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Home My WebLink About04 - Public, Educational and Governmental Access Fee on State Video FranchisesesW�%_ CITY OF NrEWPORT BEACH City Council Staff Report March 14, 2017 Agenda Item No. 4 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, City Manager - 949-644-3001, dkiff@newportbeachca.gov PREPARED BY: Tara Finnigan, Assistant to the City Manager, tfinnigan@newportbeachca.gov PHONE: 949-644-3035 TITLE: Ordinance No. 2017-5: Reauthorizing the City's Public, Educational and Governmental Access Fee on State Video Franchises ABSTRACT: The City of Newport Beach (City) collects Public, Educational and Governmental (PEG) access fees from state -franchised, video service providers operating in the city. The PEG fee, equal to 1 % of each video service providers' gross revenues, was established by Ordinance 2007-9. The state franchise agreements for three of the city's video service providers are due to expire in 2017 or 2018. As the service providers renew their franchises, staff is recommending the reauthorization of the PEG fee. Ordinance 2017-5, if approved, would reauthorize the PEG fee for all state -franchised, video service providers in Newport Beach. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Introduce Ordinance No. 2017-5, An Ordinance of the City Council of the City of Newport Beach, California, Reauthorizing the Public, Educational and Governmental (PEG) Fee on State Video Franchises Operating within the City of Newport Beach, and pass to second reading on March 28, 2017. FUNDING REQUIREMENTS: The City of Newport Beach receives approximately $265,000 each year in PEG fee revenue. PEG revenue is restricted and, per a Federal Communications Commission determination, can only be used for capital expenditures (equipment, studios, etc.) related to the City's government channel. The City accumulates these funds and then allocates them to specific PEG -related capital expenditures. For example, the audio visual equipment and edit bay (and some hardware and software) in the Civic Center was funded in part with about $1.5 million in accumulated PEG fees. The City projects that there will be about $959,333 in the PEG fund by the end of FY 2016-17. 4-1 Ordinance No. 2017-5: Reauthorizing the City's Public, Educational and Governmental Access Fee on State Video Franchises March 14, 2017 Page 2 DISCUSSION: Background The California Legislature's passage of the Digital Infrastructure and Video Competition Act of 2006 (DIVCA) changed, statewide, how cable and video services are regulated. DIVCA, codified in the California Public Utilities Code Section 5800, et.seq., transferred cable and video television franchising authority from local governments to the California Public Utilities Commission (CPUC). DIVCA did, however, include provisions enabling local governments to continue to collect two types of charges that had traditionally been in nearly all local cable television franchise agreements. First, video service providers are required to pay franchise charges, set at 5% of gross video revenues, to local governments as rent for the use of the public rights-of-way to place and maintain cable. Second, DIVCA allows, but does not require, local governments to establish and collect Public, Educational and Governmental (PEG) access fees from video service providers operating within their communities. By law, the PEG fee cannot exceed 1% of gross video revenues. Newport Beach has collected and received each charge for many years. Newport Beach Cable and Video Service Revenues The City of Newport Beach (City) programs and operates a government channel called Newport Beach TV (NBTV). In May 2007, the Newport Beach City Council adopted Ordinance 2007-9, adding Section 5.43.030(8) to the Newport Beach Municipal Code (NBMC). This NBMC section imposes a PEG fee in the amount of 1% of video service gross revenue on any holder of a state franchise issued pursuant to DIVCA operating within Newport Beach. The City currently receives PEG fee revenues from three video service providers — Cox Communications, Spectrum (formerly Time Warner / Charter), and AT&T. The total PEG fees received generate approximately $265,000 in revenue to the City each fiscal year. This revenue is restricted by law and can only be used for capital expenses related to the City's PEG access equipment and facilities. The section of DIVCA that authorized the City to establish and collect PEG fees also states that "the ordinance shall expire, and may be reauthorized, upon the expiration of the state franchise." Ordinance 2017-5 reauthorizes NBMC Section 5.43.030(8) and enables the City to continue to collect the PEG fee. It does not change the rate of the fee, nor does it reference or affect the collection of the separate, franchise fees. The state video franchises were given 10 -year terms that will expire in 2017 for Cox Communications and AT&T, and 2018 for Spectrum. 4-2 Ordinance No. 2017-5: Reauthorizing the City's Public, Educational and Governmental Access Fee on State Video Franchises March 14, 2017 Page 3 Cox Communications recently notified the City that the CPUC approved the renewal of its state video franchise certificate and it will be effective April 27, 2017. The CPUC also approved AT&T's application for renewal and it will be effective March 30, 2017. Staff expects Spectrum to renew its state -issued franchise prior to its January 2018 expiration. This action does not relate to the franchise charges (again for the private use of the public rights-of-way). The franchise charges are projected to bring in about $1,868,500 in revenue in FY 2016-17. This amount has held steady over the past several years, even as cable television pricing has increased and while subscriptions have been impacted by "on demand" television services. The franchise charges are General Fund revenues, and unlike PEG fees, are not restricted in terms of their use. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to 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) 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. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENT: Attachment A — Ordinance No. 2017-5 4-3 ATTACHMENT A ORDINANCE NO. 2017 - AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, REAUTHORIZING THE PUBLIC, EDUCATIONAL, AND GOVERNMENT FEE ON STATE VIDEO FRANCHISES OPERATING WITHIN THE CITY OF NEWPORT BEACH WHEREAS, on May 22, 2007, the City Council for the City of Newport Beach ("City") adopted Ordinance No. 2007-9 which, among other things, added Section 5.43.030(8) to the Newport Beach Municipal Code ("NBMC"); WHEREAS, NBMC Section 5.43.030(8) imposes a fee on any holder of a state franchise issued pursuant to the Digital Infrastructure and Video Competition Act of 2006 ("DIVCA") operating within the City; the fee is one percent (1 %) of the state franchisee's "Gross Revenue," as defined in DIVCA and the NBMC, and is for the City to use for public, educational, and governmental ("PEG") purposes consistent with state and federal law; WHEREAS, California Public Utilities Code Section 5870(n) states that the City's ordinance imposing a PEG fee on state franchisees expires, and may be reauthorized, upon the expiration of the state franchise; WHEREAS, the State of California Public Utilities Commission ("CPUC") issued California Video Franchise Certificate Franchise Number 0002 to Pacific Bell Telephone Company d/b/a SBC Pacific Bell Telephone Company d/b/a AT&T California, effective March 30, 2007 ("AT&T Franchise"), which is set to expire and renew on March 30, 2017; WHEREAS, the CPUC issued California Video Franchise Certificate Franchise Number 0003 to CoxCom, Inc. d/b/a Cox Communications, effective April 27, 2007 ("Cox Franchise"), which is set to expire and renew on April 27, 2017; WHEREAS, the CPUC issued California Video Franchise Certificate Franchise Number 0020 to the entity doing business as Time Warner Cable now known as Spectrum, effective January 2, 2008 ("Time Warner Cable/Spectrum Franchise"), which is set to expire on January 2, 2018; and WHEREAS, the City Council wishes to adopt an ordinance expressly re- authorizing the PEG fee in NBMC Section 5.43.030(8) for: (1) AT&T Franchise; (2) Cox Franchise; and (3) Time Warner Cable/Spectrum Franchise. NOW THEREFORE, the City Council of the City of Newport Beach ordains as follows: Section 1: The City's PEG fee imposed in NBMC Section 5.43.030(8) is hereby reauthorized to the extent required by California Public Utilities Code Section 5870(n). All state franchisees operating within the City, including but not limited to the AT&T Franchise, the Cox Franchise, and the Time Warner Cable/Spectrum Franchise, shall continue to collect and remit the PEG fee as required in NBMC Section 5.43.030(8), which BE Ordinance No. 2017 - Page 2 of 3 fee shall remain unchanged and in full effect as to all state franchisees. The City Council expressly intends for this ordinance to apply retroactively to the expiration and renewal of the AT&T Franchise and/or the Cox Franchise to the extent either or both such franchises expire prior to the effective date of this ordinance. Section 2: The recitals provided in this ordinance are true and correct and are incorporated into the substantive portion of this ordinance. Section 3: If any section, subsection, sentence, clause or phrase of this ordinance is for any reason held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this ordinance. The City Council hereby declares that it would have passed this ordinance and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 4: The City Council finds the introduction and adoption of this ordinance is not subject to the California Environmental Quality Act ("CEQA") pursuant to 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) 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 introduction and 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 5: The Mayor shall sign and the City Clerk shall attest to the passage of this ordinance. The City Clerk shall cause the ordinance, or a summary thereof, to be published pursuant to City Charter Section 414. This ordinance was introduced at a regular meeting of the City Council of the City of Newport Beach held on the 14th day of March, 2017, and adopted on the 28th day of March, 2017, by the following vote, to -wit: AYES, COUNCILMEMBERS NOES, COUNCILMEMBERS ABSENT COUNCILMEMBERS Ordinance No. 2017 - KEVIN MULDOON, MAYOR ATTEST: LEILANI I. BROWN, CITY CLERK APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE AARON C. HARP, CITY ATTORNE'3 Page 3 of 3 m