The U.S. Court of Appeals for the Fifth Circuit in New Orleans ruled, in a 9-7 vote, that the FCC’s Universal Service Fund structure is unconstitutional. The ruling comes in response to a lawsuit brought by Consumers’ Research, a conservative non-profit corporation.

The Fifth Circuit opined: In the Telecommunications Act of 1996, Congress delegated its taxing power to the FCC. FCC then subdelegated the taxing power to a private corporation. That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay for the ‘universal service’ tax that appears on cell phone bills across the Nation. We hold this misbegotten tax violates Article I, § 1 of the Constitution. That constitutional article vested taxing power in Congress. . . Our court today holds that the delegation of Congress’s taxing power, first to a federal agency, and then to a private entity, violates the Vesting Clause of Article I of the Constitution.

Two other appeal courts have recently ruled in favor of the FCC on two similar complaints. The Supreme Court refused to take an appeal of one of those rulings.

It’s an interesting legal ruling because Congress clearly gave the FCC the authority to establish the Universal Service Fund and to create public fees to fund it. Attacks on the USF have often centered around the FCC’s decision to establish the non-profit corporation USAC (Universal Service Administration Company) to operate the USF. My recollection is that USAC was created so that a wide variety of industry players and the public would have input into operating the USF rather than letting it be done by the politically appointed FCC Commissioners. The FCC wisely didn’t want FCC politics to interfere with the day-to-day operation of the USF.

For those of you not familiar with USAC, the company has an operating statement that the entity “does not make policy or interpret statutes or rules or the intent of Congress, the FCC, or any state or federal agency. The Board is comprised of members that represent a wide range of the telecom industry from telcos, long-distance companies, cellular carriers, cable companies, schools, libraries, Tribal communities, rural health care organizations, state regulators, consumer advocates, and the public.

The other long-term argument against the Universal Service Fund is that the fee assessed against telephone services and other related products is a tax and not a fee. Congress clearly had the intention when it created the USF that fees would be used to fund and operate the missions of the USF. The argument in this lawsuit is that FCC has granted tremendous power to a private company to establish a tax that people pay on their phone bills. I suspect that if the FCC had decided to directly administer the fund the argument would be that it is unconstitutional for the FCC to impose a tax on people.

The judges that ruled against the USF clearly don’t like what Congress ordered in 1996. They are hiding behind the argument that delegating the operations of the USF to USAC somehow makes the process unconstitutional. It’s odd that a ruling like this can be made 28 years after Congress directed the FCC to create the Universal Service Fund. It’s an issue that courts have heard for years, and they always sided with the FCC and USAC.

This is all part of the bigger political battle over who has the power to make decisions – the White House, Congress, or the Courts. This ruling, which used the term ‘misbegotten tax’ to describe USF fees, is clearly not coming from the neutral arbiter we expect from the court system. Unless some semblance of normalcy between the branches of government is reestablished at the federal level, we’re likely going to see more court decisions that overturn issues and practices that we assumed were settled long ago.