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Lane County and Springfield staff agree with City staff that the sums demanded of Comcast are rightfully due. Background In January 2003, the Metropolitan Policy Committee, acting as the cable commission, directed that a limited review of the cable franchise granted to Comcast be undertaken to review the accuracy of franchise fee payments for the period January 1, 1999, through September 30, 2002. The review was prudent and timely, especially considering that the receipt of revenues associated with advertising and launch revenues was the subject of litigation of national significance, decided in favor of such revenues fitting the franchise definition of "revenues earned in the service territory." The City, as did Springfield and Lane County, contracted with the Lane Council of Governments (LCOG) to coordinate the fee examination. LCOG retained Public Knowledge, Inc. to conduct that examination, paid under agree- ment with then ATT Broadband, now Comcast. The findings were delivered in March 2003; staff met with Comcast staff in April 2003 and began re- questing payment May 2003. Since that time, a number of meetings and exchanges of correspondence has occurred. Each time, the jurisdictions believe they produce more than enough franchise and court case substantiation supporting the audit findings, and each time Comcast volleyed with a new twist rather than a response to the material. Comcast's most recent letter was received in March 2004 and offers no new material information regarding the findings. At least one section is outdated, assuring that a Los Angeles case was expected to be resolved by March 2004. Comcast has requested a delay in that case. In essence, Comcast disputes all of the findings, and asserts that there is no underpayment. The essential nature of the dispute is a disagreement over the relevance of generally accepted accounting principles (GAAP), on Comcast's advertising commissions and launch fees paid by advertisers and programming companies. Staff believes the City has a fiduciary responsibility to progress towards collection on the unpaid debt. Initiating binding arbitration is the franchised-based next step in cases where disputes remain unresolved. Comcast continues to account for the questioned fees in ways staff has already determined to inappropriately understate the franchise fee revenue base. Staff expects that for fiscal year 2003 there have been similar underpayments; these will continue into 2004 and beyond if not resolved. Arbitration Cost-Benefit: The franchise specifies that if the parties are unable to agree with respect to the results of a limited franchise review, binding arbitration shall be initiated. However, Comcast has requested that the City not initiate arbitration; that the City await the decision in the Los Angeles arbitration. Staff believes there is more value in moving forward to collect the debt than in waiting. First, Comcast itself has sought to delay the LA decision. Second, there are other cities moving towards binding arbitration. Third, any other city's arbitration decision has no legal precedent on the City of Eugene. Fourth, Comcast has not voluntarily agreed to be bound by the LA decision if the City of Eugene waits and could conceivably request that Eugene wait until other city arbitrations are concluded as well. Finally, if Eugene voluntarily delays debt collection, there may be a question regarding whether the penalty/interest on the unpaid debt continues to accrue. L:\CMO\2004 Council Agendas\M040421\S040421A. doc