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February 7, 2019

Local Governments Want to Expand Broadband--and Their Tax Grab

 

The Federal Communications Commission (FCC) is proposing to reaffirm its cable franchising rules.  That’s good news.
 
Cable franchising is the process in which cable operators negotiate with local government officials so that the cable company can provide its video product to local residents. In essence, the cable company pays the local government a “franchise fee” for the use of its rights-of-way to lay cable.
 
Why does the FCC need to reaffirm existing rules? Because in some cases local government officials are ignoring those rules in an effort to increase their control—and tax revenue.
 
Cable operators are major providers of wireline broadband across the country. Many state and local authorities are eager to see broadband expand and have worked collaboratively with cable operators to make that happen.  However, over time, some franchising authorities became experts at extortion when negotiating or renegotiating video franchise agreements, demanding more and more money or other “gifts to the community.” The demands range from the related, such as providing service to municipal buildings for free, to the absurd, such as hanging decorative baskets of flowers down main street.
 
Congress took steps several times to rein in that abuse, including setting a franchise fee rate cap at 5 percent of cable service revenues and also limiting the regulation of non-cable services delivered over cable systems.
 
The FCC also weighed in, adopting rules to implement congressional directives.  Some of those rules were challenged in court, which decided the FCC needed to further consider some of its rulemaking. But the central notion to be reaffirmed is that franchising authorities cannot impose additional fees and other requirements on broadband and other non-cable services delivered over cable systems.
 
Since cable video revenue is declining and broadband revenue is expanding, municipalities would like to broaden the reach of franchise fees. It’s a way to increase local government revenue by calling it a fee paid by video providers rather than a tax on citizens. Such tax creep is unacceptable, creating an ever-larger barrier to entry for new broadband.
 
The FCC is proposing to end those abusive practices, and thereby facilitate greater broadband deployment across communities. Instead of those additional demands being added to the fees, the cost would be considered an in-kind contribution offset against that 5 percent franchise fee cap.
 
The FCC should be applauded for combating these practices and thereby facilitating broadband deployment that benefits consumers. Congress, the FCC, and local leaders of all sorts, from legislators to administrators, should consider how they can reduce the barriers for broadband expansion instead of spending time finding ever-creative ways to tax its citizens.


 

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