Supreme Court Funding Case May Affect Universal Service Fund

The Universal Service Fund is funded  by a quarterly surcharge on interstate and international telecommunications revenue. Each quarter, a private nonprofit known as the Universal Service Administrative Company (USAC) estimates how much money it needs to fund the Federal Communications Commission’s (FCC) myriad universal service initiatives. It also estimates the amount of telecommunications revenue expected to be generated by industry, and from there calculates the surcharge percentage necessary to cover program costs. USAC proposes this surcharge amount to the agency, and it is “deemed approved” if the agency takes no action to change it within 14 days of publication. In other words, USAC determines its own budget to administer the program and then sets the tax rate it needs to cover that budget. At most, this process receives perfunctory FCC review, but no congressional oversight. USAC operates off-budget and is insulated from the appropriations process. Unsurprisingly, this lack of accountability has deleterious effects. Since the fund’s inception in 1996, the political appetite for universal service initiatives has grown, while the revenue base supporting the fund has contracted, causing the surcharge to skyrocket from 3 percent in 1998 to a whopping 32.6 percent today. And the fund’s history is littered with allegations of waste, fraud, and abuse. The constitutionality of this structure is currently being litigated in the Fifth Circuit.