Wireless Taxes

Taxes collected from cell phone users are meant to finance E-911 services, but critics say the money has been used for different purposes.

by / October 31, 2002
Many of this nation's estimated 129 million cell phone users carry cell phones specifically for emergencies. What few people realize is that the cell phone safety features are not the same as of a landline phone. In most states, if someone calls 911- as 156,000 people do each day - and if the call is placed on a cell phone, the 911 operator cannot locate where the call is coming from, or the phone number from which the person is calling.

That deficiency has long been recognized, in part because of a number of high profile cases that have caught media attention in the last decade.

In 1993, 18-year-old Jennifer Koon, a college sophomore, was on her way home from work when she drove into a shopping plaza outside Rochester, N.Y. to get cash at an ATM. She was car-jacked, but managed to place a 911 call before her cell phone was knocked to the floor.

"The last 20 minutes of her life were basically recorded by the 911 operator," explained her father, New York State Assemblyman David Koon (D). "The 911 operator knew something was terribly wrong, but couldn't locate where the call was coming from."

In Florida, Karla Gutierrez drove off a Florida highway into a canal. As water poured into her car, she couldn't get out. She called 911 on her cell phone, but she couldn't tell the 911 operator where she was located. She drowned in her car.

Last year, in Chicago, a schoolteacher, Wardella Winchester, was kidnapped and kept in the trunk of a car. She had her cell phone with her and called 911. The police couldn't pinpoint her location. She was found dead in Indiana.

To address this problem, the FCC mandated that the situation be rectified in two phases: phone number identification by 1998 and cell phone-location finding by 2000.

A number of states have been collecting taxes from cell phone users specifically to finance these developments, and more states have recently levied a 911 wireless phone tax. Yet progress in meeting the FCC deadlines, which have now been extended, is not what one might expect.

The reason is simple, according to the wireless industry and others: Money collected to finance E-911 services, as they are sometimes called, has been used for other purposes.

Redirected Funds
Over the last three fiscal years, the District of Columbia has used more than $9 million in E-911 funds "for unspecified personnel expenses of the police department," according to the Cellular Telecommunications & Internet Association (CTIA).

California redirected $50 million from its E-911 pool in 2001. Texas took $40 million for other state programs in 2001. Virginia took $30 million in 2002. Maryland, North Carolina and South Carolina have all raided millions of dollars from E-911 funds.

Perhaps the most egregious example is New York where, which has collected a "911 tax" from wireless customers for 10 years, but has not upgraded a single computer to receive location information.

Recently, New York auditors found that the surcharge money has instead been used for a range of state police activities, including purchasing radio communication systems, microwave communications equipment and maintaining radio equipment. Auditors also found the money has been used for dry cleaning, lawn-mowing services and travel expenses.

"Enhanced 911 service is not a luxury," said H. Carl McCall, state comptroller, and who is running against Gov. George Pataki for governor. "It's a necessity, and it's inexcusable that New Yorkers are paying for this service but are not receiving it. The technology exists; the money is there; more than 20 other states have done it. But the Pataki administration simply has not made the commitment to implement E-911 service and protect New Yorkers."

Assemblyman Koon goes even further.

"In New York, the governor has misled all of the constituents in the state, not letting them know that they are not safe on a cell phone, taking the money and using it for something totally different than E-911 cellular," Koon said. "I think that's totally wrong."

According to Koon, it would take about $40 million to upgrade the 911 centers to show cell phone numbers and about $400 million to implement full location finding throughout the state. Since the E-911 surcharge was first inititated in 1991, the state has collected $162 million, all of which has been used on other things.

On behalf of the Office of the Governor, Andrew Rush, spokesperson for the New York State Division of the Budget, argued that much of the 911 cell phone surcharge has gone to needed upgrades to the state police radio system.

The improvements "allow agencies to respond to 911 calls in a more expeditious and coordinated fashion," he said.

Nevertheless, New York's E-911 taxes are rising. Previously, wireless phone users statewide paid a 70 cent E-911 surcharge each month that brought in more than $43 million in 2001. That figure is expected to more than double in the next couple of years as the state rate now has been increased to $1.20 a month.

"There are almost 19 million people in this state, and almost half of them have cell phones these days," said Koon. "At $1.20 a month - and the governor has now given all the counties the OK to raise it another 30 cents - so that is basically going to be $1.50 a month: Multiply that by 9 million users a month and see what you come up with. That's a lot of money."

The continuing concern is that there is still no assurance that any of this money will go for its specified purposes.

"This proposal, which was accepted after the fact, has no provision that ensures the money will go to build the statewide system," said Theresa Bourgeois, a spokeswoman of the New York Office of the Comptroller.

Taxes Called Excessive
Alleged misuse of E-911 funds s not the only thing that has the CTIA up in arms.

"The wireless industry is one of the highest taxed industries in the country," said CTIA spokesman Travis Larson. "We are up there just behind cigarettes and alcohol, believe it or not. Yet, instead of killing people, like cigarettes and alcohol arguably do, wireless phones help save lives."

The CTIA has launched a public-information campaign to educate people about how much of their phone bill actually consists of state taxes.

"Incredibly, hidden taxes are about the same as the annual price reductions consumers have enjoyed as a result of wireless competition," said Tom Wheeler, president and CEO of the CTIA. "Over the last four years, the cost to consumers of wireless phone use has fallen 32 percent, about 8 percent a year. Yet, nationwide, wireless taxes add nearly 12 percent to the average consumer's monthly bill."

CTIA has issued a "Top 10" list of states with the highest wireless taxes. Heading the list is California at 19.6 percent, Florida at 17.8 percent, Virginia at 17.1 percent and New York at 16.4 percent. Other states on the list are Nebraska (15.1 percent), Texas (14.9 percent), Illinois (13.0 percent), Tennessee (12.6 percent), Mississippi (12.0 percent) and Pennsylvania (11.8 percent).

"Something is wrong when good old American competition decreases prices for consumers, which governments then use as a smokescreen to cover increases in hidden taxes," added Wheeler. "When prices go down, consumers' bills should go down too, without the savings being hijacked by hidden taxes."
Blake Harris Contributing Editor