On March 25, the Texas House Ways and Means Committee took testimony on what appeared, from a city prospective, to be a relatively harmless interim study charge: “Study the tax structure as applied to cable versus satellite service to determine if any unfair competition results from state tax policies.” But the hearing quickly took a turn for the worse. Cable company lobbyists and some committee members began attacking city franchise (right-of-way) fees as an unfair “tax” on cable television.

Cable lobbyists began their attack by pointing out that federal law limits the authority of local governments to apply sales taxes to satellite providers. Thus, they argued, only cable providers pay franchise fees or sales taxes, and that the cable industry is unfairly “taxed” when compared to satellite. Rep. John Otto, a member of the committee, quickly and correctly pointed out that cities don’t control the airwaves and thus don’t have any basis to impose franchise fees on satellite. Cable representatives responded that cities could use their general taxing authority to tax satellite companies, and this, absent the federal regulations, would have levelled the playing field between cable and satellite. Despite the many questions surrounding this argument, cable lobbyists persisted in their testimony that franchise fees are nothing but a tax that unfairly burden them when compared to other industries. Eventually, one committee member wondered aloud why the state doesn’t simply do away with municipal authority to impose franchise fees altogether.

The characterization of franchise fees as a tax is, of course, erroneous. Franchise fees represent the rental cost for city land when private companies run pipes, wires, or facilities across that land. Cities may not give away the use of city land to a private company, just as they may not give any other city resources to a private individual without charge. Satellite companies don’t pay franchise fees because they don’t use city rights-of-way. It’s that simple.

It is likely that legislation filed during the 2011 session will once again attack cities’ right to charge rent for the use of their land. TML will carefully monitor and oppose such bills.

The portion of the Ways and Means Committee testimony devoted to franchise fees lasted approximately one hour and can be viewed online: CLICK HERE.

TML member cities may use the material herein for any purpose.
No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the
Texas Municipal League.

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