Fort Worth and cities across Texas stand to lose millions of dollars due to a new law that slashes fees telecom providers pay to them. But before the savings go into effect next year, it’s likely cities will challenge the legislation in the courts.
The bill, signed by Gov. Greg Abbott earlier this month, would slash right-of-way fees telecom providers pay cities to supply cable and phone service. For years, companies paid cities two separate fees to run phone and cable TV lines in right-of-ways — even when delivered over the same line. The bill changes that practice, and allows providers to only pay the higher of the two fees.
Supporters of the bill, like Walt Baum, the president of the Texas Cable Association, said it’s necessary to end an “outdated double tax” on companies. But Bennett Sandlin, executive director of the Texas Municipal League, said he thinks the legislation violates sections of the Texas Constitution.
“The use of public land is a privilege, not a right,” Sandlin said. “They could certainly decide to run those wires through people’s backyards, but they would pay a lot more. They have to pay for that rental of public space.“
Fort Worth estimates a little over $4 million will be lost in revenue due to the law, according to a presentation given to the Fort Worth City Council outlining the legislative session’s impact. And in some cities, those losses are more than six times that, with Houston pinning its potential losses at up to $27 million.
Sen. Kelly Hancock, R-North Richland Hills, authored Senate Bill 1152 and chairs the Senate Business and Commerce committee. 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.
“I don’t know who saves millions more than the constituents that I work for,” Hancock said about providers paying less.
This wouldn’t be the first time one of Hancock’s bills spurred a lawsuit.
In 2017, a group of over 30 cities filed a lawsuit against the state alleging that a bill authored by Hancock violated articles of the Texas Constitution that prohibit the legislature from directing local municipalities to make gifts or grants to a corporation. The lawsuit, filed in Travis County District Court, is ongoing, and Kevin Pagan, McAllen’s city attorney, said he believes the newly signed legislation violates the same tenets.
Pagan said the new bill wrongly requires cities to make a gift to private companies by allowing providers to use the right-of-way at a lesser charge.
The telecom providers are, “already in the right-of-way. You’re already using our facilities. You’ve already agreed to pay us a franchise fee. And now under this law, you’re just going to stop paying,” Pagan said. “It’s a gift from the state legislature back to those companies.”
Hancock said the bill is simply meant to update the law to fit with 21st century technology that allows video and phone to be run over one line.
“As technology changes, the world changes and we adapt to it,” Hancock said. “Our hope is that, reduce the cost to users of those services, and they can pass (those savings) on to constituents.”
How much could customers save?
Baum, the president of the Texas Cable Association which represents many of the state’s cable companies, including Charter Spectrum, one of the largest providers in Fort Worth, said residents will see those savings trickle down to their bills starting in January 2020.
For residential customers, the reduction may be between $1 to $3, Baum said. For small businesses, the savings could be as much as a couple hundred dollars a month. Telecom providers may save as much as $160 million statewide, Baum said.
Pagan said he isn’t so sure residents will see the promised savings, because the bill doesn’t require it.
“Translate ‘maybe’ in the telecommunications industry talk and you get a big fat ‘no,’” Pagan said.
Cuts to cities
Where residents may see a greater reduction is in city services. Cities have said they may have to scale back or cut services because of the loss in revenue. Fort Worth expects to lose about $4 million due to the reduction in right-of-way fees.
While the amount is only a small fraction of the city’s overall budget, in Fort Worth, where the median salary for a police officer is $74,152, that would translate to about 53 officers, for example. The city has not yet determined what effect the loss in revenue will have on services or which departments might face budget cuts, Fort Worth City Manager David Cooke said.
“If the revenues go away, you got to reduce your expenditures,” Cooke said.
The cut comes amid more anticipated losses.Fort Worth estimates another $4 million in revenue will be lost from a bill banning red light cameras, and it remains to be seen how a bill that imposes a 3.5% cap on property tax revenues will impact Fort Worth.
“It was obviously a difficult year for cities,” Cooke said.
Pagan said the cities involved in the original suit are currently discussing the specifics and plan to amend the lawsuit to include the bill slashing right-of-way fees in the next few months. It’s possible more cities and more defendants, including telecom providers themselves, may be added, Pagan said.
A decision has not been made on whether Fort Worth will join the lawsuit.
Hancock stressed that under the new law cities will still be allowed to collect revenue from telecom providers.
“It still allows them to take the higher of the two fees for charging the line,” Hancock said. “I’m confused about how their currently negotiated right-of-way fee ... would be in violation, but they’re welcome to spend money on attorneys all they want.”
While the law is set to go into effect on Sept. 1, it will only affect payments made starting on Jan. 1, 2020.
“We’ll see what happens in the courts,” Baum said.