April 2, 2019 - 3:40 pm
By Michael O'Rielly | Commissioner

A lot of foolish policy ideas are floated in Washington, DC, so it’s fortuitous when the federal government undertakes thoughtful and sensible policy reform.  The FCC recently chose the latter and better course last week when an item was circulated to Commissioners to begin a rulemaking that would establish a much-needed and overdue budget for the agency’s Universal Service Fund (USF).  Against the backdrop of special interest groups and uninformed detractors reflexively opposed to any restraint on the agency’s redistributive subsidies, I am proud to lead this effort to inject more fiscal responsibility into the USF.  At its heart, this effort is about protecting the hardworking American consumers who bear the burden of paying regressive USF fees, and promoting and maintaining universal service in a more predictable, efficient, and responsible manner. 

Hardly a revolutionary idea, budgets are precisely what American families and businesses rely on to manage their everyday operations.  On the government side, nearly every federal spending program, with the exception of entitlement programs—which USF is not—operate within reasonable limitations.  From cancer research, to defense spending, to Congressional committees, and all programs in between, almost everyone operates within the confines of a budget.  Budgets force overseers to exert proper scrutiny to ensure that spending doesn’t exceed available resources or reasonable limits.  Budgets also help drive out program waste, fraud, and abuse by encouraging those running up against a cap to eliminate inefficiencies that detract from achieving the program’s mission and value.  At a minimum, budgetary restrictions generate necessary debate about overall priorities before increased spending is authorized.  Most importantly, budgets protect those responsible for paying into the system from being on the hook for every imaginable impulse purchase or expenditure. 

The necessity of a budget is self-evident in the context of the Commission’s USF program.  As a redistributive subsidy mechanism funded through fees on consumers’ landline and wireless phone bills, the USF features four sub-programs dedicated to bringing connectivity to different segments of America: high cost areas; low-income consumers; schools and libraries; and rural health care providers.  While I am a firm supporter of the principle of universal service, which has been inherent to the fabric of federal communications law for decades, historic evidence of inefficiencies, fraud, and duplicative spending across certain parts of the USF is alarming.  In particular, wasteful overbuilding among the constituent programs remains one of the fund’s most serious problems.

Meanwhile, USF spending has steadily increased over the years, and we’ve seen the “contribution factor”— the burden levied on consumers—which currently hovers around 20 percent of a contributor’s telephone bill, continually rise.  It may not be listed in the Internal Revenue Code, but, make no mistake, this fee functions like a tax on consumer phone bills.  Fundamentally, I believe we must set an upper limit of what we’re willing to take from hardworking American consumers to support these subsidies.  Determining this maximum level is also a necessary precondition to any effort to reform the FCC’s method for assessing USF contributions.

Further, an overall cap is crucial even despite the existence of individual caps on three of the four USF sub-programs.  The Commission has repeatedly raised the budgets of those programs without being required to offset spending elsewhere or consider the implications for the health of the whole fund.  In contrast, an overall budget would require the Commission to more thoughtfully consider the cost-effectiveness of its spending decisions and the consequences of raising one program’s budget for the entire USF enterprise.  And, to the extent that raising the cap would be necessary in the future, the Commission wouldn’t be precluded from voting to do so.  However, the choice to increase spending would be exercised in a much more transparent and accountable manner.

Not that any of this would be apparent based on the recent indignation by special interest groups opposed to any sort of budget whatsoever.  Based on some of the more hysterical accounts, a cap would only serve to undermine digital access and hurt the disadvantaged.  This couldn’t be further from the truth. 

Consider that the item’s proposed budgetary cap of $11.42 billion is well-above current disbursement levels, leaving almost a $2 billion cushion for potential future spending.  More importantly, what critics fail to consider is that it is untrammeled USF spending that ultimately impedes digital access, not a cap on the fund.  Any increase in USF expenditures is paid for by consumers, and, since the USF fee is non-progressive, providers generally assess it equally against all their consumers.  The burden of an increased contribution fee, therefore, falls disproportionately on low-income households because they pay a greater portion of their income toward telecommunications services than high-income households. 

In other words, an unchecked USF means disproportionate burdens get placed on those users most sensitive to price changes and most likely to change their spending decisions in response to higher fees.  The need to protect these consumers is also why I have always opposed attempts to subject Internet access to USF contributions: it’s a well-established principle of economics that discriminatory taxes affect consumption, and levying a tax on the Internet would make it harder for lower-income households to be able to afford the cost of getting connected.  This outcome runs totally counter to the goal of promoting digital access.

While it may be easy to demagogue the introduction of further budgetary constraints on the USF, bringing universal connectivity to Americans requires a much more holistic and thoughtful approach.  Through this item, that’s exactly what we intend to pursue.