11/16/2021 - AGENDA ITEM 1 - CONSIDERATION OF SECOND READING OF ORDINANCE NO. 2492 - ESTABLISHING A PUBLIC, EDUCATIONAL AND GOVERNMENTAL FEEAGENDA ITEM NO. 1
WEST" ON
DATE: November 16, 2021
TO: Mayor and City Council
FROM: David Carmany
City Manager
AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
SUBJECT: CONSIDERATION OF SECOND READING OF ORDINANCE NO.2492 -
ESTABLISHING A PUBLIC, EDUCATIONAL AND GOVERNMENTAL FEE
RECOMMENDATION:
It is recommended that the City Council adopt the following ordinance:
ORDINANCE NO.2492 - AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
WEST COVINA, CALIFORNIA AMENDING ARTICLE H (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
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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 $165,0004190,000 annually in such fees.
However, DIVCA permits cities to establish a PEG fee at any time. (Cal. Pub. Util. Code § 5870(n).)
This 1% fee is paid directly by the state franchisees and, unlike sales tax and other "pass-throughs", this is not
a direct obligation of their customers. However, DIVCA permits state franchisees to recover any PEG fees
remitted to a local entity by billing a recovery fee as a separate line on the regular bill of each subscriber. (Cal.
Pub. Util. Code § 5870(o).) The PEG fee is a fee collected by most municipalities in California. Surrounding
cities that impose PEG fees include: Covina, La Puente, La Verne, San Dimas, Walnut, Irwindale, Diamond
Bar, and many others.
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.
The City Council previously considered adoption of a PEG fee in May 2019.
On November 2, 2021, the West Covina City Council, by a 5-0 vote, introduced for first reading Ordinance
No. 2492, which will amend Article II (Video Franchises) of Chapter 11 (Franchises) of the West Covina
Municipal Code to establish a PEG fee on State video franchisees operating within the City of West Covina.
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 Fiscal Year 20-21, the City collected $959,352.25 from 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 the 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.
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 pay or that is not provided to those not charged.
Government Access Channel. It should be noted the City is currently paying Charter approximately $6,200 per
year for the government access channel as a result of a 2019 FCC ruling that allowed cable companies
to charge for such service. Prior to the FCC ruling, the government access channel was provided at no cost to
the City.
Staff recommends that the City Council conduct the second reading and adopt Ordinance No. 2492. The
Ordinance will take effect on the 31 st day following adoption, which is on or about December 17, 2021.
LEGAL REVIEW:
The City Attorney's Office has reviewed the ordinance and approved it as to form.
OPTIONS:
The City Council has the following options:
1. Conduct the second reading and adopt Ordinance No. 2492; or
2. Provide alternative direction.
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 - Ordinance No. 2492
CITY Enhance City Image and Effectiveness
COUNCIL Achieve Fiscal Sustainability and Financial Stability
GOALS &
OBJECTIVES:
ATTACHMENT NO. 1
ORDINANCE NO. 2492
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
WHEREAS, the Digital Infrastructure and Video Competition Act of2006 (Pub. Util. Code
§§ 5800 et seq., "DIVCA') went into effect on January 1, 2007; and
WHEREAS, Public Utilities Code section 5870(n) ("Section 5870(n)') indicates that a
city may to adopt an ordinance establishing a fee on state -franchised video service providers to
support public, educational, and governmental ("PEG) channel facilities; and
WHEREAS, Section 5870(n) states that such ordinance shall expire, and may be
reauthorized, upon the expiration of the state franchise; and
WHEREAS, the City desires to establish a fee to support PEG channel facilities at the rate
of one percent (1%) of the video franchise holder's gross revenues ("PEG Fee'); and
WHEREAS, the City intends to require every state video franchise holder operating now
or in the future in the City to pay the PEG Fee; and
WHEREAS, this ordinance does not establish a "tax" within the meaning of Article XIII
C, section 1, subdivision (e) of the California Constitution.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF WEST COVINA,
CALIFORNIA, DOES HEREBY ORDAIN AS FOLLOWS:
SECTION 1. Municipal Code Amendment. Sections 11-20 and 11-21 of Article II of
Chapter 11 of the West Covina Municipal Code shall be deleted in their entirety and replaced with
the following:
"Sec. 11-20. —Public, educational and governmental (PEG) channel access fee.
(a) In addition to the franchise fee required pursuant to Section 11-18, a state video franchise
holder operating in the city shall pay to the city a fee that is equal to one (1) percent of the
gross revenues of that state video franchise holder, which fee shall be used to support PEG
channel facilities. The term "gross revenues" shall be defined asset forth in Public Utilities
Code section 5860.
(b) To the extent legally required by Public Utilities Code section 5870(n), the city's PEG fee
shall automatically be reauthorized upon the expiration of any existing or future state video
franchise(s) held by any state -franchised video service provider operating within the city.
This PEG fee shall so renew until such time that the city council takes formal affirmative
action to cease the renewals.
(c) The PEG fee shall be remitted to the city on a quarterly basis within forty-five (45) days
after the end of each quarter for that calendar year. Each payment shall be accompanied by
a detailed summary explaining the basis for the calculation of the PEG fee.
(d) If a state video franchise holder fails to pay the fees when due, or underpays the proper
amounts due, the state video franchise holder shall pay a late payment charge at the annual
interest rate equal to the highest prime lending rate during the period of delinquency, plus
one (1) percent. If the state video franchise holder has overpaid the PEG fee, it may deduct
the overpayment from its next quarterly payment.
Sec. 11-21 —Audit authority.
Not more than once annually, the city manager or the city manager's designee may examine and
perform an audit of the business records of a state video franchise holder to ensure compliance
with Public Utilities Code section 5860.
SECTION 2. Severability. If any section, subsection, subdivision, paragraph, sentence,
clause or phrase in this Ordinance or any part thereof is for any reason held to be unconstitutio na 1
or invalid or ineffective by any court of competent jurisdiction, such decision shall not affect the
validity or effectiveness of the remaining portions of this Ordinance or any part thereof The City
Council hereby declares that it would have passed each section, subsection, subdivision,
paragraph, sentence, clause or phrase thereof irrespective of the fact that any one or more
subsections, subdivisions, paragraphs, sentences, clauses or phrases be declared unconstitutional,
or invalid, or ineffective, provided the basic purposes of this Ordinance and the benefits to the City
and the public are not substantially impaired.
SECTION 3. CEQA. The City Council finds the approval of this Ordinance is not subject
to the California Environmental Quality Act ("CEQA') pursuant to CEQA Guidelines Sections
15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical
change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section
15378 because under (b)(4) finding mechanisms are exempt from CEQA) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for
resulting in physical change to the environment, directly or indirectly. Alternatively, the City
Council finds the approval of this Ordinance is not a project under CEQA Regulation Section
15061(b)(3) because it has no potential for causing a significant effect on the environment.
SECTION 4. Effective Date. This Ordinance shall become effective 30 days after its
adoption.
SECTION 5. Certification, The City Clerk shall certify to the adoption of this Ordinance
and shall cause this Ordinance to be published or posted as required by law.
PASSED, APPROVED AND ADOPTED this 16th day of November, 2021.
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Letty Lopez-Viado, Mayor
APPROVED AS TO FORM
Lisa Sherrick, Assistant City Clerk Thomas P. Duarte, City Attorney
I, LISA SHERRICK, Assistant City Clerk of the City of West Covina, California, do
hereby certify that the foregoing Ordinance No. 2492 was introduced at a regular meeting of the
City Council held onthe 2nd day of November, 2021, and adopted at aregular meeting of the City
Council held on the 16th day of November, 2021, by the following vote of the City Council:
AYES:
NOES:
ABSENT:
ABSTAIN:
Lisa Sherrick
Assistant City Clerk