88th LegislatureTaxes & SpendingTexas Senate Bill to Make Rural Telecom Fund Solvent, Remove Consumer Fee

The legislation would alleviate the governor's concern that caused him to veto the 2021 bill.
January 13, 2023
After multiple years of fiscal alarm, a fund used to subsidize telecommunications service to rural portions of the state may be seriously revised this session.

State Sen. Charles Perry (R-Lubbock) filed Senate Bill (SB) 377 that would reform the funding mechanism for the Texas Universal Service Fund (TUSF) — the pool of money that subsidizes providers who service sparsely-populated portions of the state.

The TUSF was created by the state to facilitate the mandate of universal telephone service, ensuring everyone could contact emergency services if need be. It is currently funded through a fee attached to all intrastate calls. Due to changes in how calls are connected — such as the growing use of Voice over Internet Protocol (VoIP) calls — the fees brought in to finance the TUSF have been waning for years.

In 2020, the Public Utility Commission (PUC) rejected a proposal to increase the fee from 3.3 percent to 6.4 percent; rural telecommunications providers identified that rate increase as the level at which the TUSF obligations could be made whole.

After that, the debt obligations of TUSF grew substantially. In January 2021, the Texas Telephone Association (TTA) sued the state, asking for $60 million owed through the TUSF. In the following few months, the Texas Legislature passed legislation that would have required the fee to be assessed on VoIP calls in addition to traditional cellular connections.

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Under the auspices of blocking a new fee, Gov. Greg Abbott vetoed the legislation. A year later, the debt owed by TUSF had grown to $200 million, at which point a state appeals court ordered the PUC to raise the fee rate to 24 percent to ensure the solvency of the fund.

Between those two points, satellite phone and other rural telecom users saw their bills spike; with little to no TUSF funding, the providers had to raise rates or close their doors.

Perry’s bill would create the Texas Connectivity Fund to fund both the TUSF and the Broadband Development Office. It’d strike the per-call fee from state law and instead direct the Comptroller of Public Accounts to apportion 50 percent of telecommunications sales taxes to the Connectivity Fund.

Last year, that tax brought in around $1.4 billion — $700 million of which would find its way into the new fund. Perry told The Texan that, in rough numbers, he expects $200 million to flow into the TUSF while $500 million would go to the broadband office.

This mechanism, he said, would prevent consumers from being double-charged — first in the standard telecommunications sales tax, and second in the current TUSF fee.

The proposal has a 10-year expiration date, something Perry named as intentional.

I think with 10 years, the fully-funded [TUSF], and the broadband office funding, you’ll see the industry fix the problem,” Perry stated. That self-fix, he said, would entail the industry finding a way to make rural telecommunications service profitable, a prerequisite of business permanence.

For Perry, who sponsored the bill Abbott vetoed, this is a step that didn’t need to occur.

My governor, because of nothing but politics, vetoed the bill and voila, $200 million in the hole,” he stated. “This happened because [the governor] didn’t understand the policy or concept. Bottom line is, we’re fixing it and moving forward.”

Applauding Perry, TTA Executive Director Mark Seale told The Texan, “This innovative approach to funding would create a stable, defined revenue stream for the continuation of the Universal Service Program, recently reaffirmed by the courts as vital to rural telecom customers, and much needed broadband funding (without out the strings of Federal money).”

“And all this without a tax increase and in fact a reduction in phone bills for all Texans.”

The proposal requires an amendment to the Texas Constitution, in addition to legislative approval, for it to become effective.

Perry expects little opposition to this bill in his chamber, citing the Senate’s 31 to 0 support; it also passed overwhelmingly in the House. And the fee removal appears to be a way to head off Abbott’s stated reason for the veto in the first place.

The Legislature convened on Tuesday but cannot consider legislation in committee for at least another month.


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Brad Johnson

Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.