Universal Service Fund a ‘Nightmare’, Says Litigation Foe

WASHINGTON, Feb. 12, 2025 – The conservative nonprofit challenging an $8 billion-per-year broadband subsidy urged the Supreme Court to find the program unconstitutional Tuesday, calling it a “bureaucrat’s dream” and a “nightmare.” The group argued Congress should have to set a cap on the fund’s contribution rate.

Consumers’ Research began its lengthy brief by asking justices to imagine the Internal Revenue Service could tax the public at amounts it saw fit with only minimal guidance.

“As it turns out, no imagination is required. This nightmare scenario already exists in the form of the Universal Service Fund (USF),” the group wrote.

Managed by the Federal Communications Commission since the nineties, the USF supports building and maintaining rural broadband networks, plus internet discounts for low-income households, schools and libraries, and healthcare centers. It’s funded by fees on interstate voice revenue, with the accounting work, including the setting of quarterly contributions, delegated to the FCC’s Universal Service Administrative Company. 

A full panel of Fifth Circuit judges reheard a challenge to the fund last year and reversed a prior ruling in the FCC’s favor, the second time finding that the combination of too few directives from the law and the FCC’s delegation to USAC illegally took taxing power from the legislature. The Supreme Court is set to hear arguments March 26 after the government appealed.

The agency and the broadband industry have maintained the law standing up the fund put sufficient guardrails on its implementation, ones that it says are in line with other statutes upheld by the Supreme Court in the past.

“Even if one does not agree with the court below that the FCC has no real limits on USF revenue-raising, there is nothing in the statute “clearly” delineating the size of the USF,” wrote Consumers’ Research attorneys, led by Boyden Gray Partner Trent McCotter.

The group argued Congress should have to set a maximum percentage of revenue the agency could collect. That number has been steadily growing as voice revenue decreases, hitting more than 36 percent this quarter.

The guardrails cited by the FCC include provisions calling for making telecom services available at comparable rates in urban and rural areas, equitable contributions from providers to support the fund, and others. Under the non-delegation doctrine, the idea that Congress can’t delegate its powers to other entities, those guardrails have to rise to the level of “intelligible principles” to pass legal muster.

Judges have found that’s a relatively low bar, but the case is at least potentially a vehicle for justices to strengthen the non-delegation doctrine, effectively making it more difficult for Congress to hand broad authority to agencies. McCotter has noted that multiple conservative justices contemplated the idea in 2019, but other legal analysts have pointed out the high court passed on other chances to do so since its 6-3 conservative majority was cemented.

The FCC, the broadband industry, and consumer groups have argued that finding the USF unconstitutional would cause a great deal of disruption, as rural networks and consumers depend on its funding. Consumers’ Research sought to dispel the idea that ruling in its favor would upend the system.

“Affirming the decision below could very well provide the impetus for Congress to act,” the group wrote. “A corrective fix would be as straightforward as adding half a sentence setting the specific USF tax rate, or simply appropriating money instead.”

Moving USF to Congressional appropriations has been proposed by some GOP legislators and other conservatives. There’s broad interest in reforming the fund, as the revenue pool it taps is shrinking. Opponents to the appropriations fix are wary, as the appropriated Affordable Connectivity Program expired last year amid partisan disputes on Capitol Hill.

The fix will have to come from Congress, but for his part FCC Chairman Brendan Carr has, along with ISPs, supported the idea of tapping big tech companies’ revenue. Jessica Rosenworcel, the former chairwoman, told lawmakers working on reforms that online advertisers could be a potential funding source.