Friday, March 11, 2005

And They're Off

You gotta love a state legislature that has a “Committee on Committees.”

Kentucky just passed a comprehensive tax overhaul bill favored by Governor Ernie Fletcher. He must have stayed up nights working on the legislation; it is long and involved and leaves no sector untouched by his reform efforts. Buried deep was a provision to impose a tax on all video providers, even DBS, something that has been discussed in various circles in and outside the beltway and something whose time has come. However the bill eliminates the ability of local governments to collect a franchise fee meaning the revenue collected will sink into the deep morass of state coffers ne’er to be suitably distributed to local government or correctly accounted for again. Ask the municipalities in Florida about how that works.

I still can’t get my brain around state legislatures being able to trump the current Telecommunications and Cable Acts, but we’ll leave that for another day.

Meanwhile what is correct in the legislation is finally, once and for all, making DBS step up to the plate. I’ve always thought it would be so simple to have a point-of-sale tax on DBS equal to the 5% that cable operators have to pay. Additionally, it would be a no-brainer to require DBS to carry local PEG channels at least on a regional basis now that they are required to do local-into-local. I even sat down with the satellite guys at one point and they liked the idea because it would help them meet their 4% public interest obligation. They were really interested in whether or not PEG had “news, weather and sports.” “Sure,” said I, “It’s not your news, weather and sports, but we have it.” The sticking point was satellite’s insistence that PEG should pay to be up on the bird and various franchise agreements that prevent PEG programming from being shown anywhere but the cable system it was created in.

Getting back to who pays what when and how it should be collected and distributed, the bill correctly imposes the same obligations on all video programmers but gives cable a huge money order. See it’s the 3% on “video service” that’s the problem. Currently municipalities in Kentucky can collect up to 5% on gross receipts which are a far cry from just collecting on video service. Gross receipts include advertising, sale or rent of equipment, charges for installation, etc. and even this is not really “gross receipts” because the FCC took out cable modem and telephone is up for grabs. Still, 3% on video services does not equal 5% on gross receipts. There is a provision for an additional 2.4% on gross receipts, but you do the math.

Then there's the elimination of being able to require a "pass-through" for PEG support. The bill gleefully says it will not prevent operators from making "donations" to the municipality. Can you visualize franchise negotiations where the city says to the operator "Make an appropriate donation and we'll renew," Tony Soprano style? Eeek!

These are exactly the issues that must be addressed in the Telecom rewrite. There must be strong language that prevents states from thwarting local government and undercutting franchise agreements.

It is reported the Kentucky Cable Telecommunications Association was pleased. I’ll bet they were. I can hear bourbon pouring now.

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