Kentucky cities, counties facing revenue losses from increased cellphone use

bmusgrave@herald-leader.comSeptember 21, 2013 

Counties and cities are scrambling to find ways to pay for 911 systems as more Kentuckians abandon traditional phone service in favor of cellphones.

Local fees on land line phones have traditionally paid the bulk of the costs for 911 systems, but cities and counties have seen that revenue source dry up in recent years.

One in three homes nationwide no longer has a land-line, according to U.S. Census data released this month. Less than 71 percent of households had land lines in 2011 — compared to 96 percent in 1996.

Current information on the number of people who no longer have land lines in Kentucky was not available. But Federal Communications Commission data shows cellphone use in Kentucky has exploded in the past 10 years from 1 million users in 2000 to 3.7 million in 2010.

The state assesses a fee of 70 cents on all cellphone users. But it's not enough to keep E911 systems afloat, county and city officials have said.

Fayette Urban County Enhanced 911 system could be running in the red in the next few years, Lexington officials were told earlier this month.

David Lucas, who recently retired as director of the city's Enhanced 911 system, told a committee of the Urban County Council on Sept. 10 that the 70 cent fee has not offset the loss in land line user fees.

"We will break even this year, but by next year or the following year we may be in trouble," Lucas said.

Thanks to an increase in the fees on land line phones in 2009, Fayette County has been able to offset some of the losses. The current fee on Fayette land lines is $2.58. When the fee went up in 2009, the change included an automatic inflation increase every year.

Land line fees assessed by local governments vary from 50 cents to $4.25 per month, according to state data.

Even with the increase in Fayette County land line fees, from 2011 to 2013 money generated by land line fees dropped by 22 percent, according to Urban County government financial data.

But Fayette County is better off than many other counties and cities which have had to fill shortfalls in 911 funding with tax dollars.

That means less money for other services, county and city officials said.

LaRue County Judge-Executive Tommy Turner, president of the Kentucky Association of Counties, said LaRue County received $120,000 from land line and cellphone fees, but its 911 budget was $450,000 last year. General fund dollars were used to fill the $330,000 gap.

"We've always had to supplement some, but the gap is growing and growing," Turner said. "At the same time, the number of calls is growing, and it's more expensive because we have to keep up with the technology."

Finding alternatives

Many counties and cities have turned to alternatives to local land line fees to keep 911 systems afloat.

In Campbell and Kenton counties, an annual fee was assessed on property. In other counties, including Garrard and Lincoln counties, a 911 fee was placed on utility bills.

The Kentucky League of Cities and the Kentucky Association of Counties have made stabilizing 911 funding for local governments a top priority. A bill will be introduced in the 2014 General Assembly in January that could help if it passes, its backers say. A final bill has not been drafted but some of the proposals include asking the state to raise the cellphone fee — the 70 cent fee was set in 1998 and has never been raised. Cities and counties would also like to see more of that 70 cent fee returned to local governments.

Fayette County, for example, receives about 45 cents of the 70 cents the state collects. Statewide, the average remittance to local governments is about 42 cents.

The money is divided up by a formula. The state keeps some of the money for administrative purposes, and other money is diverted into a grant fund — roughly 80 percent is returned to the counties.

J.D. Chaney, chief government affairs officer for the Kentucky League of Cities, said some states — including North Carolina — have moved to a single fee for both land line and cellphones that is collected at the state level. Telecommunications providers have backed the proposal because of its simplicity.

But counties and cities don't like it.

Local governments do not want to be dependent on the state to collect fees they desperately need.

"We want to make sure that the city's ability to generate local revenue is protected," Chaney said.

How to collect

Local governments also want to make sure that all cellphone users are paying the 70 cent tax.

Joe Barrows, the executive director of the Commercial Mobile Radio Service Board, said prepaid cellphone users are the fastest growing segment of cellphone users, but they are not paying as much as postpaid or traditional cellphone users.

In 2011, 22 percent of all cellphone users were on prepaid plans. Yet, 90 percent of all the fees from cellphone users were collected from post-paid or traditional cellphone plans, according to data from the Commercial Mobile Radio Service Board.

The problem, which has generated several lawsuits, is how to collect the fee from prepaid phone users when they don't receive a monthly bill. Cities and counties want legislation to ensure that all fees from prepaid phone users are collected, Chaney said.

Barrows and others say that it's unfair to continue to raise land line fees on a shrinking number of people when large segments of the population that use the system are paying far less.

Lucas said the majority of 911 calls in Fayette County are from cellphone users.

"About 80 percent of our calls are from cellphones," Lucas said. "But only 20 percent of our revenue comes from cellphone users."

To boot, it costs more for a 911 system to process a 911 call from a cellphone than from a land line, Lucas said. The 70 cent fee was added to cellphones because 911 systems had to be improved to process mobile phone calls. Enhanced 911 systems can locate a cellphone caller by longitude and latitude and then relay that 911 call to the correct jurisdiction. And because there are nearly as many cellphones as people in Kentucky — 3.7 million in 2010 — there are more calls to 911.

"If there was an accident on I-65, we used to get one call from someone in a nearby house," Turner said. "Now we can get 10 or 12 (911) calls on the same accident."

More calls means more staff, further driving up costs, Turner said. Costs will continue to climb.

In May, the Federal Communications Commission will issue new rules on next generation 911. That could mean adding such features as the ability to text 911. And that means more equipment and more technology updates.

"It's going to get a lot worse. Next generation 911 service will be costly. None of that is going to be free," said Shellie Hampton, director of government relations of the Kentucky Association of Counties.

Fixing 911 funding has to be a priority, Hampton said.

"When I pick up the phone, I expect 911 to be there. It's the most vital service and the most important function of government."

Beth Musgrave: (859) 231-3205. Twitter: @HLCityhall

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