The Supreme Court has upheld the constitutionality of the Federal Communications Commission’s (FCC) Universal Service Fund (USF), rejecting arguments that the funding mechanism violates the Constitution’s nondelegation doctrine and affirming the FCC’s authority to collect and distribute billions of dollars annually to support communications services for underserved communities.

The Universal Service Fund, rooted in the Communications Act of 1934 and significantly expanded by Congress in 1996, is designed to ensure that all Americans, including those in rural areas, low-income households, schools, libraries, and rural hospitals, have access to reliable and affordable communications services. The FCC funds these programs by requiring telecommunications carriers to contribute a percentage of their revenues, a cost often passed on to consumers.

In December 2021, the FCC set the USF contribution factor at 25.2% for the first quarter of 2022. Consumers’ Research, a nonprofit organization, along with a carrier and several consumers, challenged the scheme in the Fifth Circuit Court of Appeals. They argued that the system amounted to an unconstitutional delegation of Congress’s taxing power to the FCC and, through the FCC’s reliance on a private administrator (the Universal Service Administrative Company), to a private entity.

The Fifth Circuit agreed, holding that the combination of Congress’s delegation to the FCC and the FCC’s reliance on the private administrator violated the Constitution, even if neither action would be unconstitutional on its own.

In a 6-3 decision authored by Justice Elena Kagan, the Supreme Court reversed the Fifth Circuit, holding that the universal service contribution scheme does not violate the nondelegation doctrine.

Key Findings

• Congress’s Guidance Is Sufficient: The Court found that Section 254 of the Communications Act provides the FCC with clear policy objectives and boundaries, including specifying the beneficiaries, the types of services to be subsidized, and the principle that contributions must be “sufficient” (but not excessive) to support universal service programs.
• No Special Rule for Taxes: The Court rejected the challengers’ argument that revenue-raising statutes require a numeric cap or fixed tax rate. The Court reaffirmed that the “intelligible principle” standard applies, as in other delegations, and that qualitative standards can be constitutionally adequate.
• FCC’s Use of a Private Administrator Is Lawful: The Universal Service Administrative Company’s role is advisory and subordinate to the FCC, which retains final authority over all decisions, including the calculation and approval of the contribution factor.
• No “Double-Layered Delegation” Problem: The Court dismissed the Fifth Circuit’s theory that the combination of two permissible delegations could amount to an unconstitutional arrangement, finding no support for such a “combination” doctrine in precedent.

The ruling preserves the structure of the Universal Service Fund, which distributes more than $8 billion annually to support telecommunications access for millions of Americans in rural and low-income communities, as well as schools, libraries, and hospitals.

Justice Neil Gorsuch, joined by Justices Clarence Thomas and Samuel Alito, dissented. The dissent argued that the scheme improperly delegates Congress’s exclusive taxing authority to an agency and ultimately to a private entity, warning that the decision represents a significant departure from constitutional tradition.

Key Arguments in the Dissent

• Congress’s Exclusive Taxing Power: The dissent opens by emphasizing that the Constitution vests the power to tax solely in Congress, which is directly accountable to the people. Citing The Federalist No. 48 and Article I, Section 8, Clause 1, Justice Gorsuch warns that allowing an executive agency to set tax rates and collect revenue without clear congressional limits represents a “sharp break with our traditions” and threatens a fundamental principle of representative government.
• Nondelegation Doctrine: Justice Gorsuch argues that the USF funding mechanism violates the nondelegation doctrine, which prohibits Congress from transferring its “strictly and exclusively legislative” powers to another branch. He contends that the FCC’s authority to set the amount and rate of the USF charge, effectively a tax, without a specific, objective limit from Congress is unconstitutional. 
• Historical Context and Precedent: The dissent provides a historical overview of universal service in telecommunications, noting that earlier systems relied on implicit subsidies managed through regulated rates. Justice Gorsuch argues that the 1996 shift to explicit funding via the USF introduced a new constitutional problem by empowering the FCC to tax carriers (and thus consumers) at its own discretion, a power that Congress itself had rarely exercised without clear statutory limits.