Many cities rely on revenue generated by renting municipal rights-of-way to utility providers. Telecommunications companies collect and remit a significant portion of that revenue.

For many years, rent was collected under franchise agreements with individual telecommunications providers. In 1999, those agreements were replaced with a new system of compensation based on “access lines.” That year, the legislature enacted Chapter 283 of the Local Government Code. To ensure that the changes made by Chapter 283 were revenue-neutral, the chapter provides that each city was to receive a “base amount.” In overly-simplistic terms, the base amount includes total compensation received from all certified telecommunications providers in calendar year 1998. The base amount is then divided by the number of lines in the city to determine the per-access-line fee for each of three categories established by rule issued by the Public Utility Commission. (The number of lines essentially consists of residential, business, and point-to-point lines).

Chapter 283 envisions that changes in technology, facilities, or competitive or market conditions may justify a modification in the categories of access lines. The chapter requires the commission to consider such changes at least once every three years.

On September 24, 2009, the commission staff presented a proposed rulemaking to the commission at an open meeting. The commission voted to publish a proposed rule for public comment that would make certain “tweaks” to the various categories. The proposed rules were published in the Texas Register on December 4, 2009, and are available at http://www.puc.state.tx.us/rules/rulemake/37498/37498.cfm.

The notice is routine in that it asks for comments on the technical aspects of the proposed rules. The League, along with the Texas Coalition of Cities for Utility Issues, will monitor and participate as necessary. Interested cities may submit comments before January 4, 2010.

The notice is not routine, however, in that it asks an additional, troubling, and unrelated question:

“The commission invites specific comments on the commission’s jurisdiction to affect the total amount that a municipality collects as access line fees.”

The question was posed pursuant to a commissioner’s statements regarding the fees at the September 24 meeting. The commissioner discussed her concern with the “outrageous” level of fees and stated her opinion that the fees are a “hidden tax…that is coming through [the commission].” Her comments indicated that she may want to reduce the total amount of revenue to cities from the fees.

The commissioner’s statements, combined with the above question, are cause for concern and raise a much larger issue than the current proposed rules. Over the years, some have incorrectly argued that the compensation for the use of a city’s rights-of-way is a “tax” on telecommunications providers or consumers. In fact, right-of-way fees are a value-based rental for the use of public property.

The fact that right-of-way fees are a value-based rental for the use of city property comports with over 100 years of legal precedent. Any characterization of right-of-way compensation as a “tax” is wrong. The compensation that telecommunications providers pay is simply a cost of doing business, just like leasing property for an office or other facility. In fact, the Texas Constitution prohibits a city from allowing the private use of its property for free, and to reduce the fee would provide an unconstitutional public subsidy to private business.

The League’s position is that the commission does not have the authority through a rulemaking to reduce or cap the amount of rent that cities receive. It is likely that the issue will come up in the 2011 legislative session as well. League staff plans to comment on the proposal and keep the membership informed of future developments.

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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