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Franchise Fees and Reimbursement of Costs
Negotiating a franchise renewal or transfer necessarily involves certain costs to a community. These may include staff time as well as costs for outside attorneys and consultants. Communities often seek to have these costs reimbursed by the cable operators involved. While operators generally resist such reimbursements, some agreements do provide for recovery of some or all of a community’s costs.
Cable operators generally argue that any administrative costs the community incurs should be covered by the franchise fee. According to cable operators, this is what the franchise fee is for. As noted elsewhere in this Feature, however, franchise fees represent compensation for use of the public rights-of-way and need not be dedicated to any particular purpose. (See "Overview") Thus, it doesn’t follow that a community cannot recover administrative costs over and above the franchise fee.
Cable operators make a somewhat more effective argument based on the definition of “franchise fee” in the Cable Act, 47 U.S.C. § 542(g). Under this definition, any “tax, fee, or assessment” imposed by a franchising authority is considered part of the franchise fee unless it falls within one of several specified exceptions. (Operators frequently argue that even explicit pre-1984 reimbursement requirements in an ordinance or franchise agreement are preempted by this Cable Act provision.) The most plausible exception to cover the costs a community incurs in franchise transfer or renewal is 47 U.S.C. § 542(g)(2)(D), which excludes "requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letter of credit, insurance, indemnification, penalties, or liquidated damages." Arguably, reimbursement for a community’s costs of reviewing a transfer or renewal should fall within this exception.
Several courts, however, have construed that provision otherwise. The cases generally cited by cable operators include Robin Cable Systems v. City of Sierra Vista, 842 F. Supp. 380 (D. Az. 1993); Birmingham Cable Comm'n v. City of Birmingham, 1989 U.S. Dist. LEXIS 7475 (N.D. Al. 1989); and Time Warner Entertainment v. Briggs, 1993 U.S. Dist. LEXIS 1196 (D. Mass. 1993). These opinions were also cited in a recent case on transfers, Charter Communications, Inc. v. County of Santa Cruz, No. C 99-01874 WHA (N.C. Cal. 3/7/01), which reached a similar conclusion. None of these opinions devotes much analysis to the matter, and their reasoning is open to question. For example, some of the courts seem to rely on the notion that the reimbursement costs are not "incidental," where “incidental” is apparently understood to mean “small” or “trivial.” The Cable Act, however, refers to costs that are "incidental to" the awarding or enforcement of a franchise – that is, pertaining to or arising from those franchise actions. Thus, it is not clear that a court addressing this issue for the first time should be convinced by the string of precedents the cable industry has produced.
In practice, the issue of cost reimbursement must be addressed on a case-by-case basis. Franchising authorities should assume that cable operators will resist such reimbursement, but should not necessarily conclude that reimbursement of costs is out of the question.
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