Opinion ID: 1433961
Heading Depth: 2
Heading Rank: 7

Heading: unconstitutional delegation of legislative power to an administrative agency

Text: CMT argues that 66-2008, which in part authorizes the KCC to require contributions to the KUSF and distribute funds from the KUSF, is an unconstitutional delegation of legislative power to an administrative agency. In making this argument, CMT points out that under the separation of powers doctrine, one of two standards must be satisfied in order to properly delegate power to an administrative agency. First, a delegation of a legislative power is proper if there is constitutional authority for such delegation. State, ex rel., v. Hines, 163 Kan. 300, 303, 182 P.2d 865 (1947). Second, the delegation of administrative power is proper if the delegation contains specific standards and limitations to clearly define how the administrative agency should exercise its delegated power. See State, ex rel., v. State Board of Education, 215 Kan. 551, 556, 527 P.2d 952 (1974). According to CMT, neither of these standards have been met in this case. Hence, CMT asks this court to strike down 66-2008 as an unconstitutional delegation of legislative power to an administrative agency. Legislative power is the power to make a law, as opposed to the power to enforce a law. A legislature may try to delegate the legislative power to make a law. Such a delegation is improper, unless specific constitutional authority allows the legislature to delegate its legislative power to a different branch of government. If constitutional authority does not authorize a delegation of legislative power, then such delegation is improper and violates the separation of powers doctrine. However, a legislature may also try to delegate an administrative or executive power to a different branch of government. Administrative power is the power to administer or enforce a law, as opposed to the legislative power to make a law. The legislature does not need constitutional authority to delegate administrative power because it is not delegating a power reserved for its branch of government, such as the power to make a law. Thus, the separation of powers doctrine does not prevent a delegation of administrative power, even without constitutional authority for the delegation. However, it is often difficult to determine if the legislature has delegated the legislative power to make a law or the administrative power to enforce a law. The difference between the two types of delegated powers depends upon the amount of specific standards included within the delegation. If the legislature has included specific standards in a delegation, then it has already enacted the law and it is simply delegating the administrative power to enforce the law, based on the standards included in the delegation. On the other hand, if the legislature has not included specific standards within a delegation, then the legislature has delegated the legislative power to make the law and the accompanying standards. Such delegation is improper without constitutional authority. Wesley Medical Center v. McCain, 226 Kan. 263, 270, 597 P.2d 1088 (1979); State, ex rel. v. State Board of Education, 215 Kan. at 554; State, ex rel., v. Fadely, 180 Kan. 652, Syl. ถ 7, 308 P.2d 537 (1957); State, ex rel., v. Hines, 163 Kan. at 303. K.S.A. 1996 Supp. 66-2008(b) delegates the power to the KCC to access a surcharge on all telecommunications providers in Kansas in order to fund the KUSF. According to CMT, this surcharge constitutes a tax. The power to tax is a legislative power. See Gordon v. Hiett, 214 Kan. 690, 695, 522 P.2d 942 (1974). Thus, CMT argues that K.S.A. 1996 Supp. 66-2008(b) constitutes a delegation to the KCC of the legislative power to tax. CMT then asserts that there is no constitutional authority which authorizes the legislature to delegate its legislative power to tax to the KCC. Thus, CMT claims that 66-2008(b) is an unconstitutional delegation of legislative power to an administrative agency, in violation of the separation of powers doctrine. SWBT argues that [n]ot all demands for money made by a governmental body are taxes. The primary purpose of a tax is to raise money, not regulation. Such a demand is only a tax if it is a `forced contribution to raise revenue for the maintenance of government services offered to the general public.' Home Builders Ass'n v. City of Overland Park, 22 Kan. App.2d 649, 670, 921 P.2d 234 (1996) (quoting Executive Aircraft Consulting, Inc. v. City of Newton, 252 Kan. 421, 427, 845 P.2d 57 [1993]); see Rural Telephone Coalition v. F.C.C., 838 F.2d 1307, 1314 (D.C. Cir. 1988). According to SWBT, the assessment of a KUSF surcharge is not intended to raise revenue for government services. Instead, such surcharge is intended to assure universally available service at a reasonable rate. Thus, SWBT claims that K.S.A. 1996 Supp. 66-2008(b) is simply a delegation of an administrative power which authorizes the KCC to assess a KUSF surcharge, not a legislative taxing power, and does not need constitutional authorization to be proper. In support of this position, SWBT cites to Rural Telephone, 838 F.2d 1307. In Rural Telephone, the FCC issued an order relating to the allocation of local exchange costs between interstate and intrastate regulatory jurisdictions. In order to eliminate the disparity between local company non-traffic sensitive (NTS) costs and local customer bills, the FCC decided to impose access charges to recover NTS costs. The FCC allocated 25% of the NTS costs to interstate jurisdiction, to be phased in over an 8-year period. MCI challenged the 25% allocation as an exercise of the taxing power which Congress could not delegate to FCC without violating the taxing clause under Art. I, ง 8 of the United States Constitution. The Rural Telephone court rejected MCI's argument that the allocation was a tax. In so holding, the court stated: [A] regulation is a tax only when its primary purpose judged in legal context is raising revenue. [ Brock v. Washington Metropolitan Area Transit Auth., 796 F.2d 481, 488-89, (D.C. Cir. 1986), cert. denied 481 U.S. 1013 (1987)]. There is no reasonable way to construe the NTS cost allocation as having the primary purpose of raising federal revenue. Cf., South Carolina ex rel. Tindal v. Block, 717 F.2d 874, 887 (4th Cir. 1983) (it is not an exercise of taxing power, but of the power to regulate commerce, to exact deductions from sales of all commercially marketed milk to offset cost of milk price support program), cert. denied 465 U.S. 1080, 79 L.Ed.2d 764, 104 S. Ct. 1444 (1984). 838 F.2d at 1314. Instead of being a tax, SWBT alleges that the KUSF surcharge falls within the range of special regulatory actions consistent with the police power of the state to regulate public utilities. In support of this contention, SWBT quotes from the following cases: The act does not delegate to the board ... legislative powers. The legislature, in the exercise of its power to regulate and control public corporations, such as common carriers, may delegate to a board ... certain functions administrative in character which cannot well be performed by the legislature itself. The State v. Railway Co., 76 Kan. 467, Syl. ถ 2, 92 Pac. 606 (1907), aff'd Mo. Pac. Ry. Co. v. Kansas, 216 U.S. 262, 54 L. Ed. 472, 30 S. Ct. 330 (1910) (considering the constitutionality of art. 3, ch. 84 of G.S. 1901 creating the Railroad Commissionโnow the KCC) [see K.S.A. 66-103]. `While the legislature cannot delegate its constitutional power to make a law (Art. 2, Sec. 1, Kansas Constitution), it can make a law which delegates the power to determine some fact or state of things upon which such law shall become operative.' Colorado Interstate Gas Co. v. State Corporation Comm., 192 Kan. 29, 37, 386 P.2d 288 (1963), cert. denied 379 U.S. 131 (1964) (quoting Water District No. 1 v. Robb, 182 Kan. 2, Syl. ถ 6, 318 P.2d 387 [1957]). The Court of Appeals found that the KUSF surcharge, which the KCC has the power to assess under 66-2008(b), is not a tax. In so holding, the Court of Appeals stated: CMT argues that the KUSF contribution assessed on its intrastate revenues is a tax and there is no constitutional authorization for the legislature to delegate its taxing authority to the KCC. A `tax' is a forced contribution to raise revenue for the maintenance of governmental services offered to the general public. Executive Aircraft Consulting, Inc. v. City of Newton, 252 Kan. 421, 427, 845 P.2d 57 (1993). The KUSF is not for the benefit of the general public. The monies from the KUSF are to be distributed only to certain qualifying members of the telecommunications industry. K.S.A. 1996 Supp. 66-2008(c). We conclude the KUSF assessment is not a tax. 24 Kan. App.2d at 236. On appeal to this court, CMT asserts that the Court of Appeals ignored the preamble to the Kansas Act when it found that the KUSF is not a tax because it is not for the benefit of the general public. According to CMT, the preamble of the Kansas Act sets out the purpose of the KUSFโwhich is to secure access to first-class telecommunications for the general public. K.S.A. 1996 Supp. 66-2001. CMT claims that this purpose behind the KUSF indicates that the KUSF, and the surcharge to support it, is for the benefit of the general public. As such, CMT asserts that the KUSF surcharge, under 66-2008(b), is a tax which was improperly delegated to the KCC without constitutional authorization. Thus, CMT concludes that the legislature's delegation of a taxing power (the power to assess a KUSF surcharge) to an administrative agency (KCC) under 66-2008(b), but without constitutional authority, is a violation of the separation of powers doctrine. We disagree with CMT. The KUSF surcharge authorized in 66-2008(b) is not a tax for two reasons. First, the purpose of the surcharge is not to raise revenue. See Executive Aircraft Consulting, 252 Kan. at 427 (A tax is a forced contribution to raise revenue for the maintenance of government services offered to the general public); Rural Telephone, 838 F.2d at 1314 ([A] regulation is a tax only when its primary purpose judged in legal pretext is raising revenue). The KUSF surcharge, authorized in 66-2008(b), does not raise any revenue. Instead, it simply manipulates the manner in which the same money is paid to the same parties in order to make an implicit subsidy explicit. For instance, before the Kansas Act, LECs charged high access rates to all companies who wished to use their services. These access rates were higher than the cost of providing service. The LECs used the extra money they earned from the high access rates to build and maintain land lines. However, in the Kansas Act, the KCC required LECs to reduce their high access rates. With such reduction, LECs may only charge access rates which approximate the cost of providing service. The LECs are left with no extra money from the high access rates to build and maintain lines. On the other hand, all the companies who purchase access services from the LECs are left with extra money because the high access rates they once paid to the LECs have been reduced due to the Kansas Act. However, instead of allowing these companies to keep this extra money, the KCC imposes a surcharge on these companies under 66-2008(b). This money goes into the KUSF and it is distributed to LECs that use the money to build and maintain land lines. As such, the implicit land line subsidy once found in high access rates is now explicit through the KUSF surcharge and distribution. All the KUSF surcharge does under 60-2008(b) is manipulate the movement of the same money (extra access rate money) to the same parties (from companies purchasing access to the LECs) to be used for the same reasons (to build and maintain land lines). Thus, the purpose of the KUSF surcharge under 66-2008(b) is not to raise revenue. As such, the surcharge is not a tax. Second, the surcharge in Rural Telephone was not a tax; thus, the surcharge at issue herein is not a tax. CMT's attempt to distinguish Rural Telephone fails. CMT claims that the surcharge in Rural Telephone is distinguishable because its final benefit was not offered to the general public, unlike the surcharge herein. However, the surcharge in Rural Telephone was enacted to fulfill the requirements and purposes of the Federal Act. One of the purposes of the Federal Act is to secure and maintain universal service. Thus, the final purpose of the surcharge in Rural Telephone, among other things, was to secure and maintain universal service. Despite the purpose behind the surcharge, the Rural Telephone court found that the surcharge was not a tax. Thus, following Rural Telephone, just because the purpose and end result of the KUSF surcharge is, among other things, to provide universal service, this does not mean the benefit of the KUSF surcharge is directly offered to the general public. The money collected under the surcharge is offered to the LECs, not the general public. Thus, the surcharge is not a tax. As such, 66-2008(b) does not constitute a delegation to the KCC of the legislative power to tax. Instead, 66-2008(b) is a proper delegation to the KCC of the administrative power to assess a KUSF surcharge, if the legislature included sufficient standards within this delegation of power. The focus on appeal is: When the legislature delegated the power to administer the KUSF to the KCC in 66-2008, did the legislature include within the Kansas Act sufficient standards to guide the KCC in exercising this power? The answer is clearly yes. One case which is particularly helpful in reaching this answer is Guardian Title Co. v. Bell, 248 Kan. 146, 805 P.2d 33 (1991), which analyzed and upheld the constitutionality of a statute that prohibted unfair methods of competition and deceptive acts or practices in the insurance industry. Guardian Title stated: [A] strict application of the separation of powers doctrine is inappropriate today in a complex state government where administrative agencies exercise many types of power and where legislative, executive, and judicial powers are often blended together in the same administrative agency. (Citing In re Sims, 54 Kan. 1, 11, 37 Pac. 135 (1894). .... What is required is that a statute express the law in general terms and delegate the power to apply it to an executive agency under standards provided by the legislature. Wesley Medical Center v. McCain, 226 Kan. 263, 270, 597 P.2d 1088 (1979).... Where flexibility in fashioning administrative regulations to carry out statutory purpose is desirable in light of complexities in the area sought to be regulated, the legislature may enact statutes in a broad outline and authorize the administrative agency to fill in the details. Nicholas v. Kahn, 62 App. Div.2d 302, 306, 405 N.Y.S.2d 135 (1978), modified 47 N.Y.2d 24, 416 N.Y.S.2d 565, 389 N.E.2d 1086 (1979). In testing a statute for adequacy of standards, the character of the administrative agency is important. See Warren v. Marion County, 222 Or. 307, 314-15, 353 P.2d 257 (1960). Here, we are dealing with the insurance commissioner, an expert in regulation of the insurance industry, with a large staff and paid consultants available. The insurance commissioner is charged with regulating a huge, complex industry, and to require explicit, definitive statutes would severely impede, if not make impossible, the regulation of the insurance industry. What is a sufficient standard must necessarily vary somewhat according to the complexity of the area sought to be regulated. See Senior Citizens League v. Department of Social Secur., 38 Wash.2d 142, 161, 228 P.2d 478 (1951); Quesenberry v. Estep, 142 W.Va. 426, 95 S.E.2d 832 (1956). Standards may be implied from the statutory purpose. People v. Wright, 30 Cal.3d 705, 713, 180 Cal. Rptr. 196, 639 P.2d 267 (1982). Here, the statutory purpose is set forth in K.S.A. 40-2401, as follows: `The purpose of this act is to regulate trade practices in the business of insurance ... by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.' Here, the legislative purpose for the statute is evident. The modern trend, which we ascribe to, is to require less detailed standards and guidance to the administrative agencies in order to facilitate the administration of laws in areas of complex social and economic problems. See Kalbfell v. City of St. Louis, 357 Mo. 986, 993, 211 S.W.2d 911 (1948); Ward v. Scott, 11 N.J. 117, 93 A.2d 385 (1952); City of Utica v. Water Control Bd., 5 N.Y.2d 164, 182 N.Y.S.2d 584, 156 N.E.2d 301 (1959). 248 Kan. at 153-54. The Guardian Title case found sufficient standards in the purpose of the statute at issue therein to guide an administrative agency in exercising a delegated power. As in Guardian Title, the Kansas Act provides a declaration of policies and purposes which includes: universal service, improved competition, and protection against fraud. K.S.A. 1996 Supp. 66-2001(a)-(e); see Hines, 163 Kan. at 309. Based on these policies, the legislature created a broad general framework with definite standards. It then delegated to the KCC the power to fill in the details with subordinate rules and regulations, in order to effect the policies which had already been set out. See Hines, 163 Kan. at 314-15. The standards only have to be sufficiently reasonable and definite. Missouri Pacific Railroad Co. v. McDonald, 207 Kan. 744, 751, 486 P.2d 1347 (1971). The standards set out in the Kansas Act fulfill this requirement. For instance, the standards identify which telecommunications rates should be reduced, when they should be reduced, and over what time period they should be reduced. The standards in the Kansas Act also identify which rates may be increased, how much rates may be increased by (must be just and reasonable under K.S.A. 1996 Supp. 66-1,187), the initial balance of the KUSF, who must pay into the KUSF, how the payments should be made, who qualifies for KUSF distribution, how much distribution an entity should receive, if the KUSF surcharge can be passed along to customers, when and how supplemental funding occurs, and the KUSF administrator's duties. The standards do leave some discretion to the KCC to determine exactly how a KUSF assessment and payout should occur, but this does not make 66-2008 a delegation of legislative power, as opposed to administrative power. It has long been recognized that public utility regulation, especially regulation of telecommunications, differs in respect to the regulation of other subject matters. The difficulty in understanding the terms, the technology, the funding mechanisms, as well as the importance of the telecommunications field, all require a specialized agency with particular knowledge in the telecommunications field to monitor the industry. See Missouri Pacific, 207 Kan. at 749-50. The KCC is charged with regulating a huge, complex industry. The KCC is an expert in the regulation of the telecommunications industry, with a large staff and paid consultants available. To require more explicit or definite standards than the Kansas Act provides would severely impede, if not make impossible, the regulation of the telecommunications industry. See Guardian Title, 248 Kan. at 153-54. The Court of Appeals found that when the legislature delegated to the KCC the power to create, fund, and administer the KUSF, the legislature included sufficient guidelines and standards within the Act to direct the KCC in exercising this power. Thus, the court held that the legislature's delegation of the power at issue to the KCC was proper. In so holding, the Court of Appeals stated: A statute delegating legislative authority must fix reasonable and definite standards to establish the manner and exercise of the power delegated. The legislature may, however, enact statutes in broad outline and authorize an administrative agency to fill in the details. In testing a statute for adequacy of standards, the character of the administrative agency is important. What is a sufficient standard varies somewhat according to the complexity of the areas sought to be regulated. Standards may also be inferred from the statutory purpose. The trend is to require less detailed standards and guidance to administrative agencies in order to facilitate the administration of laws in areas of complex social and economic problems. Great leeway should be afforded the legislature in setting such standards. See State v. Ponce, 258 Kan. 708, 712-13, 907 P.2d 876 (1995); Guardian Title, 248 Kan. at 154. Matters concerning public utilities have been recognized as being highly complex, and the KCC is recognized to have vast expertise and discretion in regulating utilities. Kansas Gas & Electric Co. v. Kansas Corporation Comm'n, 239 Kan. 483, 495, 720 P.2d 1063 (1986). .... ... It is within the expertise of the KCC to apply those standards in the decision-making process. No unlawful delegation of legislative authority has been shown. 24 Kan. App.2d at 236-37. We agree with the Court of Appeals. We hold that 66-2008 is a delegation of administrative power, not legislative power. Hence, this delegation is proper and does not violate the separation of powers doctrine. K.S.A. 1996 Supp. 66-2008 is not an unconstitutional delegation of legislative power to an administrative agency. This issue fails.