State Groups Gird for New Tax Round

After a hard slog this year, the fight against new taxes has not ended. Cable's lobbying troops will return to the Battle of the Budgets in their respective state houses again in 2003.

The climate is so tempestuous that legislatures have not been able to retire multimillion-dollar deficits in 2002. And elected officials were not inclined to do the dirtiest work during an election year.

That means millions of dollars — or, for California and New York, billions — in budget shortfalls still need to be retired.

Drastic cutbacks were the tools of choice last session; in 2003, the new euphemism "revenue enhancements" may be the rule.

State cable association directors already have been plotting their strategies, from the basic "keep your head down" to teaming with traditional legislative foes like telephone and electric companies.

"Coalition building will be important to fight things like taxes on services," predicted Bob Gunther, director of communications and government relations for the Cable Telecommunications Association of Maryland, Delaware and District of Columbia.

For instance, operators should team with all businesses to fight corporate taxes, or with utilities to fight user fees.

Calif. DBS tax?

One strategy to fight off new or higher taxes will be to argue for tax equalization.

"We have to have tax equity. That's our No. 1 priority," said Gilbert Martinez, vice president of government affairs for the California Cable Telecommunications Association, sponsors of this week's Western Show in Anaheim.

A tax on direct-broadcast satellite service failed in California last year, but it will be proffered again next year. CCTA members have been meeting with newly elected lawmakers, and with the chairwoman of the committee that would kick off a new battle on DBS tax. A proposal will be offered that should gain the support of California cities, according to Martinez.

California needs to cope with a $16 billion shortfall by state and local governments. According to CCTA estimates, DBS serves 2.1 million households in the state.

The proposed tax would raise $88 million to $100 million, with 75 percent of that going to cities and counties.

"We want to be good corporate citizens, but our customers ultimately pay an unfair share," said Bill Durand, executive vice president and chief counsel of the New England Cable Telecommunications Association.

For example, Connecticut cable customers pay an extra 5 percent to 7 percent on their bills to support public access, Durand noted. Operators pay a gross receipts tax, but DBS providers are exempt. The cable companies provide local jobs, but DBS doesn't, according to Durand.

That doesn't mean that associations are arguing for higher taxes for DBS providers, he said.

"We're not always looking for encumbrance for them, but to free us all, reduce regulation for all of us," Durand said.

Close shave in Indy

In the view of many statehouse veterans, tax breaks will not be viable in 2003.

"There's a $750-million deficit facing us. I'm fearful they'll come back to us," said Brad Tracy of the Indiana Cable Telecommunications Association. "This is a year for defense. My gut feeling is, keep your head down."

Operators there managed to convince legislators at the eleventh hour this year to approve a special amendment to carve cable out of a state gross-utilities tax bill. Lobbyists successfully argued that cable was not a utility. But Tracy is fearful legislators will revisit the tax this coming year.

One way to guarantee that you have lawmakers' attention and to get early warning of bills that will have an impact on your industry, is to gain an appointment to a new governors' transition team. Following in the footsteps of her predecessor, the late Gary Maher, Joan Etten of the Cable and Telecommunications Association of Illinois will help the states new governor Democrat Rod Blagojevich ease into office as part of his transition team.

"In the 17 years since the inception [of the Illinois CTA], we've fought off eight cable taxes," she said.

But this year, the state's estimated deficit is $3 billion. Even with a politically well connected association, Illinois cable executives will be crossing their fingers, Etten said.

Minnesota also expects legislators to resurrect a 0.5 percent telecom tax, contemplated last session to fund schools and libraries.

If legislators decide to retire the deficit with new fees, "we're gonna get it. That's our biggest fear," Minnesota Cable Communications Association executive director Mike Martin said.

The November election brought 50 new faces to the state house, "This will have a big impact"

Pole attachments

In addition to general-purpose taxes, trade groups also monitor the continuing irritant of pole-attachment policies.

Those levies began spiking two to three years ago as operators moved into non-video businesses such as Internet and telephone provision.

Operators in some states, such as Louisiana, successfully appealed to state regulators for help. The Louisiana Public Service Commission curbed rates by freezing them through the end of 2003. Now the association needs to see if the PSC will re-examine the issue, or extend the freeze.

Cheryl McCormick, the association's executive director, said operators there were pleased to see a state senator astute in telecommunications issues elected to the PSC, unseating an 18-year incumbent in the process.

Lobbyists also will keep an eye on a movement toward an amendment to the state constitution that would remove the tax protections that some industries had enjoyed.

Arizona relief

But in Arizona operators may actually see some tax relief. A dispute over a municipal sales tax between the city of Tucson and wireless-video provider People's Choice TV led to a state Supreme Court decision invalidating the tax. State law precludes taxes on telecommunications in the state.

A number of cable operators paid city taxes as well, and the state association is in discussions with the Arizona League of Cities and Towns about a resolution to the dispute, according to Arizona Cable Telecommunications Association executive director Susan Bitter Smith.

Customers of half the state's cable operators may get refunds or an offset of local franchise fees, she predicted.

Budgets aren't the only issues returning to the negotiation table. State remedies to the impasse between the Yankees Entertainment and Sports Network, which carries most of the New York Yankees Major League Baseball games, and Cablevision Systems Corp., which has declined to carry YES on the network's terms, will no doubt resurface in the 2003 New York session. As will a California jobs bill targeting cable call centers.

Last year, New York state Sen. Thomas Monahan introduced bills designed to prevent cable operators from discriminating against 'unaffiliated content providers.' " The bill specifically mentioned the sports network's battle with Cablevision.

The bill died in committee. But since the baseball season concluded without a resolution to the Cablevision-YES impasse, officials may revive the bill, predicted Richard Alteri, president of the Cable and Telecommunications Association of New York.

N.Y. update needed

The YES dispute coupled with election-year politics also stalled an industry-backed update of state cable rules, Alteri said.

Operators are currently governed by rules written in 1971, and it is hoped a rewrite would relieve system operators of outdated rules unilaterally applied to cable, but not competitors such as multi-point distribution systems or DBS.

New York is also in the last year of a pole attachment rate freeze, so the state also needs to address that issue.

In California, a jobs bill that failed to progress in 2002 could be put back on the table. That legislation, proposed by Assemblywoman Jackie Goldberg (D-Los Angeles), sought to compel call-center workers, including telephony or voice-over-Internet-protocol service personnel, to reside in the state.

Comcast Corp. president Brian Roberts has vowed to bring jobs back to California, noted the CCTA's Martinez. But the Communications Workers of America union isn't satisfied with new jobs that are non-union and are lobbying for resurrection of the bill, he said.

Key Illinois wins

Despite the attention on deficit reduction, cable lobbyists did manage to complete cable-related business in some statehouses. Not only did the Illinois CTA convince its legislature to pass one of the most thorough and up-to-date electronic anti-piracy bills, the trade group also sought and won outright exemption from a "do-not-call" bill.

The challenges of that bill would have been insurmountable, according to Etten — for example, barring Home Box Office from contracting with an outside firm to conduct marketing calls, even to existing cable customers.

The association successfully argued that new technologies are viable only if vendors are allowed telephone time to explain them, she explained.

The cable exemption succeeded despite opposition from real estate and banking interests and from local-telephone provider SBC Communications Inc.

Etten said the association would pursue additional privacy legislation in 2003, in the form of more stringent penalties against hackers.

North Carolina operators also countered a "call" effort by their attorney general that would have prevented systems from communicating with current customers, according to the state trade association's outside counsel Ed Turlington.
Anti-piracy efforts continue to be a priority by state associations.

In Ohio, a two-year-old piracy conviction was overturned when the court ruled that a pedestal break-in is covered in state anti-piracy law. As a result of that case, the state law has been amended to remove that loophole.

Virginia legislators approved enhancements of that state's piracy provisions, including language that allows operators to pursue civil suits.

Cable lobbyists found Rhode Island to be a trouble spot in 2002, and that could continue into 2003. There, operators joined with telco Verizon Communications and spiked a proposal that would have required the service providers to hire licensed electricians to do jobs currently completed by installers.

There were no safety violations, but union concerns drove this bill, Durand said. The bill could have cost service providers $200 to $300 more per install, he said.

But installation costs could still escalate in the state. In a revenue-enhancing strategy, the city of Providence has instituted easement fees and a related site review process.

If the policy remains, it would cost the local operator, Cox Communications Inc., $1,800 to $2,000 and six to eight weeks of processing time to get to service a $60 a month customer, according to Durand.

Cable lobbyists argue the policy violates Sec. 253 of the federal Cable Act, which prohibits local rules that constitute a barrier to entry.

Durand said the association has heard an encouraging response from the city's solicitor and hope to get him to recommend the city council reverse the policy.