The Federal Communications Commission faces a murky path forward in its efforts to bolster phone and internet access in rural America after a federal appeals court deemed the funding source for a number of its connectivity programs unconstitutional.
The 5th U.S. Circuit Court of Appeals, in a 9-7 en banc decision last week, said that in choosing what fees to collect from telecommunications carriers for a $9 billion fund aimed at advancing “universal service” to all Americans, the FCC and the Universal Service Administrative Company, an independent corporation, violated the Constitution by harnessing the “quintessentially legislative” power to tax.
It’s a decision that could have major ramifications for a slate of programs intended to defray the cost of phone and internet access in rural areas while ensuring connectivity for key public institutions like schools, libraries and hospitals.
“In the short term, what the ruling does is create a significant level of uncertainty,” said Blair Levin, chief of staff to former FCC Chairman Reed Hundt during the Clinton administration and now a policy analyst at New Street Research. “Longer-term, it has the potential to create chaos and problems for rural America.”
The Universal Service Fund, the financial backbone for FCC’s High Cost, E-Rate, Lifeline and Rural Health Care programs, emerged in 1996 with the passage of the Telecommunications Act. Interstate, long-distance phone carriers were directed under the bill to “contribute, on an equitable and nondiscriminatory basis” to the fund, which Congress established under the idea that all Americans should have access to phone and internet services at “just, reasonable and affordable” rates.
It’s these assessments that Judge Andrew Oldham, writing on behalf of the majority, declared a “misbegotten tax.” While acknowledging each of the broadband programs receiving the funds has a “laudable objective,” he said Congress violated the separation of powers by granting its own taxing authority to the FCC. Then, he said, the FCC abdicated its duty to calculate these assessments, passing that task to the Universal Service Administrative Company, a corporation overseen by representatives of telecommunications firms, schools, libraries, healthcare providers and low-income consumers.
This, he concluded, goes against the legal principle “delegata potestas non potest delegari,” which translates to “no delegated powers can be further delegated.”
“The policy is kind of irrelevant. It’s the process that was flawed,” said Zhonette Brown, senior litigation counsel for the New Civil Liberties Alliance, which filed an amicus curiae brief asking the court to find the system unconstitutional. Pointing to the Supreme Court’s recent ruling overturning the Chevron doctrine, Brown said there has been a recent trend of courts “refocused on making Congress do its job rather than sharing its job with an agency.”
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The Fifth Circuit's finding leaves the fund's fate in limbo. The court remanded the case to the FCC for further action, leaving next steps in the agency’s hands. Chairwoman Jessica Rosenworcel, who criticized the ruling with two other Democratic members, promised to “pursue all available avenues for review.”
Administratively, Brown said the agency could try to “moot” the decision by updating the regulations underlying USF administration. Because of the court’s concerns about “double-layered” delegation, Michael Romano, the vice president of NTCA-The Rural Broadband Association, said the commission may try to tighten its “rules of engagement” with the Universal Service Administrative Company.
“Perhaps that solves the double-layer delegation problem because you’ve narrowed it to one of the layers,” Romano suggested.
The agency has not yet exhausted its legal options, either. It could petition the Supreme Court to review the decision. The high court may have some interest in taking up the case to settle conflicts with the 6th and 11th Circuits, both of which affirmed the USF’s constitutionality following similar lawsuits last year.
Congress also could act. A bipartisan working group led by Sens. John Thune, R-S.D., and Ben Ray Luján, D-N.M., is weighing possible reforms to the fund amid declines in revenue and calls to revive the defunct Affordable Connectivity Program, which ran out of funding earlier this year.
“You can solve three or four problems here with one piece of legislation,” said National Grange legislative director Burton Eller, though he added that lawmakers are unlikely to act anytime soon because “Congress doesn’t want that hot potato.”
In a statement, Luján, who chairs a Senate subcommittee with communications jurisdiction, called the decision “wrong” and said he hopes the FCC will seek “all avenues to review this decision.”
If the ruling stands, Levin said it would set back lawmakers’ reform efforts by requiring them to design an entirely new framework for funding universal service programs. Year-to-year appropriations are ill-suited to the capital expenditures needed to build out rural networks, he added.
If not for other recent connectivity efforts like the National Telecommunications and Information Administration’s Broadband Equity, Access and Deployment program, Levin said the decision would be “actually quite devastating” for rural places. Even with those programs, the decision could still sting for communities depending on what happens next at FCC and in the courts.
“Those parts of rural America that are depending on universal service payments could be in a world of hurt,” Levin said.
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