Each quarter, the Federal Communications Commission (FCC) determines the Universal Service Fund (USF) surcharge that is placed on customers’ telecommunications bills. The surcharge is calculated by estimating the cost of the agency’s various universal service programs, divided by the industry’s anticipated telecommunications revenue. As those programs have grown and that revenue has shrunk, the surcharge has risen from 3 percent in 1998 to a whopping 33 percent in 2021. The USF surcharge is a tax in all but name to fund an $8 billion program that operates outside the federal budget and is administered by a private subsidiary of an industry trade group with little direct oversight from Congress.
On December 5, the US Court of Appeals for the Fifth Circuit will hear arguments about whether this arrangement is constitutional. In Consumers’ Research v. FCC, petitioners argue that Section 254 of the Telecommunications Act of 1996, which establishes the modern universal service program, is an unconstitutional delegation of legislative authority to the FCC. They also argue that the agency’s decision to outsource management of the program to the Universal Service Administrative Company (USAC) is an unconstitutional delegation of power to a private entity. If successful, the suit will rein in an increasingly unstable program and prompt Congress to put its universal service initiatives on firmer legal ground with more accountability.
The petitioners’ argument is quite simple. Article I of the US Constitution provides that “all legislative Powers herein shall be vested in a Congress of the United States,” including the “Power To lay and collect Taxes . . . to pay the Debts . . . of the United States.” But with regard to the USF, Section 254 delegates that power instead to the executive branch. The FCC, not Congress, makes important policy judgments about what programs should be established under universal service and, more importantly, how to raise revenue to fund those programs. As a result, Congress has unconstitutionally delegated the legislative power to the FCC in violation of the separation of powers.
But this argument faces an uphill battle. Only twice has the Supreme Court found a violation of the nondelegation doctrine—both on the same day in 1935, involving a statute that would literally have allowed the president to cartelize and regulate huge swaths of the US economy at whim. Since then, the Court has recognized that the modern state requires an enormous amount of policy judgments that we might consider lawmaking but that Congress has neither the time nor expertise to make all those decisions itself.
Modern doctrine allows Congress to delegate to agencies authority to make decisions implementing statutes, as long as it provides an “intelligible principle” to guide agencies’ decision-making. Section 254 likely meets this low bar by establishing six key principles guiding universal service policy, principles that courts have relied on to assure that FCC decisions are consistent with congressional intent. Plaintiffs and amici seek to avoid this in part by arguing that the taxing power should be more jealously guarded, drawing on the importance of legislative control of the purse to curb executive power, which was an important concept to the Founding Fathers and also an animating principle of the earlier English civil war.
Petitioners may fare better with their second argument—that the FCC unconstitutionally subdelegated this authority to a private entity. Private entities may not exercise government power, although they may participate in an agency’s decision-making process. USAC is a subsidiary of the National Exchange Carrier Association, a trade association of telecommunications carriers. It carries out the day-to-day administration of the USF, including setting each program’s budget and the corresponding quarterly surcharge. The FCC has responded that USAC merely provides ministerial support, as the agency retains final authority to modify or reject USAC’s decisions.
The petitioners’ challenge comes at a good time. The Court is increasingly interested in separation-of-powers questions and the importance of reining in an increasingly powerful administrative state. And the Fifth Circuit provides a good venue through which to tee up the issue for the Supreme Court. A recent Fifth Circuit decision struck down the Consumer Financial Protection Bureau’s off-budget self-funding mechanism, which suggests that the Fifth Circuit may be receptive to petitioners’ taxation arguments. Another case, decided just last Friday, held that a statute violated the private nondelegation doctrine (albeit on very different facts). And September’s NetChoice decision suggests the Fifth Circuit may be interested in petitioners’ originalist arguments to minimize current Supreme Court precedent. While this remains a difficult case to win, the stars seem to have aligned to give petitioners the best shot possible under existing case law. If they succeed, they will close a potentially dangerous loophole in the appropriations process and force Congress to revisit an outdated and unstable program.
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