Kansas Broadband Providers Question FCC Chairman About Plan to Move USF Money to U.S. Treasury

On Thursday, September 21, 2017, representatives from numerous companies that provide broadband service in rural Kansas met with Federal Communications Commission Chairman Ajit Pai, following the Chairman’s speech at the 2017 Kansas Broadband Conference. According to the ex parte filed by the Kansas broadband providers, the meeting included a discussion of the FCC’s plan to move the money that makes up the Universal Service Fund (USF) to the U.S. Treasury, where it would be stored permanently.

Not much is known about the FCC’s plan. On August 8th, the Universal Service Administrative Company (USAC) confirmed it is formulating a plan to transfer the funds, and stated it will “provide detailed transition information beginning in November of 2017.” USAC expects the transfer to be completed sometime during 2018.

The potential details that have been made public are not promising. One part of the plan the Kansas broadband providers find troubling is the possibility that USF funds, when moved to the Treasury, could be used to pay down federal government debts unrelated to universal service purposes. This detail comes from the Government Accountability Office’s May report on fraud in the Lifeline program. The report recounts an FCC official’s claim that one potential “benefit” of moving USF funds from USAC’s private bank account to the U.S. Treasury would be federal deficit reduction –

In addition to addressing any risks associated with having the funds outside the Treasury, FCC identified potential benefits of moving the funds. For example, FCC explained that having the funds in the Treasury could allow USF payments to be used to offset other federal debts, and would provide USAC with better tools for fiscal management of the funds, including access to real-time data and more accurate and transparent data.[1]

The Kansas broadband providers, however, pushed back on the FCC’s belief that USF money could be used in this way. While USF money may be considered federal funds, the federal government may not raid the USF and use the money to pay for unrelated obligations and debts. To make this argument, the Kansas broadband providers distinguished the inclusion of USF funds in the federal budget from “public monies” subject to the Miscellaneous Receipts Act. While both could be considered “federal funds,” only the latter may be used to pay federal government debt. Let’s unpack this argument.

For starters, the language “USF funds are not public moneys received for the use of the federal government” in the ex parte is a reference to an April 2000 Office of Management and Budget legal opinion on the status of the Universal Service Fund.[2] The legal opinion was sent from OMB’s general counsel to the FCC’s general counsel. It clarifies that USF funds are not public monies that could be obligated at the whims of the federal government.

First, are USF funds federal funds? Yes. Because USF funds are included in the federal budget, they may be classified as “federal funds.” Why are USF funds included in the federal budget even though the money that makes up the USF is collected through user fees and not taxes? The money that makes up the USF is considered a permanent indefinite appropriation. The USF is collected pursuant to federal law, the Communications Act; the money is subject to extensive federal regulations concerning its collection, maintenance, and disbursement; and a federal agency – the FCC – administers the USF. Therefore, the USF is included in the federal budget to “convey the full scope of government activity.”[3]

While USF funds may be categorized as federal funds, they are not “governmental” or “public moneys” received for the use of the United States. This is an important distinction. “Funds are received for the use of the United States only if they are to be used to bear the expenses of the Government or to pay the obligations of the United States.”[4] The money that makes up the USF may be used only for the very limited purpose of financing one of the four universal service support mechanisms. The Communications Act does not allow for anything other than that. Therefore, the USF is not public moneys. Even if USF funds are moved to the Treasury, Congress cannot use USF funds to pay down federal debts or for other federal programs.

So there you have it. Overall, excellent argument by the Kansas broadband providers. This issue will undoubtedly heat up over the course of the next few months. Kudos to the rural providers from Kansas for recognizing the problems with the FCC’s and USAC’s plan, and calling for the FCC to release more details.

[1] U.S. Government Accountability Office, Telecommunications: Additional Action Needed to Address Significant Risks in FCC’s Lifeline Program, GAO-17-538, p. 23 (May 2017).

[2] Letter from Robert G. Damus, General Counsel, OMB, to Christopher Wright, General Counsel, FCC (Apr. 28, 2000).

[3] Id. at p. 4.

[4] Id. at p. 2.