Fifth Circuit Rules Against FCC’s Creation of USAC
The Telecommunications Act of 1996 gave the Federal Communications Commission (FCC) the authority to provide funding for universal service obligations in Section 254, which provided a mechanism for creating the Universal Service Fund (USF) through consultation with a Federal-State Joint Board, established the four basic programs funded by the USF, and permitted the FCC to provide a funding mechanism through a telecommunications carrier contribution for carriers that provide interstate telecommunications services.
The FCC carried out that mission by creating the Universal Service Administrative Company (USAC) as an independent non-profit corporation. On October 15, 2026, the United States Court of Appeals for the Fifth Circuit (Fifth Circuit), ruled in Consumers’ Research et al v. the Federal Communications Commission, that because Congress didn’t authorize the FCC to establish USAC, “the agency violated the Government Corporation Control Act (“GCCA”) by creating the corporation.”
The USAC administers the USF and sets the contribution factor each quarter to help fund the program. The contribution factor for the fourth quarter of 2026 is 42 percent, which is 14 percent greater than the top federal income tax marginal rate of 37 percent. The fee is typically passed on to consumers on their telecommunications bills.
On June 27, 2025, the U.S. Supreme Court’s decision in Federal Communications Commission et al. v. Consumers’ Research et al. (Nos. 24-354 and 24-422) reversed and remanded the July 24, 2024, Fifth Circuit decision which determined that the USF fee was a tax, and the FCC could not subdelegate the taxing power Congress had delegated to the agency to a private corporation. The Supreme Court determined that the subdelegation of USF’s funding mechanism does not violate the Constitution’s nondelegation doctrine, and the fee was not a tax.
In the case decided on October 15, 2026, the petitioners protested the USAC’s recommendation for the fourth quarter of 2025 contribution factor, issued on September 15, 2025, and questioned the FCC’s subdelegation of its authority to issue the contribution factor. They suggested that the FCC lacked congressional authorization to create the USAC to administer the USF and calculate the USF contribution factors. The Fifth Circuit agreed and granted the petition for review, vacated the fourth quarter of 2025 contribution factor, and remanded the case for further proceedings.
Citizens Against Government Waste has long maintained that the contribution factor is a hidden tax passed onto consumers on their telephone bills. However, the prior decision by the Supreme Court disagreed with this assessment, and this was not part of the arguments made in the October 2026 Fifth Circuit case.
It is certain that there will be an appeal by the FCC over the decision to vacate the contribution factor, and it will be well worth watching.
