05-07-2019 - Item 20 - Proposed Urgency Ordiance and Ordiannce Establishing A public Educational And Govermental FeeAGENDA ITEM NO. 20
AGENDA STAFF REPORT
City of West Covina | Office of the City Manager
DATE:May 7, 2019
TO:Mayor and City Council
FROM:David Carmany
Interim City Manager
SUBJECT:PROPOSED URGENCY ORDINANCE AND ORDINANCE ESTABLISHING A
PUBLIC, EDUCATIONAL AND GOVERNMENTAL FEE
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1.Waive full reading and adopt, by four-fifths vote, Urgency Ordinance No. 2456, amending
Article II of Chapter 11 of the West Covina Municipal Code to establish a public, educational,
and governmental fee on state video franchisees operating within the City; and give first
reading to Ordinance No. 2457, amending Article II of Chapter 11 of the West Covina
Municipal Code to establish a public, educational, and governmental fee on state video
franchisees operating within the City:
URGENCY ORDINANCE NO. 2456 - AN URGENCY ORDINANCE OF THE CITY
COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA AMENDING
ARTICLE II (VIDEO FRANCHISES) OF CHAPTER 11 (FRANCHISES) OF THE
WEST COVINA MUNICIPAL CODE TO ESTABLISH A PUBLIC, EDUCATIONAL,
AND GOVERNMENTAL FEE ON STATE VIDEO FRANCHISEES OPERATING
WITHIN THE CITY OF WEST COVINA
ORDINANCE NO. 2457 - AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF WEST COVINA, CALIFORNIA AMENDING ARTICLE II (VIDEO
FRANCHISES) OF CHAPTER 11 (FRANCHISES) OF THE WEST COVINA
MUNICIPAL CODE TO ESTABLISH A PUBLIC, EDUCATIONAL, AND
GOVERNMENTAL FEE ON STATE VIDEO FRANCHISEES OPERATING WITHIN
THE CITY OF WEST COVINA
BACKGROUND:
In 2006, the California Legislature adopted the Digital Infrastructure and Video Competition Act of
2006 (“DIVCA”), which changed the manner in which video services are regulated by placing local
franchising within a state franchising system administered by the California Public Utilities
Commission (“CPUC”). In 2009, the City amended Article 2 of Chapter 11 of the West Covina
Municipal Code to implement DIVCA through the adoption of Ordinance No. 2191.
DIVCA authorizes cities to adopt an ordinance imposing a fee of up to one percent (1%) of a state
video franchise holder’s “gross revenues,” as defined, to support public, educational, and
governmental (“PEG”) channel facilities. In adopting Ordinance No. 2191 in 2009, the City did not
adopt a PEG fee. Without an established PEG fee, the City is losing out on approximately $168,000
annually in such fees. However, DIVCA permits cities to establish a PEG fee at any time. (Cal.
Gov’t Code § 5870(n).)
This 1% fee is paid directly by the state franchisees and, unlike sales tax and other “pass-throughs”,
this is not an obligation of their customers. In other words, it goes against the company’s overhead.
It is a fee collected by most municipalities in California.
There are two state video franchise holders operating in the City: Frontier California Inc. dba
Frontier California Inc. (“Frontier”) and CCO SoCal I, LLC dba Charter Communications
(“Charter”). Frontier’s current franchise became effective March 8, 2017. Charter’s current franchise
became effective January 2, 2018. The franchises expire after 10 years.
Staff is proposing that the City Council adopt an urgency ordinance that would become immediately
effective, and a traditional (and largely identical) ordinance that would become effective 30 days
after adoption. The urgency ordinance requires a four-fifths vote. Once the urgency ordinance is
adopted, the City will be able to commence collecting fees from Frontier and Charter.
DISCUSSION:
The primary impact of DIVCA was that the City could no longer issue new cable franchises. The
CPUC became the sole franchising authority for video service providers in the state. However,
pursuant to DIVCA, cities can collect franchise fees and PEG fees.
Franchise Fees. With regard to all video service providers with state franchises, DIVCA imposes a
franchise fee of five percent (5%) of the franchise holder’s “gross revenues” (which term is defined
by DIVCA), unless the City opts to lower the franchise fee. Per Section 11-18 of the West Covina
Municipal Code, the City imposes the 5% franchise fee. In calendar year 2018, the City collected
$840,716.10 from the City’s two franchisees, Charter and Frontier.
PEG Fees. Section 5870(n) of DIVCA authorizes cities to collect an additional fee to support PEG
programming. The PEG fee can be established at any time. Under federal law, PEG fees can only be
expended to pay for “capital costs” associated with PEG support. These costs can include the
purchase and maintenance of PEG facilities and equipment.
Some video service providers have taken the position that the last sentence of 5870(n) requires cities
to renew their PEG fee ordinance at renewal of each franchisee’s state franchise. To avoid any risk
that the City will lose revenue for failure to properly establish or reauthorize the PEG fee as required
by Section 5870(n), the ordinance does both – it establishes the PEG fee and provides for its
automatic reauthorization upon the expiration of a state video franchise.
Urgency Ordinance. To ensure that the City collects the fee immediately, staff is recommending the
approval of an urgency ordinance and a largely identical non-urgency ordinance. The urgency
ordinance would be immediately effective upon introduction (i.e. first reading), and the traditional
ordinance would be effective 30 days after adoption (i.e. second reading).
Proposition 26. The adoption of the proposed PEG fee complies with the requirements of Article
XIII C, section 1, subd. (e) of the California Constitution (Proposition 26) because the PEG fee is
not a “tax.” The PEG fee is not a tax, by definition, because: the City will use the 1% fee only for the
reasonable “capital costs” the City incurs relating to the provision of public, educational, and
governmental video services, as that term is defined in federal law, and the charge is only imposed
for a specific government purpose or product provided directly to the payor that is not provided to
those not charged.
LEGAL REVIEW:
The City Attorney’s Office has prepared the attached documents.
OPTIONS:
The City Council has the following options:
1.Approve staff’s recommendation; or
2.Provide alternative direction.
Additional Approval: Scott E. Porter, City Attorney
Fiscal Impact
FISCAL IMPACT:
By establishing a PEG fee, the City will be able to collect approximately $168,000 per year from
state video franchise holders operating within the City.
Attachments
Attachment No. 1 - Urgency Ordinance No. 2456
Attachment No. 2 - Ordinance No. 2457