A local controversy in New York State may have serious financial implications for cities across the nation, including Texas cities. A company called Level 3 Communications filed a petition with the Federal Communications Commission (FCC) last year seeking to overturn public property and right-of-way fees negotiated in a decade-old contract between Level 3’s predecessor and the New York State Thruway Authority (NYSTA). Level 3’s predecessor placed hundreds of miles of fiber optic cable in the NYSTA’s right-of-way and paid the negotiated fee. Recently, when Level 3 sought to extend the network using federal stimulus dollars, the company claimed that the NYSTA fees for the extensions were “exorbitant.”

The company claims that the high NYSTA fees are a barrier to providing service and are thus preempted by the federal Telecommunications Act. Level 3 makes the all-too-familiar argument that municipal right-of-way fees should be based solely on the costs of regulation, rather than being based on the fair market “rental” value for the use of public property by a private company. (Texas cities are required by the Texas Constitution and various state statutes to charge fair market rent for use of public property by private companies. When Congress enacted the federal Telecommunications Act, it made clear that the FCC is not authorized to set the level of local rental payments charged for use of public property.)

Whether the NYSTA fees in the contracts prohibit service or whether the fees are “reasonable” in this particular instance are legal and fact issues that a court, rather than the FCC, should decide as a contract dispute. The problem for Texas cities is that Level 3 filed a “Petition for Declaratory Ruling” with the FCC. An FCC order based on that type of petition could potentially apply to every city in the nation and could attempt to impose a national standard for the reasonableness of fees charged for right-of-way use.

In addition to considering the Level 3 petition, the FCC is in the process of developing a “National Broadband Plan (NBP)” that will “seek to ensure that every American has access to broadband capability.” The plan is part of last year’s federal stimulus bill and is scheduled for release on March 17, 2010. Some telecommunications and cable companies are urging the FCC, as part of the NBP and in conjunction with the Level 3 proceeding, to adopt a unilaterally-imposed, federal standard for compensation for use of public rights-of-way that would limit municipal fees to the actual costs of regulation rather than fair market value rents.

Considering the fact that right-of-way rental fees are almost ten percent of many Texas cities’ general fund revenues, negative FCC action would be a financial disaster. In other words, if the FCC takes action to limit the ability of cities to require market-value rental fees, Texas cities would collectively lose several hundred million dollars in revenue.

The Texas Municipal League’s national partners, including the International Municipal Lawyers Association, the U.S. Conference of Mayors, the National Association of Telecommunications Officers and Advisors, and the National League of Cities, have participated in various ways at the FCC to ensure that local right-of-way authority is not eroded. The League will continue to monitor and support the national associations’ efforts.

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