The FCC distributes more than $7 billion dollars every year through its Universal Service Fund (USF). The fund supports access to telecommunications for schools and libraries, rural health care facilities, low-income Americans, and rural areas where the costs of getting connected are particularly high. The program is funded through a charge on your phone bill each month. Today, the Fund faces a series of hurdles as the Fifth and D.C. Circuits consider challenges to the program’s constitutionality.

Over the past several years, an organization called Consumers’ Research has filed cases across multiple jurisdictions centered on the argument that the USF’s governing statute, 47 U.S.C. § 254, violates the nondelegation doctrine. Specifically, Consumers’ Research says that the law gives the FCC unfettered discretion to implement the universal service program with no intelligible principle to guide the agency. Also at issue is the FCC’s ability to sub-delegate authority to the Universal Service Administrative Company (USAC), a private company, to set the contribution factor, or percentage of revenues that companies must pay into the program.

To date, the Sixth and Eleventh Circuits have ruled in favor of the FCC, finding no violation of the non-delegation doctrine. The U.S. Supreme Court recently declined to hear the appeal of these decisions. Now, the parties await decisions from the Fifth and D.C. Circuits.

A panel of Fifth Circuit judges unanimously denied the petitioners’ challenge last March, finding that the statute “provided ample direction for the FCC” and contained principles that “sufficiently limit the FCC’s revenue-raising activity.” The panel also dismissed the argument that the FCC violated the private nondelegation doctrine, reasoning that while the agency wholly delegates to USAC calculation of the contribution factor, the agency reviews the collected data before acting on the USAC proposal. However, the court granted rehearing en banc and held oral arguments in the case last fall.

A D.C. Circuit panel also heard oral arguments in a related case in January of this year, and the case is still pending.

Last year, a Sixth Circuit panel found no violation of the non-delegation doctrine. In addressing the petitioners’ complaint that the lack of a cap on the size of the universal service fund, the decision reiterated Justice Scalia’s words in Whitman, “that the Supreme Court ‘ha[s] never demanded . . . that statutes provide a ‘determinate criterion’ identifying ‘how much . . . is too much.’” The court also dismissed the private non-delegation claims on the same grounds as the Fifth Circuit, underscoring to the subordinate nature of the USAC to the FCC.

More recently, the Eleventh Circuit cited the Sixth Circuit’s opinion in ruling that the two-tiered scheme satisfies the nondelegation doctrine. In its analysis of the alleged violation of the private nondelegation doctrine, the Court applied the test from Adkins: statutory authority may be delegated without violating the private nondelegation doctrine if 1) “the entity functions subordinately to the agency” and 2) if “the agency retains authority and surveillance over the activities of the private entity.” Notably, Judge Newsom wrote a concurrence suggesting that Petitioners “may be right” that the delegation of legislative powers found in section 254 violates the Constitution, but their claim fails “only because non-delegation doctrine has become a punchline” and the statute “gives the FCC only the faintest, most vacuous guidance about how to exercise its authority.”

The stakes of these cases go beyond the government’s efforts to close the “digital divide.” Petitioners raise concerns that the FCC’s ability to “self-raise” funding for the program represents a “tax” that undermines the foundation of Congress’ power to tax and spend. Further, they suggest that the FCC’s lack of meaningful scrutiny over the USAC amounts to a “rule-by-private-interest.” As the Petitioners framed the issue, “If a private company [USAC] can perpetually collect billions of dollars in taxes pursuant to a statute with no objective ceiling, and without the FCC Commissioners lifting a finger, it is difficult to imagine what remains of the political accountability mandated by the nondelegation and private nondelegation doctrines.”

Meanwhile, the FCC argues that requisite contributions to the fund by telecom carriers represent a fee, rather than a tax, and that Section 254 sufficiently limits the agency’s revenue raising ability. The agency underscores that the courts have set a low bar for the non-delegation doctrine’s intelligible principle standard, and that Congress may grant executive agencies “substantial discretion.” Further, the FCC stresses that the role of USAC is “ministerial” in nature and does not violate the private nondelegation doctrine. Industry associations representing telecom carriers have joined the FCC in expressing that overturning the program would create chaos and confusion for the agency, leaving broadband subsidies for low-income consumers, rural areas, schools, and libraries in jeopardy.

The outcome of this case in the Fifth and D.C. Circuits could have massive implications both for the administrative state and access to affordable communications nationwide.

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