Universal Service Fund Remains Ripe for Reform

Since the Telecommunications Act of 1996 was enacted into law, household broadband users in the United States have increased from 50 percent to 96 percent.  The Act established the Universal Service Fund (USF), which includes the Lifeline, High-Cost, Rural Healthcare, and E-Rate programs, to help increase access to broadband.

The Act also gave the Universal Service Administrative Company (USAC) the authority to determine the rate of the contribution factor that it believes is needed to fund the four programs.  The money is raised through a tax on the interstate and interconnection revenues received by telecommunications carriers and passed on to consumers as a fee.  In 2024, the USAC operated on $8.4 billion, which covered the cost of USF programs as well as administrative costs.

The funding mechanism was challenged as an invalid delegation of taxing authority and then upheld as constitutional by the Supreme Court on June 27,  2025.  While the system remains in place, the need for reform remains as the number of telephone users continues to decline and the contribution factor continues to increase.  In 2000, the contribution factor was 5.7 percent of interstate and interconnection revenues, by 2012, it jumped to 17.5 percent.  For the fourth quarter of 2025, the USAC has filed its quarterly funding projections with the Federal Communications Commission for the fourth quarter of 2025, which could increase the USF contribution factor to an all-time high of 39.3 percent.  That is higher than the top federal income tax marginal rate of 37 percent.

Recognizing the continued need for reform, on June 12, 2025, Sens. Ben Ray Luján (D-N.M.) and Deb Fischer (R-Neb.) announced the reconstitution of the Universal Service Fund (USF) Congressional Working Group.  In August 2023, the Council for Citizens Against Government Waste (CCAGW) offered comments to the previous USF Working Group, noting that “Another possible solution being discussed to fund the USF programs would be through the appropriations process.  This would allow Congress to review the USF program on an annual basis and determine the success of the different funding programs as well as how the funds are being spent to ensure tax dollars are not being wasted.”

CCAGW has also noted that some USF programs duplicate telecommunications subsidies provided by other federal agencies.  For example, there is often geographical overlap between areas receiving funding from the USF’s High-Cost program and the Department of Agriculture’s Rural Utility Service broadband program.  Because the federal government has more than 133 broadband programs across 15 federal agencies, the potential for waste, fraud, abuse, duplication, and mismanagement of these programs increases.

As the congressional USF Working Group formulates its upcoming schedule, it should review past comments, like those presented by CCAGW as it moves forward with reforms to the funding of the universal service program.