HomeMy WebLinkAboutItem C: Telecommunications Tax Fund
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Work Session: Telecommunications Tax Fund
Meeting Date: December 12, 2005 Agenda Item Number: C
Department: Central Services Staff Contact: Jim Carlson
www.eugene-or.gov Contact Telephone Number: 682-5524
ISSUE STATEMENT
The council requested a work session about the Telecommunication Tax Fund, established in 1997
during the process of approving two comprehensive ordinances (20078 and 20083) following the
passage of the Federal Telecommunication Act of 1996 (the act). Ordinance 20078 established cellular
tower zoning and siting criteria. This work session addresses the 2% tax provision in Ordinance 20083.
BACKGROUND
An historical perspective of Ordinance 20083(1997) and its provisions relating to public rights-of-way
management, compensation, and telecommunications and cable taxation is presented in Attachment A.
Another historical item, the National League of Cities guide entitled The Telecommunications Act of
1996: What It Means to Local Governments, has been placed in the Council Office. Additional copies
are available for review by contacting Pam Berrian.
Eugene’s telecommunications tax program became effective in July 1997, following council action
pursuant to a year of public meetings and a subsequent recommendation from an ad hoc council
committee that included three councilors and the chair persons of both the Planning Commission and
Budget Committee.
The 2% telecommunications business privilege tax is on all telecommunications and cable carriers
operating with a defined facility offering defined services in the Eugene city limits. Such carriers may
own or lease their facilities. Their facilities may be wireline or wireless and may be in the public rights-
of-way or not (rights-of-way users pay a separate fee that is not related to this tax). In Ordinance 20083,
the tax is called an ‘annual registration fee” but is a lawful tax under Oregon’s constitution. The
revenue base upon which the tax is applied is “gross revenues earned in the city limits of Eugene,” and
may be further defined by applicable state or federal laws and rules.
The telecommunications carrier tax was established as a special revenue fund to support a 1.5 FTE
program administration and “new City telecommunications related projects of community benefit,”
following a recommendation by the council committee. An ordinance review was envisioned by the
council committee after an appropriate implementation period in a stable programmatic and financial
environment. However, stable implementation did not occur as anticipated. In fact, after six years of
Eugene litigation, related state and federal pre-emption attempts, major federal (e.g., FCC) regulatory
rulings, a variety of court decisions, and more recent congressional proposals to re-write the act, staff do
not perceive that a stable environment has occurred.
As a matter of federal law, carriers are permitted, but not required, to itemize on the bill and pass on a
variety of the expense of doing business, including fees or taxes charged by federal, state, or local
entities, directly to the end user.
As a note, Ordinance 20083 added a new category of telecommunications user of the public rights-of-
way, consistent with federal law, and use fees began to be levied on ‘resellers,’ a term used for users
who pay compensation to facility owners for use of telecommunications or cable lines in Eugene’s
public way. Such use fees have historically been allocated to the General Fund. The fees from the
reseller category have resulted in the General Fund receipt of an additional $1.5 million annually.
Current Fund Financial Information
: By 2004, after six years of litigation, Eugene prevailed at the
Oregon Supreme Court level, the ordinance was validated back to its 1997 effective date, and the City
received arrears payments of fees and taxes for the General Fund and Telecommunications Tax Fund.
Some tax revenue was used to repay the General Fund for financial support provided the program during
litigation, to the Risk Fund for the legal costs involved in the litigation, and to the first round of projects.
In addition, some of the arrears tax was used to pay for one-time projects, in accordance with City
policies regarding non-recurring revenues. Attachment B illustrates this in an overview of Fund 135.
In FY05, $5.2 million was transferred from the General Fund ROW fees and $10.2 million was
transferred from the Telecommunications Tax Fund into the Facility Replacement Reserve to be used for
development of future City office buildings in the downtown area. During the FY06 budget process, the
Budget Committee recommended and the council approved a $378,000 one-time allocation from the
Telecommunications Tax reserve for public safety patrols in parks.
In FY06, staff recommended that a Telecommunications Tax Fund equipment replacement reserve of $1
million be established. Equipment purchased with tax funds (such as mobile data terminals, video
cameras, and servers, routers, and other telecommunications hardware) has a technological shelf life that
necessitates replacement in several years. The uncommitted reserve is almost $2 million.
There are not enough years of data to determine the ongoing trend in revenue from the
Telecommunications Tax, as the last legal Eugene challenge was decided in FY04 and quarterly taxes
didn’t become regular until early FY05. However, in FY05, approximately $2.5 million in
Telecommunications Tax revenue was received which included back payments and interest from FY05
registered carriers who had been found to have operated in Eugene prior to FY05, and various provider
bankruptcy settlements.
InFY06, $2.2 million in tax revenue is projected. The actual amount of revenue received can be
affected by the various threats to the program that are described later in this Agenda Item Summary. On-
going fund expenditures include the cost of the 1.5 FTE staff to administer the program, attorney fees
related to continued legislative and legal threats, funding of new City telecommunications projects, and
replacement of a portion of the equipment originally purchased with telecommunications funds.
Project Information:
The projects funded by the Telecommunications Tax are selected through a
multi-step, competitive administrative process which begins at the department level and results in
prioritized recommendations to the City Manager. While all departments are represented, the bulk of
the funding has been received by public safety departments. Some projects receive 1-3 years of system
maintenance funding. Attachment C describes the project application process and illustrates the wide
variety of projects funded by the Telecommunications Tax. Beginning when arrears were collected in
the latter part of FY03, more than $3 million in new telecommunications projects has been awarded to
date. $700,000 is committed to maintenance of some projects across multiple fiscal years, for up to
three years.
Particular to the major e-Government portal project, staff plans to update the City’s e-Government
strategic plan using a public process. In 2006, the City’s e-Gov Team will implement Phase Two of the
City’s Web Portal including "My Neighborhood" and "My Projects" when the public process will begin
by identifying key stakeholder groups and gathering structured input via activities such as a Web survey
form, meetings with neighborhood leaders, Chamber of Commerce, University of Oregon, student
groups and randomly selected citizens, a survey booth at the Library, and a survey booth at community
events such as the Asian Celebration, UO events, etc. As part of that review and update, the project
selection process will be amended to incorporate the results of the updated e-Government strategic plan.
Continued Threats
: Municipalities across the U.S. authorized to manage the public rights-of-way and
establish related fee or tax programs operate under continued threats of pre-emption. The high-stakes
economic and political environment continues to produce pre-emptive legislation at the state and federal
level, FCC declaratory rulings, continued litigation, and referendums against local government-initiated
telecom taxes and fees. This activity occurs in an environment of converging technologies where voice
and video services are offered on a variety of platforms.
?
In late 2004, municipalities fought hard to retain their authority after new language was inserted
into S150, a federal internet sales tax moratorium bill intended to extend the moratorium date.
The new language threatened programs like Eugene’s by prohibiting fees and taxes on
telecommunications carriers that happened to use their systems for Internet applications. Local
governments prevailed and continue to be permitted to charge fees and taxes on facility-based
public rights-of-way users.
?
Recently, the U.S. Supreme Court ruled cable modem Internet services to be untouchable by
local governments; fees cannot be charged although the system uses the public rights-of-way.
The case began when the FCC ruled that cable modem is neither telecommunications nor cable,
but an “information service,’ out of reach of local government fees and taxes. Billions of dollars
of potential tax/fee revenue for local governments across the U.S. is unable to be captured.
?
Despite studies that indicate Oregon is ranked the 4th lowest in the United States for
telecommunications related taxation, Oregon cities face continued pre-emptive threats:
?2005 was another in a series of post-act pre-emptive legislative sessions. Oregon local
governments opposed legislation that would have required expensive local elections any
time an elected body sought to change (reduce, amend, increase) any fee or tax on a
telecommunications carrier. Another opposed bill would have created a single statewide
plan for telecommunications rights-of-way use and taxation, centralized collection by the
state, and required mandatory retail end user payment of any fees and taxes. Yet another
would have pre-empted any business-specific local taxation. Attachment D describes the
2005 State legislative telecommunications environment. Attachment E is a 2005
telecommunications legal, regulatory, and legislative update.
?Soon after Eugene’s six-year litigation was decided, referendums were employed in two
Oregon cities, Eugene and Springfield, supported by the telecommunications industry.
Signatures were collected but not submitted in Eugene. A Springfield signature drive
resulted in a ballot election which resulted in the repeal of their new utility tax program.
On the Congressional level, so far in 2005, four federal proposals impacting provisions of the 1996
Telecommunications Act have been introduced in Congress marking the beginning of a probable
comprehensive re-write of the 1996 act that will impact local ROW management and compensation,
local cable franchising, cell tower zoning and siting criteria, local taxation, and Internet-enabled voice
and video services. At this time, municipal associations have an “oppose” position on three of the four
bills. The fourth, 77 pages long, was prepared as a House Committee staff draft, amended once in early
November by staff, and contains industry-supported provisions of concern to local governments.
RELATED CITY POLICIES
1. The 1997 City of Eugene Telecommunications Vision and Policies guided the implementation of
Ordinance 20083. These remain un-amended.
2. The 1999 Council Committee on Telecommunications Directive: Transition project proposal,
review and approval activities to City Manager administrative process. City council goals and
related departmental priorities, plans and needs assessments form the decision-making criteria.
3. Financial Management Policy C.6. (non-recurring revenues): Except for local option levies
approved by the voters, the City will use non-recurring revenue on limited-duration services, capital
projects, equipment requirements, or services that can be terminated without significant disruption to
the community or City organization.
COUNCIL OPTIONS
1. Maintain the program as currently operated.
2. Set aside a recommended $1 million for an Equipment Reserve Fund (ERF) and a recommended
$700,000 annually for new City telecommunications technology projects, transferring the balance of
reserves and on-going revenue to the General Fund.
3. Eliminate the Telecommunication Tax Fund and allocate all of the revenue to the General Fund.
CITY MANAGER’S RECOMMENDATION
The City Manager recommends Option 1.
SUGGESTED MOTION
Move to maintain the current program operations of the Telecommunication Tax Fund.
ATTACHMENTS
A. An historical summary of Ordinance 20083
B. Telecommunications Tax Fund 135 Forecast
C. Telecommunications Projects and Process
D. Memo from Jason Heuser Regarding Recap of 2005 Legislative Session and HB 3353
E. “A 2005 Update of Regulatory, Judicial, and Legislative Issues”, by Pam Beery, and Oregon
municipal attorney and member of the League of Oregon Cities Cable/Telecom Standing
Committee.
FOR MORE INFORMATION
Staff Contact: Pam Berrian
Telephone: 682-5590
Staff E-Mail: pam.c.berrian@ci.eugene.or.us
Program web site: www.eugene-or.gov > Central Services > Telecommunications
ATTACHMENT A
THE TELECOMMUNICATIONS ACT OF 1996 - WHAT IT MEANT TO EUGENE, OREGON
Historical Development of Ordinance 20083 (1997)
From Threats to Opportunities
Upon the passage of the Federal Telecommunications Act of 1996 (the Act), the largest overhaul of the
nation’s telecommunication laws since 1934, the Eugene City council began study of the National
League of Cities Local Officials Guide: The Telecommunications Act of 1996, What it Means to Local
Governments. The Guide was prepared to ensure, to the best extent possible, that local government re-
sponses to the Act could withstand legal scrutiny. A copy has been placed in the council office.
Eugene’s need for a comprehensive telecommunications plan was driven by two key events. First was
the passage of the Act which established a host of new rules and criteria for local government’s manage-
ment of the public rights-of-way (ROW), established provisions barring local governments from being
‘barriers to entry”, cited level playing field standards, and much more in a comprehensive but somewhat
inadequately defined bill. Second, the sweeping changes in the telecommunications industry meant
Eugene had to prepare itself for new providers entering our market and increased placement of telecom-
munications towers and other infrastructure in the public ROW and other areas of the community. It was
clear that Eugene’s Municipal Code needed immediate updating.
The city council formed a Telecommunications Committee consisting of three city councilors and two
citizens (the Chair of the Planning Commission and the Chair of the Budget Committee). The Committee
conducted a year-long series of public meetings, hearings, and outreach to telecommunications and cable
providers.
Study, Public Involvement, and Council Action
1996-97 Process
?Forums were conducted for both the public and the telecommunications industry to provide input
to the plan. Providers from both the wire line and wireless industry participated in the forums.
? Consultants reported on the telecommunications needs of the community and legal ramifications
of the Act. Their reports emphasized the importance of the use of telecommunications technology
by the public sector to improve all of its services to the community, especially public safety. The
committee also discussed the ramifications of being on the wrong side of the digital divide and
the value of telecommunications investments in our community and within the City organization.
These discussions led to the recommendation for a 2% dedicated business privilege tax (called a
registration fee in the ordinance).
?A Wireless Siting Study was completed which led to an update of the City's land use regulations.
An innovative tiered approach uses co-location incentives for providers, enabling the wireless in-
dustry to serve the Eugene region while minimizing the impact of towers.
?A national expert was employed to assist the committee in the development of telecommunica-
tions vision and policies. These policies became the foundation for the City’s ordinances.
Telecommunications Vision and Policies
Eugene’s Telecommunications Vision: a coordinated region-wide infrastructure that provides accessible
and affordable high-speed connectivity for citizens, public institutions, and businesses and is constructed
in a manner that best serves the public interest. Eugene’s nine telecommunications policies are:
1. All City residents, businesses and public institutions shall have access to the full range of tele-
communications services at reasonable, affordable rates.
2. The City shall receive fair compensation, including but not limited to full recovery of all its costs
for the use of public rights of way and other City property by telecommunications providers.
3. The public must be protected from adverse safety consequences stemming from the installation,
maintenance and operation of telecommunications facilities in the City.
4. Telecommunications facilities must be located, installed and maintained in a manner that mini-
mizes visual impact, preserves views, and is consistent with City of Eugene adopted land use
plans and policies.
5. Public inconvenience and disruption stemming from the installation, maintenance, and operation
of telecommunications facilities shall be minimized and fully compensated.
6. The City shall ensure that telecommunications providers make use of the rights of way in as effi-
cient a manner as possible.
7. The City shall have access to reliable, flexible telecommunications services.
8. Similarly situated telecommunications providers shall be treated in a similar manner.
9. The City shall use telecommunications along with other media, including an emphasis on the
Internet, to communicate with and provide information and services to citizens, public institu-
tions, and businesses.
Ordinance 20083 – Major Components:
1. Compensation or ‘rent’ for use of the public rights of way (ROW):
The ordinance retained the 7%
use fee but replaced negotiated franchise agreements with standardized licenses to meet the level playing
field criteria of federal law. The use fee was extended to a new class of user defined as “resellers”: users
who use the ROW through wire-line lease agreements with major telecom or cable providers.
2. Management, maintenance, and compensation for use of the public right-of-way:
The ordinance
contains provisions that preserve the integrity of the right-of-way and maintain the health and safety of
the community, including developing a long-range plan for placing utility wires underground.
3. Telecommunications Technology Investment if Community Benefit:
The ordinance levies a2% reg-
istration fee/tax obligation for all cable and telecommunications providers operating facilities located in
Eugene, owned or leased, in the ROW or not, wireless or wireline. This is a lawful business privilege
ATTACHMENT A
tax which supports the Ordinance 20083 program administration, policy analysis, project oversight, and
new City telecommunications technology projects of community benefit.
In the spring of 1997, the committee presented its recommendations to the full council. After additional
public hearings and discussion, Ordinances 20078 (cellular facility site review) and 20083 (cable and
telecommunications registration, rights of way use licensing, compensation, and taxation) were adopted,
effective July, 1997. Five Administrative Orders were adopted to implement Ordinance 20083. Due to
the unstable nature of the legislative and regulatory environment after litigation, only housekeeping
amendments have been approved.
Despite litigation, many components of Ordinance 20083 were implemented in 1997, although the 2%
business privilege tax and the reseller component were fully suspended until Eugene prevailed six years
later. In 1999, during a review of council committees, the Council Committee on Telecommunications
recommended the committee be sunset advising the council that their policy work was concluded and that
project development be transitioned to an administrative process of the City Manager. The recommen-
dation was accepted.
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N
ATTACHMENT C
Eugene Telecommunications Tax Funded Projects
Projects reflect the 1997 city council’s decision to re-invest telecommunications and cable-
specific tax revenues into telecommunications and cable technology projects benefiting a broad
cross section of Eugene’s citizens. Before sunsetting in 1999, the ad hoc Council
Telecommunications Committee directed that the project proposal, review and approval process
be transitioned to an administrative process for implementation. Since then, projects have been
awarded funds through a Departmental competitive process.
Project criteria include telecommunications or cable relatedness, relationship to current City
Goals, Policies, City Plans, department priorities, financial efficiencies, and the ability to support
any routine maintenance costs. A major criterion is the use of facilities and activities defined in
the ordinance: “the transmission of information in electromagnetic frequency, electronic or
optical form, including voice, video, or data, using facilities such as radio transmitting towers
and fiber optics to transmit telecommunications or cable communications signals.”
Because the majority of the proposals require technology, hardware, or software involving
Information Services Division staff (ISD), proposals are reviewed for ISD workload and network
system coordination and impact, and then forwarded to Executive Managers who submit their
recommendations to the City Manager. The projects listed below illustrate that all departments
are represented in the receipt of project funds, although the largest recipients have been the
public safety departments. Funding for some projects includes maintenance support for up to
three years to allow efficiencies to accrue before ongoing costs are borne by the department.
Staff provides the city council an annual memorandum about project awards.
C = Completed (purchases completed and, if requested, maintenance years expired)
O = Currently funded (for initial purchase and/or three years of maintenance funding)
FY 03 Projects
C 1. .NET training (e-government preparation)
C 2. Crystal Reports Developer/Power User Training (e-government preparation)
C 3. Spanish Language Polaris Internet Library Catalog Module
C 4. Satellite Dish - Interactive Group Training (employees and community)
FY 04 Projects
O 1. e-government/e-commerce Web Portal
C 2. Police and Fire Wireless Telecommunications Mobile Data Computers (MDCs)
C 3. Multi-State Fiber Optic LiveScan Fingerprint System – Police Forensics
C 4. Applicant Tracking & Internet Employment Applications (e-government)
C 5. High Speed Fiber Route (for high-speed networking between remote City sites)
-- Sheldon, Echo Hollow, Campbell Sr. Ctr., Roosevelt Yard, branch libraries
O 6. Police and Fire Community Emergency Notification System (CENS)
C 7. Library Recreation and Cultural Services (LRCS) Online Class Registration System
C 8. Fiber Optic Traffic Signal Server Replacement
C 9. Phase 1, Limited Review of Eugene’s Cell Tower Zoning Ordinance
C 10. City Recorders/City Managers Office Imaging and Archiving – Internet Access
C 11. Cultural Services Personal Digital Assistants for event customer field surveys
C 12. LTD Bus Rapid Transit Route - Utility Undergrounding (EWEB, Comcast, Qwest)
FY05 Projects
O 1. Online payment of parking tickets and court fines
O 2. Fire Direct-to-Radio Repeater System (alleviates dispatch if interrupted)
O 3. Public Safety Vehicle Location & Geographic Information System
C 4. LRCS Online Volunteer & Donor Management System
C 5. Children’s Library Catalog Web Interface system
O 6. Internet Recreation Registration and Payment System
C 7. Internet Credit Card Verification for Recreation Centers
C 8. Planning Department Document Internet Imaging/Archiving (pilot)
O 9. Wireless Mobile Computers for Building Inspectors
C 10. Wireless Parks Sprinkler Network Conservation Modem Replacement
O 11. Traffic Signal Fiber Optic Upgrade Study
C 12. Public Works Interactive Web-based Geographic Information System
C 13. Software - Transfer Department Web Pages to e-Government Portal
O 14. Hot Spot Wireless Access Component to Public Safety Mobile Computer
C 15. 9-1-1 Back-up Center
O 16. “Working City” Metro Television Show, Government Channel 21
O 17. Limited Use Cell Phones for Designated Community Service and Police Officers
O 18. e-Access Customer Inventory System, Hult Center for Performing Arts
O 19. 9-1-1 Emergency Dispatch Simulcast System, Emergency Preparedness
FY 06 Projects
O 1. Municipal Court Automated Telephone Payment System
O 2. Public Access Computers – Three non-Library City sites.
O 3. Web Cast Council Meetings - live and archived
O 4. Wireless On-Site EMS Medical Report and Billing System
O 5. Radios for Cultural Services (use during events, emergency preparedness)
O 6. Campbell Senior Center Internet Lab, 10 work stations
O 7. Wireless Hot Spots Study for Library
O 8. LaserFiche Document Management – Planning Department (post-pilot)
O 9. Building Permits Interactive Voice Response (IVR) System
O 10. Scanning of Oversized Documents/Maps for Web Access, Planning Department
O 11. All-Police Car Video System
O 12. Three-Park Sites Security Webcams (staff review only)
O 13. City Fleet Automatic Vehicle Location (AVL) - Coord. w/ Emergency
Operations (pilot)
O 14. Parks Water Conservation Weather Station
O 15. Web Portal Customer Statistical System/Analytics
O 16. My Neighborhood ‘Interactive Community” (Web Portal enhancement)
O 17. 2005-06 Telecommunications Act (1996) Rewrite, Extraordinary Impact Analysis
O 18. Centralized Document Imaging Equipment - all City Departments
O 19. Federal Courthouse District utility undergrounding
ATTACHMENT D
Intergovernmental
Relations
City of Eugene
777 Pearl Street, Room 105
M
Eugene, Oregon 97401-2793
EMORANDUM
(541) 682-5177
(541) 682-5414 FAX
www.ci.eugene.or.us
Date:
September 15, 2005
To:
Mayor and Council
From:
Jason Heuser, Intergovernmental Relations Manager, 682-8441
Subject:
Recap of 2005 Legislative Session and HB 3353
The City of Eugene joined with intergovernmental partners in Salem to oppose a number of legislative
measures and “gut and stuff” amendments aiming to preempt the local authority of all Oregon cities in the
area of telecommunications. Pertinent to Eugene’s program, established in 1997 through Ordinance
20083, industry-backed legislation sought to pre-empt local authority to charge telecommunications and
cable business privilege taxes (to all wireless or wireline providers operating in Eugene) and rights of way
use fees for any commercial users of that public commodity, including incumbent local exchange carriers
(ILECs) such as Qwest.
The industry sponsored bill, HB 3353, failed to garner enough votes to pass in committee, but during its
public hearing, the City’s 2% dedicated telecommunications tax ordinance was held up to great scrutiny
as the first of its kind in the state of Oregon, having prevailed in 2004 at the Oregon Supreme Court level.
Mayor Kitty Piercy joined a panel of local government witnesses and ably presented and defended the
timeline for the development, enactment and outcomes of the City’s 2% telecommunications tax.
Committee discussion and testimony explored in some detail the expenditures that had been made from
Eugene’s 2% telecommunications tax fund, as the project list for FYs 03-05 was included as an
attachment to the City of Eugene’s testimony.
The City of Eugene, as a case study and landmark ordinance, generally reflected positively on tax and fee
authority for local governments. The legislative committee particularly noted the City’s stewardship of
the telecom fund, and the merits of telecommunications reinvestment using telecommunication tax funds,
especially technology upgrades for public safety services. The committee expressed great concern that
future communities enacting ordinances similar to Eugene’s, may not “follow Eugene’s example of
stewardship” of the telecom fund, geared around reinvestment with a focused nexus to telecom
technology-related projects of community benefit. These poignant and telecommunications related
examples resulted in greater understanding and support for Eugene’s business-specific tax from key
members of a legislative committee wielding oversight or local authority in this area.
CURRENT RIGHT OF WAY ISSUES
FOR LOCAL GOVERNMENTS
A 2005 Update of Regulatory, Judicial and Legislative Issues
Pamela J. Beery, Esq.
Beery, Elsner & Hammond, LLP
Portland, Oregon
I. INTRODUCTION
Municipalities across the U.S. that are authorized to manage the public ROW and establish
related fee or tax programs operate under continued threats of pre-emption. The high-stakes
economic and political environment continues to produce a variety of state and federal pre-
emptive bills, FCC declaratory rulings, an array of court decisions, and referenda challenging
local government-initiated telecom taxes and fees. This activity occurs in an environment of
converging technologies where voice and video services are now offered on a variety of
platforms. Some of the current threats are described below.
Converging technologies and related FCC decisions are excluding Internet based voice
services from traditional telecommunications treatment. In late 2004, municipalities
fought hard to retain their authority after new language was inserted into S150, a federal
internet sales tax moratorium bill. The new language threatened local government
authority by prohibiting fees and taxes on telecommunications carriers that happened to
use their systems for Internet applications as well as traditional telephone services. Local
governments prevailed and continue to be permitted to charge fees and taxes on facility-
based ROW users – at least for now.
Recently, the U.S. Supreme Court ruled cable modem Internet services to be outside the
scope of regulation by local governments, meaning fees cannot be charged even if the
system uses the ROW. Cable modem is not telecommunications and is not cable; instead,
it is a category of Information Services that is largely unregulated. Billions of dollars of
potential tax and fee revenue for local governments across the United States is unable to
be captured.
Despite studies that indicate Oregon is ranked the 4th lowest in the United States for
telecommunications related taxation, Oregon cities face continued pre-emptive threats:
Cities and counties prevailed in the 2005 legislative session in the face of attempts
o
to force expensive local government elections any time any locally elected body
sought to change (reduce, amend, increase) any fee or tax on a
telecommunications carrier. Another bill proposed a single statewide plan for
telecommunications ROW use and taxation, centralized State collection of fees,
and mandatory retail end user (i.e., customer) payment of any fees and taxes.
Referenda were employed in two Oregon cities, Eugene and Springfield. Both
o
were telecommunications industry backed. Springfield’s resulted in the repeal of
their new utility tax program. Signatures were not submitted in Eugene.
So far in 2005, four bills impacting provisions of the 1996 Telecommunications Act have
been introduced in Congress marking the beginning of a probable comprehensive re-write
of the 1996 Act that will impact local ROW management and compensation, local cable
franchising, cell tower zoning and siting criteria, local taxation, and Internet-enabled
voice and video services. At this time, municipal associations have an “oppose” position
on all four bills.
II. MARR--W:S
UNICIPAL UTHORITY TO EGULATE THE IGHTOFAYOURCES AND
HP
ISTORICAL ERSPECTIVE
A. Municipal Rights of Way – Traditional Definitions
The framework for a discussion of the law of telecommunications and cable franchising
today is the municipality’s authority to regulate the use of the public right of way. So what is the
“right of way?” Clearly, the term includes streets, and “all urban ways which can be, and are,
generally used for the ordinary purposes of travel, even where such travel is confined to
1
pedestrians alone.” The key to inclusion in the definition is that the area in question is open to
the public. ORS 221.415, the most important state statute granting authority to municipalities,
uses the term “right of way” without defining it. ORS 221.515, the privilege tax statute, grants
cities authority to regulate the use of “streets, alleys, highways or all of them.”
A common misunderstanding of the term “right of way” surrounds its scope. There are in
fact three elements which make up the scope of the right of way. The public’s “right” in these
“ways” includes not only the surface (its full width, including sidewalks, planter strips and the
2
like), but also an extension which reaches “indefinitely upward and downward.” This is the
reason a municipality’s authority extends to include the area beneath the street, and the area
above the ground in which utility poles and their aerial plant are often installed. Just because the
municipality doesn’t own the poles does not exempt facilities on those poles from municipal
regulation.
The municipality’s regulation falls into two categories which will be discussed in more
detail later in these materials: preservation of the traveling public’s right to use the rights of
way, free from obstruction and interference; and management of this valuable asset which is
owned by the public.
B. Sources of Authority
1. Oregon Constitution
1rd
McQuillin, Municipal Corporations, 3 Ed., Section 30.03.
2
Id., Section 30.06.
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APWA Fall Conference - 2005
Municipal authority to manage the rights of way begins in the Oregon Constitution, under
the doctrine of Home Rule. Not all states have broad home rule grants of authority like that
which exists in Oregon.
The source of municipal authority, specifically, is found in Article XI, Section 2 of the
Oregon Constitution, and reads:
The legal voters of every city and town are hereby granted power to enact and
amend their municipal charter, subject to the Constitution and criminal laws of
3
the State of Oregon. . . . .
This provision clearly empowers city voters to enact their own Charters, and beneath the
umbrella of authority derived from the Charter, cities enact codes and ordinances governing the
administration of the rights of way.
A detailed analysis of home rule is (thankfully) beyond the scope of this discussion;
suffice it to say that in recent court decisions in this state, the power to manage rights of way has
remained inviolate.
2. Oregon Revised Statutes and Administrative Rules
a. Statutes.The state law governing regulation of the right of way as it relates to city
4
regulation of telecommunications utilities is found at ORS Chapter 221. Counties must
rely on their broad authority to regulate construction activities in County roads, pursuant
to ORS 368 and local enactment. The key provisions of ORS relating to City right of
way management are:
•ORS 221.410 contains the statement of city authority (except as limited by express
provision or necessary implication of general law) to “take all action necessary or
convenient for the government of its local affairs.”
•ORS 221.415 contains the general authority of cities to “regulate use of municipally
owned rights of way.”
•ORS 221.420 provides for municipal regulation of certain public utilities.
•ORS 221.450 authorizes imposition of a “privilege tax” on public utilities operating
without a franchise and actually using the rights of way.
•ORS 221.505-515 contain the specific provisions relative to regulation of
5
“telecommunications carriers,” as that term is defined in statute (a very narrow
definition).
b. Administrative Rules. The Public Utility Commission (PUC) regulates significant
aspects of the operation of telecommunications and other utilities. Their regulations are
pre-emptive where they exist. The only significant overlaps for purposes of this
3
The parallel reference for Counties is found in Article VI, Section 10 of the state Constitution.
4
Counties in Oregon have no authority to franchise telecommunications utilities, but do have cable franchising
authority.
5
ORS 133.721; see also ORS 401.710.
Right of Way Management and Compensation Page 3 of 15
APWA Fall Conference - 2005
discussion are found in PUC Administrative rules governing the cost of undergrounding
6
overhead utilities, and customer service standards for telephone companies. All service
providers in the state must register with and have a certificate of authority from the PUC;
it is advisable to check the PUC record to see what authority a telecommunications
provider has to operate when negotiating a franchise.
3. Local Laws
Under the authority of the state Constitution, and consistent with state law, cities and
counties may enact local codes, ordinances, resolutions and other forms of regulation and
taxation governing the use of the rights of way. Unless held to be invalid because they are
specifically pre-empted by state or federal law, such local codes have the full force of law within
the adopting jurisdiction. Municipal authority includes both the authority to regulate the use of
the rights of way, and to seek compensation for that use. The terms of such use may be in the
7
form of a franchise, license, or permit.
An important set of consolidated cases concerning city authority to franchise and tax
various classes of telecommunications utilities was recently decided in the City of Eugene’s
favor by the Oregon Court of Appeals on appeal from Lane County Circuit Court. AT&T, US
West and Sprint challenged a Eugene ordinance with right of way regulation and compensation
components. The US West case was also reviewed by the Oregon Supreme Court. The Eugene
cases are discussed in detail in an appendix to this paper.
4. Impact of Federal Law
This is the “hot” area of litigation and hence development of law over the past several
years, since the passage of the Telecommunications Act of 1996. The pre-emptive effect of this
law will be discussed in more detail below. For purposes of this overview, the reader should be
advised that there are separate regulations governing the provision of Cable Services (“Title VI”
8
services) and the provision of Telecommunications Services (“Title II” services).
In 1984, Congress adopted the Cable Communications Policy Act of 1984, 47 USC §§521-
557. In 1992, Congress overrode President Bush’s veto of the Cable Television Consumer
9
Protection and Competition Act of 1992 (the “1992 Cable Act”). The 1992 Cable Act substantially
revised the 1984 Cable Act. Finally, and most recently, Congress again revised portions of this law
when adopting the Telecommunications Act of 1996, (the “1996 Act”). The overriding purpose of
this 1996 Act was to encourage competition for access to cable channels for programmers, and to
encourage alternative distribution technologies (e.g., telephone over cable, and vice versa).
6
See OAR 860, Division 032, Telecommunications.
7
City of Idanha v. Consumers Power, 8 Or App 551, 495 P2d 294 (1972) (general charter power implies authority to
franchise); City of Joseph v. Joseph Water Works Co., 57 Or 586, 111 P 864 (1911) (power to franchise implied
where general health or public welfare is involved); Jarvill v. City of Eugene, 289 Or 157, 613 P2d 1 (1980)
(homerule charter grants power without statutory authorization).
8
Pub.L.No.104, 110 Stat. 56, 47 USC Sections 521-557.
9
Pub L 102-385, 1992 U.S. Code Cong. & Ad. News (106 Stat.) 1460.
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Federal law recognizes that “cable system” operators are required to obtain local
franchises in order to operate in the public rights of way. 47 USC §541(b). Under the federal law,
a “cable system” is any facility consisting of:
closed transmission paths and associated signal generation, reception, and control
equipment that is designed to provide cable service which includes video
programming and which is provided to multiple subscribers within a community.
47 USC §522(7).
The definition excludes facilities that “serve only subscribers in 1 or more multiple dwelling
units under common ownership, control or management, unless such facility or facilities uses any
public right-of-way.” Id.. Federal courts have construed the statute as providing an exception to the
10
requirement to obtain a franchise for very limited right of way use.
Federal agencies and courts have further read the statute as providing that companies leasing
telecommunications lines in the right-of-way to distribute cable programming do not have to obtain
cable franchises. These cases do not address state and local authority to separately require
11
franchises, such as state law providing local authority to require a telecommunications franchise.
A Seventh Circuit ruling, which upheld a decision by the FCC, was that the FCC reasonably
interpreted federal law. The rule is that transmission of signals over existing lines owned by a third
party, leased to the transmitting entity, did not constitute “use” of the local streets. See also City of
th
Austin v. South Western Bell Video, 193 F.3d 309 (5 Cir. 1999), in which the Court held that
because the cable service provider was a subsidiary of South Western Bell Video, SWBV was not
independently subject to the federal franchise requirements.
The federal law further provides that a franchise “shall be construed to authorize the
construction of a cable system over public rights-of-way, and through easements, which is within
the area to be served by the cable system and which have been dedicated for compatible uses.”
47 USC §541(a)(2).
The common theme in the federal law and decisions interpreting it? The link to the right
of way.
____________________
III. SPNM:ROR
ERVICE ROVIDERS IN THE EWILLENNIUM THE ACE TO CCUPY THE IGHT OF
W
AY
A. Telecommunications Service Providers
Municipalities have enjoyed over 100 years of clear franchising authority in Oregon,
based on the constitutional and state law provisions described above. The current state law,
enacted in 1989, references a problematic narrow definition of telecommunications services to be
10
Guidry Cablevision v. City of Ballwin, 117 F.3d 383 (8thCir 1997). Service provider needed single wire crossing to
serve two apartment complexes on opposite sides of city street. City insisted provider obtain a cable franchise. The
Eighth Circuit held that the single crossing did not constitute “using” the street.
11
City of Chicago, v. FCC, 199 F.3d 424 (7th Cir. 1999)
Right of Way Management and Compensation Page 5 of 15
APWA Fall Conference - 2005
franchised by municipalities. ORS 221.510 and .515 both reference franchising of
12
“telecommunications carriers.” That term is in turn defined by ORS 133.721.
Local municipal authority to franchise telephone companies is also contained in ORS
759.005, which defines “telecommunications service” as “two-way switched access and transport
of voice communications. . . .” Traditional franchises of telephone companies such as GTE and
US West (now Qwest Communications International) were clearly included within those
definitions, since customers were picking up their telephones and either cranking them, dialing
them, or punching in a touchtone telephone number and only speaking to the responding party.
B. Cable Systems
As described above, the federal law governs all local authority to regulate cable
franchising. That law, however, is limited to the definition of “cable system” to provide “cable
services.” “Cable services” are defined by the 1996 Act as:
(A) the one-way transmission to subscribers of (i) video programming, or (ii)
other programming service, and (B) subscriber interaction, if any, which is
required for the selection or use of such video programming or other
13
programming service.
See the problem? The federal law narrowly defines “cable service” and provides clear
local franchising authority and a detailed regulatory scheme in which that authority is exercised.
Similarly, for local exchange access telephone services, voice only, there is a well-established
regulatory system and decades of history in our state. For a whole new category of operators
who want access to the rights of way to provide a myriad of services, municipal authority
survives in home rule.
C. Hybrid and Undefined Service Providers
In today’s competitive environment, two things are happening: the numbers of entities
competing for the ability to use the public rights of way to deliver services are multiplying
rapidly, and the nature of the services they are offering has become more complex. Those new
services do not fit neatly into traditional franchising categories.
In addition to pure cable and telecommunications services, federal law itself recognizes
interactive cable service and two other categories of services: (1) “information services”, which
consist of the capability of generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications” (47 U.S.C. § 153(20)), and
(2) “enhanced services,” a new category of services which was described but not directly
14
regulated by the FCC.
12
In a stroke of legislative brilliance, this statute refers the reader to ORS 759.005, which provides the actual
definition, as any entity providing telecommunications service.
13
47 USC 522(6).
14
For a detailed discussion of the FCC rulings, and legislative history accompanying the 1996 Act on this topic, see
Federal Telecommunications Law, 2d Ed., Aspen Law & Business, “Data Services and the Internet.”
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APWA Fall Conference - 2005
The Eleventh Circuit has held that Internet service was neither a cable service nor
telecommunications service, in a pole attachment case. Gulf Power Co. v. FCC, 208 F.3d 1263
(11th Cir. 2000). The Ninth Circuit Court of Appeals held that internet access and service
delivery, though offered over AT&T’s cable system, is not a cable service under the 1996 Act.
AT&T v. City of Portland and Multnomah County, 216 F.3d 871 (9th Cir. 2000), decided June
22, 2000. Rather, the Court held, these services are partially “information services” and partially
“telecommunications” services.
The FCC then issued a rule declaring cable modem service to be an “information
service.” That ruling has been appealed. The Ninth Circuit ruled that cable modem services are
a combination of “telecommunications services” and “information services”, relying on their
2000 decision in the Portland case. The United States Supreme Court ruled on June 27, 2005
that the service is an “information service”, thus keeping the service in the limbo-land of the
FCC and at least for now free of most regulation by local government. NCTA et al v. Brand X
Internet, and FCC v. Brand X Internet, 514 US ___ (2005) (Case numbers 04-277 and 04-281,
June 27, 2005). FCC rulemaking is STILL pending.
Telephone companies – most notably Verizon – are also racing to build so-called “fiber-
to-the-premises” (FTTP) infrastructure. This platform will allow them to offer a full range of
services, including voice, video, and data transmission. The impact of this construction on the
rights of way in the short term is staggering. In the long term, it spells the virtual elimination of
traditional local government franchising and the need to “think outside the box” in managing
local rights of way.
D. Conclusion – Service Providers in the Right of Way
There is clear municipal authority to manage the rights of way. The question of how to
do so is not only more complex, but more important in light of the rapid deployment of complex
technology. There will be more users of the right of way for more reasons, and all of them are
on a schedule designed to get there first.
____________________
IV. TERWM:R
WOLEMENTS OF IGHT OF AYANAGEMENTEGULATION AND
C
OMPENSATION
A. Regulation: Objectives
Given the increasing number of users of the rights of way, municipalities are confronted
with the increasing difficulty of meeting their obligations as managers of this prime piece of real
estate. The goals of municipal regulation can be summarized as follows:
1. Knowing where facilities are located
a. Maps, as-builts, locating systems
b. Oregon Utility Notification Center [ORS 757.542, et seq.]
c. PUC rulemaking
Right of Way Management and Compensation Page 7 of 15
APWA Fall Conference - 2005
2. Minimizing impact during and after construction
a. Construction schedules and coordination
b. Cooperation in siting utilities, shared conduit, pole attachment rules
c. Construction standards
d. Preserving the public’s right of use to the maximum extent possible
3. Preserving a public asset: restoration and repair
a. Requiring restoration
b. Bonding and performance securities
4. Managing an increasingly scarce asset
a. Directing alternative routes
b. Shared conduit, oversizing facilities to accommodate growth
Because none of these requirements are specifically called out in state law or in federal
law, they should be provided for in city code or at a minimum, in each franchise. Dusting off the
20-year-old electric company franchise and changing the dates doesn’t work in today’s
competitive climate. Cities and counties should have uniform public works requirements for
permitting, and construction standards should be in place and clearly communicated to any staff
that might come into contact with applicants seeking entry into the right of way.
B. Compensation: Objectives
The second major responsibility of right of way management is to obtain fair value for
the use of a valuable public asset. The municipality manages that asset on behalf of its owners.
The goals of municipal regulation of the rights of way as they relate to franchising users of those
rights of way are, broadly stated:
1. To compensate the public for cost of management, use, occupancy, and degradation
of a public asset; and
2. To achieve competitive neutrality among various users of the right of way, as required
by Section 253 of the 1996 Telecommunications Act.
Developments in both of these areas of municipal regulation are discussed in the next section.
____________________
V. DLSPTA
EVELOPMENTS IN THE AWINCE ASSAGE OF THE ELECOMMUNICATIONS CT OF
1996
A. Local authority to manage the right of way and to receive compensation
Section 253(c) of the 1996 Act preserves local government authority to regulate the right
of way, and to receive fair compensation for that use, subject to two basic restrictions: that the
compensation received is fair and reasonable; and that access to the right of way is given on a
competitively neutral and nondiscriminatory basis. Not surprisingly, these two restrictions have
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produced lots of litigation. Following is a summary of the important recent decision from the
Ninth Circuit Court of Appeals:
th
Qwest Corporation v. City of Portland, 200 F.Supp.2d 1250 (D. Or. 2002); 9 Circuit
Court of Appeals decision issued October 12, 2004, Case No. 02-35473.
In July 2001, Qwest filed a lawsuit in the Oregon District Court, challenging Portland’s
regulations for use of the public right of way (“ROW”), requirements based upon its charter
provisions and state statute. In its complaint, Qwest argued that the city’s regulations and permit
requirements were preempted under Section 253 of the 1996 Telecommunications Act. In
particular, Qwest asserted that under the Ninth Circuit’s decision earlier in 2001 in City of
Auburn v. Qwest, 247 F.3d 966, superseded on rehearing, 260 F.3d 1160 (9th Cir. 2001), cert.
denied, 2002 US Lexis 232 (1/7/02), Portland was limited to recovering its actual costs of
administering the ROW. Qwest also argued that Auburn mandated the preemption of several
other regulatory requirements, including the mapping of facilities within the ROW and reporting
information on the calculation of revenue-based payments. Following the filing of its complaint,
Qwest sent a letter to the other eighty-plus cities in which it operated in Oregon, announcing that
it would not pay revenue-based ROW fees until the lawsuit was concluded. Eight Oregon cities
(“Cities”), represented as a coalition supported by the League of Oregon cities, as well as the
City of Eugene, intervened as defendants in support of Portland in the proceeding.
The opinion turned on the question of how to properly interpret § 253. Qwest argued that
the issue of preemption could be determined as a matter of law, that it merely required a facial
consideration of the Cities’ regulations. In response, the Cities argued that Qwest had the factual
burden of showing how it had suffered from the “burdens” of regulation such that it had been
prevented from providing a telecommunications service.
On cross-motions for summary judgment, the court rejected Qwest’s broad reading of §
253. Qwest was unable to identify a single service that it, “or any other entity, [had been]
effectively prohibited from providing.” Judge Jelderks noted that there was no dispute that
Qwest had been operating for years using the ROW to offer telecommunications services. The
court found that local requirements for submitting information about revenues, ownership, and
placement of wires and equipment did not serve to bar Qwest’s entry or have the effect of
prohibiting Qwest from offering telecommunications services.
In ascertaining the scope of the Auburn holding, the court found it significant that Qwest
had previously conceded the legality of revenue-based ROW fees imposed by Washington,
where those fees were analytically similar to the “non cost-based” fees it was challenging in
Oregon.
The court alternately found that Qwest’s claims of preemption were barred by issue and
claim preclusion, referring to the state appellate court opinions in U.S. West Communications v.
City of Eugene, 177 Or.App 424, 37 P.3d 1001 (2001) (review pending) and AT&T
Communications of the Pac. Northwest, Inc. v. City of Eugene, 177 Or.App 379, 35 P.3d 1029
(October 2001), review denied, 334, Or. 491 (August 2002). These related cases involved
challenges by Qwest’s predecessor and other telecommunications providers to the legitimacy of
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Eugene’s ordinances regulating telecommunications providers. (See detailed discussion in the
appendix)
Qwest appealed the District Court’s decision. Qwest’s brief was filed with the Ninth
Circuit on September 9, 2002. The League of Oregon Cities has posted a copy of this brief on its
website in (Adobe Acrobat) format. Verizon, Electric Lightwave, Inc. and the Oregon
.pdf
Telecommunications Association have filed amicus briefs in support of Qwest.
In its October 12 decision, the Ninth Circuit affirmed that cities may continue to receive
revenue (in the form of a percentage of a portion of Qwest’s revenue earned in the cities) as
compensation for Qwest’s use of the streets. The Court has remanded portions of the decision
(the right of way management ordinances) to the Oregon District Court for more detailed
findings.
There are a number of pending cases in Oregon Federal Court at this time. The outcome
may affect the ability of local governments to regulate use of the rights of way. In addition to the
remanded case discussed above, there is a separate lawsuit against Portland by Qwest
Communications, which is registered as a competitive local exchange carrier (CLEC) in Oregon.
That is the case where Qwest-CLEC, Time Warner and XO sued based on in-kind franchise
requirements and essentially to stop the City from offering any telecom services. Portland also
recently concluded litigation in the case of Portland v ELI, in which the Court upheld franchise
fees but determined that in-kind requirements (such as empty conduit and dark fiber as part of a
franchise or permit) were unlawful. That case will likely be appealed by both sides. Qwest has
also sued Portland in a third case over in-kind requirements in city franchises and the City’s
Integrated Regional Network Enterprise (IRNE Network, providing City telecom services). As
one Portland representative recently put it, “Our plates are full of Qwest”.
In a big win for counties, Lincoln County prevailed in a case challenging its authority to
provide telecommunications services outside its geographic boundaries. See GTE Northwest,
Inc. v. Oregon PUC, 179 Or App 46, 39 P3d 201(2002).
B. Compensation Mechanisms
Federal law limits cable franchise fees to five percent (5%) of gross revenue. But gross
revenue on which services? Oregon law limits franchise fees for local exchange access to seven
percent (7%) of gross revenue earned in the municipality. The privilege tax law, ORS 221.450,
sets maximum franchise fees at five percent (5%) of gross revenues earned within the city. How
should these provisions interrelate? And what services are regulated?
A major point of contention between municipalities and telecommunications providers is
the scope of “fair and reasonable compensation” within the meaning of Section 253(c) of the
1996 Act. And the courts have reached inconsistent conclusions. The Dearborn case discussed
above contains the Sixth Circuit’s conclusion that Congress did not intend to limit what
municipalities charge for compensation for the use of the rights of way to a recovery of actual
15
costs. New York and South Carolina state courts have reached the same conclusion. But
15
Omnipoint Communications, Inc. v. Port Authority, 1999 US Dist LEXIS 10534 (SDNY, 1999); and BellSouth
Telecommunications, Inc. v. City of Orangeburg, 522 SE2d 804 (SC 1999).
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16
Texas and Pennsylvania courts have reached the opposite conclusion. In Oregon, the historical
broad construction of Home Rule authority has now resulted in a decision allowing
municipalities to set compensation beyond actual cost, in the Qwest v. Portland case discussed
above.
Compensation mechanisms most commonly involve some formula applied to gross
revenues, a per linear foot fee, and/or in-kind contributions of service. In the new era of complex
service packages delivered over the same bundle of fibers, the controversy over what services are
to be included in the calculation of gross revenues can only grow. There is also a need, imposed
by the 1996 Act, to treat competitors on a nondiscriminatory and competitively neutral basis.
When different service providers arrive in the right of way by varying methods and at varying
costs with varying levels of impact, charging franchise fees based on service delivery and doing
so in a competitively neutral fashion becomes even more challenging.
____________________
VI. TS
OOLS AND OLUTIONS
A. Local code provisions – A Master Infrastructure Ordinance
Local government survived aggressive attempts at legislation this past session, and the
prospect of similar attempts in the coming session is a likely prospect. How it will come out is
uncertain at best. The best advice to Oregon cities and counties is to pass or improve regulations
which achieve the objective of regulating the use of the right of way, and to carefully coordinate
administration of those regulations at the local government level.
Such regulation should take the form of a master ordinance, usually incorporated into the
code, that applies to facilities to be placed in the right of way without regard to the specific
service they are intended to provide. A firm link to right of way usage, i.e., ownership and/or
control of physical plant in the right of way, seems to be the most certainly viable exercise of
municipal authority in the wake of the changing market and Oregon home rule authority.
In the Qwest v. Portland case discussed above, the ordinances of cities in the case
(Ashland, Salem, Springfield) will be reviewed by the Oregon District Court in the coming
months. Stay tuned for the Court’s findings concerning the most defensible regulations, and
consider evaluating local ordinances based on that outcome.
B. Franchising Tips for the New Millennium
As to the other prong of the right of way regulation fork, compensation, new court
decisions are coming out at an increasing pace. There is still good authority for using gross
revenues as a reasonable measure of the value of the right of way in Oregon, though industry
continues to dispute its validity. Careful definition of what those revenues are is key. Where
16
AT & T Communications, Inc. v. City of Dallas, 8 FSupp 2d 582 (ND Tex., 1998), and AT & T Communications of
the Southwest, Inc. v. City of Austin, 975 F. Supp 928 (WD Tex. 1997). See also PECO Energy Co. v. Haverford,
1999 US Dist LEXIS 19409 (ED Pa., 1999).
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revenues are not earned locally, such as in wireless and providers only using the right of way
minimally (mobile internet, for example), other formulas should be considered, such as a per
pole or per linear foot or other more quantifiable fee. Some cities are also considering a general
utility tax. The most appropriate system will depend on local policy choices. Careful
consideration should be given to those tested – and successful – models, such as that used in
Eugene.
Finally, be wary of entering into new franchises without carefully defining what services
may be offered and what services will require separate authority. Your city or county may
inadvertently give up the future ability to effectively manage the right of way because of the
changing face of the telecommunications industry – and these issues are also important in
franchising electric and natural gas providers. Make sure departments or staff issuing public
right of way permits are aware of the requirement to comply with other city or county regulations
before those permits go out the door.
____________________
VII. C
ONCLUSION
The framework of right of way regulation is changing, both here and throughout the
country. Watch for the outcome on litigation for the FCC rules on internet access, the Qwest
case against Portland, legislation in this and future sessions, and get your codes, ordinances, and
administrative processes in fighting form.
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Appendix: Prevailing Despite Adversity – Eugene’s Six Years of Litigation
Shortly after the July 1997 effective date of Ordinance 20083, legal challenges were filed in
Lane County Circuit Court by four industry giants: TCI Cable (now Comcast), US West (now
Qwest), AT&T Wireless, and Sprint PCS. Although challenging the entire ordinance, industry
took aim at the 2% tax----the very heart of Eugene’s telecommunications technology re-
investment plan. Some provisions of Ordinance 20083 were implemented because of validated
provisions in City Code, but the 2% tax was fully suspended. Eugene prevailed in three cases in
late 2002 when the Oregon Supreme Court refused to hear AT&T, Sprint PCS and Comcast
appeals of lower court decisions supporting Eugene. By December 2003, that Court also ruled
in favor of Eugene in the Qwest case. The 24-page decision is at:
www.publications.ojd.state.or.us/A105861.htm.
Decision Highlights
The 2% registration fee/tax intended to fund telecom projects was the focus of this litigation and
at issue was the validity of an ordinance that imposes various fees and regulatory requirements
on telecommunications providers operating in the city. Eugene is a home rule municipality,
governed by a charter that among other things, grants the city the following authority:
All powers that the constitution or laws of the United States or of this state expressly or
impliedly grant or allow cities, as fully as if this charter specifically stated each of those
powers.
No mention of a particular power may be construed to be exclusive or to restrict the
scope of the powers that the city would have if the particular power were not mentioned.
The charter shall be liberally construed, to the end that the city has all powers necessary
or convenient for the conduct of its affairs.
These are common provisions in Oregon “general powers” charters, and in some County
charters.
A.State Law Claims
1. Plaintiffs contended that municipalities are authorized to tax only "telecommunications
carrier[s]" for use of municipal rights-of-way and that wireless carriers are not
"telecommunications carrier[s]" within the meaning of that statute, thus the City was not
authorized to tax them. The City argued that State law does not provide that Eugene may tax only
telecommunications carriers. Further, Oregon’s Constitution provides that "[t]he legal voters of
every city and town are hereby granted power to enact and amend their municipal charter,
subject to the Constitution and criminal laws of the State of Oregon."
The court agreed with the City, finding that "home rule" provisions permit the people of cities or
towns to determine for themselves the organization and powers of their local governments
without the need to obtain authority from the state legislature. A local law is considered
preempted if it is "incompatible" with legislative policy, if local and state or federal law cannot
operate concurrently or if the state legislature or Congress intended to preempt the local
enactment. Absent from State statute is any language remotely suggesting that a municipality
cannot levy any other tax.
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2. Plaintiffs contended that the city's telecommunications registration and licensing fees violate
Oregon Revised Statutes (ORS) 307.215, which they read to prohibit any taxation of "amounts
paid" for telephone service. According to the companies, a tax levied on their gross revenues is,
at least indirectly, a tax on the amounts paid for telephone service.The City contended the
statute does not apply, because the statute prohibits taxes on telephone service subscribers and
does not prohibit taxes on telephone service providers. The court found that the statute does not
appear to apply to taxation of telecommunications services provider revenues and that the
context suggests strongly that the legislature did not intend to prohibit local governments from
imposing a tax on telephone service provider revenues.
3. The plaintiffs contended that the entire ordinance is preempted by the state's exercise of
comprehensive regulatory authority over the provision of telecommunications services, as
provided in ORS chapter 759, which guides the Public Utilities Commission (PUC). The City
countered that nothing in ORS chapter 759 suggests that the PUC has exclusive regulatory
authority over the provision of telecommunications services in the state. The court decided that
nothing in ORS chapter 759 expressly preempts local governments from imposing registration
and/or license fees as that chapter contains none of the usual declarations of preemptive intent
("the state hereby preempts" or "no local government shall").
B.Federal Law Claims
Plaintiffs contended that Congress expressly preempted the City's ordinance in two different
ways:
1. That the 1996 Telecommunications Act’s 47 USC § 253 preempts all local government
regulation of telecommunications service except nondiscriminatory charges for ROW use that do
no more than cover costs incurred by local governments in providing the ROW. According to
the companies, the City's registration and license fees are not so limited and therefore are
preempted. The City argued that the Act prohibits only state or local laws that prohibit or have
the effect of prohibiting the ability of telecommunications providers to provide
telecommunications service and that Ordinance 20083 did not have the effect of prohibiting the
provision of telecommunications service. The Act provides, in part:
"(a) In general - "No state or local statute or regulation, or other State or local legal requirement,
may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or
intrastate telecommunications service.
"(b) State regulatory authority - "Nothing in this section shall affect the ability of a State to
impose, on a competitively neutral basis, requirements necessary to preserve and advance
universal service, protect the public safety and welfare, ensure the continued quality of
telecommunications services, and safeguard the rights of consumers.
"(c) State and local government authority - "Nothing in this section affects the authority of a
State or local government to manage the public rights-of-way or to require fair and reasonable
compensation from telecommunications providers, on a competitively neutral and
nondiscriminatory basis, if the compensation required is publicly disclosed by such government."
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The court found no delay in the companies' application processes, much less a delay of sufficient
duration to constitute an effective prohibition, and concluded that the ordinance did not violate
section 253(a) of the Act.
2. That Ordinance 20083 violated 47 USC § 332(c)(3)(A) governing(prohibiting)state and local
regulation of entry and rates charged for commercial mobile radio services, which include cellular
telecommunications services because the City’s registration and licensing requirements both
constitute regulations of entry, in violation of federal law. The City argued that neither the
registration nor the licensing requirement amounts to a regulation of entry; rather, both constitute
regulations of the "terms and conditions" of providing commercial mobile radio services, as
expressly permitted by section 332. The court concluded that none of the City’s requirements
qualified as a regulation of entry within the meaning of the statute.
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