Challenge to 2017 Texas Small-Cells Law Picks Up Again

Recent Texas laws preempting local governments in the right of way (ROW) are permissible under the state constitution, the state argued this week at the Texas 3rd Court of Appeals. Cities disagreed earlier this month that a lower court could uphold the rental rate caps in the state’s 2017 small-cells law without at least considering material facts. The Texas constitutional principle at issue here shouldn’t be foreign to other states, said local government attorney David Brown in an interview. “The expectation is that governments don’t give away property.”

The 2017 Texas law capped cities’ ROW rental fees at $250 per small cell. As the statute was taking effect, McAllen and other Texas cities challenged the state’s small-cells law at the Texas District Court of Travis County. They argued that the compensation level set by the legislature was an "unlawful gift" under the Texas Constitution (see 1708300020). Two years later, with still no decision in that case, cities amended their lawsuit to additionally challenge a 2019 law stopping municipalities from charging telecom providers twice when they use the right of way for phone and video (see 1906260050).

Ruling nearly five years after the initial complaint, the state court found July 26 on summary judgment that the 2019 law facially violated the state constitution, but that the 2017 small-cells law was constitutional. The court also specifically found the 2019 law is unconstitutional as applied to Houston. The appeals court gave notice Aug. 24 of the cities’ appeal (case 03-22-00524-CV).

The appeals court should affirm the lower court’s ruling on the 2017 law and reverse on the 2019 law, Texas said in a brief posted Wednesday. “This appeal concerns novel interpretations of the ‘no gifts’ provisions of the Texas Constitution that may invalidate several other unrelated statutes,” said Texas, seeking oral argument. The 2017 and 2019 laws were meant to spur wireless telecom deployment, making it “cheaper (but not free!) for telecom companies to install wireless access points and fiber-optic cables in the ROW.”

Not charging market value doesn’t mean it’s a gift, it said. “Controlling precedent holds that there is no need to charge market value -- because there is still a $250 charge, it is not ‘gratuitous,’ and thus does not violate the anti-gift provisions of the Texas Constitution.”

Cities are incorrect that companies within an affiliated group must be individually charged, said Texas regarding the challenged 2019 law. “Plaintiffs argue the various Comcast subsidiaries … are technically two separate companies, so only charging the Comcast ‘affiliated group’ means that one subsidiary … is getting a ‘gift,’” Texas said. But that interpretation would render “unconstitutional other pricing schemes for public goods ranging from park fees to public housing rents,” it said. Under that interpretation, a state toll booth charging one fee to a car with multiple passengers would be giving unconstitutional gifts to some of the passengers, the state said.

Summary judgment wasn’t the right way for the court to resolve disagreement about compensation under the 2017 small-cells law, McAllen and other local governments said in a Nov. 11 brief. “Because the value of the public property being transferred is a material fact … that portion of the summary judgment should be reversed and remanded to the district court for resolution of the fact question.”

“Granting use of public property for only ten cents on the dollar of the rental market value is a violation of article III, section 52(a), of the Texas Constitution, which provides that the legislature ‘shall have no power to authorize any … city … to grant public money or thing of value in aid of or to any individual, association, or corporation whatsoever,’” the cities said. Prior to the 2017 law limiting compensation to $250 annually, cities said they had been charging $1,500 to $2,500 a year for rentals. The state is right that the law didn’t require zero payment, said the cities, but the disparity between the public property’s value and the return is still “grossly disproportionate.”

Cities disagreed there was a public purpose achieved by the small-cells law that made it constitutional. “The predominant purpose must be to accomplish a public purpose, rather than to benefit private parties,” government “must retain public control” to ensure that purpose is met and “there must be assurances that the governmental body receives a public benefit,” the cities said. “The transfer of public property to commercial enterprises mandated by [the 2017 small-cells law] meets none of the three elements.”

“You can only obtain summary judgment for things where the facts are not in dispute … and as a matter of law, one side or the other wins,” said Brown of Austin-based law firm Ewell Brown. The cities say the issue of whether they’re getting enough compensation is a fact disagreement that precludes summary judgment, he said.

Many small cells have gone up in Texas since cities challenged the small-cells law in 2017, with cities getting less compensation than they say they should get, said Brown. “Cities are losing money when they would be making money.” It’s fairly “unusual” how long the lower state court took to get to its decision this year on the 2017 lawsuit, said the lawyer. “This one really seemed to just sit there for … two years or more before they finally got around to do this summary judgment.”

Brown predicted a quicker pace for the appeal, possibly with oral argument this spring and a decision in early summer. Another possibility would be for state legislators to update the small-cells law when they return this January, he said. But the lawyer cautioned that the issue probably isn’t “in the center of their radar” and there’s always a risk that legislators could make things worse for cities.

The wireless industry successfully lobbied to get small-cells laws enacted in 33 states and territories. CTIA and the Wireless Infrastructure Association declined to comment this week on the Texas case. The Texas State Wireless Association didn’t comment.