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One of the city of Portland’s smallest bureaus is beefing with some of the nation’s largest companies. It’s a fight that might sound abstract but could touch the wallet of every household in town.
At issue are the franchise and utility fees that the Portland Office for Community Technology levies on corporate behemoths—AT&T, Verizon, Comcast, PacifiCorp, Portland General Electric, NW Natural, and many others—for access to the city’s right of way.
Like other cities, Portland has long charged companies for the opportunity to put up poles and wires, string fiber-optic cable, and run pipelines under city property. It’s a complex, lucrative undertaking that yielded the city $87.8 million last year, its third-largest source of revenue after property taxes and business license taxes.
Late last year, the Office for Community Technology, whose director calls her 13-employee bureau “small but mighty,” informed the more than 300 companies that pay fees that it was time to “streamline” those agreements.
That made sense: Over decades, the bureau had struck different deals with different companies at different times.
Robert McCullough, a former PGE executive who now consults for utilities nationally, says he’s urged City Hall for more than a decade to tweak the franchise fee to raise more revenue. But McCullough fears city staff will be overwhelmed by the army of utility lawyers.
That swamping has begun. The public comment period for the second draft of new rules closed June 2. The tenor of the 159 pages of comments submitted was decidedly hostile.
The Portland Business Alliance called the city’s proposal a “massive hidden tax and fee increase that appears to violate federal law and legal precedent.”
Jillian Schoene, chief of staff to Commissioner Carmen Rubio, who oversees the Office for Community Technology, says critics are overreacting: “Many neighboring jurisdictions moved to a similar code years ago with limited impact on utilities.”
Here are the main points of contention:
The purpose of the tax is in dispute.
So far, city officials haven’t said how much revenue they expect the new version of the fee will raise. They have not produced a fiscal impact statement or any financial analysis. Companies fear the new policy is a thinly disguised money grab.
Schoene says the goal is to simplify the negotiating process and get all companies on identical five-year contracts. “Portland’s goal is to create a more effective and efficient process,” she says, “not to increase revenues.”
The basis of the tax is unclear.
The fee utilities are charged will continue to be 5% of gross revenues. What constitutes “revenues,” however, is unsettled and very important. Companies don’t think they should be taxed on payments such as customer late fees or advertising (a big source of revenue for internet service providers). One suggestion: Some want the city to adopt an existing definition already used by the Public Utility Commission.
Schoene says that’s an apples-to-oranges comparison. “The PUC’s definition does not apply to all utilities using the right of way,” she says. “Portland’s definition will apply to all utilities using Portland’s right of way and is therefore necessarily different than the PUC’s.”
Some equipment could get taxed twice.
The internet depends on the vast web of fiber-optic cables beneath the ground. But the owners of those cables often lease out portions of them to other users. Critics complain the current draft would charge both the owner of the cable and companies leasing bandwidth on it.
Schoene concedes that in the example of leased fiber-optic space, both the owner and lessors will get charged. But she says that’s only fair.
“Portland residents own the city’s right of way and are entitled to compensation from businesses that use the right of way to generate profits,” Schoene says. “If the city allows anyone to use the right of way without compensation, Portland residents would effectively subsidize profits made by companies.”
The new policy is scheduled to come before the Portland City Council in July.