February 21, 2020, Number 8

Download the full .pdf version here: TML Legislative Update 8

Right-of-Way Compensation Lawsuit Progresses:

Assistant Attorney General Argues that $6.6 Million Loss to City of Dallas is of Little Concern 

A hearing in a lawsuit arguing that the Texas Legislature is giving away city rights-of-way for little or no compensation saw the attorney general’s office defend the laws in question while minimizing the financial impact on at least one large city. 

How did that come to pass?  It began in 2017, when the City of McAllen and a coalition of around 40 cities sued the state to challenge the unconstitutionally low right-of-way rental fees in S.B. 1004 by Kelly Hancock (R – North Richland Hills). That bill, passed during the 2017 regular session, requires a city to allow access for cellular antennae and related equipment (“small cell nodes”) in city rights-of-way, and it also entitles cell companies and others to place equipment on city light poles, traffic poles, street signs, and other poles.

The bill gives cities limited authority over placement, and it caps a city’s right-of-way rental fee at around $250 per small cell node. The artificially low price per node is a taxpayer subsidy to the cellular industry because it allows nearly free use of taxpayer-owned rights-of-way and facilities. The bill does precisely what the Texas Constitution prohibits: It is an action by the legislature forcing cities to give away their valuable assets to a private company.

The lawsuit was recently amended to add a claim based on S.B. 1152, the “franchise fee elimination” bill passed in 2019. That bill (also authored by Senator Hancock) authorizes a cable or phone company to stop paying the lesser of its state cable franchise or telephone access line fees, whichever is less for the company statewide. Because it also requires an unconstitutional gift of use of cities’ rights of way, the pleadings in the small cell lawsuit were amended to include the bill.

The lawsuit is proceeding through the courts, with the judge holding the hearing this week on whether to temporarily enjoin the implementation of S.B. 1152.  League staff attending the hearing and made several observations, two of which stood out. 

The assistant attorney general representing the State of Texas in the lawsuit used arguments similar to those made by industry and bill proponents on the legislation throughout the legislative process.  Specifically he argued that the City of Dallas’ loss of $6.6 million for the remainder of this fiscal year under S.B. 1152 is insignificant given the city’s $1.4 billion budget.  Coalition attorneys correctly rebutted the argument by stating the obvious: $6.6 million is a lot of money no matter what you compare it to, and it could have provided many beneficial programs and services to the residents of Dallas.

Attorneys for the city coalition further pointed out that the legislature approved a Texas Constitutional amendment election last year permitting cities to give away law enforcement animals as an exception to the same constitutional provision at stake in the right-of-way bills.  The point:  if $6.6 million to Dallas is constitutionally insignificant, why was the animal “give-away” amendment even necessary?

The judge asked for time to review briefing submitted by the parties, and should rule in the coming weeks. 

In a related case, A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit heard arguments last week in a lawsuit challenging a 2019 Federal Communications Commission  order relating to state and local management of small cell wireless infrastructure deployment. Similar to the Texas legislation, the order enacts substantial limitations on how cities regulate and charge for small cell equipment.  Nearly 100 lawsuits were filed all over the country by local governments, associations, and industry to challenge various parts of the order. The complex litigation is expected to continue for some time.

These bills and federal rules, if left unchecked, could lead the way to the complete elimination of all franchise fees in the future. That is why the lawsuit to prove that they are unconstitutional is so important to Texas cities. Interested city officials who want to discuss joining the lawsuit against both S.B. 1004 (2017) and S.B. 1152 (2019) may get further details or join the coalition by emailing Kevin Pagan, city attorney for McAllen.

Sales Tax Sourcing Rule Changes: Comptroller Extends Comment Period to April 3, 2020, and Comments

After receiving several requests from interested parties, the comptroller has extended by 60 days the comment period on recently-proposed sales tax rule changes that would alter sourcing for internet orders under certain circumstances. Cities now have until April 3, 2020 to submit their written comments to the comptroller. Of interest is a recent statement by the comptroller himself in a February 13, 2020, email on the subject:

Nobody likes paying taxes, but at least in the case of local sales taxes, you expect that the money is going to address the needs of your community. You probably never imagined that your tax dollars were being sent to another community to serve their needs or even provide a big rebate to a business.

Unfortunately, that’s exactly what is happening around Texas. Some cities and businesses have cut deals to source local sales tax on internet sales solely to particular cities. In exchange, those cities may rebate local tax dollars to the business – in some cases, 75 percent of the money.

In every other situation where taxes are used for economic development, the voters have the ability to have a say in those local elections. In this situation, all of us are paying local sales taxes that are used in a city where we have no rights as voters. This is a clear case of taxation without representation, and worse yet, it is being done without the full light of government transparency.

That’s why my office has proposed a rule to curb the practice.

If you’d like to know more, you can read about it in the Dallas Morning News, the Texas Tribune (here and here) and on our website.

Thank you for all you do for Texas, and God bless,

Glenn Hegar

Please contact Bill Longley, TML Legislative Counsel, with questions at bill@tml.org or 512-231-7400.

DISCLAIMER

TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.