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Those Greedy Cities

Contempt for the federal government is pretty widespread, and even fairly bipartisan. People are somewhat less critical of their state governments, but that may be because most of them (46) have a legal requirement to more or less balance their budgets each year.

But people often think that their local governments are somehow immune to all of the things that drive them crazy about government. Too often, however, that simply isn’t true.

Even though local government is closest to the people, it is still subject to the standard government temptation to expand its scope beyond its necessary duties, and that means it’s always looking for more revenue.

Which brings us to cable franchise fees. Because cable infrastructure requires access to municipal right-of-way in order to bury or hang cables, or for placement of other equipment, federal law permits local governments to charge communications service providers a franchise fee, which is designed to compensate the municipality for use of municipal right-of-way. Federal law caps this franchise fee at 5 percent.

But cities are, shall we say, creative in how they extract revenue from cable companies. Beyond the franchise fee, which appears on your monthly cable bill, cities have also gotten into the habit of making many other demands of cable companies, such as requiring them to wire and provide free services to city buildings, libraries and offices. And, depending on the municipality, they may also be requiring cable companies to pay for holiday decorations and other goodies entirely unrelated to use of right-of-way. All of these demands of necessity end up being passed along to consumers in the form of higher prices.

Thankfully, under a proposed new rule by the Federal Communications Commission (FCC), municipalities would have to include these in-kind demands within the 5 percent franchise fee cap. This pro-consumer move by the FCC simply enforces the intention of federal law to limit the financial demands municipalities can make of cable providers.

Further, some cities are levying the 5 percent franchise fee on the provision of internet services as well as telecom and video services. The problem here is that federal law simply does not allow the franchise fee to be levied against internet service—in fact, such internet service taxes are prohibited by the Internet Tax Freedom Act. But that hasn’t stopped some municipalities from testing the limits federal law imposes upon them.

As usual, it’s consumers who take the hit from government greed. When government imposes costs on companies, they end up being passed along in the form of higher prices. Kudos to the FCC for its attempts to protect consumers and limit municipal greed.