Blair Levin: In so many ways, it is not at all clear to me that the judges actually understood what they were writing about. I would just point out, if you remand it to the FCC for a new order consistent with this decision, it would be as if you were to say, “You, army, go to war, but we’re not going to give you any bullets, no guns, no tanks, but really go fight a war.” What are you talking about?
Jeff Johnston: That was Blair Levin, senior fellow at Brookings Metro and former executive director of the National Broadband Plan and chief of staff to FCC Chairman Reed Hunt, about the confusing nature of the 5th Circuit’s recent decision on the constitutionality of the USF program.
Hi, I’m Jeff Johnston and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank’s Knowledge Exchange group.
The 5th Circuit recently issued its ruling on the claims made by conservative group Consumer Research, that the current USF program violates the Constitution. This ruling is a head scratcher, even for policy experts like Blair, and it’s unclear where we go from here.
Blair is one the most knowledgeable and experienced telecom policy experts in the country, so I was thrilled when he agreed to share his thoughts on how we should think about this ruling.
So, without any further ado, pitter patter let’s see what Blair has to say.
Johnston: Blair, welcome to the podcast. It’s an absolute pleasure to have you back on. How have you been?
Levin: I’ve been fine. Thank you very much. It’s a pleasure to be back.
Johnston: Wonderful. Our timing couldn’t be better to have you on to talk about an incredibly important topic, and that is USF and the challenges that we’ve seen in the courts regarding the constitutionality of USF. There just so happened to be a ruling yesterday from the 5th Circuit, something we’ve been waiting on for quite some time. Having you here the day after to discuss it is wonderful timing. Maybe, Blair, you could just give listeners a high level on what happened yesterday out of the 5th Circuit in terms of their ruling on the constitutionality of the USF program.
Levin: There’s a conservative group called Consumers Research, which has been involved in a lot of litigation challenging regulations of all kinds. A couple of years ago, they filed in four different circuits a case arguing that the FCC’s most recent setting of the contribution factor violated the Constitution as well as the law. They make a number of different arguments. Some are what I would say are relatively simple to fix if they were to win such as that the FCC has given too much power to the Universal Service Administrative Corporation, usually known as USAC.
The big question is, would a court agree with them that the way the FCC collects money to spend on Universal Service is unconstitutional? That is to say that Congress has essentially given the power to tax to the FCC and the Constitution does not allow that. The reason why that’s so big is that’s at the heart of the system. [chuckles] That’s at the heart of what Congress gave the FCC the authority to do in 1996. That has been in place since 1996.
That is what funds what we used to think of as a high-cost fund that has different names, but fundamentally, deployment in rural areas. That is what has funded the E-Rate, which has helped public institutions get the connectivity they need, and it has funded the Lifeline program. What the court said yesterday was, we find this to be a tax. Now, they did it on a 9-to-7 vote. There were three Republicans joining four Democrats, and then all the nine votes in the circuit were Republicans.
Having said that, the 11th Circuit, which is a very conservative circuit, previously has ruled that the USF system is constitutional. The 6th Circuit, a very conservative circuit, had previously ruled that way. The 5th Circuit is something of an outlier here in a very hotly contested decision.
Now, there are many different things going on. There are many balls in the air. In a very curious way, they did not vacate the FCC order. In other words, as far as I can tell, the FCC’s order is still in effect. Money can flow in and money can flow out. That, by the way, is not a universal view. Some lawyers have told me, “If the FCC tries to collect any money in the 5th Circuit, people can go to court and say, no, you can’t do that.” There’s an element of chaos here but the big question to me is, what does this do to the future of Universal Service reform? Which clearly needs to be done? With all due respect to Chair Pai, he kicked the can down the road, not talking about Universal Service reform.
In his four years, the contribution factor doubled, which is a lot. Then as he was walking out the door, he said, “Oh, by the way, we probably should do something about Universal Service reform.” But to be honest, and I guess in a bizarre way bipartisan, this commission under Chair Rosenworcel hasn’t really done anything either, instead saying to Congress, “This is your problem, you need to fix it,” but not providing the intellectual or analytic leadership that I think Congress really needs to fix the problem.
This makes it much more difficult to fix because if you can’t do the kinds of assessments that I’m sure all the listeners to your podcast understand, where the FCC says, “Here’s the contribution base, here’s what we need from that base, and here’s how we’re going to spend it,” if you can’t do the first two things, how do you have a program? If you remand it to the FCC but there’s no ability to collect money, what are you talking about? That’s at the heart of the program.
There’s a lot of uncertainty. There’s certainly a lot of uncertainty about what the current Congress will do in the sense of what they believe, but they aren’t going to do anything. The question is, what does the next Congress do and what does the Supreme Court do?
Johnston: For layman’s terms, Blair, just furthering the decision yesterday out of the 5th Circuit, are they kind of kicking the can down the road with this decision, or are they sending it back to Congress to say, “You guys need to figure this out?” I’m a little confused as to what exactly the 5th Circuit ruled on and what are the next steps as a result of that ruling?
Levin: The first thing I want to tell you is if you actually read the, I think it’s 130 or 107 pages. It’s a long decision. Of course, there’s a very vigorous dissent. If you read it, you will become more confused.
In so many ways, it is not at all clear to me that the judges actually understood what they were writing about. Again, I would just point out, if you remand it to the FCC for a new order consistent with this decision, it would be as if you were to say, “You, army, go to war, but we’re not going to give you any bullets, no guns, no tanks, but really go fight a war.” What are you talking about?
Johnston: Right.
Levin: If you don’t have the ability to raise funds, what does the 5th Circuit think the FCC is going to do?
It’s a very confusing thing. It’s also confusing because you don’t know what the Supreme Court’s going to do, you don’t know what the Congress is going to do. Of course, it’s also confusing because who’s going to be the chair of the FCC when January ends in 2025? Who’s going to be in control of the House and control of the Senate? It’s a somewhat chaotic decision in a somewhat chaotic time.
Johnston: Then thinking about the previous decisions out of different circuits that seem to be in favor of the current structure, in the grand scheme of things as to how this potentially could move forward, does that have an impact on the current situation that there is some kind of precedent or ruling that says, “Hey, what we’re doing right now is in fact okay?”
Levin: I want to be clear, you use the word ‘in favor of.’ I’m going to play lawyer here for a second. I don’t think that’s what the 6th Circuit and 11th Circuit were saying. I don’t think they said, “Gee, this is a great way to design a Universal Service program.” What they said is it’s constitutional. Congress did its job and the FCC is now doing its job. There was a certain judicial humility in saying, “Yes, it’s okay.” On the other hand, the 5th Circuit displayed what I think is enormous judicial arrogance.
Having said that, the importance of the 6th and 11th Circuit is, number one, it tees it up for the Supreme Court to take the case because there’s now a split in the circuits. The Supreme Court has various reasons to take cases, but one of the most important is where there’s a split in the circuit that they have to resolve. Number two, you have the Supreme Court with two very conservative circuits essentially writing an opinion that the Supreme Court could adopt.
Now, one of the things my years on Wall Street has taught me is you’re really doing two things when you make a prediction. You’re saying, “Here’s what I think happens,” but you’re also trying to tell people, “Here’s my level of conviction,” because a lot of times, you have to make a call, you have to make a prediction where you’re missing a lot of evidence. I’m going to make a prediction, but I really hate doing it before I read the briefs and before I’ve seen all the arguments and stuff like that.
Johnston: Fair enough.
Levin: Having said that, number one, I think the Supreme Court will take it. Number two, I think there will be at least two, if not three, justices who agree with the 5th Circuit. I think a majority will agree in part because I think that’s where the law is, and in part because, in particular, I’m thinking of what you might think of in this court as the middle. Industry is fundamentally on the side of the regulators here.
In, for example, the West Virginia v. EPA case, you had certain industry interests that were against the EPA. Interestingly, we had industry interests that were for the EPA, and this is the so-called major question doctrine. Here, industry is absolutely aligned with the FCC. It’s interesting because there are some people in the industry who might benefit from the elimination of the Universal Service regime.
There are a number of companies who aren’t really in rural areas and their rates would essentially go down, giving them some new pricing power. But I think they all know that there’s a certain kind of karma in politics. If you get rid of Universal Service, you create a certain kind of chaos, and they might not be the beneficiaries of where that chaos leads. They would prefer the system they know to the system they don’t.
Johnston: Yes, that makes sense. I guess then in the meantime, assuming this eventually goes to the Supreme Court and we’ve got a lame-duck Congress session coming up, so probably not a lot is going to go on there anytime soon…
Levin: It’s not just a lame duck. This House of Representatives is the most historically inactive, least effective House of Representatives I think the country has ever had. When you look at the number of bills that they have passed, it’s almost nonexistent. It’s not simply because we’re late in the season, it’s because of the nature of the House of Representatives. You could say the Senate as well because they have to work together.
Johnston: Wow. Blair, listen, thanks for going through all of that. It’s certainly a fascinating situation, a very important situation for a lot of our customers. We’ll be certainly watching this USF saga unfold, if you will. Hopefully, in the future, you can come back on and talk more about future developments because we’re certainly not done with this one.
Hey, before we wrap it up, I just wanted to talk briefly about what I originally requested you to be on the podcast for, which was a recent Supreme Court ruling, the Chevron deference ruling because as I look at it as a layman, it feels like there’s some overlap between that Supreme Court ruling and the USF program managed by USAC and the FCC. Maybe you could just give listeners an overview on that. Are we right to think about the overlap between that ruling and the FCC and any other thoughts you have related to that particular Chevron deference ruling?
Levin: It’s a great question. Where I think the common link is that this Supreme Court, by which I mean the Roberts Court, has, over the last few years, developed a jurisprudence of what we might think of as judicial supremacy in terms of executive agencies, independent agencies in which they have put the courts in a superior position, and they’ve done it in a variety of ways.
One very important case is West Virginia v. EPA where they enunciated what they call the major question doctrine. I think they made it up, but they say there’s a long history of it. We could argue about that. It fundamentally comes down to if the question that the agency is answering involves a lot of money or affects a lot of people, any court can say, “Gosh, we really think Congress needs to resolve that.”
Now, of course, Congress always had the ability to resolve it, and that essentially opens up an avenue to attacking any regulation. Particularly giving a very polarized judiciary and the ability to pick your location, people who want to challenge a ruling, conservatives who want to challenge something will go to Texas and liberals who want to challenge something can go to Oregon. There are various districts where everyone knows you can go.
The next ruling is the one you just mentioned, the Loper Bright decision. That overturned 40 years of precedent related to Chevron deference. Chevron deference, interestingly, was a case where progressives were challenging the Reagan EPA saying they didn’t regulate enough. The court said, “We’re going to defer to the EPA’s own judgment of what the law means, as long as it’s reasonable.” That’s basically been the standard for a long time. What they said in the recent case, the Loper Bright case, is no, the courts are, they say, equal to the agency. Really what they said is we’re superior. We are the experts in what the law means, and so we can interpret it and just overturn anything.
Now, there are some people who say, “This is good for industry,” but in the case of telecom regulation, I’m not sure that is right. Where you have a regulator who is generally at odds with industry, and there are some who are like EPA or OSHA, where they’re trying to lower the third-party negative externalities, those costs, or they’re trying to get industry to be more transparent so that markets work better, industry might say, “Yes, we don’t like that.” You can argue about the regulation, but somewhere it’s like just industry versus the agency.
In the case of telecom, the FCC is often mediating disputes, whether it be about spectrum or USF or any number of other things between industry groups. Let me give you an example. In 1996, I was chief of staff at the FCC. Congress passed the Telecommunications Act. In ‘93, Congress gave us auction authority. We took those mandates and we said, “We want there to be more competition within wireless and more competition between wired and wireless.”
We did a variety of things. We lowered terminating access charges for wireless to wired. We put in wireless number portability, very important for wireless competition. We put in spectrum caps in auctions. There were a lot of details Congress did not do. Industry fundamentally invested literally hundreds of billions of dollars to build new networks, had to have more robust competition, and all of that.
If this Supreme Court had been in charge at that point in time, we would not have been able to do any of those things because we would have been in court for 10 years. The wireless industry would be much smaller. Probably the cable industry in terms of their broadband efforts would have been delayed. A variety of things that I could point out that depended on the FCC having the political and legal authority to do that this court is now saying, “No, we’re going to turn it over to hundreds of district court judges, all the circuits. It’ll be chaos for a number of years, fragmented.”
And let me just mention one last thing. When the court enunciated the major question doctrine, a lot of telecom lawyers said, “This is great because now we’ll get rid of net neutrality. Because it’s a major question, only Congress can do it.” The problem with that argument is that if you’re raising a major question offense against a regulation, you are conceding that Congress has not addressed the question. If you are saying that Congress has not addressed the question, as a matter of the law of preemption, that opens the door to states doing it. So, congratulations, you now have California regulating [chuckles] net neutrality.
Look, the combination of the major question doctrine, the Chevron doctrine, and what the 5th Circuit just did, what ties them together as a certain judicial arrogance, in my view, they are enunciating a judicial supremacy doctrine in which they will be in charge, but they can’t actually do anything. All they can do is veto things. You’re essentially crippling the ability of the government to act.
Johnston: Yes. Gosh, it just seems like there’s a bunch of landmines that have just been placed out there that we have no idea if we’re going to step on. That just seems like a real mess. Blair, look, your insight, your perspective, your knowledge on all of this stuff is simply unmatched.
Levin: I’ll take the compliment, thank you.
Johnston: A special thanks goes out to Blair for being on the podcast today. Like most legal matters the devil is in the detail, and that is certainly the case here. It appears this case is headed to the Supreme Court, especially given that we have conflicting decisions in the lower courts. I guess the optimist in me would say that given the opinions of the 11th and 6th circuits, which are known to be conservative, that the USF program is constitutional. And with the very close vote in the 5th Circuit, maybe all of this get sorted out at the Supreme Court. Make no mistake about it, USF needs to be reformed. But what needs to stay in place is the critical support the program offers to rural America.
Hey thanks for joining me today and a special thanks to my fellow CoBank associates Christina Pope and Tyler Herron who make this podcast possible. Watch out for the next episode of the All Day Digital podcast.
