Cities and Franchise Fees: “No Stupidity. Rationality.”

You wouldn’t know it from all the focus on neutrality regulation, but core of the telecom legislation now moving through Congress would liberalize cable franchising–stripping local authorities of much of their ability to block the entry of new video competitors. There has been quite a bit of evidence already that such a move would substantially reduce rates for consumers. But, it’s widely believed, this would come at the cost of lost income to local governments, who receive revenue from cable franchise fees. Only last week, Mayor Ken Fellman of Arvada, Colorado, testified to the Senate on behalf of several local government associations that legislation would threaten local revenues. Nationwide, most local officials remain skeptical of cable competition. (Mayor Curt Pringle of Anaheim, Ca. remains a notable exception. His talk at Heritage on the topic can be seen here.)

But there’s a new study out that tells a different story In a report for Criterion Economics released last month, Bob Crandall and Bob Litan, both of the Brookings Institution, calculate that the take for local governments from cable franchise fees would actually increase more than $400 million due to competition. The reason: although cable rates, Crandall and Litan predict, would drop 13.5 percent, subscribership would increase from by between 29.7 and 39.1 percent.

So if the cities would benefit–along with their residents–why the opposition? Granted, Fellman was concerned about changes in the types of revenues that cities could tax, but it would seem any losses from those changes would be swamped by the gains calculated by Crandall and Litan. In fact, Crandall and Litan weren’t even mentioned.

Could local officials simply not be aware of the likely positive results? That’s unlikely. Politicians may have a lot of shortcomings, but they do pretty well at figuring out what will help and what will hurt them. Basic Public Choice 101 tells us that.

Tom Hazlett of George Mason University–who, as he puts it, has been studying this issue for a “complete global warming/cooling cycle”–says the answer is easy. Those of us who thought the cities actually were concerned about the loss of tax revenues are all wet: of course localities would gain revenue.

The actual opposition, he says, “is driven by the reduction in rent transfers arranged via the franchising process. This is not just the publicly reported “freebies,” but also campaign contributions, revolving door employment opportunities (for staff and political officeholders) and other emoluments. No stupidity. Rationality.”

I knew all along our public officials weren’t stupid. Now why doesn’t that make me feel better?

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