Call to Order and Roll Call
The 4th meeting of the Interim Joint Committee on Veterans, Military Affairs, and Public Protection was held on Thursday, October 10, 2013, at 1:00 PM, in Room 154 of the Capitol Annex. Senator Jimmy Higdon, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Jimmy Higdon, Co-Chair; Representative Tanya Pullin, Co-Chair; Senators Perry B. Clark, Carroll Gibson, Ernie Harris, Christian McDaniel, Dennis Parrett, Jerry P. Rhoads, Albert Robinson, Kathy W. Stein, Whitney Westerfield, and Mike Wilson; Representatives Robert Benvenuti III, Tom Burch, Denver Butler, Dwight D. Butler, Larry Clark, Tim Couch, Will Coursey, David Floyd, Martha Jane King, David Meade, Terry Mills, Rick G. Nelson, Tom Riner, Rita Smart, and Russell Webber.
Guests: Bethanne Cooley, Director, States Legislative Affairs, CTIA – The Wireless Association; Jan Gould, Government Affairs, Kentucky Retail Federation; Joe Barrows, Executive Director, Commercial Mobile Radio Services Board; Virginia Gray, TW Telecom; Rob Rothenburger, Shelby County Judge Executive and 911 Service Director; and Tyler Campbell, Legislative Liaison, Kentucky Association of Counties (KACO).
LRC Staff: Erica Warren, Kristopher Shera, Nick Kilby, and Rhonda Schierer.
Minutes
Senator Wilson moved to adopt the September 12, 2013, meeting minutes. Representative Nelson seconded the motion, and the minutes were adopted.
Prepaid Cell Phone Fees for 911 Emergency Services
Bethanne Cooley, Director, States Legislative Affairs, testified on behalf of CTIA-The Wireless Association, the trade association for the wireless communications industry. She discussed the issue of fair and equitable funding of 911 systems. This model has been endorsed by the National Conference of State Legislatures and has passed in 32 states, the District of Columbia, and the Virgin Islands. Proposals are pending in other states. The wireless industry strongly encourages the enactment of collection of the 911 fee at the point-of-sale because it believes this will increase 911 fee collections while ensuring that prepaid consumers who benefit from the 911 system also contribute.
According to the National Emergency Number Association, an estimated 240 million calls are made to 911 in the U.S. each year. In the Commonwealth, wireless subscribers represent 91 percent of the population, or 4 million subscribers. One in four of those subscribers are prepaid wireless users, and the Commonwealth is not collecting the 911 fee from all prepaid wireless consumers.
Prepaid wireless service allows customers to pay in advance for a fixed number of minutes or a fixed time period of use of unlimited minutes. Since customers pay in advance there is no need for the customer to sign a contract. When a prepaid customer’s minutes or units are exhausted, the customer can go to a retail store and purchase a recharge card with a fixed number of minutes, go to a wireless provider’s retail store and purchase a recharge card, or recharge minutes by going directly to the prepaid wireless provider’s website. About 70 percent of all prepaid wireless transactions occur in these third party retail locations.
Traditional postpaid wireless service is sold directly by the wireless service provider, or its agent, to the consumer. Consumers must pay their bill monthly, including taxes and fees, in order to receive service. Under federal and Kentucky law, the wireless provider must receive and record the address for each user. This provides the wireless provider an address for billing and collecting the fee from the user, which the provider then remits to the proper 911 agency.
In 2007, the wireless industry recognized that the growth in popularity of prepaid wireless required a new urgency to develop a workable methodology to collect 911 fees for prepaid wireless. This resulted in model legislation that was presented to the National Conference of State Legislatures (NCSL) for consideration and was endorsed by the NCSL in July 2009.
There are key reasons to support the point-of-sale collection for prepaid wireless consumers. The prepaid point of sale methodology is based on actual sales, is transparent and equitable for all wireless consumers, it accurately sources the transaction to the state, and is a more efficient collection method. It will provide stable and predictable revenues to support the 911 system in Kentucky that exceed what is being remitted under current law. The model piggybacks on the existing sales and use tax collection system to minimize additional costs to retailers.
In response to a question from Senator Westerfield, Ms. Cooley stated that wireless providers are retailers. The largest providers nationally are Wal-Mart, Target, and Best Buy.
In response to a question from Senator Wilson, Ms. Cooley stated that 70 percent of cell phone providers are the retailers such as Wal-Mart, Target, and Best Buy, 20 percent are wireless retail stores, and the rest are locally owned small businesses.
Virginia Gray, representing TW Telecom, made a statement in that TW Telecom is in favor of everyone paying the same amount for 911 services, including prepaid and post wireless users as well as wireline (landline) users.
Tyler Campbell, legislative liaison for KACO, and Judge Rob Rothenburg, Shelby County Judge Executive, testified about concerns regarding the costs to counties for providing 911 operations. Mr. Campbell stated that many states are moving towards other ways to increase fees to help 911 service. Judge Rothenburg, who also serves as the 911 Director in Shelby County, stated that the county lost $140,000 from people switching from landlines, which included a fee for 911 services, to prepaid wireless service. Several counties have collaborated to find ways to share in the technology because there are no funds to improve equipment needed to maintain pace with 911 technology.
Jan Gould, Government Relations, Kentucky Retail Federation, testified in opposition of wireless providers collecting fees for 911 services at point-of-sale. Mr. Gould stated that CMRS collects from 30 entities. If fees are collected from retailers through point-of-sale, it would become thousands of entities. This could be costly and require an entirely new system to manage. He added that point-of-sale will be costly for the retail community. Another big concern is that third party providers allow consumers to get additional minutes through multiple sites on the internet and evade the fees for 911 services altogether, which would allow consumers to access 911 services without any obligation to pay for it. Point-of-sale fee collection would likely drive more consumers to these online sites that subvert all fee collection.
In response to a question from Senator Westerfield, Mr. Gould stated that there are approximately 3,000 small grocers in Kentucky who could be affected by the point-of-sale.
Joe Barrows, Executive Director of the Commercial Mobile Radio Services Board, gave a PowerPoint presentation and spoke in support of all cell phones supporting the 911 services. Mr. Barrows stated that the 911 service in Kentucky has increased the number of calls that are made to increasingly outdated equipment that are manned by overworked staff in an environment of stagnant or shrinking 911 revenues. All but 10 counties impose a fee ranging from 32 cents to $4.50 per month on wireline services for cable and landlines. State fees on cell phones are 70 cents per month except for pre-paid services which pay 38 cents, based on an inadequate formula put in statute that does not equate the 70 cent amount associated with cell phones bought under contract. These funds are collected and distributed by the CMRS Board to local call centers and service providers. Local government general fund dollars make up the balance and is the largest source of funds spent on 911 services. Cell phone providers and users are not paying their fair share for 911 services. There are 3.6 million cell phones in Kentucky compared to 1.8 million wireline phones. Cell phones account for about 70 percent of all 911 calls made in Kentucky but contribute less than 20 percent of the cost. The discrepancy in the law which permits prepaid cell phones to pay less than other cell phones has cost the CMRS fun and estimated $13.5 million since mid 2006. In 2008, the CMRS Board sued two providers of prepaid services, Trac Fone and Virgin Mobile, to collect on unremitted fees and has won both cases with combined judgments of $6 million. The Virgin Mobile case is under appeal.
Local governments are not in shape to answer the call for help alone. Current estimates show that providing 911 services at the local level statewide costs over $150 million annually statewide. $52 million comes from local and state 911 fees and the balance comes from local general funds. The General Assembly previously passed legislation which directed a comprehensive study to evaluate 911 revenues and expenditures and a report is due before the next legislative session. Mr. Barrows’ PowerPoint and materials are a part of the official record in the Legislative Research Library.
In response to a question from Chairman Higdon, Mr. Barrows stated that the Judgment related to the litigation for Track Fone is $5.2 million and about $800,000 for Virgin Mobil.
Other Business
Co-Chair Pullin asked staff to send a memo relaying the committee’s condolences to Carlos Pugh for the loss of his wife, Alma Pugh, on September 13, 2013. Chairman Higdon and the committee members agreed and expressed their deepest sympathy.
There being no further business, the meeting adjourned.