BellSouth v. City of Orangeburg

• Decision Date: 08 November 1999
• Docket Number: No. 25009.,25009.
• Citation: 337 S.C. 35,522 S.E.2d 804
• Parties: BELLSOUTH TELECOMMUNICATIONS, INC., f/k/a Southern Bell Telephone and Telegraph Company, Appellant, v. CITY OF ORANGEBURG, Martin C. Cheatham, in his official capacity as Mayor of the City of Orangeburg and Member of its City Council, Bernard Haire, Marion F. Moore, W. Everett Salley, D.V.M., L. Zimmerman Keitt, Joyce W. Rheney, Sandra P. Knotts, and Paul A. Miller, in their official capacities as Present and or Past Members of the Orangeburg City Council, Respondents.
• Court: South Carolina Supreme Court

337 S.C. 35

522 S.E.2d 804

BELLSOUTH TELECOMMUNICATIONS, INC., f/k/a Southern Bell Telephone and Telegraph Company, Appellant, v. CITY OF ORANGEBURG, Martin C. Cheatham, in his official capacity as Mayor of the City of Orangeburg and Member of its City Council, Bernard Haire, Marion F. Moore, W. Everett Salley, D.V.M., L. Zimmerman Keitt, Joyce W. Rheney, Sandra P. Knotts, and Paul A. Miller, in their official capacities as Present and or Past Members of the Orangeburg City Council, Respondents.

No. 25009.

Supreme Court of South Carolina.

Heard October 5, 1999.

Decided November 8, 1999.

Rehearing Denied December 15, 1999.

Fred A. Walters, Atlanta, Georgia, Caroline N. Watson, Columbia, William J. Quirk, Columbia, A. Camden Lewis, Keith M. Babcock, Lewis, Babcock & Hawkins, L.L.P., Columbia, for appellant.

James M. Brailsford, III, Robinson, McFadden & Moore, P.C., Columbia, James F. Walsh, Orangeburg, for respondents.

MOORE, Justice:

This appeal is from an order finding valid a franchise fee ordinance enacted by respondent City of Orangeburg (City). We affirm.

FACTS

Appellant BellSouth Telecommunications, Inc. (BellSouth) commenced this declaratory judgment action attacking the validity of City's franchise ordinance enacted May 11, 1993. The ordinance requires BellSouth to pay a yearly franchise fee of 5% of its gross revenue earned within City and a one-time administrative fee¹ in exchange for BellSouth's use of the public streets for poles, wires, cables, and other equipment incidental to providing telephone service. The ordinance is effective through December 31, 2003.² Prior to this 1993 ordinance, BellSouth operated under a 1894 franchise ordinance that allowed it to use the public streets to erect poles and wires and exempted BellSouth from "all municipal taxation, license or rentals" for a term of five years. Twenty years later, in 1914, the original franchise ordinance was expanded to include underground use of the public streets. The original five-year exemption from payment was not mentioned. BellSouth has never been obligated to pay a franchise fee until enactment of the 1993 ordinance.

In this action, BellSouth claimed the 1993 ordinance was invalid because (1) the franchise fee is really a "general revenue tax" which it claims City has no authority to enact and (2) the ordinance is inconsistent with the Constitution and general law of this State because it violates (i) the federal Telecommunications Act of 1996 which requires State law to conform to its requirements,³ (ii) S.C.Code Ann. § 58-9-2020 (1976), and (iii) several constitutional provisions. On cross-motions for summary judgment, the trial judge found the ordinance valid and entered judgment for City. BellSouth appeals.

ISSUES

1. Does City have authority to impose the ordinance fees on BellSouth?

2. Is the ordinance consistent with the Constitution and general law of this State?

DISCUSSION

1. Authority to impose franchise fees

BellSouth contends the franchise fees provided in the 1993 ordinance actually constitute a "general revenue tax." BellSouth relies heavily on the fact that the revenue collected under the ordinance will go into City's general fund which, it argues, indicates the ordinance imposes a tax and not a fee. We disagree.

Generally, a tax is an enforced contribution to provide for the support of government, whereas a fee is a charge for a particular benefit to the payer. Brown v. County of Horry, 308 S.C. 180, 417 S.E.2d 565 (1992). Where a municipality seeks to justify a charge as a fee because the revenue generated by the charge is used for the payer's benefit, we will consider the fact that the revenue is placed in a municipality's general fund in deciding whether or not the payer specially benefits from imposition of the charge.⁴ This factor is irrelevant, however, where the benefit to the payer derives not from the municipality's use of the revenue but is a benefit given directly and solely to the payor in exchange for the fee. In exchange for the fees imposed in this case, BellSouth is granted the special privilege of using public streets to place its equipment in order to serve City's residents and generate private profit.⁵ The fact that the fees are placed in City's general fund is irrelevant.

Under S.C.Code Ann. § 5-7-30 (Supp.1998), a municipality is authorized "to grant franchises for the use of public streets and make charges for them." Accordingly, we find it is clearly within City's authority to impose these fees in exchange for the franchise rights granted BellSouth.

2. Consistency with State law

Under § 5-7-30, a municipal ordinance may not be "inconsistent with the Constitution and general law of this State." BellSouth contends the 1993 ordinance is inconsistent with State law on several grounds.

a. Telecommunications Act

BellSouth contends the 1993 ordinance conflicts with the Telecommunications Act of 1996, 47 U.S.C. § 253(a). While this is a federal law, State law must conform to it, and therefore so must City's ordinance in order to pass muster under § 5-7-30. Section 253(a) provides:

No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

The trial judge found no conflict with this section based on 47 U.S.C. § 253(c) which provides:

Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.

The trial judge found this provision was satisfied because the only other telecommunications franchisee, a cable television company, paid the same fees. BellSouth, however, contends this provision does not validate the fees imposed under the 1993 ordinance because BellSouth is the only telephone service provider that must pay. We disagree.

BellSouth is the only telephone service provider required to pay these fees because it is the only telephone service provider that holds a franchise for private use of the public streets.⁶ The fees charged BellSouth are therefore non-discriminatory as required under the Telecommunications Act.

BellSouth further contends the 1993 ordinance violates § 253(c) because it contains provisions that exceed a local government's power under that section "to manage the public rights-of-way." BellSouth cites the ordinance's provision that it maintain or remove its "facilities" and give notice of merger or corporate restructuring.

In context, nothing in the ordinance applies to BellSouth's "facilities" other than those placed in the public street pursuant to the franchise⁷ which is clearly within City's power to manage its rights-of-way as permitted under § 253(c).

Moreover, BellSouth's reliance on AT & T Communications of the Southwest, Inc. v. City of Dallas, 8 F.Supp.2d 582 (1998), for the proposition that a local government's power under § 253(c) is strictly limited to managing the right-of-way is misplaced. In that case, the federal district court interpreted § 253(c) and found municipalities "absent explicit delegation by the state legislature ... do not have the more general authority to regulate to protect public safety and welfare." Id. at 590 (emphasis added); see also Bell Atlantic-Maryland, Inc. v. Prince George's County, Maryland, 49 F.Supp.2d 805, 814 n. 23 (D.Md.1999)

(noting local government did not seek to justify franchise ordinance as an exercise of regulatory powers reserved to the states and delegable to local government under § 253(b)). South Carolina has delegated to municipalities the power to enact ordinances "necessary and proper for the security, general welfare, and convenience of the municipality or for preserving health, peace, order, and good government in it." § 5-7-30. This power includes the ability to ensure that the grant of franchise privileges operates to the benefit of the public. City's ordinance merely requires Bell-South, as its franchisee, to make reasonable effort to provide the service that is the subject of its franchise.

Similarly, the ordinance's requirement that BellSouth give notice of mergers and corporate restructuring is a reasonable exercise of its authority over its franchise for the good of the public welfare as a means of ensuring notice of a possible change in service.

Finally, BellSouth complains the franchise fees, based on a percentage of its gross revenue, are not "fair and reasonable compensation" for use of the public rights-of-way as required under § 253(c). Again, BellSouth's reliance on AT & T v. City of Dallas, supra, to support its argument is misplaced. In that case, the federal district court found the municipality's percentage-based fee exceeded its authority to impose fees because Texas state law prohibited municipalities from charging franchise fees for certain services (such as longdistance service) that were included as sources of revenue for calculating the percentage fee. 8 F.Supp.2d at 593. Here, City's authority to charge franchise fees under § 5-7-30 is not so limited and there is nothing in the record to indicate the percentage is not fair and reasonable.

Further, we are aware of a split of authority in the federal courts regarding whether municipal franchise fees must be limited under § 253(c) to the municipality's cost of maintaining the public rights-of-way used by the telecommunications utility. Compare Bell Atlantic, 49 F.Supp.2d 805

(limiting fees to costs incurred) and TCG Detroit v. City of Dearborn, 16 F.Supp.2d 785 (E.D.Mich.1998) (upholding percentage of revenue fee). We find that a franchise fee equal to a percentage of the revenue generated is not inherently unfair or unreasonable...