Delegation Dooms the Deficit

05.09.2024 05:06

In a recent 9–7 ruling in Consumers Research v. FCC, the Fifth Circuit Court of Appeals held that allowing a private company to manage the funding for a $9 billion government program violates Article I of the Constitution. This case highlights a concerning phenomenon — federal agencies turning to funding structures outside the appropriations process to expand their regulatory size and scope, often freeing themselves from democratic oversight. Permitting federal agencies to get creative with revenue generation doesn’t just overstep constitutional limits, it also makes reining in federal spending nearly impossible.

Now that one federal court has brought this unconstitutional joy ride to an end, the Supreme Court should follow suit next term.

At issue in Consumers Research is the Universal Service Fund, which was created by the 1996 Telecommunications Act to subsidize telecommunications carriers so that rural regions of the United States could receive the same access to services as other, more profitable areas. The funding for this program comes from a universal service fee that is added to each American’s cell phone bill. In its ruling, the Fifth Circuit held that this fee is really a tax in disguise.

The constitutional defect lies in who is collecting and distributing that tax. The FCC — the federal agency that administers the program — does not run the program itself. Instead, the FCC has empowered a private company, the Universal Service Administrative Company (USAC), to determine how much private consumers must pay and how to distribute those funds to participating private telecom carriers. USAC determines the funding amount based upon demand projections from the same telecommunication companies receiving the subsidy. More troublesome is that many of USAC’s directors also hold positions at the telecommunications companies that stand to benefit.

In other words, Congress gave the FCC a vague directive to establish “specific, predictable, and sufficient … mechanisms to preserve and advance universal service.” The agency interpreted this as a green light to essentially self-fund the program by asking the regulated companies how much money they need and then charging Americans that amount — all outside of the normal appropriations process.

This is precisely the sort of financial creativity and delegation of authority that the Supreme Court needs to closely examine. Hopefully they do so next term, if not for our liberty, at least for our balance sheet.

The review is overdue. Since 1928, the Supreme Court has maintained that broad, permissive delegation to administrative agencies is consistent with the Constitution — so long as the agency is given a guiding principle. This has led to the ballooning of the federal government, unparalleled spending, and a regulatory cobweb that is unproductive at best and illiberal at worst.

This shift away from congressional control over the federal purse strings has contributed to the exploding of the national debt, as agencies pursue their agendas with little regard for fiscal restraint. When agencies are empowered to determine their own budgets, or when that authority is handed off to private entities, the incentive is clear: Collect more funds from Americans than would be approved through the normal legislative channels. And the trend is growing. In 2019, over $300 billion in federal agency spending occurred outside of the regular appropriations process. Over 200 federal programs currently have the authority to collect fees, fines, and other self-generated revenue.

Financial delegation to both agencies and private entities leads to wasteful spending that is difficult to curtail, in no small part because the funds are not centrally held by the Treasury Department and controlled by the appropriations process.

Revenue generated by federal taxes is collected in the Treasury and then disbursed by congressional appropriation, where it can be accounted for. When agencies generate their own revenue, it’s difficult to maintain the same level of financial transparency and accountability. The results speak for themselves: The Universal Service Fund made nearly $1 billion in improper or incorrect payments in a single year out of the $9 billion program total. Despite the gross mismanagement of taxpayer funds, the FCC has never invalidated a funding decision made by USAC.

Taming the deficit will require not just major spending cuts, but a fundamental reexamination of how federal agencies finance their operations and the degree to which they can self-fund initiatives outside of the normal budgetary process.

Jill Jacobson is a 2024–2025 federal law clerk, a visiting fellow at Independent Women’s Law Center (iwlc.org), and a contributor at Young Voices.

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