Court Throws Out FCC’s Municipal Broadband Rule

State Authority from Federal Regulatory Agency Preemption Preserved, for now

In a victory for state authority, the United States Court of Appeals for the Sixth Circuit determined the Federal Communications Commission (FCC) lacked the necessary authority to preempt state laws limiting municipal broadband.

The nearly unanimous opinion—one judge dissented on a tertiary topic—affirmed the ability of states to regulate their own municipalities. The court held that Section 706 of the Telecommunications Act of 1996 did not provide a clear enough statement for the FCC to preempt Tennessee’s laws and North Carolina’s laws controlling their municipalities. The laws, which allowed municipalities to run broadband networks, included taxpayer protections. The taxpayer protections required the municipalities to jump through additional hoops to ensure broadband profitability and competition.

The Electric Power Board of Chattanooga, Tennessee and the City of Wilson, North Carolina wanted to expand without meeting their state’s laws protecting the taxpayer, and petitioned the FCC for relief. The FCC granted the relief, preempting the two state regulations and the two states sued to overturn the FCC’s rule.

Today’s opinion sided with the states, overturning the FCC’s rule. According to the court, Supreme Court cases, Nixon v. Missouri Municipal League and Gregory v. Ashcroft require a “clear statement” in federal law indicating Congressional intent to allow a regulatory agency to preempt state laws.

“The political subdivisions of a state are nothing more than that state’s ‘convenient agencies,’ and the state generally retains the power to make discretionary decisions for its subdivisions, just as a board of directors generally retains the power to make discretionary decisions for a company. Any attempt by the federal government to interpose itself into this state–subdivision relationship therefore must come about by a clear directive from Congress, and the FCC can only pick the decision maker here if there exists a clear statement to do so in § 706.”

The FCC argued that Section 706 contained such a clear statement, as the section mandates the FCC adopt “measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.” The court rejected that argument, failing to find “a directive” to fulfill Section 706’s stated goal by preempting state limitations on municipal broadband networks.

Because the court failed to find a clear statement, the court held that

“the federal statute ‘should be treated with great skepticism[] and read in a way that preserves a State’s chosen disposition of its own power, in the absence of the plain statement that Gregory requires.’ Because § 706 cannot be read to limit a state’s ability to trump a municipality’s exercise of discretion otherwise permitted by FCC regulations, § 706 cannot be read to authorize such preemption.”

[Internal citations omitted.]

Bartlett Cleland, Vice President for the Center for Innovation and Technology, and Jonathon Hauenschild, Director of the Task Force on Communications and Technology, filed a brief as amicus curiae in the case on behalf of the American Legislative Exchange Council. The brief argued the Tenth Amendment and Supreme Court jurisprudence prohibited the FCC’s order. While the court declined to opine on the Tenth Amendment implications, ALEC is relieved the court preserved state authority over municipalities, and the ability of states to protect their hardworking taxpayers from municipalities’ poor fiscal decisions.

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