FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN July 30, 2019 The Honorable Jim Costa U.S. House of Representatives 2021 Raybum House Office Building Washington, D.C. 20515 Dear Congressman Costa: 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 if 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)(l). In Montgomery County,Md. eta!. 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. $63 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 491-92. In response to this remand, the Commission unanimously issued its Second Further Notice of Proposed Rulemakingto 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, 1984 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 time, 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 against the franchise fee cap until the Commission can address the issue on a more complete record. Attachment proceeding related can concerning The Page be draft 2 of  capital Again, The any order the and Honorable further costs. thank order s also have broadens you been assistance. These potential Jim for considered latter your Costa the impact Commission s two letter. as conclusions on part Your PEG Sincerely, of views the programming. interpretation V. directly Commission s Pai have been address of entered an review. the exclusion concerns into Please the for record raised certain let me in of know your PEG- the letter if I