Justices Appear Skeptical of Arguments Against Preserving USF

In a 9-7 en banc decision last summer, the 5th U.S. Circuit Court of Appeals found that the USF contribution factor is a "misbegotten tax.” Some conservatives hope the court will use the case to address the nondelegation doctrine (see 2411270020). Court watchers agree all eyes are on the justices seen as forming the middle of the conservative court: Chief Justice John Roberts and Justices Brett Kavanaugh and Amy Coney Barrett (see 2503190065).

“At its heart, this case is about taxation without representation,” McCotter told the justices. Every year, Americans “pay billions” for the USF, and the amount collected is 20 times as large as the FCC’s entire annual budget, he said.

The DOJ and FCC don’t dispute that USF charges “are indeed taxes,” McCotter said. They admit that Congress set “no objective rule to limit the amount raised” and “has set such rules for every other domestic tax in American history,” he said: “Those concessions doom their case.”

“There is no delegation problem here,” Clement responded. “Congress did not decide out of the blue, in 1996, that it wanted to impose a tax on certain telecom carriers to subsidize other carriers.” All it did was “make explicit the universal service subsidies that had long been implicit in monopoly rate regulation.”

Congress’ deregulation of the telecom industry and decision to embrace the subsidies and specify who should pay what was “a victory for both competition and for nondelegation principles,” Clement said. The case isn’t “the right vehicle” for SCOTUS to “revamp” the nondelegation doctrine, he said.

Congress enacted the USF rules “against the backdrop of a half century of history” when universal service was paid for through rate subsidies, Harris said. The delegation to the FCC was “definite and precise enough for courts to tell if the FCC followed Congress’ limits when filling in details.”

Consequences

“What about the consequences?” Barrett asked McCotter. Clement “said the consequences of holding this statute unconstitutional would be devastating for universal service,” Barrett said. “What about that?” she asked. “I think it’s a fair question to consider the consequences of your position.”

“It’s not relevant to the constitutional question,” McCotter responded: Arguments about the importance of USF just make the case that Congress itself should have set “meaningful limits.” He noted that the case challenged the contribution factor for only one quarter, and relief from the high court could be limited.

The 5th Circuit relied on a theory that Congress’ broad delegation to FCC and the commission’s subdelegation to the Universal Service Administrative Co. combined to make the contribution factor unconstitutional.

While the 5th Circuit used the combination theory, “you’re barely defending that theory,” Kavanaugh said. “We’re not running away from it all,” McCotter replied. “With each delegation, we move further away from the locus of democratic accountability.”

Justice Sonia Sotomayor, one of the court’s three progressives, said USF is critical for many Americans, providing affordable connections in very rural areas, subsidies for people below the poverty line and telehealth services. “If you go through what this program is providing, what would you cut?” she asked McCotter. “This is all basic stuff. These are no exorbitant things. … Those basic services benefit all of us.”

Clear Mandate

The Telecom Act provided “an extremely clear mandate” to the FCC, and “this agency knows what it’s supposed to do,” which is “basically what this agency has been doing since the 1930s,” Sotomayor said.

McCotter said the program also takes money from people just above the poverty line to pay for connections for rich ranchers in Montana. “The idea that this is just an unalloyed good, we would disagree with that,” he said.

Even conservative Justice Samuel Alito said he worried about the consequences for people in rural America if USF is overturned and Congress doesn’t step in. “I am quite concerned about the effects of a decision in your favor on the grounds that you have been pressing.”

McCotter again said SCOTUS could provide limited relief. He noted that the 5th Circuit didn’t vacate the USF contribution factor but remanded it to the FCC. If USF is as important as its defenders claim, “Congress will step up."

The USF “is more likely than not to be upheld,” but that’s not “a certainty,” New Street’s Blair Levin told investors Wednesday. “While there are, in our view, three clear votes to uphold the program (the justices appointed by Democratic Presidents), and at least one clear vote to overturn the program ([Neil] Gorsuch), other justices gave indications that they could vote either way,” Levin said. “We think … Barrett will vote with the Democrats to uphold the program, particularly due to her questioning of” McCotter “and, we thought, the unconvincing nature of his answers.”

“Kavanaugh and Barrett asked tough questions of both sides, but … they were especially skeptical of the Consumers' Research attorney,” said John Windhausen, former executive director of the Schools, Health & Libraries Broadband Coalition. Alito “seemed especially worried that the precedent could have a huge impact and would jeopardize many other regulatory agency programs,” Windhausen said.

"The oral arguments today confirmed what we’ve long known: the Universal Service Fund is critical to delivering education, healthcare, and economic opportunity," said Adrianne Furniss, executive director of the Benton Institute for Broadband & Society.

The case points to the need for broad USF reform, emailed Joe Kane, the Information Technology and Innovation Foundation's director-broadband and spectrum policy. “With many justices skeptical of the constitutionality of USF," SCOTUS "could invalidate the structure of the program in the coming months," he said: "Rather than gambling with broadband subsidies, Congress should enact common-sense reforms to focus federal broadband subsidies on the real causes of the digital divide, including digital literacy and affordability, and directly appropriate funds for those efforts.”