News: CJ Exclusives

FCC Ruling Could Overturn State Broadband Law

Feds may let cities finance high-speed Internet without voter approval

RALEIGH — North Carolina is bracing for a decision by Federal Communications Commission officials that could overturn the state law placing limits on municipal broadband, potentially saddling local taxpayers with new debt they would not be required to approve.

The decision is expected to be handed down at the FCC’s Feb. 26 public meeting. Chairman Tom Wheeler circulated the draft decision to his fellow commissioners earlier in response to petitions from the cities of Wilson, N.C. and Chattanooga, Tenn., requesting the FCC overturn laws in their respective states.

While circulating the draft decision, Wheeler expressed his support for the cities’ petitions.

“I recommend approval by the commission so that these two forward-thinking cities can serve the many citizens clamoring for a better broadband future,” Wheeler said in a statement.

The move to overturn state laws restricting municipal broadband also has received support from President Obama, who said in a January speech that “all of us — including the FCC, which is responsible for regulating this area — should do everything we can to push back those old laws.”

Twenty-one states have a patchwork of laws restricting public broadband in one form or another. Tennessee’s law, for example, allows Chattanooga’s Electric Power Board Fiber Optics network to offer broadband services only in areas where the city already offers power; Florida’s law places extra taxes on municipal communications services; California’s law states that the authority for a municipal government to provide broadband services expires if a private company steps in to offer the service.

North Carolina’s law, passed in 2011, subjects approval of funding sources for new municipal broadband services to a public vote and limits Wilson’s Greenlight network from offering broadband services outside Wilson County.

Wilson borrowed $28 million to launch Greenlight using Certificates of Participation, which do not require a public vote.

Such a funding source for broadband bothered Rep. Marilyn Avila, R-Wake, a primary sponsor of House Bill 129.

“They didn’t ask their citizens if they wanted to pay for it, if they saw it as a core service,” Avila told reporters following final approval of the bill. “We have a lot of people in these cities whose voices have been muted. They do have a voice in the elections, but by then it’s too late. They’re committed to COPs for 15 to 20 years and there’s nothing they can do to get out of it.”

Wilson officials are “cautiously optimistic” that the FCC will rule in their favor so they can expand into surrounding counties where infrastructure is already in place.

“We have no specific insight, so we can’t say with certainty what will happen, so it’s just a wait and see. Hopefully. the FCC will decide what the best course of action is and then we’ll go from there,” Will Aycock, Greenlight’s general manager, told Carolina Journal.

At issue is whether cities can keep pace in a volatile and fast-paced industry such as telecommunications. If they can’t, core services could suffer if the city has to raid other departments to keep broadband afloat.

Several reports doubt cities can keep pace.

A 2009 John Locke Foundation report said Wilson city officials were “irresponsibly risking taxpayers’ money” because Greenlight’s fiber optic network “will be obsolete before it’s finished.”

Meanwhile, a 2014 report by New York Law School’s Advanced Communications Law and Policy Institute on government-owned networks (PDF download) defended state laws restricting public broadband.

“States, which maintain ultimate responsibility for the financial health of the cities and towns in their borders, have strong interests in overseeing the process by which GONs proposals are vetted and approved. Well-established legal precedent supports such a close relationship between states and their political subdivisions,” co-authors Charles M. Davidson and Michael J. Santorelli write in the executive summary.

The report notes that neither Chattanooga’s nor Wilson’s systems are financial disasters.

Indeed, Chattanooga’s EPB Fiber recently showed a profit, with revenues of $80.7 million and operating expenses of $26.1 million, while Wilson’s Greenlight system is breaking even, with revenues and operating expenses each totaling $11.4 million.

Despite that positive news, the report still calls into question Greenlight’s long-term ability to support itself financially given the debt load.

“Greenlight’s financing model was not approved by a referendum. It was, as discussed above, initiated by a City Council vote. In addition, the use of COPs has done little to mitigate the risk for taxpayers,” the report states.

At least one FCC commissioner is troubled by the prospect of a federal agency pre-empting state laws.

On the FCC’s official blog, Commissioner Michael O’Rielly wrote, “upon review, it is clear that many of the limitations or restrictions appear to be justified practices by state governments. …

“Beyond the extensive rhetoric and absent congressional direction, nullifying state-enacted taxpayer protections to further a political goal sends the commission down an extremely troubling path,” O’Rielly concluded.

Not surprisingly, North Carolina legislators who supported the broadband bill are troubled by the prospect of the FCC overturning state law.

In a phone interview, Rep. Mike Hager, R-Rutherford, the House majority leader, said FCC action overturning N.C. law would be an “egregious decision by the federal government.

“I’m a big fan of the 10th Amendment,” Hager said. “This is something that we’ve decided as a state. If the FCC decides to do this, we’ll have to take another look at it and decide what we can do to ensure that municipalities aren’t unfairly competing with cable companies using taxpayer dollars.”

As for the possibility of legal action should the FCC overturn the broadband law, Hager said that any legal challenge would have to be decided by the General Assembly’s leadership, Senate President Pro Tem Phil Berger and House Speaker Tim Moore.

More likely, however, is new legislation further restricting municipal broadband.

“We’re a legislative body,” Hager said. “That’s what we do.”

Sam A. Hieb is a contributor to Carolina Journal.