Cities should begin preparing for changes that allow a cable operator to reduce franchise fee payments to cities.
The Federal Communications Commission (FCC) adopted its Third Report and Order, FCC 19-80, on Aug. 1, making dramatic changes to cable franchises, many of which are managed by cities. The rule revisions were published in the Federal Register on Aug. 27 and take effect on Sept. 26.
This means that after Sept. 26, cable operators may seek to reduce cable franchise fee payments to cities by deducting the value of any in-kind contributions, including but not limited to I-Nets, complimentary cable service to government buildings, right of way requirements, public, educational, and governmental (PEG) transport, and video-on-demand.
While there is planned litigation to challenge the order and an effort to put the order on hold until legal challenges are completed, it is important to note that the order will likely remain in effect during litigation. Affected cities and other local franchising authorities should begin preparations to comply with the order and address the impacts of it.
Potential next steps for cities
Here are a few actions cities may want to take:
- Review current cable franchise agreements and associated documents to determine the fiscal impact from the order. The reduction in payments will likely impact current and future city budgets.
- Monitor franchise fee payments received after the order has gone into effect to determine if cable operators are offsetting the fee based on their calculation of the fair market value of certain in-kind contributions. Operators must be able to justify the reduction in payments and any discussion.
- Expect to hear from your cable operator and work to resolve disputes on fee reductions within 120 days.
- Determine if your city should join a coalition of local government entities who plan to appeal the order.
- Monitor League updates on the efforts to appeal the order and any efforts by the FCC to make the fair market value of PEG channel capacity subject to the 5% franchise fee cap.
For more background information about this bill, read a previous Cities Bulletin article.