Legal Alerts Jan 22, 2016

PEG Fees Set by Ordinance Under California Video Franchise Law Are Not Taxes Subject to Prop. 26

State AG Opinion Could Positively Impact Many Local Governments

The referendum requirements of Proposition 26 do not apply to public, educational and governmental access fees established by local ordinance pursuant to California’s Digital Infrastructure and Video Competition Act, the California Attorney General concluded this week.

Opinion No. 13-403 is important for many California local governments, especially those that adopted PEG fees after Proposition 26 took effect, as some cable operators have refused to pay PEG fees on the grounds that these fees are “taxes” and not valid unless approved by public vote. While Attorney General opinions are not binding on California courts, they are considered persuasive and entitled to great weight. The Attorney General’s reasoning could also be useful in other states.

In 2006, the California Legislature adopted DIVCA to establish a state video franchising regime that gave the California Public Utilities Commission exclusive authority to issue state video franchises, but assigned some implementation and enforcement responsibilities to local governments. The law required operators to pay a PEG fee established by local ordinance pursuant to a formula set out in DIVCA. Operators were not entitled to a franchise from the state unless they agreed to pay the PEG fee established by local governments. In 2010, voters approved Proposition 26, which amended Article XIII C of the California Constitution to define a local “tax” as “any levy, charge, or exaction of any kind imposed by a local government,” save for seven enumerated exceptions. In 2013, the question of whether a PEG fee adopted by ordinance under DIVCA were subject to Proposition 26 was referred to the Attorney General’s office.

The opinion recognized that, under federal law, a franchising authority may require that the applicant provide adequate PEG channel facilities, capacity or financial support. It also noted that DIVCA requires franchise applicants to provide a sworn affidavit as part of the application process affirming that they will provide PEG channels and pay PEG fees. The Attorney General reasoned that the PEG fee was not a tax “imposed” by local government, but, instead, a fee authorized in connection with the state grant of a franchise — simply, the enforcement of a franchise obligation. According to the Attorney General, Article XIII C was not “intended to enable a cable operator to avoid an obligation that it voluntarily agreed to pay as a condition of being awarded a franchise.” The opinion also suggested that it would be inconsistent with federal franchise requirements to make the PEG fee subject to referendum approval.

Best Best & Krieger attorneys, on behalf of several clients, submitted letters urging the Attorney General to reach the conclusions expressed in this opinion. For more information about this opinion and how it may impact your agency, please  contact one of the attorney authors of this Legal Alert listed to the right, in the firm’s Telecommunications practice group, or your BB&K attorney.

Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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