THE BLOG
07/25/2014 07:43 pm ET Updated Sep 24, 2014

Who Should Decide? States' Rights, Local Authority and the Future of the Internet

2014-07-23-localauthority_0.jpg"[W]ithout power and independence, a town may contain good subjects, but it can have no active citizens."  That was the conclusion of Alexis de Tocqueville after touring a youthful American Republic in the early 1830s, as recorded in his classic Democracy in America. Today we are engaged in a renewed debate about the authority of governments closest to the people.

On July 16, by a vote of 223-200, the House of Representatives voted to strip the Federal Communications Commission (FCC) of the authority to allow communities the right to determine their broadband futures.  Republicans voted 221-4 in favor.

In a letter to FCC Chairman Tom Wheeler, 60 Republicans insisted that the federal government shouldn't interfere with the 20 state laws that either prohibit or severely inhibit municipally owned broadband networks. "Without any doubt, state governments across the country understand and are more attentive to the needs of the American people than unelected federal bureaucrats in Washington, D.C.," they wrote. A similar letter, signed by 11 Republican senators, asserted, "States are much closer to their citizens and can meet their needs better than an unelected bureaucracy in Washington, D.C. ... State political leaders are accountable to the voters who elect them...."

The Republican rationale is that state legislatures should be given deference over Congress and federal agencies because they are closer, more attentive and more accountable to their constituents.  The same reasoning should lead Republicans to agree that city councils and county commissions should be given deference over state legislatures and state agencies, but it doesn't.

The Senate letter warned that the FCC "would be well-advised to respect state sovereignty." But Republicans apply the principle of state sovereignty so inconsistently that it's hard to call it a guiding principle.

In 1992 the Supreme Court ruled that states could not compel online vendors without a physical presence in that state to collect sales taxes unless Congress gave permission.  In May 2013 the Democratic Senate voted to give them that permission.  House Republicans refused. Loss of state and local revenue for 2013 was estimated at $1.7 billion. For those who may be unaware, the issue at hand is not whether we should pay taxes when we buy goods online. Almost all states require us to do so.  The question is whether online vendors must, like brick and mortar stores, collect those taxes.

Exasperated by Republicans' hypocrisy on states' rights, Rep. Henry A. Waxman (D-California) asked a Special Investigations Division (SID) to examine legislative actions since George W. Bush took office insisting the federal government would not "impose its will on states and local communities."  The 2006 report found "a wide gulf between the pro-states rhetoric of Republican leaders and the actual legislative record."  It cited 57 instances of Republican-approved bills preempting state authority.

One occurred when the Republican House voted to prohibit states and cities from demanding competition in broadband services.  Using language eerily similar to that used recently by Republicans in their recent letters to the FCC, six organizations representing state and local officials maintained that state and local officials, "those closest to understanding and meeting the needs of our citizens," should make such decisions.  Republicans were unmoved.

The Paternalism of Republicans

When not hiding behind the states'-rights mantra, Republicans argue that they're protecting us against ourselves:  We might support the construction of a sure-to-fail municipally owned network.  In May FCC Chairman Tom Wheeler gave the small-"d" democratic response:

I understand that the experience with community broadband is mixed, that there have been both successes and failures. But if municipal governments want to pursue it, they shouldn't be inhibited by state laws that have been adopted at the behest of incumbent providers looking to limit competition.

The debate about whether to build a muni broadband network has proven to be one of the most considered, transparent and democratic of all policy debates, certainly far more considered than those made in Washington and state capitols

Usually citizens vote on the issue directly through ballot referenda. Corporate opponents outspend community proponents by 10- to 25-to-1 or more. In many cases state laws prohibit cities from campaigning for their own proposal.

Republicans and private telecoms maintain that cities lack the capacity to build and manage broadband networks.  They're empirically wrong.  Of the 160 municipally owned broadband networks, the successes vastly outnumber the failures.  Muni networks, not Google, offered the first gigabit service. Muni networks have saved their communities hundreds of millions of dollars, created tens of thousands of jobs, and become a firm foundation for economic-development initiatives.

If the FCC is allowed to proceed, it will first respond to a petition from muni networks so successful that surrounding communities want to connect to them but are forbidden by state law. In this context, the argument that the state is protecting cities against themselves is ludicrous.

That so many muni networks have succeeded is a testament to their communities' entrepreneurialism, creativity and patience. Lawsuits delay operation for years at a significant financial cost to cities. The huge customer base of telecom companies allows them to negotiate far lower prices for cable channels than tiny muni networks.  Cities that build networks often are prohibited from tapping into other city funds if needed, while private telephone and cable companies freely use profits gained from cities in which they have a monopoly to engage in predatory pricing against muni networks. After Monticello, Minnesota, built a network, Charter Communications slashed its combined cable and broadband package price from $145 to $60 per month while maintaining the higher price in nearby cities Duluth and Rochester.

The Success of Communities

For cities that persevere, the rewards can be very great.  Tiny Kutztown, Pennsylvania, saved the community an estimated $2 million in its first few years, a result of lower rates by the muni network and reduced prices charged by the incumbent cable company in response to competitive pressure. In 2004 Gov. Ed Rendell gave Kutztown an award for its network. Shortly thereafter, to his lasting shame, he signed a Verizon-sponsored bill preventing other Pennsylvania communities from replicating Kutztown's success.

Bristol, Virginia, population 17,000, estimates its network has saved residents and businesses over $10 million. Lafayette, Louisiana, estimates savings of over $90 million.  The economic and financial benefits of munis have been amply catalogued by the Institute for Local Self-Reliance and its Community Broadband Initiative.

Sometimes the arguments of private corporations are bizarre. After five North Carolina cities proved muni networks could be wildly successful, Time Warner aggressively lobbied the state legislature to prohibit any imitators.  Time Warner insisted it only wanted a level playing field. "The bill is intended to create a level playing field so if local governments want to provide commercial retail services in direct competition with private business, they can't use their considerable advantages unfairly," Time Warner declared.

You have to go a far piece to believe that tiny Salisbury, North Carolina, has a competitive edge over mammoth Time Warner, with annual revenues of $18 billion, more than 500 times greater than Salisbury's $34-million budget, and 14 million customers to Salisbury's Fibrant network customer base of 1,000.

But after Republicans gained control of the North Carolina legislature in 2012, the bizarre became the basis for public policy. The legislature passed the Time Warner bill.

Aside from their many quantifiable economic benefits, muni networks also generate equally important unquantifiable benefits.  One is far greater accountability. No longer must people rely on distant corporations for better service. Leaders in Wilson, North Carolina, describe this benefit of muni networks as the "strangle effect." If you have problems with the network, you can find someone locally to strangle.

For Harold DePriest, head of Chattanooga's state-of-the-art municipally owned broadband network (and electricity company), an even more fundamental issue is involved. "[D]oes our community control our own fate, or does someone else control it?" he asks. Questions about the digital divide and net neutrality can be debated and decided at the local level, not in some distant boardroom or by Congress, federal agencies or the courts.

The Freedom to Choose

If Congress allows the FCC to proceed and the FCC overturns state bans, an even more fundamental obstacle will stand in the way. Cities and counties are not mentioned in our Constitution.  This has has led courts to decide that local governments have little or no standing in our federalist system.  Established law relies on the famous 1868 dictum of Judge John Foster Dillon:

Municipal corporations owe their origin to, and derive their powers and rights wholly from, the legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so may it destroy. If it may destroy, it may abridge and control.

Congress passed the Telecommunications Act of 1996 to foster competition.  The text of the 1996 law was crystal-clear:

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.

If a state or local government is in violation, "the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correct such violation or inconsistency."

If anyone doubted the meaning of the phrase "any entity," they had only to read the congressional record. Consider Sen. Trent Lott's (R-Mississippi) comment:

I think the rural electric associations, the municipalities, and the investor-owned utilities, are all positioned to make a real contribution in this telecommunications area, and I do think it is important that we make sure we have got the right language to accomplish what we wish accomplished here.

But the Supreme Court didn't find the language clear at all. In 2003, by an 8-1 decision, it affirmed prohibitions on municipal networks.

The Supreme Court argued that established law considers cities and counties "created as convenient agencies for exercising such of the governmental powers of the State as may be entrusted to them in its absolute discretion."

Ultimately, then, this is a fight not about broadband but about democracy and the locus of authority.  Of course, corporations prefer to fight to protect and expand their privileges in 50 remote state capitols rather than in 30,000 local communities.  But genuine democracy depends on allowing, to the greatest extent possible, those who feel the impact of decisions to be a significant part in the making of those decisions.

Whatever Congress or the FCC decides, we need to challenge the concept that the communities in which we live are simply vassals of our state legislative lords.  This can be done on many levels.  Perhaps the most effective and productive can occur at the state capitols. A broad coalition cutting across parties and ideologies marching under the banner "freedom to choose" may be powerful enough to challenge the seemingly inexhaustible financial resources giant corporations have available to influence politics and politicians.

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