FCC’s $8 Billion Phone Subsidy Will Get Supreme Court Scrutiny

The US Supreme Court will weigh a fresh line of attack on federal administrative power, agreeing to consider the constitutionality of the $8 billion annual slate of subsidies that help cover the cost of telecom services for poor people and rural residents.

Heeding calls from both the Federal Communications Commission and opponents, the justices will rule on the decades-old Universal Service Fund, which uses a charge imposed on monthly phone bills to help more than 8 million people afford telephone and broadband service. The fund also subsidizes service to schools and libraries through the E-rate program.

Challengers led by the conservative advocacy organization Consumers’ Research say Congress gave the FCC too much authority when lawmakers established the program in 1996. The opponents also say the FCC in turn has unconstitutionally handed off its powers to the private nonprofit entity that administers the fund.

“A private company is taxing Americans in amounts that total billions of dollars every year, under penalty of law, without true governmental accountability,” the group argued in court papers.

The FCC and the Biden administration joined calls for Supreme Court review after the 5th US Circuit Court of Appeals split with two other appeals courts and declared the program invalid. US Solicitor General Elizabeth Prelogar said the 5th Circuit ruling threatens to undercut service for millions of people.

“Universal service programs ensure the availability of vital telecommunications services to schools, libraries, rural health care providers, and rural and low-income customers,” argued Prelogar, the administration’s top courtroom lawyer.

The court is likely to schedule arguments for early next year, meaning the incoming Trump administration will inherit the case. The solicitor general typically defends federal statutes and programs regardless of party affiliation, though there is no guarantee Trump’s team will follow that approach.

Agency Power

The case could open a new avenue for attacks on administrative power. Last term, the court overturned a 40-year-old legal precedent and rolled back the power of federal agencies to regulate business. The challengers in the latest case are seeking to revive the so-called nondelegation doctrine, a legal theory the Supreme Court last invoked to blunt Franklin D. Roosevelt’s New Deal in the 1930s.

Advocates of the nondelegation doctrine say the Constitution assigned the legislative power to Congress and lawmakers can’t simply hand off that authority. A variation of the argument, known as the private nondelegation doctrine, would restrict the government’s ability to hand off responsibilities to outsiders.

The 5th Circuit, perhaps the country’s most conservative appeals court, said on a 9-7 vote that the combination of those two arguments rendered the program unconstitutional. “The universal service contribution mechanism’s double-layered delegation is incompatible with our constitutional structure,” Judge Andrew Oldham wrote for the majority.

Several of the Supreme Court’s conservatives have expressed interest in revitalizing the nondelegation doctrine. The court in recent decades has largely neutered the doctrine, saying Congress can delegate as long as it lays out an “intelligible principle” for agencies to follow.

‘Rubber Stamp’

Congress instructed the FCC to set up the Universal Service Fund in the 1996 law that deregulated the telecommunications business.

The FCC then created the private Universal Service Administrative Co., known as USAC, to run the program subject to the commission’s oversight. The nonprofit entity provides the financial projections that determine the size of the contributions. It also sends out bills, collects money and disburses funds to beneficiaries.

Prelogar told the Supreme Court that USAC performs only an “advisory role” and has “no independent substantive power to set the contribution factor or the amount of individual carriers’ contributions.”

But Oldham said the FCC served as a “rubber stamp” and had never made a substantive change to the proposed contribution amounts until the litigation began.

Telecom providers including AT&T Inc. and Verizon Communications Inc. typically pass the fees onto customers in the form of bill line items, and that money is funneled back into the communications access programs. The contribution rates assessed on the carriers have soared in recent years because the fees are only applied to revenue from voice calls, which are diminishing.

The broadband industry has advocated for maintaining the subsidy programs during the court fight, saying companies rely on the support to fund major infrastructure investments in hard-to-reach areas.

The lead case is Federal Communications Commission v. Consumers’ Research, 24-354.

--With assistance from Kelcee Griffis.

To contact the reporter on this story:
Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story:
Elizabeth Wasserman at ewasserman2@bloomberg.net

Steve Stroth

© 2024 Bloomberg L.P. All rights reserved. Used with permission.