Back in February 2020, The Dallas Morning News ran a curious news story about a TV production studio that the city had spent $11 million building, that had never been completed and had never produced a show. “Now it has to figure out why” read the story.
Why had Dallas committed millions of dollars to a project that was apparently incomplete, unused, unnecessary and forgotten? I had a hunch why.
According to a story in the Texas Monitor, “there was $11 million in cable money that was going unspent, left on the table.” Yep, and I was not at all surprised, because I was there at the creation.
Not of the studio project, but of the increased tax that resulted in all this unused “cable money” sloshing around in the city’s coffers.
To understand, we have to go back to 2005, when Texas became the first state in the nation to pass a single statewide video franchise framework. It was designed to allow telephone providers like Verizon and AT&T to offer video service statewide without having to negotiate individual franchise agreements with municipalities.
The legislation (SB 5) was a visionary response to the new availability of high-speed broadband, and video over IP (Internet protocol) became the killer app for broadband, allowing providers to bundle video, data and voice services. The law created an alternative to the outdated local franchise model, allowing providers to roll out video and broadband networks faster than before. In subsequent years, most U.S. states followed Texas’ lead and passed similar legislation.
There was only one problem: The municipalities hated it, and the Texas Municipal League lobbied against the legislation with all its might. Municipalities loved the old local monopoly franchise system because it gave them leverage to shake down cable companies in exchange for the franchise.
Cities often demanded that cable companies wire all city buildings for free (and in some cases even the homes of city elected officials). Some cities would make cable companies pay for the Christmas lights and decorations downtown, they would demand that the cable companies sponsor every little event the city was putting on, and the cable companies had to either pay up or risk not getting a franchise. In my book this is, literally, a shake-down.
Under this system, cities were permitted to charge a franchise fee tax of no more than 3% on cable customers’ bills, which went into the city coffers. The justification was that it was compensation for access to right of way for buried and overhead cable.
So the political deal was that if municipalities would drop their opposition to the statewide video franchise regime, the franchise fee cap would be raised to 5%. It was a buy off, pure and simple, of municipalities.
I testified numerous times in 2005 on the merits of SB 5, but I always pointed out that the franchise fee increase was unjustified. But those pushing SB 5 were happy to get their statewide franchise while their customers footed the cost of the municipal payoff.
This is why Dallas spent $11 million on a video production studio that was apparently so unnecessary that no one bothered finishing the project. There was, you may recall, “$11 million in cable money that was going unspent.” Other municipalities have similarly wasted or misspent cable franchise fees on assorted dalliances.
It’s time for Texas legislators to cut the video franchise fee. It is paid by Texas video customers and makes their bills higher than necessary. It was never justifiable on its merits, and so for 16 years Texas consumers have been footing the bill for a political payoff.
If anything holds the disparate factions of the Republican coalition together, it’s their love for cutting taxes. The additional costs of the COVID-19 pandemic have put Republicans in a position of thinking there are no taxes to cut, but they’ve overlooked the video franchise fee. There is still time for an enterprising Republican legislator to introduce a bill reducing the video franchise fee to maybe 2.5%, and someone should.