LOCAL GOVERNMENT SERVICES, LLC

Assisting cities and counties since 2002

TOWER LEASE NEGOTIATIONS
HOW TO OBTAIN MAXIMUM VALUE FOR USE OF YOUR WATER TOWER OR LAND

Generally, cellular companies want to place their facilities on city property. In most cases, that property is a water tower or a communications tower (such as where a city has its 911 operations). Companies like those kinds of locations and they prefer to work with cities rather than private landowners (which avoids a lot of private property zoning rules). So, when a cellular company presents you an offer or a proposed lease here are some things to keep in mind with tower lease negotiations to maximize your value:

* Generally, the initial rent offer is substantially lower than the market rate you can receive. We have seen initial offers of $500.00 per month that were negotiated for $2,000.00 or more. Most water tower leases are minimally in the $2,000.00 plus per month range depending on coverage density and traffic routes.

* Include an inflation escalator clause to increase monthly rent ranging from 3%-5% per year.

* Before negotiations begin know the number of antennas and equipment that will be attached to your tower and do not provide company a general lease to add equipment without city’s prior approval and additional rent consideration.

* Initial Term is normally 5 years with two (2) 5 year term extensions. Negotiate for higher compensation for any longer term. Include early termination fee if company should terminate lease in midterm.

* If painting or maintenance is to be performed on tower make sure company is required to pay for moving their equipment and not the City.

* Require cellular companies to reimburse you for outside expertise used to negotiate lease.

LAND LEASES

* Cities should include a revenue sharing provision in every land lease as towers are usually constructed with the capacity to add additional companies’ antennas on the tower. You should approve all subleases and share 20% to 40% in collocation revenue.

Beware of Companies trying to reduce your rent or offering lump sum payouts. Some companies request a reduction of rent usually in conjunction with a claim that technological advances may make the need for your tower obsolete or because of industry consolidation. In most cases we recommend cities to reject these proposals. A more recent trend is for cities to be approached with lump sum payment offers in return for a City to abate future rent. All too often these offers are not in the cities interest and are far below the value cities should receive.

For more information regarding tower lease negotiations contact Greg Fender with Local Government Services, LLC at 404-375-7084 or gregfender@localgovservices.com 

Franchise Fee Compliance Reviews Recoup Large Revenue

When the City of Chamblee annexed a part of Dekalb County years ago they took steps to ensure utilities and affected companies were notified. Associated revenue, such as franchise fee payments, rose accordingly. There were some variations in the revenue stream, yes, but they could be explained. Yet, how could Chamblee know that these companies recognized the annexed area now was within City Limits?

The City of Chamblee performed an audit of their cable provider. What they found was the annexed area was not recognized by their cable TV provider until a few years after the company was notified. The City recovered over $180,000 in back franchise fee payments.

Similarly, the City of Braselton recovered over $88,000. The City of Woodstock over $184,000. Avondale Estates over $45,000. The details of these case studies vary widely, and there were special circumstances in each, but the basic facts were the same: Jurisdictional errors were observed in their cable TV provider’s data, money was recovered, and the errors that caused the underpayments were corrected going forward.

These cities recovering money are members of the GMA’s Telecommunications and Right-of-Way Management program. The audits were performed under that program, with the actual work being done by the GMA and their subcontractor Local Government Services. “We only need a city’s input at the start of an audit,” says Tim McGraw, Franchise Fee Advisor for Local Government Services, “and sometimes we can require input towards the end, but mostly the work is on our end. We want to keep the workload away from the cities.” Mr. McGraw went on to state that if there is contention or negotiation with a cable provider, which is common in the larger settlements, that he and his team do involve the cities in the work. He maintains that even then he tries to keep the detailed tasks within Local Government Services.

The audits under the GMA program are termed Franchise Fee Payment Compliance Reviews, and are performed by financial analysts from Local Government Services. There is enormous experience in their staff, having performed over 300 such audits covering 26 different cable providers. Because of this experience, many times staff can simply examine a cable TV franchise fee

remittance sheet, and knowing the location and City Limits, make a judgement on whether an audit is recommended.

Cable TV franchise fee audits in Georgia universally fall in two categories: State and Local. Under State, a cable TV provider has opted for the State franchise, where the rules are clear and the City is obligated to set the franchise fee rate. Under Local, the franchise agreement terms and rate are negotiated bilaterally, and there can be several “one-off” conditions and specification. In both, the audit is almost always allowed a three-year review period, in accordance with Georgia statute.

Whether a state or local franchise agreement, the City is responsible for informing the cable TV provider (and the utility companies) of the change in City Limits. This can be done by letter, or submission of a form. A standard form can be obtained from Local Government Services LLC.

One fallacy regarding cable TV is that it is going away. It is true that many residents are “cutting the cord”, that people are increasingly getting their video from a variety of sources, and even that cable TV companies are pulling out of some smaller, more distant markets. But the base of cable TV in Georgia is so large that given the current rate of decrease the forecast is for cable TV to remain, in some form, well into the future. Indeed, some markets are seeing cable TV revenue increase, not decrease.

Every city in Georgia should periodically examine their cable TV franchise fee revenue. If there are anomalies or concerns, such as questions about whether annexations were captured properly, then an audit is recommended. These audits usually result in money recovered and/or problems corrected. Sometimes, especially with annexation issues, these recoveries can be large. Cities that are members of the GMA’s Telecommunications and Right-of-Way Management Program may choose to perform this audit by contacting Tim McGraw at tmcgraw@localgovservices.com, or 817-980-4516.