Before Raising Taxes to Finance USF, Program Reforms Needed

WASHINGTON, D.C. – In his opening statement for the record for today’s Subcommittee on Communications, Media and Broadband hearing titled “The State of Universal Service”, Ranking Member Ted Cruz (R-Texas) expressed his concerns that the FCC’s Universal Service Fund has imposed skyrocketing tax burdens on American consumers to fund a series of ever-expanding, inefficient broadband programs.

Ranking Member Cruz’s opening remarks, as submitted:

“Thank you, Chairman Lujan and Ranking Member Thune and to today’s witnesses.  

“Our Framers understood that too much concentrated power in a single entity poses a threat to liberty. It’s why they divided power among three branches of government and created a system of checks and balances.  They also understood that the lawmaking power was particularly potent and so took special care to ensure legislators remained accountable to the people. 

“The modern administrative state has upset that balance: federal agencies have accumulated tremendous unaccountable power, often operating a regulatory apparatus that is a law unto itself. 

“The FCC’s Universal Service Fund, or USF, is a prime example of the unaccountable administrative state.  It has imposed ever-increasing tax burdens on American consumers without sufficient checks and balances or oversight from Congress. 

“Born out of the 1996 Telecom Act and the breakup of the Bell telephone monopoly, the USF started out with modest aims: to ensure that all Americans, particularly those in rural areas, had access to essential telecom services, so they could contact 9-1-1 and communicate with their family and friends.  

“Slowly but surely, over the next few decades, the USF morphed into a different animal: a regressive, hidden tax on consumers used to fund a series of constantly expanding spending programs.   

When it comes to the USF, the FCC, not Congress, calls the shots.  The FCC decides how much money to collect and where it will go.  According to the FCC, there’s no ceiling on the amount it can impose on consumers to fund the USF.  And the USF operates in the shadows since it is not subject to the congressional appropriations process.   

“With this structure, it’s no surprise that USF taxing-and-spending has skyrocketed in recent years.  Despite starting out as a 5% tax on consumers’ phone bills at the beginning of the century, it has exceeded 25%—and even reached 33%—over the last two years. 

“While some have attributed this increase to the erosion of the telecom industry’s voice service revenues base, that is only part of the picture.  The bigger culprit is the FCC’s spending on USF, which is close to $10 billion per year, practically doubling in size since 2001.   

“Not only is the USF unshackled from congressional control, but the FCC has shielded itself from being accountable for these spending choices.  As I noted in a letter to GAO yesterday, the FCC has never held a Commission-level vote on a USF tax increase.  Instead, the FCC has passively enabled hikes through a bureaucratic process.  As a result, the FCC has repeatedly enacted policies to expand spending while insulating itself from the consequences of doing so.   

“Some have suggested that we ought to expand the pool of companies subject to the USF tax.  Not only would this not address the USF’s underlying accountability failures, but it also puts the cart before the horse.  Before we reassess who pays for these programs, we need to take a hard look at what they are paying for. 

“Unfortunately, wasteful, ineffective spending has been high on the list.  As I noted earlier this week in a letter to the FCC’s IG, the agency has repeatedly been chastised by GAO for its failure to measure the USF Lifeline program’s effectiveness against concrete goals.  Rather than learning from these mistakes, the agency has repeated them: it claims the new Affordable Connectivity Program is successful but offers no data showing it has increased broadband adoption among low-income Americans, as intended.  

“Similar concerns apply to the other USF programs.  E-Rate, for example, has spent more than $40 billion to push broadband into schools, without any data showing better educational outcomes.  E-Rate is also emblematic of the federal government’s poor coordination of broadband funding.  The program has subsidized wasteful overbuilding, including in Texas, and it is unclear why E-Rate funds broadband buildout when multiple federal programs are doing the same thing. 

“And that’s before we even get to the USF’s storied history of waste, fraud, and abuse, and the serious transparency and performance failures attributed to the fund’s administrator, the Universal Service Administrative Company. 

“All told, the FCC has spent more than $156 billion on USF programs over the past twenty years.  It’s unclear what American consumers have to show for it—other than higher phone bills.  We need to consider all options to reform the USF, including subjecting it to the appropriations process, eliminating duplicative programs, and preserving only those efforts that demonstrate quantifiable benefits for American consumers.  

“It’s past due for Congress to get the USF under control.”

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