Michigan Lawsuits Target Franchise Fee

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Lawsuits currently pending in the Michigan courts could lower the franchise-fee payments cable operators pass through to consumers.

The operators themselves are bystanders to the court fight, though.

A Detroit law firm, Charfoos and Christensen P.C., has filed would-be class-action suits against 12 cities, claiming the towns collect more money from consumers in the form of franchise fees than regulators need to recoup their costs.

The suits are unique to Michigan: The challenge is based on a section of the state constitution called the Headlee Amendment, a 1971 article that requires cities to seek voter approval for new taxes.

The law firm has targeted 12 cities in suits filed last November: Troy, Midland, Warren, Grand Rapids, Ann Arbor, St. Clair Shores, Canton, Royal Oak, Muskegon, Livonia, Plymouth and Westland.

Lawyers examined city budget documents and found that some were not specific in accounting for the spending of franchise fees. But one city documented that $100,000 of its cable-TV funds went toward the local library, a firm representative said. Another city was said to have ended 2002 with a $1 million balance in its cable fund.

On Feb. 23, attorneys for St. Clair Shores argued in Macomb County District court that franchise fees are not taxes, but are user fees paid only by cable subscribers.

Federal law enables localities to collect franchise fees, which can amount to 5% of a cable bill.

Attorneys for the plaintiffs argued that when a city takes in more money than it uses, that’s a tax in violation of state law. The St. Clair Shores spokesperson did not respond to calls seeking comment on the case.

The judge did not rule after the hearing, but instead asked for additional briefs from the combatants.

Earlier this year, the case against Muskegon was argued in full, according to Parker, who said the firm hopes for a decision by late March.

Cities are unlikely to give up this revenue easily. The local newspapers are filled with coverage of service cutbacks triggered by a lack of revenue in town budgets.

One of the cities, Plymouth, tried to convince voters last November to overturn the application of the Headlee Amendment there so officials could create new taxes. The effort failed.

Should the suits succeed, municipalities could be forced to roll back franchise fees to their actual level of spending, and grant a rebate to consumers equal to the amount of the fee the court determines they overpaid the previous year, Parker said.

Cities could also worry about setting precedents.

Representatives of Charfoos and Christensen indicated the 12 towns might just be the initial defendants: More suits could be filed if the plaintiffs prevail.

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