TITLE: Amendments to Cable Television Enabling Ordinance and Renewal of Cable
Television Franchise

RECOMMENDED ACTIONS:

1. Open/Close Public Hearing
2. Waive the Reading in Full of the Urgency Ordinance
3. Introduce the Urgency Ordinance by Title Only on First Reading
4. Adopt Urgency Ordinance (4/5ths vote required)
5. Adopt Resolution Authorizing the City Manager to Execute The Franchise Agreement
6. Adopt Budget Recommendations Per Attachment D - Net General Fund Gain is $25,200;
New Special Fund With Revenues of $151,000 and Expenses of $151,000

EXECUTIVE SUMMARY: This item represents the culmination of the cable television franchise negotiation and renewal process that the City has been engaged in for over three years. The intended result of the attached documents is to provide the citizens of Morgan Hill with a modern, reliable cable television system; to obtain the funding needed to provide reasonably-enhanced public, educational, and governmental access; and to develop the infrastructure for expanded data communication throughout the City.

While it is broadly known that many residents are dissatisfied with the selection, cost, and customer service that Falcon Cable Systems (Falcon) has provided, the City finds itself in an extremely difficult position. Due to the legal rights given cable television providers by the U.S. Congress, it is nearly impossible to not renew a cable franchise. Denying Falcon's renewal would likely result in several years of litigation and would cost the City several hundred thousand dollars in legal fees. Given this delay and expense, and the lack of certainty in prevailing in such a case, the Council has previously directed staff to develop an agreement with Falcon that will ensure that they expediently develop a modern cable system and provide Morgan Hill residents with the choice and service that residents in other communities currently enjoy.

The Council's last action in this area, the adoption of a tough enabling ordinance last December, has paid many dividends. These include: a dramatic improvement in Falcon's phone answering performance; a reduction in customer complaints to the City; and the provision of free service to customers who have not been provided customer service consistent with the City's tough customer service standards. The City's success in this area shows promise that our cable system can become a source of community pride, instead of a source of community discontent.

City staff have been satisfied with the concessions that Falcon has made during negotiations and the system that they have committed to build. The franchise agreement (Attachment C) contains the full range of legal requirements recommended by the City's special counsel along with the specification of the agreed-upon "deal points" of the negotiation. These include:

€a commitment to rebuild the cable system within eighteen months with a system that will roughly double the number of channels and provide higher quality service with fewer service interruptions;
€the inclusion of significant fines should Falcon fail to perform their agreed-upon duties;
€an obligation to provide Internet access to subscribers under certain conditions;
€an agreement to provide the City government and the School District with a dedicated institutional-network;
€a pledge to support governmental and public access as described in Attachment E;
€an increase in the franchise fee from 3% to 5% annually generating over $30,000 in additional general fund revenue;
€a "most-favored-nation" clause to ensure that Morgan Hill residents receive rates lower than residents in neighboring Falcon communities that Falcon provides with higher levels of public access support; and
€an agreement that the franchise term should be for only ten years.

In addition to the franchise agreement, this item also includes minor modifications to the enabling ordinance adopted by the Council last December. These modifications are intended to clarify the intent of specific provisions in the ordinance and slightly reduce one requirement related to phone answering performance. The entire enabling ordinance is formally included in the proposed franchise agreement. The changes to the original ordinance are presented tonight as an urgency ordinance (Attachment A) in order to ensure that the amended ordinance is in effect for inclusion into the franchise agreement. If the ordinance amendments are adopted as a regular ordinance, the renewed franchise will become effective before the ordinance thereby creating confusion and possible disputes as to which regulations apply to the franchise during the period of time before the regular ordinance becomes effective. In order to avoid such confusion and administrative uncertainty, it is necessary for the immediate preservation of the public peace, health, and safety that the ordinance become effective immediately. Not adopting the modifications in the form of an urgency ordinance would necessitate delaying adoption of the franchise agreement until the first meeting in January.

Once a franchise agreement is established, staff will release a request for proposals (RFP) to solicit nonprofit organizations interested in providing public access television in Morgan Hill. It is intended that approximately one-half of the support provided by Falcon for public and governmental access will be dedicated to public access and provided to the most qualified organization that responds to the City's RFP.

CONSISTENCY WITH CITY COUNCIL GOALS: The adoption of the proposed actions is an essential step in attaining the Council's Goal of "Improving Cable TV Services".

FISCAL IMPACT: An increase in general fund revenues of approximately $20,000 and a decrease in general fund expenses of approximately $5,200 will result from the recommended actions. The specific budgetary implications and a request for additional itemized appropriations are included as Attachment D. The net gain to this year's general fund balance is $25,200. Special revenues of $151,000 and expenses of $151,000 are also anticipated. Future annual general fund revenues are anticipated to be $52,000 higher than existing revenues for a total of $131,000.

COORDINATED WITH: City Manager's Office, City Attorney's Office, and Finance Department


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Community Development Director City Manager