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Wednesday, May 25, 2022

POLITICAL PULSE—Effort to Build New L.A. Fiber-Optic Network Falters

A deal to grant an L.A. city franchise agreement to fiber-optic network builder RCN Corp. of Princeton, N.J. to go head-to-head with established cable companies has hit a major snag.

Flush with financial backing from computer and cable mogul Paul Allen, RCN had won preliminary approval from the city’s Information Technology Agency last October to build broadband fiber-optic networks in five of the city’s 13 cable franchise areas. But the deal stalled as City Councilman Alex Padilla who chairs the council’s Information Technology Committee and RCN representatives dickered over terms, including a possible swap of portions of fiber-optic networks already operated by the city and those to be built by the company.

After three months of back-and-forth negotiations, an agreement seemed near, with a final deal supposed to be presented to Padilla’s committee last week.

But RCN announced in December it was pulling back from new broadband markets, saying it would stick only with markets in which it had a presence or in which it was building fiber networks. And that’s when, according to Padilla spokesman David Gershwin, RCN added a new condition to its terms: that it be granted an “opt-out” clause in the agreement to build in the five franchise areas. Such a clause would allow RCN to walk away from building the fiber network with little or no financial consequence.

(Pacific Telesis, now a subsidiary of SBC Communications Corp., abandoned a much more ambitious multibillion-dollar fiber-optic network for Southern California in the mid-1990s, citing lack of financial resources.)

But the opt-out clause is not at all to the liking of Padilla and the city negotiators and, as a result, a franchise agreement has been indefinitely postponed as talks continue.

“That’s just simply unacceptable,” Gershwin said. “We’ve been pushing hard for competition to the cable companies and were very glad when RCN agreed to come in. But the only thing worse than no competition is the promise of competition that goes unfulfilled.”

Gershwin said that if RCN is uncertain of its ability to finance fiber-optic networks in all five franchise areas, it should only bid on the two or three franchise areas it can afford.

Nancy Bavec, a spokeswoman for RCN, said the company does not comment on ongoing negotiations.

Gershwin said he is hopeful an agreement can still be reached. “Hopefully, RCN won’t pull out altogether. Even with the announced pullback, it’s hard to believe that Paul Allen’s financing has completely dried up.”

Business Tax Amnesty

As legislation that would allow cities access to state income tax records to go after scofflaws considered the financial linchpin of L.A.’s business tax reform plan remains in limbo in Sacramento, termed-out City Councilman Mike Feuer has revived a plan to push business tax reform forward.

Feuer is pushing a tax amnesty plan that would allow business scofflaws to pay back taxes within a certain period of time and thereby avoid any penalties. He would then like to allocate 75 percent of the estimated $20 million in additional tax revenue the amnesty program would generate to fund a package of tax reforms he co-authored last year.

Those reforms include eliminating taxes on revenue transfers within and between companies, setting up a business tax ombudsman post and creating a Web-based filing system.

Feuer, who is running hard for City Attorney, got his tax-allocation proposal through the City Council’s Ad-Hoc Committee on Tax Reform which he chairs on Feb. 12. It was slated to be introduced to the full City Council on Feb. 23.

L.A. City Clerk Mike Carey had estimated that the city is losing more than $60 million a year from its failure to collect taxes from business scofflaws.

Union Labor Ban Softened

As previously reported in this column, President George W. Bush had been considering an executive order banning project labor agreements on construction projects receiving federal funds. A project labor agreement, or PLA, essentially requires that all work on a project be done by union employees or workers on a union pay scale. PLAs are turning up with increasing frequency on local projects, most notably the Alameda Corridor.

Of course, national unions vigorously opposed a ban and had threatened to sue. And open-shop contractors eagerly awaited the ban, which would have overturned a Clinton administration order requiring PLAs.

Bush did issue his executive order on Feb. 17, but instead of an outright ban on PLAs, the order took a neutral approach, neither mandating nor banning the use of PLAs.

“Government contracting decisions should be neutral, neither requiring nor prohibiting project labor agreements, seeking the highest quality at the best price to ensure that government is a responsible steward of the American people’s hard-earned tax dollars,” said a White House statement.

Even though not a complete ban, the order was met with enthusiasm from the Southern California chapter of the Associated Builders and Contractors Inc., the trade group representing non-union contractors.

“In issuing this executive order, the Bush administration provides an equal playing field for open-shop construction,” said ABC Executive Director Susan McNiel.

In a statement issued last week after word of Bush’s order spread, AFL-CIO President John Sweeney said the nation’s unions are opposed to the order and are considering whether or not to challenge it in court.

Staff reporter Howard Fine can be reached by phone at (323) 549-5225 ext. 227 or by e-mail at hfine@labusinessjournal.com.

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