In a major ruling that could set the stage for further legal fights, the Fifth Circuit Court of Appeals in New Orleans has ruled that the statutory framework governing the Universal Service Fund (USF) unconstitutionally delegates legislative or taxing authority to the FCC.
This puts the entire process for how Commission rules allow for subsidized telecommunications services for some rural and low-income consumers on notice.
The 9-7 decision creates a potential new Supreme Court matter, as the Fifth Circuit deviated from three other federal appeals courts that sided with the Commission.
And, given the recent Loper Bright ruling from the Supreme Court, consideration of the New Orleans case should it consider it on further appeal could set the stage for the first judicial branch negation of delegated authority by the FCC.
The case heard by the Fifth Circuit is Consumers’ Research v. FCC, and the key issue is whether 47 U.S.C. § 254 violates the nondelegation doctrine by imposing no limit on the Commission’s power to raise revenue for the Universal Service Fund. Additionally, the court was asked to rule whether the FCC violated the private nondelegation doctrine by transferring its revenue-raising power to a privately run company headed by industry interest groups.
Oral arguments began in December 2022.
In addition to high-cost areas and low-income households, the USF also subsidizes voice and broadband service to schools, libraries, and rural healthcare providers. The USF fund is administered by USAC, a non-profit entity, on behalf of the FCC.
Funds come from telecommunications carriers, as contributions based on an assessment of their interstate and international end-user revenues. Eligible telecommunications carriers that serve high-cost areas are entitled to receive money from the fund.
How has the FCC had the authority to operate the USF? Thank Bill Clinton, who signed the Telecommunications Act of 1996 into law. This included Section 254, which established the framework for the Universal Service Fund.
Contributions to the USF are what led Consumers’ Research to petition the Fifth Circuit, on the grounds that the USF’s revenue-raising mechanisms are unconstitutional because they involve both an unlawful delegation to the FCC and an unlawful delegation to USAC, a private entity.
The FCC argued that, as a threshold matter, the court lacked jurisdiction because the petitioners failed to challenge the FCC’s USF regulations at the time they were adopted.
The Fifth Circuit tossed that argument from the Commission, one that has been used repeatedly in Forfeiture Orders and other matters of delegated authority.
In a 108-page opinion, the Fifth Circuit was blunt in its decision, declaring, “We hold this misbegotten tax violates article one, section one of the Constitution.”
It continues, “Section 254 reflects a policy goal of making telecommunications services available to all Americans. It is emphatically the province of Congress to make such policy choices. But it is our judicial duty to ensure that Congress pursued its goal through lawful means. And in that regard, our brief survey of the USF’s history makes three things clear. First, Congress’s instructions are so ambiguous that it is unclear whether Americans should
contribute $1.37 billion, $9 billion, or any other sum to pay for universal service. Second, private entities bear important responsibility for universal service policy choices. And third, it is impossible for an aggrieved citizen to know who bears responsibility for the USF’s serious waste and fraud problems. All three of those things implicate bedrock constitutional
principles.”
With the Fifth Circuit’s ruling, the impact on both U.S. telecommunications policy and the current beneficiaries of USF subsidies is uncertain. In May 2023, the Sixth Circuit ruled 3-0 in favor of the Commission in a different Consumers’ Research v. FCC. There were similar challenges in the Eleventh Circuit and in the D.C. Federal Appeals Court too, each from Consumers’ Research. The Commission was victorious in those cases. Furthermore, the Fifth Circuit had in September 2023 saw the delegation argument removed while it instead focused on other ways it violated the Constitution.
A Supreme Court appeal was then put into play; the nation’s highest court denied to consider the matter.
What’s to come for the FCC now is unclear. That said, the Commission is on notice regarding its delegated authority, and groups seeking to dismantle it are rapidly gaining ground in the federal courts. FCC Chairwoman Jessica Rosenworcel was all but incensed by 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. The opinion reflects a lack of understanding of the statutory scheme that helped create the world’s best and most far-reaching communications network.”
Rosenworcel added that the FCC “We will pursue all available avenues for review.”
