FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN August 1, 2019 The Honorable Debbie Stabenow United States Senate 731 Hart Senate Office Building Washington, DC 20510 Dear Senator Stabenow: Thank you for your letter regarding the impact that the statutory cap on franchise fees has on funding for public, educational, or governmental (PEG) channels. The Commission recently released the attached draft Third Report and Order, which the Commission plans to consider during its upcoming August meeting. While this draft may change in response to further input from stakeholders and Commissioners, you will see that it addresses in detail each of the concerns raised in your letter. As you know, the Communications Act limits franchise fees to five percent of cable revenues and defines  franchise fee to include  any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator or cable subscriber, or both, solely because of their status as such. 47 U.S.C. §542(g)(1). In Montgomery County,lid. et al. v. FCC, the U.S. Court of Appeals for the Sixth Circuit held that the terms  tax and  assessment were broad enough to encompass nonmonetary exactions such as cable-related, in-kind contributions. 863 F.3d 485, 490-91 (6th Cir. 2017). But the court held that just because the statutory definition of  franchise fee could include such nonmonetary contributions did not necessarily mean that it did include them, and it remanded the issue to the Commission for further consideration. See Id. at 49 1-92. In response to this remand, the Commission unanimously issued its Second Further Notice of Proposed Rulemaking to consider the scope of the congressionally-mandated statutory limit on franchise fees. The Commission developed a voluminous record in response to this notice, including numerous submissions from local franchising authorities, providers of PEG programming, and cable operators. The draft order is the product of our careful consideration of this record. The result, we believe, is both consistent with the Act and responsive to your concerns regarding PEG programming. Among other things, the Commission observed that Congress broadly defined franchise fees; indeed, with respect to PEG channels, it only excluded support payments with respect to franchises granted prior to October 30, 1924 as well as certain capital costs required by franchises granted after that date. 47 U.S.C. § 542(g)(2)(B) & (C). The draft order therefore concludes that cable-related, in-kind contributions including PEG-related contributions are  franchise fees subject to the Act s five-percent cap unless otherwise expressly excluded. At the same tune, the order defers ruling on the complex issues raised by PEG channel capacity and concludes that the costs of providing PEG channel capacity should not be offset Page 2 The Honorable Debbie Stabenow against the franchise fee cap until the Commission can address the issue on a more complete record. The draft order also broadens the Commission s interpretation of an exclusion for certain PEG- related capital costs. These latter two conclusions directly address the concerns raised in your letter concerning the order s potential impact on PEG programming. Again, thank you for your letter. Your views have been entered into the record of the proceeding and have been considered as part of the Commission s review. Please let me know if I can be of any further assistance. Sincerely, V. Paiv? Attachment THE U. tt(W  . OFFICE CHAIRMAN y OF respect programming. believe,  franchise concludes franchises franchise capacity and including franchise FCC, of necessarily were revenues consideration. statutory contributions. solely released funding a Dear its United in stakeholders Washington, The 724 franchising Proposed your upcoming cable Hart Honorable broad Senator the because At The to In As Thank States letter. is for and the definition and U.S. Senate fees; fees. numerous response operators. franchises that the granted both fees you mean enough public, draft attached Rulemaking concludes and DC August authority defines Peters: same Senate you cable-related, Court indeed, 863 of See know, Among The consistent Gary subject Office order Commissioners, that their 20510 after for F.3d to educational, id. to of time, Commission submissions granted of Peters draft meeting.  franchise the this it encompass  franchise your at with status is or other that Building that Appeals did to 485, 49 to the the Communications other with remand, the Third FEDERAL letter 1-92. consider respect the include date. prior in-kind product things, order as 490-91 Act s the While governmental costs such. or fee for Report from fee regarding developed nonmonetary you 47 to governmental Act the defers to them, the five-percent the contributions including the October to (6th of U.S.C. of could this PEG will Commission local COMMUNICATIONS and 47 include providing Sixth our Commission and scope ruling Cir. and draft U.S.C. August see Act responsive the channels, careful franchising a include WASHINGTON Order, § 30, Circuit voluminous entity 2017). it that of impact may limits exactions such  any 542(g)(2)(B) remanded on cap (PEG) the 1984 PEG § 1,2019 it the consideration unanimously 542(g)(1). which such on change tax, unless congressionally-mandated addresses held it observed franchise But that to as complex a only channel authorities, channels. cable your nonmonetary fee, well that the record the the the otherwise in excluded & or court COMMISSION PEG-related Commission concerns issue the as response statutory operator that In in fees capacity (C). assessment issues as in certain issued of detail Montgomery terms The Congress cable-related, providers held response to this to The support expressly the raised five contributions Commission regarding or cap each to its record.  tax that capital should draft Commission cable further Second percent contributions are plans of on just to broadly of by of payments and any order franchise County, this the costs statutory not excluded. PEG subscriber, PEG The because to in-kind PEG input  assessment kind Further of concerns be notice, consider recently therefore did result, required defined programming, channel cable offset for lid. from imposed with not fees limit the further Notice we or et raised during has by on both, al. by on v. Page 2 The Honorable Gary Peters against the franchise fee cap until the Commission can address the issue on a more complete record. The draft order also broadens the Commission s interpretation of an exclusion for certain PEG- related capital costs. These latter two conclusions directly address the concerns raised in your letter concerning the order s potential impact on PEG programming. Again, thank you for your letter. Your views have been entered into the record of the proceeding and have been considered as part of the Commission s review. Please let me know if I can be of any further assistance. Sincerely,v.f Ajit V. Pai Attachment