In April of this year, my colleague Ryan Radia and I wrote about a proposal making its way through the Texas State House to increase taxes on satellite television subscribers within the state. The article, originally published in the Austin-American Statesman, can be read here:
Spearheading this push to nearly double the tax on satellite television is state Rep. Craig Eiland, D-Galveston. Supporters of the tax argue that it would “level the playing field” between cable and satellite subscribers, complaining that Texans who get cable television pay a roughly 5 percent municipal franchise fee on top of ordinary sales taxes — a fee that doesn’t apply to satellite television.
To be sure, lawmakers should worry about discriminatory, unfair taxes, but municipal franchise fees are different. Assessing fees on private companies that use public resources is just common sense. Cable television lines typically run underneath city streets and other public lands that must be dug up from time to time for repairs or upgrades. This process can be inconvenient and costly. Why shouldn’t cable companies and their subscribers reimburse towns for the reasonable costs they incur?
Satellite providers, by contrast, don’t rely on public resources. Instead, they invest billions of dollars to launch their own satellites into space. DirecTV, for instance, has a fleet of a dozen satellites that orbit Earth, beaming video signals to the small dishes that are so frequently seen on residential rooftops and balconies. Upgrades to this system typically involve nothing more than swapping out a set-top box or adding a new dish — there is no tearing up city streets or public lands.
It’s a basic economic principle that when a service becomes more expensive, people will tend to consume of less of it. Under Eiland’s proposed tax hike, many Texans will likely downgrade their satellite service, or cancel it and switch to cheaper alternatives. This would distort the market for video services, putting cable and satellite installers out of business and limiting choices for Texas consumers.
After a feisty session full of fiscal feuding that went an entire month over schedule, the Texas Legislature closed up shop with many items still left on the table. Fortunately for satellite television customers all over the state, both bills that would have raised their taxes were among those left behind. As the legislature will not meet again until 2013, it seems unlikely that this particular issue will be addressed in the near future, but that ought not to mean that the misuse of municipal franchise fees remains unaddressed.
In the case of Texas, market inequalities were not caused “because taxes on satellite services are too low,” as Radia and I point out, but “because municipal franchise fees on cable service are way too high.” As previously stated, charging a private company for its use of public land is common. However the fees charged are far in excess of the cost.
In practice, most cable fee revenue goes not toward recouping the costs that towns incur because of cable services, but into municipal general funds, where it becomes fair game for spending-happy politicians. For example, in 2009, the City of Dallas spent only $637,000 on maintenance costs but collected $125 million in municipal franchise fees.
According to a January 2011 study by the Texas Public Policy Foundation, towns in Texas have become addicted to revenue from municipal franchise fees. “Cities profit greatly from franchise fees,” the study observes. “The disparity between funds collected and costs of maintaining (rights of way) is vast.”
While satellite customers in Texas may have dodged a budget bullet, the cable customers are still being gouged. Consumers in Texas, and every state, take note of the fees listed on their satellite or cable bills. Legislators, take action and lower the franchise fees to an equitable rate. The television service market will never truly be regular until that happens.