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August 14, 2008 10:07 AM

Are PEG Access Fees A Tax In Disguise?

I've been needing to get back into exploring the topic of PEG and will be doing so next week as I lay out some thoughts for what its future could look like, but for now learning about how the city of Saline, MI is taking Comcast to court for refusing to pay a new fee of 2% of its gross revenue has got me thinking: Aren't PEG access fees a tax?

To frame this, PEG channels and access centers are traditionally funded by franchise fees, which consist of cable TV operators paying a percentage of their cable TV revenue in exchange for obtaining rights of way in a community. The idea is that in order to access a public asset they should have to fund something that serves the public good, namely PEG.

In the case in Saline, Comcast is refusing to pay a new 2% fee on the grounds that doing so would increase their subscribers' bills. This is an important point to remember: cable operators don't trim profits to pay these fees, they simply pass them through to their customers by increasing the price of their service.

The reason behind Saline introducing this fee is to help pay off the debt incurred by the local school district from when they installed a new studio in a high school that trains students in video production.

So increased PEG access fees are paid by the public, and they're being used to fund projects for the community.

Now I know there are other ways for schools to raise funds, but I also know that schools sometimes have trouble getting the community to pony up additional money, especially for projects that some may feel are unnecessary and even more so when funding a project will result in an increase in taxes.

But I can't shake the feeling that finding funding through these PEG access fees are essentially a roundabout way of implementing taxes in disguise.

I'm not necessarily saying this is a bad thing or a practice that shouldn't be continued, but I do wonder how communities would react if they better understood this fact.

My own sense is that if I didn't know cable operators were just passing through the costs that I'd be in total support of them as it makes sense that private companies should have to pay back to the community something of value in exchange for the ability to access public rights of way.

But how would public sentiment towards PEG fees and PEG in general change if everyone understood that they're essentially a tax? I really don't know.

For many I'm sure it wouldn't make any difference since they see the tremendous public good that PEG provides and realize that its something that's worthwhile for our tax dollars to fund.

For anyone who subscribes to cable TV that doesn't see the value in PEG, though, I worry that if they learn the truth about PEG fees that it may further sour their opinion of the value of PEG thereby hurting public support for PEG at a time when we need to be rallying people around the promise of local community media.

I may be blowing this all out of proportion, but at the same time it wouldn't surprise me at all that as cable operators continue pushing back against their PEG obligations that they may follow Comcast's lead by calling into question the legitimacy of PEG fees as a secret tax on consumers.

So PEG stations should be prepared for this new front in the battle over their future as regardless of the legitimacy of these claims that PEG fees are a secret tax, the accusation alone is something that won't help public perception one bit as no one likes taxes, especially those that are disguised as something else.

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Comments (7)

Let's start from the top:

"Aren't PEG access fees a tax?"

No. They are rent for use of the right-of-way, just like franchise fees. If the cable company wasn't using public property to conduct their business they wouldn't have to pay rent.

"In the case in Saline, Comcast is refusing to pay a new 2% fee on the grounds that doing so would increase their subscribers' bills. This is an important point to remember: cable operators don't trim profits to pay these fees, they simply pass them through to their customers by increasing the price of their service."

Why do you assume that these are automatically passed on to the customer. Econ 101: Supply and Demand. As someone who has sat across form cable companies in negotiations for a local franchise I can assure you that they aren't shy about saying that, as an entertainment venue, they compete with all other forms of enterainment for your dollar. If they raise the price too high they can't compete. If they lower the price too much they can't make money. Their price point is determined by the market they so cherish. The illusion that there is a direct line between PEG fees and the bill increasing is just cableco smoke and mirrors.

Posted by Tom Bishop on August 14, 2008 3:58 PM

After working with a few community groups who guide PEG policy and negotiate with the operators, I can say without question that most (but not all) understand that the charge is not 'found money' paid from the coffers of some rich and distant company.

It is a tax on cable viewers and shows up as such right on the monthly bill.

Whether or not the general public knows or cares is another thing entirely.

Posted by Nick on August 14, 2008 4:12 PM


A couple of quick notes:

Since PEG benefits differ widely across the country, it is grossly simplistic to say that one funding source or another is "traditional". In Massachussetts, for example, most PEG funding comes from the franchise fee. In Minnesota, it varies depending upon whether you live in a rural or urban community. Most smaller communities support PEG from the franchise fee; many urban communities negotiate a separate fee for PEG support. I'd ask you to acknowledge some complexity here, or else people might think you don't know what you're talking about.

Second, you should recognize the difference between a fee and a tax. A fee typically goes to support a service provided in return. A tax does not. I can deduct local taxes from my income tax return; I cannot deduct local fees. Terminology is important, especially if your goal is to not deceive people.

Third, I guess I should welcome you to the world of community television advocacy. I've been involved in this work for about eight years. My colleagues around the country have been involved in local, state and federal debates and battles for decades. Negotiations for PEG fees, and funding PEG, has been a part of the public debate for at least twenty five years in communities across the country. Acknowledging other people's contributions to the history of debate is important, especially if you don't know the history of the battles you describe.

Fourth, I would ask you to consider what really sours public opinion, and actually determine the facts of the matter before you speculate on how the public views PEG. It's an extremely valuable resource in communities across the country. Personally, people pontificating on issues sours my opinion of blogging. But that's just me. I'm not going to ascribe my feelings to the public at large. Maybe you shouldn't either.

Fifth, who represents the citizens of a community that wishes to have these types of telecommunication services: a corporation or an elected body? I would hope you are not implying that the corporation knows best in this case. As a citizen, I hold my elected representatives accountable. I would hope that's a standard you support as well. It seems paternalistic at best for a corporation to determine what kind of services a community needs. I hope that isn't what you're advocating.

In most instances, the type of rhetoric you're using hides a corporation reducing its public interest obligations, or blustering to scare elected officials so they negotiate less benefits for their citizenry. I would hope your blog post isn't used to the same effect.

Best wishes,

Mike Wassenaar
St Paul, MN

Posted by Mike Wassenaar on August 14, 2008 4:31 PM

Are PEG assessments a tax?

Excellent question, and not a new one, by the way.

Consider this: Are those portions of a subscriber's bill that are used to buy carriage rights for basic cable networks a tax?

Is that portion of a subscriber's bill that is used to pay for C-SPAN a tax?

I can't believe that anyone would entertain those notions.

But PEG channels are unable to set their own license rates and charge operators accordingly (unlike, say, local broadcasters during retransmission negotiations).

[ps, Goeff, please speak to your IT folks about the "Publish error in template 'Comment Preview': Error in tag: Can't find included file '/home/app/public_html/gdblog/includes/header.html'" message that appears when one tries to preview a comment before posting]

Perhaps if PEG stations were treated with the same respect as the local NBC, ABC, WC or Ion broadcaster, and allowed to negotiate for compensation for carriage, the question of whether it's a tax would be moot.

Posted by Elliott Mitchell on August 14, 2008 5:44 PM

Rather than a tax, it more closely resembles a user fee, since those who do not subscribe to cable don't subsidize public access.
Funding of our local PEG station is partially underwritten by the city, enabling us to stream over the internet and reach those who do not subscribe to cable.
In California where DIVCA now prevails, cities may pass a local ordinance requiring state franchise television providers to collect up to 1% from their subscribers to fund PEG. That ordinance must be enacted by city government after appropriate public hearings. This process is very visible and can't be described as "hidden".

Posted by Randy S on August 14, 2008 11:51 PM

By way of introduction, I operate the PEG center in Lafayette Louisiana where we're hopefully going to benefit from our much discussed Fiber to the Home.

Your discussion of PEG fees was v ery well presented with one exception.

The argument that PEG cost are passed along to the consumer assumes an incorrect economic model. The cable companies are generally in a position to charge whatever the market will bear. This model has little to do with the cost of doing business markup model. Cablecos cover their cost then go as high as the customer base will tolerate.

There is generally no direct added cost to the customer when PEG fees are paid by the cablecos, they're already charging the most the customer will pay. It does shrink the profit, sort of like rent and insurance etc.

Although It is a cost of doing business as you pointed out, often it doesn't add to the customer's bill.

As for the Cableco argument that paying for that use is an unfair burden, if true (which is arguable) then level the playing field not by denying PEG but by making the others pay as well.

Media in the hands of the public is a very important issue. Making businesses pay for what they consume and allowing the owners of what's being consumed to have access to the benefits of that consumption makes good sense. Wordy, huh?

Sort of a quid pro quo.

Just my observations and thanks for listening.

Posted by Ed Bowie on August 15, 2008 5:01 PM

This is an old question and perhaps Geoff could review the court case regarding franchise fees at http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=5th&navby;=case&no;=9660427cv0
which states
“Franchise fees are not a tax, however, but essentially a form of rent: the price paid to rent use of public right-of-ways. See, e.g., City of St. Louis v. Western Union Telegraph Co., 148 U.S. 92 , 13 S.Ct. 485, 37 L.Ed. 380 (1893)(noting that the fee paid to a municipality for the use of its rights-of-way were rent, not a tax);
The decision goes on to state:
"A second argument that cable operators are acting as mere conduits is based upon the format of cable bills. Under the Cable Act of 1984, a cable operator is allowed to identify the cost of government regulation on their subscriber bills. This format does not, however, transform a cost imposed on cable operators into a cost imposed upon cable subscribers. It is true that the Act allows franchising authorities to directly impose franchising fees upon customers. Given that such a fee would hardly be politically popular, it is not surprising that most governmental entities have chosen not to follow this course--and, in any event, that certainly is not the case before us. When franchising agreements impose fees directly upon cable operators, any money collected to pay those fees will be part of the operator's gross revenue--which is the case before us.
In sum, there can be no doubt that franchise fees imposed on the cable operator are part of a cable operator's expense of doing business. There is no plausible basis to conclude that cable operators are acting as collection agents on behalf of franchising authorities."
Respectfully submitted,
Tony Vigue

Posted by Tony Vigue on August 18, 2008 11:07 AM

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