, Oldham argued, Congress could fund major health programs, such as Medicare and Medicaid, “without taxing anyone. It could simply allow hospital executives to set the Medicare-Medicaid budget, then have [the Department of Health and Human Services] rubber-stamp the hospitals’ health care taxes, which could then be passed through to consumers’ hospital bills,” he wrote.
The court is dominated by judges nominated by Republican presidents. Three Republican nominees joined four nominees of Democratic administrations in a dissent.
Court’s ruling raises questions about short-term impact
Big questions continue to swirl about the decision’s short-term impact and legal next steps.
It wasn’t immediately clear, for instance, if the prohibition on collecting Universal Service Fund fees applies to just the states under the 5th Circuit’s jurisdiction—which includes Louisiana, Mississippi, and Texas—or to the nation as a whole. Two other federal appeals courts issued conflicting rulings on similar issues.
There will be no changes to USF programs until the court’s mandate goes into effect on Sept. 16, an FCC spokeswoman said.
In the meantime, the Biden Administration could ask for a “stay,” or pause on the ruling’s implementation, so that fee collection can continue, pending a possible appeal of the decision to the U.S. Supreme Court.
FCC Chairwoman Jessica Rosenworcel, who has sought to expand the program to cover Wi-Fi on school buses and cybersecurity assistance, pledged to fight the ruling.
“This decision is misguided and wrong,” she said in a statement. “It upends decades of bipartisan support for FCC programs that help communications reach the most rural and least-connected households in our country, as well as hospitals, schools, and libraries nationwide. … We will pursue all available avenues for review.”
Advocates tout ‘profound impact’ of the E-rate program
If the ruling results in the end of the E-rate program, it could be “disastrous for schools,” said Keith Krueger, the executive director of the Consortium for School Networking, in a statement. “The potential impacts of this decision on K-12 education include steep funding uncertainty, with potentially profound impact on high-speed internet, Wi-Fi, and cybersecurity funding.”
The program “has been critical in ensuring that our nation’s schools and students have access to the broadband connections that are central to a modern education,” said David R. Schuler, the executive director of AASA, the School Superintendents Association, in a statement. “We are saddened to see one ruling upend 25 years of hard work and progress, knowing it will be especially consequential for our most vulnerable students and communities, and stand ready to defend and protect E-rate.”
But even if the U.S. Supreme Court takes the case, it’s possible that institution, which is dominated by Republican-appointed justices, will uphold the 5th Circuit’s ruling—shutting down the E-rate’s funding mechanism nationwide.
In that case, advocates would likely have to turn to Congress to replace the more than $2 billion in connectivity funding for schools and libraries, as well as the other priorities covered by the Universal Service Fund.
That’s exactly what Consumers’ Research wants to see.
“Our position is that unelected bureaucrats should not be setting a universal service tax on telecom consumers,” said Will Hild, the organization’s executive director, in an email. “If Congress wishes to set the tax to fund the [E-rate and other programs], they should do so directly.”
To keep the money flowing, Congress would need to enact legislation creating a nearly $9 billion program to cover all the services paid for under the USF—plus allocate those dollars through a separate process for passing spending bills.
Recreating the program through congressional legislation is far from a sure thing.
“We have to be realistic about the politics, and the willingness and ability of Congress to pay for a program that it authorized since 1996 but hasn’t paid a single dime for since then,” said Noelle Ellerson Ng, the associate executive director of AASA.
