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5th Circuit ruling reversed; FCC can continue programs that boost Internet access.
Credit: Getty Images | Andrey Denisyuk
The Supreme Court today reversed a ruling that threatened the future of the Federal Communications Commission's Universal Service Fund. In a 6–3 opinion, the high court said the US Court of Appeals for the 5th Circuit erred when it found that Universal Service fees on phone bills are an illegal tax.
Universal Service is an $8 billion-a-year system that is used to expand telecom networks and make access more affordable through programs such as Lifeline discounts and deployment grants for Internet service providers. The program was challenged in multiple circuits by Consumers' Research, a nonprofit that fights "woke corporations," and a mobile virtual network operator called Cause Based Commerce.
The 5th Circuit ruling focused on Congress delegating its taxing power to the FCC and the FCC then subdelegating that taxing power to the Universal Service Administrative Company (USAC), a private organization that administers the fund. In a 9–7 en banc ruling, the 5th Circuit found that "the combination of Congress's sweeping delegation to FCC and FCC's unauthorized subdelegation to USAC violates the Legislative Vesting Clause in Article I, § 1."
But the FCC beat similar challenges brought by Consumers' Research and Cause Based Commerce in the 6th and 11th circuit appeals courts, making the case ripe for Supreme Court review. In today's ruling overturning the 5th Circuit, Justice Elena Kagan delivered the opinion of the court and was joined by John Roberts, Sonia Sotomayor, Brett Kavanaugh, Amy Coney Barrett, and Ketanji Brown Jackson. Neil Gorsuch filed a dissent that was joined by Clarence Thomas and Samuel Alito.
FCC delegation is legal, court finds
The Supreme Court majority found that the Universal Service contribution scheme "does not violate the nondelegation doctrine." It rejected an argument that Universal Service "must satisfy a special nondelegation rule," meaning that "Congress must set a definite or objective limit on how much money an agency can collect—a numeric cap, a fixed tax rate, or the equivalent."
The majority said that precedent forecloses the Consumers' Research argument because the court previously "declined requests to create a special nondelegation rule for revenue-raising legislation. The test Consumers' Research proposes also would throw a host of federal statutes into doubt, as Congress has often empowered agencies to raise revenue without specifying a numeric cap or tax rate."
Phone companies must pay a percentage of their revenue into the Universal Service Fund, and telcos generally pass those fees on to consumers with a Universal Service line item on telephone bills. Acting on the FCC's behalf, the USAC manages the fund and projects its expenses. "Each quarter, the Administrator projects the Fund's expenses, adds up revenue estimates it receives from carriers, and submits those figures to the Commission for approval and eventual use in calculating the contribution factor," the Supreme Court said.
The court found that the FCC's use of an administrator is permissible. "The Administrator is broadly subordinate to the Commission: The Commission appoints the Administrator's Board of Directors, approves its budget, and requires the Administrator to act 'consistent with' its rules and directives," the court said.
The court said it rejected the 5th Circuit's reasoning "that the 'combination' of Congress's grant of authority to the FCC and the FCC's reliance on the Administrator violates the Constitution, even if neither one does so alone." The Supreme Court said the "doctrines do not operate on the same axis. So a measure implicating (but not violating) one does not compound a measure implicating (but not violating) the other, in a way that pushes the combination over a constitutional line."
Majority warned of “absurd” outcomes
Discussion over whether something is a tax or a fee wasn't relevant to the Supreme Court majority, which said it's clear from precedent "that whether a charge is a tax or a fee is irrelevant to the nondelegation inquiry." The court also said the Consumers' Research argument would produce absurd outcomes:
Finally, the Consumers' Research position produces absurd results, divorced from any reasonable understanding of constitutional values. Under its view, a revenue-raising statute containing non-numeric, qualitative standards can never pass muster, no matter how tight the constraints they impose. But a revenue-raising statute with a numeric limit will always pass muster, even if it effectively leaves an agency with boundless power. In precluding the former and approving the latter, the Consumers' Research approach does nothing to vindicate the nondelegation doctrine or the separation of powers.
The Gorsuch dissent said the "combination" question isn't the deciding factor. He said the only question that needs to be answered is whether Congress violated the Constitution by delegating the power to tax to the FCC.
"As I see it, this case begins and ends with the first question. Section 254 [of the Communications Act] impermissibly delegates Congress's taxing power to the FCC, and knowing that is enough to know the Fifth Circuit's judgment should be affirmed," Gorsuch said.
“Green light” for FCC to support Internet access
In the Gorsuch view, it doesn't matter whether the FCC exceeded its authority by delegating Universal Service management to a private administrative company. "As far as I can tell, and as far as petitioners have informed us, this Court has never approved legislation allowing an executive agency to tax domestically unless Congress itself has prescribed the tax rate," Gorsuch wrote.
The FCC and Department of Justice asked the Supreme Court to reverse the 5th Circuit decision. The court also received a challenge from broadband-focused advocacy groups and several lobby groups representing ISPs.
"Today is a great day," said Andrew Jay Schwartzman, counsel for the Benton Institute for Broadband & Society; the National Digital Inclusion Alliance; and the Center for Media Justice. "We will need some time to sort through the details of today's decision, but what matters most is that the Supreme Court has given the green light to the FCC to continue to support Internet access to the tens of millions of Americans and the thousands of schools, libraries and rural hospitals that rely on the Universal Service Fund."
FCC Chairman Brendan Carr praised the ruling but said he plans to make changes to Universal Service. "I am glad to see the court's decision today and welcome it as an opportunity to turn the FCC's focus towards the types of reforms necessary to ensure that all Americans have a fair shot at next-generation connectivity," Carr said.
Credit: Getty Images | Andrey Denisyuk
The Supreme Court today reversed a ruling that threatened the future of the Federal Communications Commission's Universal Service Fund. In a 6–3 opinion, the high court said the US Court of Appeals for the 5th Circuit erred when it found that Universal Service fees on phone bills are an illegal tax.
Universal Service is an $8 billion-a-year system that is used to expand telecom networks and make access more affordable through programs such as Lifeline discounts and deployment grants for Internet service providers. The program was challenged in multiple circuits by Consumers' Research, a nonprofit that fights "woke corporations," and a mobile virtual network operator called Cause Based Commerce.
The 5th Circuit ruling focused on Congress delegating its taxing power to the FCC and the FCC then subdelegating that taxing power to the Universal Service Administrative Company (USAC), a private organization that administers the fund. In a 9–7 en banc ruling, the 5th Circuit found that "the combination of Congress's sweeping delegation to FCC and FCC's unauthorized subdelegation to USAC violates the Legislative Vesting Clause in Article I, § 1."
But the FCC beat similar challenges brought by Consumers' Research and Cause Based Commerce in the 6th and 11th circuit appeals courts, making the case ripe for Supreme Court review. In today's ruling overturning the 5th Circuit, Justice Elena Kagan delivered the opinion of the court and was joined by John Roberts, Sonia Sotomayor, Brett Kavanaugh, Amy Coney Barrett, and Ketanji Brown Jackson. Neil Gorsuch filed a dissent that was joined by Clarence Thomas and Samuel Alito.
FCC delegation is legal, court finds
The Supreme Court majority found that the Universal Service contribution scheme "does not violate the nondelegation doctrine." It rejected an argument that Universal Service "must satisfy a special nondelegation rule," meaning that "Congress must set a definite or objective limit on how much money an agency can collect—a numeric cap, a fixed tax rate, or the equivalent."
The majority said that precedent forecloses the Consumers' Research argument because the court previously "declined requests to create a special nondelegation rule for revenue-raising legislation. The test Consumers' Research proposes also would throw a host of federal statutes into doubt, as Congress has often empowered agencies to raise revenue without specifying a numeric cap or tax rate."
Phone companies must pay a percentage of their revenue into the Universal Service Fund, and telcos generally pass those fees on to consumers with a Universal Service line item on telephone bills. Acting on the FCC's behalf, the USAC manages the fund and projects its expenses. "Each quarter, the Administrator projects the Fund's expenses, adds up revenue estimates it receives from carriers, and submits those figures to the Commission for approval and eventual use in calculating the contribution factor," the Supreme Court said.
The court found that the FCC's use of an administrator is permissible. "The Administrator is broadly subordinate to the Commission: The Commission appoints the Administrator's Board of Directors, approves its budget, and requires the Administrator to act 'consistent with' its rules and directives," the court said.
The court said it rejected the 5th Circuit's reasoning "that the 'combination' of Congress's grant of authority to the FCC and the FCC's reliance on the Administrator violates the Constitution, even if neither one does so alone." The Supreme Court said the "doctrines do not operate on the same axis. So a measure implicating (but not violating) one does not compound a measure implicating (but not violating) the other, in a way that pushes the combination over a constitutional line."
Majority warned of “absurd” outcomes
Discussion over whether something is a tax or a fee wasn't relevant to the Supreme Court majority, which said it's clear from precedent "that whether a charge is a tax or a fee is irrelevant to the nondelegation inquiry." The court also said the Consumers' Research argument would produce absurd outcomes:
Finally, the Consumers' Research position produces absurd results, divorced from any reasonable understanding of constitutional values. Under its view, a revenue-raising statute containing non-numeric, qualitative standards can never pass muster, no matter how tight the constraints they impose. But a revenue-raising statute with a numeric limit will always pass muster, even if it effectively leaves an agency with boundless power. In precluding the former and approving the latter, the Consumers' Research approach does nothing to vindicate the nondelegation doctrine or the separation of powers.
The Gorsuch dissent said the "combination" question isn't the deciding factor. He said the only question that needs to be answered is whether Congress violated the Constitution by delegating the power to tax to the FCC.
"As I see it, this case begins and ends with the first question. Section 254 [of the Communications Act] impermissibly delegates Congress's taxing power to the FCC, and knowing that is enough to know the Fifth Circuit's judgment should be affirmed," Gorsuch said.
“Green light” for FCC to support Internet access
In the Gorsuch view, it doesn't matter whether the FCC exceeded its authority by delegating Universal Service management to a private administrative company. "As far as I can tell, and as far as petitioners have informed us, this Court has never approved legislation allowing an executive agency to tax domestically unless Congress itself has prescribed the tax rate," Gorsuch wrote.
The FCC and Department of Justice asked the Supreme Court to reverse the 5th Circuit decision. The court also received a challenge from broadband-focused advocacy groups and several lobby groups representing ISPs.
"Today is a great day," said Andrew Jay Schwartzman, counsel for the Benton Institute for Broadband & Society; the National Digital Inclusion Alliance; and the Center for Media Justice. "We will need some time to sort through the details of today's decision, but what matters most is that the Supreme Court has given the green light to the FCC to continue to support Internet access to the tens of millions of Americans and the thousands of schools, libraries and rural hospitals that rely on the Universal Service Fund."
FCC Chairman Brendan Carr praised the ruling but said he plans to make changes to Universal Service. "I am glad to see the court's decision today and welcome it as an opportunity to turn the FCC's focus towards the types of reforms necessary to ensure that all Americans have a fair shot at next-generation connectivity," Carr said.
