MEMORANDUM

 

TO:

Roger L. Stancil, Town Manager

FROM:

Kenneth C. Pennoyer, Business Management Director

SUBJECT:

Response to Petition on the Distribution of PEG Funds and Revised Performance Agreement for The Peoples Channel

DATE:

October 15, 2008

 

PURPOSE

 

The purpose of this memorandum is to respond to a petition by Council on June 9, 2008, requesting a recommendation for the distribution of PEG funds. The NC General Assembly passed clarifying legislation in July 2008 outlining a process for PEG fund distribution.

 

Our understanding of the clarifying legislation suggests that the Town make available to The Peoples Channel additional funds that would essentially double the amount of annual funding it receives during the period between the effective date of the clarifying legislation and the termination of the Time Warner Franchise Agreement.  The Peoples Channel receives approximately $120,000 annually from access fees associated with the Time Warner Franchise and in addition would receive approximately the same amount from Subscriber Fees and Supplemental PEG Support based on the Video Service Competition Act.   In consideration of how best to allocate funds collected prior to this clarifying legislation, we recommend that the funds be split evenly between The Peoples Channel and the Chapel Hill Government Channel. Also with respect to funding, we recommend that the Town apply for an e-NC Authority Grant of up to $25,000 on behalf of The Peoples Channel.

 

We request that the Council authorize the Manager to execute an amended performance agreement with The Peoples Channel. The agreement has been amended to reflect the change in its funding arrangement.

 

The Council may wish to have additional discussion with The Peoples Channel about its intended use of the new funding and the potential for supporting the Town’s strategic directions through public access television. The Peoples Channel annual report normally is submitted to the Council in October, and this fall may be an opportune time for this conversation.

 

BACKGROUND AND DISCUSSION

 

On June 9, 2008, Council approved a performance agreement with The Peoples Channel that included changes necessary to conform to the 2006 Video Service Competition Act. Soon after the approval of that agreement, Town staff members were advised by The Peoples Channel that clarifying legislation passed by the State Legislature in July 2008 conflicted with the distribution of PEG Subscriber Fees portion of the agreement.  The Peoples Channel provided suggested changes to the performance agreement and Town staff with the assistance of the Triangle J Council of Governments Cable Consultant and NC League of Municipalities staff reviewed the suggested changes and attempted to determine the appropriate interpretation of the legislation.

 

Public, Education and Government (PEG) Channels

 

Under its franchise agreement with Time Warner Cable, the Town of Chapel Hill has three (3) Public, Education and Government (PEG) cable channels. They are as follows:

 

-          The “P” is the public access channel managed by The Peoples Channel on Ch. 8, which features programming produced by the community. The Town established a separate funding mechanism for “public access television” through the creation of subscriber fees charged directly to the cable customer, collected by Time Warner Cable, and passed through directly to the public access cable provider, The Peoples Channel. This method of supporting public access programming was established by our 20-year franchise agreement with Time Warner Cable, which was granted in 1996 and continues as long as the franchise agreement remains in place. If the Town’s franchise with Time Warner Cable ends, so will the subscriber fees.

 

-          The “E” or education channel is STV on Ch. 4, the local student access channel for the University of North Carolina at Chapel Hill. The education channel is supported by UNC-Chapel Hill.

-          The “G” or government access channel is Chapel Hill Government on Ch. 18. This channel features government meetings and public hearings, as well as candidate forums, debates and announcements to the community from various departments about services, special events and news for Chapel Hill. The government access channel has been supported by the Town, although the Town has not used cable revenues for this purpose in the past.

 

Video Service Competition Act

 

North Carolina State Session Law 2006-151 deregulated the video service provider industry in North Carolina. The law, known as the Video Service Competition Act (the Act), became applicable on January 1, 2007. The Act establishes the Office of the Secretary of State as the state’s sole authority to grant new video franchises to both new and current video providers. Current local franchises remain in effect until they either expire or an incumbent operator files a qualified application for and receives a state issued franchise. The Town of Chapel Hill’s franchise with Time Warner Cable remains in effect.

 

A state-administered sales tax replaced the majority of franchise fee payments on January 1, 2007. The revenues that are forwarded by the state to municipalities are based on the revenue pool derived from applicable sales tax receipts.

 

Under the Act, percentages of the sales tax collections on telecommunications, sales tax collections on cable service and sales tax collections on home satellite television service are to be distributed to North Carolina communities on a proportional basis. Cities and counties share portions of these three state taxes to replace the local cable franchise fee which expired January 1, 2007, and the public access fee which will expire concurrent with the franchise agreement.

 

Funding Provided Under the Video Service Competition Act   

 

Under the Act, the Town has received the following types of funding distributions (for a chart illustrating the funding amounts, see Attachment 1):

 

-          Sales Tax on Video Programming: Due to the passage of the Video Service Competition Act, the Town of Chapel Hill no longer receives cable franchise fees from Time Warner Cable. Instead, the Town receives the Sales Tax on Video Programming distributed quarterly by the NC Department of Revenue, which collects varying levels of taxes from cable, satellite, and telecommunication companies in the state and redistributes the tax. While the Town’s franchise agreement remains in place with Time Warner Cable, we continue to receive smaller payments from Time Warner for non-video service areas still covered through our franchise agreement. Like other utility taxes to the Town, cable revenues are an important source of revenue to the Town’s general fund. 

Issues: Cable taxes are part of the Town’s general fund revenues. When payments were made from Time Warner Cable, the Town anticipated a percentage increase from year to year. In the future, due to the changes in how the tax is administered, predicting cable revenues will be more difficult and we cannot assume the same annual growth that we had previously experienced.  

 

How These Funds Are Used: The Town relies on cable taxes as an important part of its general fund revenues, supporting the core services provided by the Town.  Under the new structure a portion of the Video Programming Tax is dedicated for PEG Subscriber Fees.

 

-          Supplemental PEG Support: The Town has collected and set aside the majority of these funds. When an opportunity arose in April 2008, the Council authorized staff to apply for a state grant to replace old and malfunctioning video cameras in the Council Chambers. By investing a portion of these funds totaling $12,500, we were able to leverage $37,500 ($12,500 from the Orange Water and Sewer Authority and the Chapel Hill-Carrboro City Schools to match $25,000 in grants from the e-NC Authority).

 

Issues:  The original legislation (North Carolina State Session Law 2006-151) did not provide guidance as to how PEG Subscriber fees portion of the state tax were to be distributed among the certified PEG channels. Recently, clarifying legislation was passed that attempts to provide this guidance.  The distribution of the Supplemental PEG Support now calls for an equal distribution of these funds among the channels.


How These Funds Are Used: $40,310.70 was collected prior to the clarifying legislation, and may be split equally between The Peoples Channel and the Government Channel, PEG channels that have previously received funding support through the cable taxes.  Amounts collected after July 2008 will be equally divided among the three certified PEG channels in Chapel Hill.

 

-          PEG Subscriber Fee Revenue: A portion of the distribution of the Town’s Sales Tax on Video Programming includes “PEG Subscriber Fee Revenue.” This amount is included in the general video tax distribution from the State and is calculated by a formula described in State law.  When questions arose as to the intent of State legislation with regard to these funds, the Town separated these funds until clarification could be reached for distribution.

Issues:  Through our discussions with the Triangle J Council of Governments Cable Consultant and NCLM staff, it was determined that the intent of the 2006 Act was to distribute future PEG Subscriber fees, those fees received after the clarifying legislation went into effect in July 2008, in the same manner the Public Access Fees were distributed during the certification period.  For the Town, this means that the Public Access Channel (The Peoples Channel) would receive 100 percent of future PEG Subscriber Fees.  While this provides a steady funding stream should the Time Warner franchise end, instituting this change today would mean that The Peoples Channel would receive both the Subscriber Fees and the Public Access Fees, which would essentially double the channel’s funding.  For this interim period while the Time Warner Franchise remains in effect The Peoples Channel would experience a funding windfall due to the provisions of the clarifying legislation.

 

How These Funds Are Used: $179,613 was collected prior to the clarifying legislation and may be split equally between The Peoples Channel and the Government Channel, PEG channels that have previously received funding support through the cable taxes. Funds collected after July 2008 will be distributed to The Peoples Channel.

 

-          Opportunity for E-NC Authority Grants: The state Legislation provides an additional opportunity for PEG Channel funding through matching grants of up to $25,000 from the e-NC Authority.  State legislation dictates that only counties or cities may apply to the e-NC Authority for a capital expenditure grant. Chad Johnston, executive director of The Peoples Channel, has requested that the Town apply on behalf of The Peoples Channel for a grant from the e-NC Authority for the next funding cycle for which applications are due on November 14, 2008.  We think it is reasonable to meet this request, which may result in additional funding for public access programming in Chapel Hill.

 

CONCLUSION

 

Due to legislative changes in the way cable franchises are taxed the Town is currently in a transition period, during which the 2006 Video Services Competition Act is in force and the Time Warner Cable Franchise is still in effect.  This situation creates some confusion with respect to the distribution of PEG funding, due in part to unclear wording in the legislation, and the fact that the subscriber fees received from the State under the Video Programming Tax are intended to replace the local Public Access Fees, and until the franchise expires we will continue to receive both sources of funds which are both passed through to The Peoples Channel. We have modified The Peoples Channel performance agreement in order to conform to the most recent clarifying legislation concerning PEG fund distribution.

 

The 2008 clarifying legislation does not address the distribution of Supplemental PEG Support and PEG Subscriber fees collected prior to the clarifying legislation taking effect.  Town staff recommends this one-time funding be divided equally between the two PEG channels (Public Access and Government Access channels) that have previously received funding support through the cable taxes.

RECOMMENDATION

 

That Council authorize the Town Manager to distribute Supplemental PEG Support and the PEG Subscriber Fees, accumulated prior to the clarifying legislation, on an equal split between the PEG channels currently supported through cable taxes. This would amount to $109,962 in one-time funding to The Peoples Channel, and $109,962 to the Chapel Hill Government Channel.

 

That the Council authorize the Town Manager to execute The Peoples Channel Performance Agreement, as revised and attached (Attachment 2), to reflect that the total amount of PEG Subscriber Fee Revenue collected after July 2008 would be allocated to The Peoples Channel.

In fiscal year 2008-09 and for as long as the franchise with Time Warner Cable is in place, The Peoples Channel would receive approximately $120,000 annually from these subscriber fees over and above its normal annual funding of approximately $120,000.

 

The Council may wish to have additional discussion with The Peoples Channel about its intended use of the new funding and the potential for supporting the Town’s strategic directions through public access television. The Peoples Channel annual report normally is submitted to the Council in October, and this fall may be an opportune time for this conversation.

 

ATTACHMENTS

 

  1. Video Programming Fees Schedule (p. 7).
  2. Revised Peoples Channel Performance Agreement, 2008 (p. 8).