San Diego won’t make cable companies pay to dig into streets

Fear of litigation from cable companies Cox, Spectrum and AT&T has prompted San Diego to retreat from an effort to raise more money to fix the city’s crumbling streets.

The City Council voted Monday essentially to waive nearly half a million dollars in annual fees San Diego was expecting to get from the cable operators under a 2023 city law that cracked down on street trenching.

The retreat comes less than two weeks after city officials announced that a comprehensive new survey shows the quality of San Diego’s streets has dropped sharply since a similar survey in 2016.

The new survey drops the overall pavement rating for San Diego’s streets from a score of 71, which placed them near the bottom of the “satisfactory” category, to the middle of the “fair” category with an updated score of 63.

Coupled with that survey, city officials recommended San Diego sharply boosting annual spending on road repair to $213 million per year, far more than its annual average between fiscal years 2013 and 2023 of $46.4 million.

The changes approved Monday by the council will not only deprive the city of an expected increase in road repair money, they will reduce what the city already gets.

Instead of sticking with a plan to more than double what cable companies pay to cover damage from street trenching to an estimated $470,000 a year, the council voted to reduce the existing fees to zero for the companies.

While city officials stressed that $470,000 would still be minuscule compared to the $200 million needed each year to get the city’s streets in good condition, council members said they were frustrated and disappointed.

But they pointed to confidential legal advice from City Attorney Mara Elliott as their motivation for the unanimous vote.

While Elliott’s advice hasn’t been made public because of potential litigation against the city, it appears to focus on whether it’s legal to charge cable companies more than the annual franchise fees they pay to operate in the city.

The municipal code changes approved Monday allow the companies to reduce the franchise fees they pay San Diego each year by the exact amount they owe the city under the new street trenching ordinance.

That is because the companies have argued in court that the 5 percent of revenue they pay cities to operate is the maximum they can be charged under franchise agreements approved by the state, city officials said.

“I do understand other cities like San Francisco and Santa Ana and Union City have all tried to impose similar fees to cable companies and Pacific Gas & Electric and others who damage our roads, and the courts have not looked kindly on them,” Councilmember Marni von Wilpert said. “I’m not thrilled about this.”

Von Wilpert said the legal analysis that resulted in the city’s retreat should have been completed before the city approved the new law and fee structure last year.

“I do ask that before major ordinances are unveiled for the council, a full legal analysis is done so we don’t have to be in this position and backtrack,” von Wilpert said.

Councilmember Raul Campillo initially said he would not support the city’s retreat, contending that franchise fees should be viewed as rent paid by cable companies and that trenching damage fees should be viewed as a security deposit.

“If we had a tenant who was paying their rent and they broke something inappropriately, they would then say ‘Oh, my rent covers the destruction’ instead of us saying ‘No, your security deposit covers the destruction,’” Campillo said. “If we’re not required to be doing this, we’re giving the cable companies $470,000 a year.”

When Campillo asked for more robust reasoning from Elliott’s staff during the public hearing, it was not forthcoming.

“It’s certainly within the council’s discretion how to proceed on this issue,” said Assistant City Attorney Leslie Fitzgerald. “We would refer you to our confidential memo, which we are happy to provide you further confidential briefings about.”

The city’s independent budget analyst said the legal risks aren’t clear-cut, noting that the deals between the companies and the state don’t anticipate the question facing San Diego.

“A system for crediting street damage fees against franchise fees is not explicitly included,” said Jordan More, an IBA policy analyst. “We haven’t seen any single case that mirrors one the city might defend.”

But More stopped short of urging the council to take a legal risk. Instead, he suggested the city should lobby for more clarity from the state about whether trenching fees can be charged in addition to franchise fees.

“The laws around franchise fees and the need to pay for damage done by trenching work could be improved,” he said.

Randy Wilde, an aide to Mayor Todd Gloria, stressed that Monday’s retreat doesn’t impede progress toward the primary goals of the new street preservation ordinance.

“All of the amendments we made to the street preservation ordinance to require more immediate and a higher level of restoration do apply to all parties that are trenching in the right of way,” he said.

In addition to cable companies and San Diego Gas & Electric, the law applies to municipal excavators like the city’s water and sewer divisions, private water companies and cell phone companies.

City officials say half the revenue from trenching fees comes from the city’s water and sewer divisions, which means that the increase in the fees will likely mean higher water and sewer rates for city customers.

SDG&E’s latest contract with San Diego allows the company to reduce its annual franchise free by the exact amount it owes the city for trenching each year.

City officials say the cable companies, which didn’t speak during Monday’s hearing, have pointed to that as a precedent for their fee reduction request.

The city gets about $120 million per year in franchise fees from the cable companies, SDG&E and trash haulers. Roughly 80 percent comes from the cable companies and SDG&E, city officials said.

A five-year budget outlook the city released in November predicts franchise fees from cable companies will drop about 6 percent per year during each of the next five years as customers shift away from cable toward streaming services.

The 2023 street preservation law requires higher-quality resurfacing after trenching and tighter time limits for temporary asphalt patches, which often sink and make streets uneven.

The law also requires companies to complete repairs more quickly and to perform comprehensive asphalt overlays more frequently, instead of the less aggressive slurry seal fixes now typically required after trenching.

Companies also need to address broader areas of pavement than under previous city policy. That’s partly because studies show that even narrow trenches weaken wide areas of a street, making it vulnerable to potholes and premature decay.

In addition, companies must fix more expensive concrete streets with entire concrete panels. Under previous policy, they were allowed to repair concrete streets with asphalt.

The changes also extend the city’s street preservation law to alleys, which weren’t previously covered.