COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         0368-06

Bill No.:          Truly Agreed To and Finally Passed HCS for SS for SCS for SB 284

Subject:           Fees; Political Subdivisions; Public Service Commission; Revenue Dept; Taxation and Revenue - General

Type:              Original

Date:               March 21, 2007

Bill Summary:           Authorizes state-wide video service franchise agreements.

FISCAL SUMMARY

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 12 pages.

☐ Estimated Total Net Effect on All funds expected to exceed $100,000 savings or (cost).

☐ Estimated Net Effect on General Revenue Fund expected to exceed $100,000 (cost).

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Revenue state this proposal will have no fiscal impact on their agency.

Officials from the Office of State Courts Administrator state this proposal has no fiscal impact on the Courts.

Officials from the Department of Economic Development - Public Service Commission and Office of Public Counsel state this proposal will have no fiscal impact on their respective agencies.

Officials from the Office of Administration - Administrative Hearing Commission anticipate that this legislation will not significantly alter its caseload; however, if other similar bills also pass, there will be fiscal impact. If there are more cases, or more complex cases, there could be a fiscal impact.

Officials from the Office of Attorney General state that due to the likelihood of litigation over this proposal, AGO assumes that additional staffing (likely an experienced AAG III) and/or expense and equipment may be necessary on a temporary bases. Such costs would likely not exceed $100,000. Oversight assumes the litigation is speculative and that any potential costs arising from this proposal can be absorbed with existing resources or funds could be requested through the budget process.

Officials from the City of Centralia assume this proposal will have no fiscal impact on their City.

Officials from the City of St Charles provided the following assumptions regarding fiscal impact of this proposal to their city:

§67.2692

Total personnel cost for the complaint contact, for City complaint computer system entry, distribution and complaint closing, administrative review, and any follow up can amount to about $500 per complaint or around $15,000 per year at current complaint experience frequencies.

ASSUMPTION (continued)

§67.2703.1

Placing Government Access in a marketing tier that has fifty percent or more of a provider's subscriber base may require subscribers to pay for additional tier component programming and may necessitate rental or purchase of additional terminal equipment (converter) to receive that signal. If use of the City's cable channel is retarded by the tier on which it is located it will require higher expenditures for the City to pursue additional media distribution methods.

§67.2703.4

To retain the government access channel, a number of new local programs must be produced which cannot be accomplished without incurring additional costs. Increasing programming to meet the requirements of this legislation is likely to create expenses in the $50,000 range for either additional personnel or hiring of contract producers, just to meet the required volume of programming to retain operation of a channel so viewers will have access to City government meetings and information.

§67.2703.5

This section of HSC/SS/SCS/SB 284 appears to preempt the federally sanctioned, negotiated community benefits the City of Saint Charles and other community organizations use. Continuing the same number of connections with basic and expanded basic cable services will cost between approximately $14,400 per year, if a discounted rate is provided ($40.00 per month/$480.00 per year per connection), to $19,800 per year if there is no discount and a converter is required ($55.00 per month/$660.00 per year per connection).

Our franchise requires cable installation and service to St. Charles R-6 School District facilities. HSC/SS/SCS/SB 284 will remove any such requirement and expose the District to expenses they can ill afford. Additionally, our cable franchise requires a channel be provided for the School

District that is used to import Cooperating School District (CSD) educational programming from

St. Louis. This is not a programming channel to subscribers. It was the one request from the District during the cable T.V. franchise renewal Community Needs Assessment that is required under federal franchising rules. The value Charter would set for this connection is impossible to predict; however, it is likely to be more than the School District can afford.

An additional cost factor is caused under this section by not making provision for continuing use of live telecast insertion points offered by the cable operator, which uses their signal distribution system to show remote events on the City Access Channel. Without access to that system under ASSUMPTION (continued)

terms of our franchise, the alternatives are to drop production of any live remote programming, purchase the same service we now receive for free at whatever rate may be set by the cable operator, or the City will be required to purchase a broadcast microwave system which will cost between $60,000 and $80,000 depending on antenna mast configuration (distances are too great for cheaper 2.4 and 5.8 GHz wireless units which, also, are unlicensed and are susceptible to interference from other users of that spectrum-locations are not line-of-sight which might facilitate use of laser or other lower cost wireless devices). Microwave may also necessitate hiring of an engineer to ensure that FCC licensing standards are maintained; an additional $20,000 to $30,000 per year for a part-time salary position.

§67.2703.6

This section continues to require "The franchise entity" to be responsible for the form of signal which is sent to a video service provider on PEG channels. A standalone, broadcast device that converts analog video and audio into digital form with MPEG 2 or 4 compression can be very costly. We estimate that device will cost in the range of $15,000 as a one-time capital purchase. An additional cost factor is that the compression technology changes over time and this may be a new purchase requirement, without compensation, every two to three years as MPEG 5/6/7/8 or some other compression technology become the video service providers' standard. Also, each competitor may select a different technology which pyramids any cost of this requirement.

§67.2689 - §67.2703 (3) & (5) & (6) & (8)

The proposed legislation will reduce revenue on a per subscriber basis. Because of the change to the definition of "gross revenue" from our current franchise language and discounting of subscriber rates to entice competitor's customers, the reduction is anticipated to be in the ten (10) to twelve (12) percent range. Although there is no way to project numbers of subscribers, (dependent on whether/when/where a competitive video provider actually begins providing service and the number of customers who take the service) the City does not expect that there will be a significant increase in total subscribers to all competitive operators, combined, of that magnitude and the City expects revenue to be reduced by eight (8) to ten (10) percent, or between $38,400 and $48,000 per year.

Additionally, in past franchise renewals and transfers, the City has negotiated one-time grant funding to support the City's production and programming efforts. No further franchise renewal negotiations can occur, transfers of ownership will not require local approval and such support funding is prohibited under this proposal.

ASSUMPTION (continued)

Officials from the City of Kansas City provided the following estimates of fiscal impact of the proposed legislation:

Although the bill reduces the number of required new programs for PEG channels, still to retian the government access channel, a high number of new local programs must be produced. The City wil be required to invest heavily in more equipment and more employees to meet the required standard of programming to regain the government channel so viewers will have access to City government meetings and information. Educational institutions may not be able to provide such programming; therefore, this proposal could eliminate educational access channels. This would require the public schools to increase taxes or do away with learning opportunities. (§67.2703.4)

Costs will include replacement equipment now provided every three years by the incumbent cable television provider. Under the current franchise the amount over a 15 year

period is $700,000 worth of equipment. Losses will result from the inability to require PEG support and to require the companies to provide the equipment necessary to connect to the PEG facilities at one place. Losses may result from the risk of constant rebranding of PEG channels as they are moved about the companies' channel lineups, assuming one or more PEG channels will meet the requirements to exist. (§67.2703.8)

Additional costs will be the price of the institutional network. Time Warner Cable has provided an institutional network used by hospitals, libraries, the KC Police Department, and the KC Fire Department. The KCFD use includes connecting all fire stations to the main department office and to the fire academy for training purposes. The lack of an institutional network will necessitate overtime costs for off-site training or multiple training sessions in each fire station. Costs will be incurred for these new training purposes and for the replacement of the institutional network now provided without cost to the public safety agencies and colleges. (§67.2703.9)

According to officials from the City of Springfield, this proposal reduces the revenue on which

a franchise fee is calculated by redefining “gross revenue” to exclude items currently recognized as revenue to the company. This reduces receipts for the City of Springfield by approximately $360,000 over three years. (§67.2689.1)

The ability to audit the Video Service Provider (VSP) franchise fee payments is effectively reduced by the inability of the City of Springfield to recoup any expenses of an audit even if the VSP is grossly under paying. At $15,000 to $25,000 per audit per franchisee (assuming 2 franchisees in Springfield) this will cost $90,000 to $150,000 over three years. (§67.2691)

ASSUMPTION (continued)

The requirement for carriage of the PEG channels in the lowest tier has been changed to the tier with 50% of the subscribers. The ability to provide basic information to citizens (council meetings) is substantially impaired. The franchisee is allowed to move PEG channels anywhere on the dial (from channel 23 to 90, for instance) potentially costing the entire value of the television channel (TV23). The value of this station is at least a million dollars, but more probably several million: this will cost assets valued in the millions. (§67.2705)

Depending on the impairment of delivery of the Access Channel, the City of Springfield also may lose or re-assign up to four full-time employees. Any savings of funds would have to provide other means of communicating with citizens including the purchasing of over-the-air time. Additional costs will be the price of the institutional network. The City of Springfield has the option under current agreements and law to request the development of an institutional network. To date that has not been requested; however, this section eliminates that option. An

I-NET would connect all police and fire stations for communication and training purposes. Currently one of the access channels provides training to individual fire stations. The lack of an institutional network could necessitate overtime costs for off-site training or multiple training sessions in each fire station. Costs will be incurred for these new training purposes and for the replacement of the institutional network now provided without cost to the public safety agencies and colleges.

The PEG (Public Education and Government channels) requirements could result in the loss of annual grant to support capital equipment: a loss of exactly $300,000 over three years. (§67.2703)

No free service to municipal buildings, schools, libraries, and law enforcement facilities would cost the city, alone, approximately $90,000 over three years. (§67.2703.5)

In response to earlier versions of this proposal, officials from St Louis County submitted the following estimate of fiscal impact on their county:

County-wide Public Safety/Public Service Network (PSN) - The incumbent cable television provider has an on-going obligation for the life of the current franchise to provide, support, and maintain the County's PSN, which benefits the St. Louis County Police and St. Louis County Department of Highways and Traffic. This substitute will eliminate this obligation starting January 1, 2009. The cost of replicating the PSN is approximately $445,000 annually, starting in 2009 (§67.2703.8)

Oversight assumes that since the House Substitute extends the date to January 1, 2012, the cost ASSUMPTION (continued)

of replicating the PSN would not start until that date.

Due to the narrowing of the definition of franchise fees, the amount of franchise fees could be reduced by approximately $63,000 per year, starting in 2007. (§67.2689.1)

Beginning January 1, 2009, this proposal, as presently worded, jeopardizes funding for the Higher Education Channel (HEC-TV), which currently receives $1.1 million per year from the incumbent cable television provider. (§67.2703)

Beginning January 1, 2009, this draft eliminates funding in the amount of $60,000 per year from the incumbent cable television provider for the support of cable casting of public hearing, special meetings, and other events of interest to the citizens of St. Louis County. (§67.2703)