The Lawrence, Kan., school district, like many around the nation, has become reliant on the federal E-rate program for connecting schools to the internet. Two years ago, the federal program funded 80 percent of the $2.5 million cost of a new fiber network.
“If the E-rate went away, it would be very difficult for a school district like ours to keep students connected” as older technology wore out, said Larry Englebrick, the deputy superintendent of the 10,000-student district. “We rely on it.”
The future of E-rate funding for projects like those in Lawrence is under an existential threat in a case the U.S. Supreme Court will take up on March 26.
The issue in Consumers’ Research v. Federal Communications Commission is the constitutionality of the funding mechanism for the Universal Service Fund, which distributes as much as $4 billion annually under the E-rate program to connect schools and libraries to the internet.
Education groups are alarmed and fearing the worst: a potential disruption or unraveling of a program that has connected students in the internet age and helped schools upgrade staff and parent communications, make their tech systems more secure, and even keep buses running on time.
“E-rate has been a highly successful, bipartisan program that has benefited tens of millions of students around the country since its inception,” said Joseph Wender, the executive director of the Schools, Health, and Libraries Broadband Coalition, a Washington-based group that is a party in the case helping defend the nearly 30-year-old program. “The impact of losing these funds would be profound and devastating across the country.”
Program under attack based on a obscure legal doctrine
The $9 billion Universal Service Fund was established under the Telecommunications Act of 1996 and has separate components to fund telecom services for rural and insular communities, rural health care providers, and low-income customers in addition to the E-rate, or education-rate, program.
Consumers’ Research, an advocacy group based in Vienna, Va., as well as a small reseller of telecom services and several individual consumers, challenged the funding structure in multiple lawsuits around the country.
They argue that the funding mechanism is an unconstitutional “delegation” of taxing power to the Federal Communications Commission. The challengers say the FCC, in turn, has “sub-delegated” the actual authority to set rates to the private Universal Service Administrative Co., the private entity that collects mandatory contributions from all telecom providers. The telecom companies pass those costs along to their customers as fees on their bills.
Consumers’ Research contends that USAC is dominated by self-interested telecom providers.
“We argue in this case that there are not enough guardrails,” James R. Conde, a Washington lawyer helping represent the advocacy group. “It goes back to no taxation without representation. There should be more accountability with how this money is being raised and how this money is spent.”
The group sued the FCC in several cases around the country, with several lower courts rejecting their case.
But last summer, the full U.S. Court of Appeals for the 5th Circuit, in New Orleans, struck down the funding mechanism as a “misbegotten” and unconstitutional tax on consumers.
“American telecommunications consumers are subject to a multibillion-dollar tax nobody voted for,” the 5th Circuit court said in its 9-7 decision on July 24. “The size of that tax is de facto determined by a trade group staffed by industry insiders with no semblance of accountability to the public.”
The challenge to the funding structure is based on an obscure legal concept, embraced by many conservatives, called the non-delegation doctrine. It means Congress may not delegate significant policy judgments to an executive agency like the FCC.
Consumers’ Research argues to the court that the power to tax lies with Congress, and the mandatory contributions to the Universal Service Fund that are passed along to consumers are a tax.
“Rather than appropriate a specific amount of money or set an upper limit (e.g., cap or rate) for the FCC, Congress handed the FCC the power to decide in the first instance how big the USF would be,” the group says in its merits brief.
The constitutional violation goes further under the mechanism used to approve quarterly contributions from telecom companies, the group says. Fees approved by USAC are passively ratified by the FCC after 14 days.
“Letting private proposals become binding without formal, independent approval by government officials is the very definition of an unconstitutional private delegation,” Consumers’ Research says.
The group paints a very different picture of the Universal Service Fund and E-rate from the success story praised by education groups. The quarterly tax rate on telecom providers has “skyrocketed,” putting the program at risk of failure regardless of legal issues, it argues. Further, there is “rampant fraud, waste, and abuse,” the group says, citing Government Accountability Office reports and news accounts.
In a separate case this term, Wisconsin Bell Inc. v. United States ex rel. Heath, the Supreme Court ruled that the E-rate program is subject to the False Claims Act, the Civil War-era law that allows private parties to sue over alleged fraud in federal programs. The Feb. 21 decision revolved around allegations that an AT&T subsidiary was overcharging some Wisconsin schools for telecom services under the E-rate program.
Consumers’ Research says in its brief that “there is bipartisan interest in fixing the USF, which is facing a death spiral that will soon implode the program.”
Congress could make the program both sustainable and constitutional by appropriating money or setting a specific tax rate or cap on the mandatory contributions, the group says.
Conde, the lawyer representing Consumers’ Research, said there were several “simple fixes” if the high court sides with the group to one degree or another. The FCC could alter its regulations and more actively review the fees proposed by USAC. Or, if the entire funding structure were struck down, lawmakers would likely intervene, he said.
“This is a very bipartisan program,” Conde said. “I would expect Congress to react to the decision of the court.”
Federal government likens E-rate contributions to court fees and postage rates
The funding structure is being defended by the U.S. solicitor general on behalf of the FCC, as well as the Schools, Health, and Libraries Broadband Coalition and other parties and their allies, including education groups.
The FCC is doing most of the heavy lifting on the legal arguments about the non-delegation doctrine, even with the change in presidential administrations. (That wasn’t necessarily a given, considering that many conservative groups aligned with the Trump administration have filed briefs supporting Consumers’ Research.)
Acting U.S. Solicitor General Sarah M. Harris, an appointee of President Donald Trump, filed a March 13 brief that builds on arguments the Biden administration had made supporting the Universal Service Fund and E-rate.
She argues that there has been no unlawful delegation of congressional taxing authority to the FCC or USAC.
“The FCC ultimately decides—within the limits and under the standards set by Congress—the amount of the contributions” paid by telecom providers, Harris argues, and USAC “offers non-binding recommendations.”
She points to numerous revenue-raising statutes “without precise numerical limits,” including the laws allowing the Supreme Court to set its own filing fees, another allowing the Federal Reserve Board to set certain fees for its member banks, and the federal statute allowing the U.S. Postal Service to set postage rates.
“Tax statutes have long incorporated general standards rather than specific numbers,” the solicitor general says in her brief.
Education groups make similar legal arguments, but they focus much of their filings on the practical consequences of any decision to undo the E-rate funding mechanism.
Just in the last two years, more than 106,000 schools, public and private, received E-rate funding, benefiting more than 54 million students, the Schools, Health, and Libraries Broadband Coalition says in its brief.
“If that goes away, that’s a $3 billion budget hole for school districts around the country,” said Wender, the coalition’s executive director.
Noelle Ellerson Ng, the associate executive director of AASA, The School Superintendents Association, said that the removal of such a large annual financial infusion would have significant consequences for schools.
“It’s not the case that if this funding goes away, this is a cost that every school district could just absorb,” she said.
Districts apply regularly for E-rate projects
AASA led a friend-of-the-court brief joined by 20 other education groups. It notes that the E-rate program, which also aids public libraries and is authorized for as much as $4 billion annually, provided $3.26 billion in discounts to schools in 2024, with the schools having to shoulder only some $970 million for projects.
The Lawrence, Kan., district, applies for E-rate funding every year and usually gets a project approved, said Englebrick, the deputy superintendent. In addition to the major fiber network project from two years ago, the district this year received a more modest award of an 80 percent subsidy for a $200,000 project to replace backup batteries for its electronics equipment, he said.
Englebrick said USAC has tightened its oversight over the years, and every project requires extensive documentation from the district and competitive bidding by vendors.
The E-rate program has been a particularly strong lifeline for small school districts.
In the 930-student Triton district in Bourbon, Ind., E-rate discounts have helped fund classroom infrastructure to allow overhead projectors, smartboards, and student laptops to connect to the internet.
Superintendent Jeremy Riffle said he could barely begin to fully comprehend some of the legal arguments being made, but he is aware that the case threatens to upend the status quo.
“In the end, there would be a huge impact” to any disruption of the E-rate, he said. “In a rural district like ours, some families can’t even connect to the internet at home. And we don’t want to be working with a 10-year-old technology system.”
