Texas Urges State Court to Uphold Small-Cells Law

A Texas appeals court should affirm a lower court’s ruling that a 2017 small-cells law is constitutional, urged Texas this month. Houston and other cities asked the Texas 3rd Court of Appeals to instead uphold the lower court’s other finding that a 2019 right-of-way (ROW) law was unconstitutional. In Jan. 20 briefs in case 03-22-00524-CV, they disagreed with each other’s November briefs in which Texas urged the court to reverse on the 2019 law while cities sought reversal of the decision on the 2017 statute (see 2211230015). Texas and cities agreed there should be oral argument.

The case concerns two recent Texas laws challenged by cities. A 2017 Texas law capped cities’ ROW rental fees at $250 per small cell. As the statute was taking effect, McAllen and other Texas cities challenged the state’s small-cells law at the Texas District Court of Travis County. They argued the compensation level set by the legislature was an "unlawful gift" under the Texas Constitution (see 1708300020). Two years later, with still no decision in that case, cities amended their lawsuit to additionally challenge a 2019 law stopping municipalities from charging telecom providers twice when they use the ROW for phone and video (see 1906260050). The Travis County court said in summary judgment last summer the 2019 law facially violated the state constitution, but the 2017 small-cells law was constitutional.

Don’t “create a new Texas constitutional doctrine requiring cities to base their prices for public goods on fair market value,” Texas Attorney General Ken Paxton (R) office urged the appeals court this month. “This appeal concerns novel interpretations of the 'no gifts' provisions of the Texas Constitution that may invalidate several other unrelated statutes,” Controlling precedent says the constitution doesn’t require fair market value to be charged for ROW fees, the state said. “Because there is still a $250 charge, it is not 'gratuitous,' and thus the statute does not violate the anti-gift provisions of the Texas Constitution.” There was “no showing -- or even any allegation -- that the $250 fee was tantamount to fraud,” Texas said. “There is no alleged unconscionability at issue here -- just a legislative pricing disagreement between” state legislators and cities.

Cities’ interpretation would have “unintended consequences,” Texas said. "Anyone wanting to block a municipal transaction could allege that the city did not obtain [fair market value] in the transaction, and thus it was a constitutionally prohibited 'gift.'" But in Walker v. City of Georgetown, a 2002 case about leasing city park land for batting cages, the 3rd Court of Appeals said “the city was not required to lease the land at [fair market value], nor obtain an appraisal to do so, to comply with the Texas Constitution,” said Texas: Following that precedent, the court should now say cities aren't required to charge fair market value for small-cell rentals.

Texas legislators “financially and competitively favored integrated telecommunications and cable/video providers” by not requiring them to pay ROW fees for both access lines and cable franchises in the 2019 law, Houston wrote. The law’s authors “made no effort to provide any public benefit nor did they attempt to describe one that would result from its passage.” Citing the state constitution’s Article III, Section 52(a) and Article XI, Section 3, Houston said “cities cannot allow certain favored private parties to rent public property -- for free -- to enhance their profits and the Texas Legislature cannot authorize, let alone require, that any city do so.”

The law took revenue cities needed without providing any public benefit, said Houston. The year before the law took effect, the city received about $10 million in access-line fees from Comcast's phone business and $12.6 million in franchise fees from Comcast's cable division, it said. After the law, Comcast paid the cable but not the phone fee, the city said. Houston said it likely lost $17-$27 million in 2020 revenue, while Dallas lost $9.3 million and Corpus Christi lost $8 million.

"This statutory requirement to permit some companies to use city right-of-way without the charge associated with that use when their competitors are required to pay the statutory fee is a grant of a thing of value,” said McAllen and other Texas cities in a separate brief. “It amounts to a waiver of fees that statewide likely exceeds $100 million a year.” The law fails to meet the state constitution’s public purpose exemption, it said.

McAllen and other cities disagreed with Texas that it's not a gift because the law still requires companies to pay something. Just because a company pays “full fare for one use of the right-of-way does not avoid the fact that it pays nothing for the other use,” those cities said. The state argues the law applies to situations where cable and phone data are sent through the same fiber cable, but there's no such limit in the statute, they said. "The statute merely requires that a company, whether individually or through its affiliates, offer some level of the two services in the city,” the cities said. “It would apply if a company offered telecom service in only one part of the city and an affiliate operated cable service in an entirely different part of town, using entirely separate infrastructure in the right-of-way.”