NEW ORLEANS — A federal appeals court in New Orleans on Wednesday called it a “failed tax” and ruled that the method the Federal Communications Commission uses to fund telephone service for rural and low-income residents and broadband service for schools and libraries is unconstitutional.
The immediate implications of the 9-7 ruling by the 5th U.S. Circuit Court of Appeals were unclear. Justices who dissented said it conflicted with three other circuit courts around the country. The full 5th Circuit ruling reversed an earlier decision by a three-judge panel of the same court and sent the case back to the FCC for further consideration. An appeal to the Supreme Court was likely by media access advocates.
“The majority’s hostility to the policies underlying the Universal Service Fund is palpable. That, plus the bipartisan group of seven dissenters, makes it all but certain that the Supreme Court will agree to hear the issue,” said Andrew Schwartzman, an attorney representing advocacy groups including the Benton Institute for Broadband & Society.
The case involves the Universal Service Fund, which the FCC collects from telecom providers, which then pass the costs on to their customers. A conservative advocacy group, Consumer Research, challenged the practice.
Programs funded by USF provide telephone service to low-income users and rural health care providers, and broadband service to schools and libraries. “Each program serves a laudable purpose,” Judge Andrew Oldham, nominated to the 5th Circuit by former President Donald Trump, wrote for the majority.
The 17-member court is dominated by members nominated by Republican presidents. Two Republican nominees joined five Democratic administration nominees in dissenting.
Oldham said the USF funding method unconstitutionally delegates Congress’ taxing power to the FCC and a private entity retained by the agency, the Universal Service Administrative Company, to determine how much to charge telecommunications companies. Oldham wrote that “the combination of Congress’ broad delegation to the FCC and the FCC’s subdelegation to private entities certainly amounts to a constitutional violation.”
Judge Carl Stewart, nominated to the court by former President Bill Clinton, was among the 5th Circuit judges who wrote a strong dissent, saying the opinion conflicts with three other circuit courts, overturns precedent, “blurs the distinction between taxes and fees,” and creates new doctrine.
The Universal Service Administrative Company referred a request for comment to the FCC, but the FCC did not immediately respond to telephone and email inquiries.