• The Universal Service Fund’s budget has ballooned from $1.37 billion in 1995 to more than $9 billion in 2021

• The FCC — not Congress — decides the program’s budget, meaning the Commission, not publicly elected representatives, is in charge of how much consumers are billed for the program

• In practice, the fund has been virtually ineffective for the amount of money spent

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In the mid-1990s, Congress codified a funding scheme designed to pay for phone service on behalf of people who couldn’t afford it. The FCC promptly handed much of its authority over this Universal Service Fund (USF) to a private entity called Universal Service Administrative Company (USAC), which is littered with industry insiders and subject to little government oversight. The program’s remit was later expanded to cover broadband.

Things have gone exactly as you’d expect. The USF program budget has ballooned from $1.37 billion in 1995 to more than $9 billion in 2021. Rampant waste and fraud go unchecked, with the administrative cost of running the program more than tripling from $105 million in 2010 to $365 million in 2023. But even these figures obscure the deeper problems with USF, which is a masterclass in broken, unaccountable government.

From its legal structure to its inherent profligacy, the program is a parody of the bungling that ensues when government enters the private sector. But things may be coming to a head. This November, the Supreme Court agreed to hear a legal challenge spearheaded by Consumers’ Research, a conservative watchdog group, and decide whether this boondoggle is constitutional. In other words, one of the government’s most dysfunctional and deeply entrenched entitlement programs is in jeopardy.

It began (as it so often does) with good intentions. Under the law that created the USF program, the FCC is tasked with collecting money from telecom carriers, who in turn collect that money from customers like you and me. This money is used to support “universal” telecom service across the country. This means that customers have a line item on their phone bills to subsidize telephone and internet service for rural areas, poor people, schools, libraries, and healthcare facilities.

In practice, the fund has been virtually ineffective. Most of the program’s many billions in expenditures have been lavished on telecom infrastructure for a small number of people in rural areas. (Most people without internet can access it, but simply don’t want it.) The program has been startlingly ineffective even there, with coverage gaps remaining and scandalous instances of subsidies amounting to more than $20,000 per phone line. (Despite this, the FCC has generally been uninterested in even measuring the waste.) Key aspects of the program are obsolete — for instance its continued focus on building out fiber connections, notwithstanding the rise of fixed wireless and satellite broadband (Starlink vouchers, anyone?). The portion of the fund devoted to poverty relief, meanwhile, might well have played no meaningful role in raising levels of telephone service among low-income households. To add insult to injury, the tax for the program is regressive — everyone pays the same amount, no matter their income — and the base of payors is shrinking, pushing the program toward bankruptcy.

The scheme is also a constitutional monstrosity. Rather than Congress, it’s the FCC that decides what counts as “universal service.” The FCC, not Congress, also decides how much money to collect each quarter. To top it all off, the FCC has handed its power to set the USF contribution rate to a private organization — USAC.

This alone amounts to an executive-branch agency usurping Congress’ power of taxation. But with USAC in charge, you essentially have the entitlement fox guarding the regulatory henhouse as the organization is run by representatives from the very schools, libraries, healthcare providers, low-income communities, and telecom firms that benefit from USF largesse.

Early in the program’s life cycle, an inspector general at the FCC admitted that many recipients of handouts view the USF as “a big candy jar” of “free money.” When the commission took a half-hearted stab at curbing spending on the USF Lifeline Program (of “Obama phone” fame), one commissioner complained that the toothless measures amounted to a “joke.” A few years back the Government Accountability Office found that, in some states, as many as three-quarters of Lifeline participants might be ineligible for the benefits they receive.

This finding was, in fact, part of a dark tradition whereby the GAO issues a report on USF problems, makes recommendations for addressing these problems, and then, years later, issues another report finding that little has changed. For example, in one report, the GAO will tell USAC to get a handle on all the USF money being paid out to dead people; then in another, issued years later, it will pat USAC on the head for “establish[ing] a milestone to implement” a system for doing so.

The very titles of the GAO’s reports illustrate the absurdity: The USF needs “improved management” (2010); the USF’s “management could be improved” (2012); the USF needs more “accountability and transparency” (2014); the USF lacks “efficiency and effectiveness” (2015); “additional action” is “needed” (2017); the FCC must “manage fraud risks” (2019); the FCC must “better manage persistent fraud risks” (2020); the USF lacks “performance goals and measures” (2020); the FCC must “improve performance goals” and “fraud risk management” (2023).

But earlier this year, a legal earthquake occurred when a federal court of appeals declared the USF unconstitutional. “Congress’s instructions [to the FCC] are so ambiguous,” the court wrote, “that it is unclear whether Americans should contribute $1.37 billion, $9 billion, or any other sum to pay for universal service.” The court continued, “[I]t is impossible for an aggrieved citizen to know who bears responsibility for the USF’s serious waste and fraud problems.” Then the Supreme Court granted the government’s petition to review the appellate court’s decision.

The case against the USF revolves around a key constitutional principle known as “nondelegation.” Under the Constitution, “all legislative powers” are “vested” in Congress, which may not delegate its legislative powers to others. Despite this, the Supreme Court hasn’t struck down a statute on nondelegation grounds since 1935. With no one setting limits on this practice, Congress has handed over immense powers to agencies like FCC, FTC and SEC. As a result, these three-letter regulatory agencies have come to pull the levers of government power in a way the Founding Fathers not only never intended, but could never have imagined.

This, in turn, has given rise to what’s sometimes called “administrative law,” the web of regulations that delays rocket launches, hinders medical research and keeps the US far behind China on batteries, EVs, and drones. It restrains energy production as well as the transition to clean energy, on which the future of AI (and so much else) depends. When someone in tech declares, “It’s time to build,” it’s often administrative law that responds, “No, it’s not.”

If the Supreme Court revives nondelegation, the ramifications for the tech industry could be profound. But with or without it, it’s clear that the USF needs a fundamental rethink. The program has largely failed in its purpose, with the government spending around $200 billion to connect relatively few households to the internet.

Above all, however, the program’s funding structure is simply offensive to principles of republican government. If we’re going to pay for poor people and remote places to have phones and internet, we should do so not through a slush fund controlled by bureaucrats and insiders, but with money appropriated each year by Congress.

But even more than this, it’s time to put a check on the power of administrative law. For too long, America’s growth has been stunted by this unseen — and, in many ways, unconstitutional — hand. For those who claim they want to make the country great again, one of the first tasks is to make our government accountable again.

—Corbin Barthold