Title
Consider/Discuss/Act on a Resolution of the City Council of the City of McKinney, Texas, Approving the Pursuit of Legal Remedies Against Video Service Providers for Non-Payment of Franchise Fees and the Engagement of McKool Smith, P.C., Ashcroft Sutton Reyes LLC, and Korein Tillery LLC for Legal Services Under a Contingent Fee Contract Contingent Upon Approval of the Contract by the Office of the Attorney General of Texas Pursuant to Section 2254 of the Texas Government Code and Providing an Effective Date
Summary
COUNCIL GOAL: Financially Sound Government
MEETING DATE: March 1, 2022
DEPARTMENT: City Manager’s Office | City Attorney’s Office
CONTACT: Trevor Minyard, Director of Strategic Services | Mark Houser, City Attorney
RECOMMENDED CITY COUNCIL ACTION:
• Approval of the Resolution.
ITEM SUMMARY:
• The City of McKinney has been presented with the opportunity to join a group of cities in a contingency fee case seeking to recover the 5% franchise fee that various video delivery companies are not paying, per the Texas statutes (TX Utilities Code § 66.005(a)).
• The other entities joined in this case include,
o ABILENE
o ALLEN
o AMARILLO
o ARLINGTON
o AUSTIN
o CARROLLTON
o DALLAS
o DENTON
o FRISCO
o GARLAND
o GRAND PRAIRIE
o HOUSTON
o IRVING
o MESQUITE
o PEARLAND
o PLANO
o ROWLETT
o SUGAR LAND
o TYLER
o WACO
BACKGROUND INFORMATION:
• The video companies (Netflix, Hulu, and Disney+) currently deliver video programming without paying franchise fees.
• The companies’ customers typically use broadband internet connection (e.g., DSL or fiber optic cable) to receive programming.
• These internet connections rely upon wireline facilities located in the public right-of-way to bring internet service to customers.
• Texas Utilities Code states,
o “The holder of a state-issued certificate of franchise authority shall pay each municipality in which it provides cable service or video service a franchise fee of five percent based upon the definition of gross revenues as set forth in this chapter.
o A municipality may, in the event of a dispute concerning compensation under this section, bring an action in a court of competent jurisdiction.”
FINANCIAL SUMMARY:
• The damages are estimated to be approximately $2,110,000 with possible future payments totaling $470,000.
• The City will have no financial obligations in the contingency fee arrangement.
• The Texas Government Code requires special findings and notice for cities entering into contingent fee arrangements with attorneys suing on their behalf.
BOARD OR COMMISSION RECOMMENDATION:
• N/A