Request By:
Mr. Earl F. Ashcraft
Estill County Attorney
Courthouse
Irvine, Kentucky 40336
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You ask whether Estill Fiscal Court can grant a television franchise for 20 years without any valuable consideration.
The granting of a franchise involves the usual incidents of a contract. City of Owensboro v. Top Vision Cable Co. of Ky., Ky., 487 S.W.2d 283 (1972) 287. The franchise cannot exceed 20 years. Section 164, Kentucky Constitution. The franchise does not meet that condition, since the franchise document provides that the "permit" shall be for a period of twenty (20) years and thereafter until revoked by the Fiscal Court of Estill County. (Emphasis added).
Now as to the consideration, which was no monetary value. The franchise price is determined by the award and contract documents, after bidding procedure. The award must be made to the "highest and best bidder" in open competition. This affords county flexibility in arriving at reasonable terms and conditions. But the terms must be fair to the county, the utility, and the public.
In considering this question, we must observe that the franchise power exists by virtue of the fact that cable television [cable and wire] is constructed over county road systems, over which the fiscal court has jurisdiction. See KRS 67.080 and KRS Ch. 178. Also see Ray v. City of Owensboro, Ky., 415 W.W.2d 77 (1967). Further, we concluded in OAG 78-89, copy enclosed, that fiscal courts generally have the authority to establish in the contract of franchise reasonable provisions for service and rates under § 164, Constitution, as are calculated to effectuate the purposes for which it is granted.
Kentucky Utilities Co. v. Bd. of Comr's 254 Ky. 527, 71 S.W.2d 1024 (1934) 1028.
In connection with the county's franchise price, in 47 C.F.R. § 76.31 [federal regulations relating to control of F.C.C. over cable television systems] it is provided that franchise fees shall be no more than three percent (3%) of the franchisee's gross subscriber revenues per year from cable television operations in the community. The regulation anticipates that local governments will exact a price, though a reasonable one, for the benefit of putting the cable television along the roads or streets of such political subdivisions.
It is our opinion that a cable television franchise from the county must necessarily carry with it a price, i.e., a monetary consideration, which is fair to the county, the utility and to the public. We must not forget that here the county is contracting a privilege not belonging to citizens of the county generally by common right. We are speaking of the privilege of the utility to erect and maintain poles [or share other poles] to accomodate a television coaxial cable system and related equipment necessary to provide community television service, the equipment being located on county public ways.
We further are of the opinion that the maximum fee of three per cent (3%) of the franchisee's gross subscriber revenues per year from cable TV in the county (unincorporated part of the county) sets the outer limit of what a reasonable franchise fee can be. See 47 C.F.R. § 76.31.
The point is that if the franchise contract contains no consideration for the county and no stipulations as to service and rates, then the franchise is a gratuity or a give away and causes us to believe that the spirit and letter of § 164, Constitution, were not observed by fiscal court in letting such a franchise. How could one say that the utility in question (franchisee) was the "highest and best bidder" under the constitution. In other words, what precisely was this private corporation (franchisee) bidding on?
A franchise, if properly issued, may extend to a period of not more than 20 years. Section 164, Constitution. The fact that a franchise extends beyond the term of office of fiscal court members voting on the franchise is wholly irrelevant.
Finally, § 179 of the Kentucky Constitution prohibits a county from appropriating money to any corporation or individual, except for purposes of roads, bridges, etc. The granting of a franchise for no monetary or valuable consideration would at least indirectly constitute a violation of this section of the constitution, since the county is giving away monetarily what a fair franchise fee would be. The purpose of this constitutional provision was to prevent the investment or contribution of public funds in private enterprises and to thereby forestall local tax revenues from being diverted from normal governmental channels.
Lousiville Bd. of Ins. Agents v. Jefferson Co. Bd. of Ed., Ky., 309 S.W.2d 40 (1958) 41. Here the situation you have is just as if fiscal court made a charge of 3% of the gross subscriber revenues as the franchise fee and then the fiscal court turned around and gave it back to the corporation.
The third provision of the franchise, indemnifying the county from any liability arising out of the cable TV operations, is meaningless, since the county, as a political subdivision of the state, is immune from tort liability anyway under the doctrine of sovereign immunity.
Cullinan v. Jefferson County, Ky., 418 S.W.2d 407 (1967) 408.
In summary, it is our opinion that the franchise is invalid for the following reasons: (1) It purports to extend beyond a 20 year term, which is prohibited by § 164, Constitution; (2) The franchise was issued without any valuable consideration, contrary to the intent of § 164; (3) The franchise was issued without effective or meaningful bidding procedure; (4) The franchise contains no provisions as to service and subscriber rates; (5) The franchise violates § 179 of the Kentucky Constitution, since it constitutes a give-away of what would otherwise be a fair franchise fee.