After a new law was passed that is expected to help telecom companies save millions of dollars, nearly 50 cities have joined together to sue to retain the fees that their municipalities depend on to provide various services to Texas residents.
Old Law
Under the previous law, telecom providers had to pay two separate fees to run cable and phone lines through areas owned by cities for right-of-way access. They had to pay both fees for cable and phone even if they only needed one line to deliver both services. However, this practice recently changed, resulting in significant savings to telecom companies that the disgruntled cities do not believe will be passed onto their residents.
New Law
The new law allows companies who can deliver both services over one line to only pay the higher of the cable or phone fee instead of both fees as they have in the past. This new law will allow telecom providers to save millions of dollars by not having to pay both fees. The president of the Texas Cable Association said that the legislation was passed to make the law current with technology.
The author of the bill said that telecom provider customers will see the savings themselves.
Legal Action
Many cities in Texas have jointed together to try to stop the law from being enforced. They allege that the law is unconstitutional and requires cities to give a gift to private companies. Fort Worth estimates that it will lose $4 to $5 million each year because of the law. Other cities also stand to lose millions of dollars in revenue, which is particularly problematic because cities will already lose funds because of other changes in the law, such as a ban on red light cameras and a revenue cap on property taxes.
The lawsuit was filed in Travis County District Court. It alleges that the new legislation is forcing cities to violate the Texas Constitution that prohibit the legislature from directing municipalities to give gifts or grants to a corporation. It claims that the law does this by exempting telecom providers from paying two fees even though they generate two separate streams of revenue from using property owned by the city. The cities say that the law is clear that the value is determined on revenues and not on how many lines the company use.
The law that supports this argument goes back to the 1800s when residents did not want the legislature to force cities to give away public land in order to attract railroads. The law prohibits giving away public property to make profit unless the property owner receives market value for the property. Those supporting the lawsuit say that the argument is similar for the telecom issues because taxpayers should be reimbursed if private companies are utilizing public land in the same manner as homeowners would if a company was running the lines through their backyard. Proponents for the lawsuit say that there is nothing in the law that requires the companies to pass on their savings to customers.
Residential customers may have bills that are $1 to $3 less each month while small businesses may receive a reduction of a few hundred dollars each month. In comparison, telecom providers are expected to save up to $160 million.
The lawsuit also claims that the law will hurt smaller telecom providers by giving an advantage to larger telecom providers who will pay less by offering both services over the same line while smaller providers will have to pay the full fee when they offer one of the two services.
Reduction in City Revenue
Cities are concerned that they will not be able to provide essential services like police, fire and rescue if they lose the revenue generated by the fees. El Paso estimates it will lose approximately $2.7 million because of the law. Flower Mound is expected to lose $170,000 because o fhte law.
Cities Involved in the Lawsuit
Currently, 48 cities have joined the lawsuit. Dallas is the largest city involved in the lawsuit. El Paso was the most recent city to join the case. Smaller towns like Flower Mound have also joined the lawsuit due to concern about lawmakers continuing to cripple city budgets.
Some cities are still considering whether to join the lawsuit and are weighing the potential costs to litigate the case versus the expected lost revenue. Fort Worth has not yet joined the lawsuit but is expected to lose between $4 and $5 million. Houston is expected to lose as much as $27 million but has not currently joined the lawsuit.
The companies will begin paying less in January, and cities that want to join the lawsuit are encouraged to join before that point.
