Telecom Subsidy Case Is Part of Bigger Push to Curb Agency Power

Another attempt to limit federal agency power—this time by limiting Congress’ ability to delegate decisionmaking to regulators—was propelled by a federal appeals court’s ruling against an $8 billion-a-year FCC program intended to boost phone and broadband service for poor and rural communities.

The US Court of Appeals for the Fifth Circuit, in a 9-7 en banc ruling, found that the FCC’s Universal Service Fund is an unconstitutional delegation of Congress’ taxing authority where that power is given to a federal regulator that delegates it to a non-governmental organization. Judge Andrew S. Oldham described the fee—which is collected from telecommunications companies but is often passed on to consumers’ phone bills—as a “multi-billion-dollar tax nobody voted for.”

Observers say the Fifth Circuit ruling establishes a circuit split that could catch the attention of the US Supreme Court, which previously declined to review the Sixth and Eleventh circuit rulings.

Critics of the subsidy scheme say the fund is an example of Congress shirking its legislative responsibility, and that the Supreme Court should take the opportunity—through the non-delegation doctrine—to ensure that legislative authority is exercised by elected officials accountable to the public.

“In many respects, this case is not about the FCC and the Universal Service Fund,” said Carol Mattey, a Washington-based consultant who formerly worked as deputy chief of the FCC’s Wireline Competition Bureau during the Obama administration. “This case is part of a broader effort” by groups “that are trying to undermine the administrative state and the executive branch of government.”

The July 24 ruling was a win for Consumers’ Research, a Washington-based nonprofit that urges website visitors to flag companies that are “going woke”. The group filed separate lawsuits challenging the Universal Service Fund in four different circuits, previously losing at the the Sixth and Eleventh circuits and voluntarily dismissing a suit filed in the D.C. Circuit.

Congressional Power

The non-delegation doctrine is a legal principle that posits that Congress cannot delegate its legislative powers or lawmaking ability to other parties, including federal agencies.

“You want the elected branch to make policy, because policy involves balancing trade offs,” said Molly Nixon, an attorney with the Pacific Legal Foundation focused on separation of powers issues. Nixon said it’s more problematic to delegate policy questions than technical ones, and in the case of the Universal Service Fund, delegating to a private entity creates an “accountability problem.”

Writing for the en banc majority, Oldham said that when Congress passed the Telecommunications Act of 1996, it aimed in part to make “telecommunications services available to all Americans.” But, he said the Fifth Circuit has “grave concerns” over whether Congress provided the FCC a sufficiently intelligible principle to guide the agency in achieving universal service.

Barbara Cherry, professor emeritus at Indiana University and a former deputy chief and senior counsel at the FCC, said that when Congress wanted to fund universal service, it was “ducking accountability” for instituting a tax by calling it a fee—a distinction central to the Fifth Circuit’s ruling.

But critics of the Fifth Circuit ruling said that Congress was specific in passing the statute at the heart of the subsidy scheme, and that the majority failed to set forth what an appropriate delegation would be.

“We Congress decide everybody ought to be connected. We Congress instruct you the FCC, go do this thing,” said Harold Feld, senior vice president at Public Knowledge. “What else is Congress supposed to do to take responsibility here?”

Critics of the decision also said that the court misconstrued the role of the Universal Service Administrative Company, a non-profit organization designated by the FCC to collect and disperse the funds.

“If FCC is going to rely on a non-governmental actor to supply a revenue requirement that dictates the size of a tax levied on American consumers,” Oldham wrote, “It must at the very least do something to demonstrate that it applied its independent judgment.”

Mattey rejected that criticism, saying that “it is the FCC that gives the direction to USAC in all matters of policy and administration.”

Administrative Law Turmoil

The circuit split on the Universal Service Fund comes amid a string of high court rulings that have chipped away at agency power, including Loper Bright Enters. v. Raimondo, which overturned the 40-year old Chevron doctrine of administrative law that called on courts to defer to reasonable agency interpretations of vague laws.

The high court also recently held in SEC v. Jarkesy that the Seventh Amendment entitles defendants to a jury trial when the SEC seeks civil penalties for securities fraud, striking a blow at the agency’s system for in-house adjudication. And, invoking the major questions doctrine in 2022, the high court ruled in West Virginia v. EPA that decisions of certain magnitude and consequence must rest with Congress, or within a proper delegation of its authority.

“There’s a lot of ferment in administrative law on the constitutional side” and in terms of statutory law, said Saikrishna Prakash, professor at the University of Virginia Law School. Prakash said he believes that ferment is in part “based on underlying long-standing principles of the Constitution,” and doesn’t always cut against executive power.

The Fifth Circuit has been “more aggressive than any other circuit at teeing up some of these larger administrative law questions,” said Jonathan H. Adler, a professor at Case Western Reserve University School of Law.

While the Supreme Court hasn’t always sided with the Fifth Circuit, Adler said that Oldham’s majority opinion in some ways is similar to the high court’s ruling in Seila Law v. CFPB, a 2020 ruling that found separation of powers issues with removal protections for the head of the Consumer Financial Protection Bureau.

However, Adler said he didn’t think there would be a consensus on the high court for a “sufficiently clear” delegation test. Unless a majority coalesced around such a test, “I don’t think it’s likely that we get a broad non-delegation holding,” he said.

Feld of Public Knowledge said there was “a fine irony” to the fact the Universal Service Fund has attracted the attention of broad non-delegation advocates.

“What’s funny is the FCC has consistently refused to modify the program, despite the fact that a lot of people have asked it to, because the FCC has repeatedly said it is the job of Congress to change the law,” Feld said. “Everybody loves the story of an agency overreaching. But in this case, the agency has said, ‘No, no, we just obey what Congress tells us to do.’”