By James Erwin
In what could end up being an earth-shattering ruling, the U.S. Court of Appeals for the Fifth Circuit has ruled that the Universal Service Fund’s contribution fee, which the FCC imposes on telephone customers, is an unconstitutional tax that Congress did not approve.
Resulting from a lawsuit by Consumers Research, the 9-7 En Banc decision reversed a previous ruling from last year by a panel of Fifth Circuit judges. The En Banc process allows cases that a panel of judges from the circuit court has already ruled on to be reheard by the entire circuit. It is further at odds with recent rulings by the Seventh and Eleventh Circuits that upheld the program, setting up a circuit split that will likely land before the Supreme Court.
Consumers Research challenged the program because it is funded by mandatory fees – which most people call “taxes” – imposed by the FCC on monthly phone bills. These fees raise prices for consumers, making phone service more expensive for the average user than it needs to be, and funds myriad programs that subsidize phone and internet service. The basis of the legal challenge, however, was that a federal agency like the FCC cannot unilaterally change the rate of these mandatory fees (i.e. raise taxes) without Congressional approval. The constitution is quite explicit that all taxes must be set by bills originating in the House of Representatives, not by rulemakings originating with a panel of five presidential appointees.
As we have argued before, the mission creep that has afflicted USF for the past several years has stretched the program’s funds into areas it was never meant to cover, most especially broadband. Digital Liberty has advocated divesting this program of its broadband obligations in favor of its original Lifeline phone service remit and use other programs like the Affordable Connectivity Program to subsidize broadband instead. According to GAO, there are more than 130 different federal programs subsidizing broadband, and they desperately need to be consolidated; perhaps this ruling is an opportunity start that process.
The ball is now in the Supreme Court to decide what to do with this funding scheme. They may decide, as they ruled on the CFPB, that independent agencies can rely on past Congressional authorization to raise revenue in novel ways. It is also possible that they will take a stricter view given recent decisions overturning Chevron deference and advancing non-delegation.
Regardless, the FCC and Congress should take this opportunity to rethink the funding structure of this unsustainable program and provide relief to consumers by finding a different way to subsidize broadband, if they must at all.
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