Texas Cities Team Up to Sue State over Telecom Fee Cuts

A newly enacted state law threatens to take revenue out of city coffers by cutting the fees paid by telecommunications companies using city-owned land for their infrastructure. The move has been called corporate welfare.

by Tessa Weinberg, For Worth Star-Telegram / October 28, 2019
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(TNS) — Telecom providers expect to save millions of dollars thanks to a new state law that cuts fees. But a coalition of nearly 50 Texas cities, who will be on the losing end of that revenue, worry those discounts won’t be passed on to their residents.

So they’re suing.

For years, telecom providers paid two separate fees to run cable and phone lines through city-owned strips of land, know as rights-of-way. Companies were required to pay both fees, even if it took only one line to deliver the two services.

But a bill, authored by state Sen. Kelly Hancock, R-North Richland Hills, changed that practice, allowing companies to pay only the higher of the two fees if cable and phone services are delivered over the same line.

Walt Baum, the president of the Texas Cable Association, said the legislation was simply meant to bring the law up to date with current technology.

But Texas cities have joined forces and are suing the state in an attempt to stop the law from being enforced. The lawsuit alleges the law — along with a 2017 law that was also authored by Hancock — is unconstitutional, forcing cities to provide a gift to private companies.

“I consider it corporate welfare,” said Jimmy Stathatos, the town manager of Flower Mound, which joined the lawsuit.

Fort Worth estimates $4 million to $5 million will be lost annually due to the law — a hefty portion of at least $10 million in revenue the city anticipates losing due to new state laws, including laws that banned red light cameras and imposed a revenue cap on property taxes.

Local officials said they took a hit this legislative session — and a secret recording recently revealed some lawmakers’ desires for it to be “the worst session in the history of the legislature for cities and counties.” Meanwhile, the Texas Cable Association, which represents many of the state’s cable companies, including Charter Spectrum, one of the largest providers in Fort Worth, touted this session as “a successful one.”

“It didn’t have anything to do with anything else,” Baum said of the new law.

Lawsuit

The legal challenge of SB 1152, the bill authored by Hancock that cuts right-of-way fees, was tacked onto a lawsuit challenging the constitutionality of SB 1004, a separate bill passed in 2017 — that was also authored by Hancock.

Since 2006, telecom providers — some who stand to potentially cut costs due to Hancock’s bill — have contributed over $200,000 to Hancock’s campaign, according to the National Institute on Money in Politics. Hancock has stressed that his constituents will see the savings themselves, and previously said cities fighting the laws are “welcome to spend money on attorneys all they want.”

Hancock, who isn’t mentioned by name in the lawsuit, did not respond to a request for comment Friday. His office maintains a policy of not commenting on pending litigation, Caity Jackson, a spokeswoman for Hancock, said.

SB 1152 was amended onto the lawsuit on Aug. 30 — a day before the law went into effect — said Austin Stevenson, an assistant city attorney for McAllen, which is leading the suit.

The lawsuit, filed in Travis County District Court, alleges that both laws are forcing cities to violate articles of the Texas Constitution that prohibit the legislature from directing local municipalities to make gifts or grants to a corporation.

It claims that SB 1152 does that by allowing a telecom provider to be exempt from paying two fees, despite generating “two separate streams of income from its use of the city property.”

“It’s pretty clear under the law, that the value isn’t determined by how many lines you’re using, but your revenues,” Stevenson said. “And that’s been established for decades in Texas.”

The article of the Texas Constitution being cited stems from the 1800s, said Bennett Sandlin, the executive director of the Texas Municipal League, which represents more than 1,100 cities.

“They didn’t want the legislature forcing cities to give away their public land to attract railroads, because that was a big deal, which town the railroads went through,” Sandlin said. “It literally prohibits the giving away of public property to make profit unless you get market value.”

Sandlin said it’s a similar concept, arguing that taxpayers’ need to be reimbursed if private companies are using public land in the same way homeowners would if a company was running cable or phone lines through residents’ backyards.

Supporters of the law have said that companies’ savings will be passed on to residents once it applies to payments starting in January 2020 . Baum previously told the Star-Telegram that residential customers may see reductions of $1 to $3 in their bills, and small businesses may see as much as a couple hundred dollars a month. Meanwhile, telecom providers may save as much as $160 million statewide, he said previously.

“Any hint that the customers are going to see a difference is complete smoke and mirrors fabrication,” Stevenson said, noting that there’s no language in the bill that requires those savings to trickle down to customers.

When asked if telecom providers would be open to adding a provision to ensure that, Baum said he did not want to speculate.

“I think most of the cable customers in this state who were paying both fees will see one of the fees reduced when this goes into effect first part of next year,” Baum said.

Less city revenue means less resources for cities to provide essential services like police, fire and more, Sandlin said.

“City revenue to some degree is a zero sum game. Cities aren’t just trying to collect all they can. They’ve got to provide a certain amount of services,” Sandlin said. “And when you lose that revenue from a person that’s using public land, that should be of concern to citizens.”

What’s more, the law will not just hurt consumers, but smaller telecom providers, the lawsuit claims, by giving an added advantage to larger companies who will pay less offering cable and phone over one line, versus smaller companies that will pay in full offering one of the two services.

“It’s like taking away the rent and overhead from one store and requiring the other one to pay full price in a shopping center,” Stevenson said. “They’re going to be able to invest much more and profit much more quickly.”

Baum pushed back on that notion, noting that some satellite providers aren’t paying any of these fees.

Cities on joining

The addition of SB 1152 has brought the total number of cities and towns joining the litigation from a little over 30 up to 48 so far.

“It’s not surprising to see cities react more to loss of actual current revenue than hypothetical revenue,” Sandlin said.

SB 1004, the original bill the lawsuit challenged, regulates how network nodes, or small cells, used for wireless services can be implemented in right-of-ways, which was still a growing technology at the time the bill was passed.

Dallas is the largest city named as a plaintiff, and El Paso was the most recent addition. El Paso estimates it will lose about $2.7 million annually to the law, said Laura Cruz-Acosta, a spokeswoman for the city.

Even smaller towns have joined the fight, with Flower Mound signing on. Stathatos, Flower Mound’s town manager, said SB 1152 was “the straw that broke the camel’s back” that pushed them to join.

“We thought, ‘We need to have a united front.’ If not, what’s going to be then next session? And next session? They just keep pushing the envelope,” Stathatos said of lawmakers. “It’s having a financial impact on our residents, and so we need to go to bat for them.”

Stathatos said it’s a “bitter pill to swallow” knowing the town will lose roughly $170,000 annually to the law.

“Now our residents are having to subsidize a gift that they gave these companies, quite frankly, because we’re having to make up that money in our budget,” Stathatos said.

But some of the cities that stand to lose the most to the new law, have yet to add their names to the lawsuit, including Fort Worth.

The $4 million to $5 million Fort Worth expects to lose is a small fraction of the city’s $1.8 billion budget for 2020. But in Fort Worth, where the median salary for a police officer is $74,152, that loss would translate to the salaries of roughly 53 to 67 officers, for example.

Michelle Gutt, a spokeswoman for the city, said Fort worth is waiting on a final cost estimate from McAllen’s attorneys, who are leading the suit.

“We expect to submit a recommendation to City Council to adopt a resolution for us to join the lawsuit once we have that information,” Gutt wrote in an email.

Houston pinned its potential losses as high as $27 million, more than any other city. Houston Mayor Sylvester Turner even sent letters to Houston-area lawmakers and cable customers warning of the bill’s impact.

Bill Kelly, Houston’s government relations director, told the Star-Telegram in April that the bill was the city’s “number one” measure it hoped to defeat. Kelly declined to comment last week as to why the city has yet to join the lawsuit or if it has plans to file litigation of its own.

Stevenson said McAllen is in discussions with more cities about potentially joining. And while there’s no hard deadline, the January start date for when telecom providers can pay less, looms.

“The sooner the better when it comes to other cities joining,” Stevenson said.

©2019 the Fort Worth Star-Telegram. Distributed by Tribune Content Agency, LLC.

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