5th Circuit Strikes Down FCC’s Universal Service Fund

NEW ORLEANS — The 5th U.S. Circuit Court of Appeals on Wednesday struck down the Federal Communications Commission’s method for subsidizing telecommunications service for rural and low-income users, triggering an almost certain review by the Supreme Court.

The ruling by the en banc 5th Circuit reversed an earlier decision by a three-judge panel in the same court, and created a split with three other appeals courts that have upheld the FCC’s fee system in the past.

On Wednesday, a 9-7 majority of the court held that the agency’s so-called “universal service” fee is, in fact, a tax, the authority for which was delegated to the FCC, which in turn delegated that authority to a private entity, the Universal Service Administrative Company.

The case is Consumers’ Research v. FCC.

Writing for the majority, U.S. Circuit Judge Andrew Oldham summed up the ruling this way:

“In the Telecommunications Act of 1996, Congress delegated its taxing power to the Federal Communications Commission. FCC then subdelegated the taxing power to a private corporation. 

“That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay for the ‘universal service’ tax that appears on cellphone bills across the nation. 

“We hold this misbegotten tax violates Article I, § 1 of the Constitution,” he said.

Most troubling to the majority was the fact the FCC delegated taxing power not to “an official or an official body, presumptively disinterested,” but rather to “private persons vested with no government power and with interests that ‘often are adverse’ to those whom they are taxing.” 

“Even if the Constitution does not categorically forbid FCC’s delegation to USAC and private telecommunications carriers, 47 U.S.C. § 254 does not authorize it,” Oldham wrote later. “And there is no precedent establishing that federal agencies may subdelegate powers in the absence of statutory authorization. 

“To the contrary, the only Supreme Court cases blessing private delegations involved explicit statutory authorizations,” he said.

Oldham said, on the whole, the majority was “highly skeptical that the contribution factor before us comports with the bar on congressional delegations of legislative power.”

“And we are similarly skeptical that it comports with the general rule that private entities may not wield governmental power, especially not without express and unambiguous congressional authorization,” he wrote.

“American telecommunications consumers are subject to a multibillion-dollar tax nobody voted for,” Oldham wrote in conclusion. “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. This combination of delegations, subdelegations, and obfuscations of the USF Tax mechanism offends Article I, § 1 of the Constitution.”

U.S. Circuit Judge Carl E. Stewart, who wrote the principle dissent, said despite the majority’s “exhaustive exegesis about policy, history, and assorted doctrines,” its concerns simply do not eclipse the consistent holding of the three others circuits that have addressed constitutional challenges to the system in the past.

“All have held it constitutional under the intelligible principle test,” Stewart wrote. “The majority has created a split in a sweeping opinion that (1) crafts an amorphous new standard to analyze delegations, (2) overturns — without much fanfare — circuit precedent holding that this program collects administrative fees and not taxes, (3) blurs the distinction between taxes and fees, and (4) rejects established administrative law principles and all evidence to the contrary to create a private nondelegation doctrine violation.”

FCC Chairwoman Jessica Rosenworcel was equally chagrined by the ruling, calling the decision “misguided and wrong.”

“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,” she said in a written statement.

“The opinion reflects a lack of understanding of the statutory scheme that helped create the world’s best and most far-reaching communications network. We will pursue all available avenues for review,” Rosenworcel said.

Dan can be reached at [email protected] and @DanMcCue