Under a new Federal Communications Commission (FCC) rule adopted on August 1 (and effective September 26), the fair market value (FMV) of public, educational, and government (PEG) channels now counts towards the statutory 5 percent franchise fee cap that franchising authorities may charge under the Federal Communications Act. This could have significant local impact via the reduction of franchise fees supporting PEG channels and the undermining of local authority.
The act defines franchise fees to include any tax, fee, or assessment of any kind including non-monetary or in-kind cable-related contributions imposed on a cable operator. What this means for Virginia counties is uncertain because franchise fees are not collected in Virginia; instead cable operators collect a 5 percent Communications Sales and Use Tax (CSUT) directly from subscribers.
Agreements between counties and cable companies provide cable operators the right to construct, install, maintain and operate a cable system on County Public Rights-of-Way in exchange for the provision of cable service to residents of the County. These agreements (also known as “franchise agreements”) typically include in-kind contributions in the form of operational costs associated with PEG channels and other contributions such as complimentary cable service to government buildings, I-Nets (uses of which may include but are not limited to GIS mapping, distance learning, emergency services, and management of utilities), network capacity, as well as the relocation, restoration, and maintenance of these services.
PEG channels provide significant public benefits to communities, such as transparency and accountability through access to local and regional government meetings; educational programming including for-credit courses; coverage of local events; local election coverage; candidate forums; and public safety programming. Should cable companies now charge for or discontinue these services, counties will face significant costs to provide these public benefits that are essential to communities.
The new rule (see FCC Third Report and Order) which applies to existing franchise agreements is already being challenged in court by local government organizations, and the National Association of Counties (NACo) is working with other stakeholders at the federal level to address the potential impacts of this decision. In the meantime, local governments may wish to review their current franchise agreements to determine potential fiscal impact, monitor franchise fee payments received after September 26 for any changes, as well as review the franchise modification procedure, which gives a local franchising authority 120 days to make a final decision on a cable operator’s requested modification.
In addition to providing updates regarding the new rule, VACo will monitor its impacts to Virginia’s counties.
VACo Contacts: Jeremy R. Bennett, Joe Lerch, and Phyllis Errico