The Universal Service Fund (USF) was authorized by Congress through the Telecommunications Act of 1996. It finances broadband and phone subsidies to ensure universal access, especially benefiting low-income users, rural areas, schools, libraries, and health providers. Funding for the USF, which generates approximately $9 billion annually, is sourced from fees imposed on telecommunications carriers and largely passed to consumers in their telecom bills.

The Legal Challenge

A group led by Consumers’ Research, alongside a telecom carrier and a nonprofit, sued, arguing the funding model is unconstitutional. They contend that Congress improperly delegated legislative authority to the FCC by permitting the agency to determine contribution rates, a power that should reside solely with Congress. The suit further claims that the FCC’s delegation of collection responsibilities to the non-profit Universal Service Administrative Company (USAC) constitutes an illegal sub-delegation of tax authority.

Fifth Circuit Ruling: “Misbegotten Tax”

In July 2024, a full panel of the U.S. Court of Appeals for the Fifth Circuit struck down the USF. In a 9–7 decision, it deemed the fund both a constitutional violation and an unauthorized tax. The court held that Congress failed to provide clear standards (“intelligible principles”) for the FCC to set fees, and that delegating administrative duties to USAC unlawfully handed taxing authority to a private entity.

Supreme Court’s Involvement

The FCC and supporting industry groups, including USTelecom, NTCA, and the Competitive Carriers Association, appealed the Fifth Circuit’s ruling. They emphasized that universal service has long enjoyed broad bipartisan support, warning that invalidating the USF could severely undermine telecom access nationwide.

The Supreme Court granted certiorari, consolidating two cases under the title FCC v. Consumers’ Research. The central questions include whether the delegation to the FCC and USAC violated the non‑delegation doctrine, and whether the case may already be moot due to the challengers having already paid the fees. Oral arguments took place in March, and a ruling is anticipated by the end of June.

Supreme Court Signals: Weighing Support for FCC

During arguments, several justices expressed skepticism toward the challengers. They seemed uneasy about broad challenges to administrative agency authority given potential ripple effects across similar federal programs. Justice Kagan remarked that the statute offered sufficient guidance, while Justice Barrett noted that overturning the funding model could severely derail universal service efforts.

Key Legal Issue: The Non‑Delegation Doctrine

At the heart of the dispute is the non‑delegation doctrine, which restricts Congress from authorizing agencies to wield lawmaking power without clear guidance. Although historically dormant, this doctrine has regained attention recently. The Fifth Circuit held that the dual delegation, to the FCC for fee-setting and to USAC for fee administration, exceeded constitutional limits.

The Supreme Court may choose to:

• Reinforce non‑delegation, invalidating the current USF arrangement.
  
  
• Limit private delegations by allowing Congress to authorize the FCC but not to USAC.
  
  
• Uphold the fund if it finds Congress did set intelligible guiding principles.

Implications & Next Steps

The Court’s decision could significantly impact agency authority and the structure of administrative governance. A ruling in favor of challengers may trigger sweeping changes in federal programs that depend on similar delegation frameworks. Conversely, a decision upholding the USF would reaffirm current administrative models and preserve ongoing telecom subsidy programs.

Watch for the final ruling by June 30, 2025. Its outcome will ripple through regulatory policy, telecom funding, and the balance of power between Congress and federal agencies.