SOME CABLE TAXES IGNORED; CITY MAY COLLECT MONEY RETROACTIVELY.

Byline: Beth Barrett Daily News Staff Writer

The city of Los Angeles has allowed what could end up being millions of dollars to slip through its fingers because it has failed to collect the full cable television franchise fee chargeable by law, officials said.

Nearly two years since a federal ruling slightly bumped the tax rates cities could charge, Los Angeles has ignored questions about its policy from Times Warner Communications in Chatsworth, which wanted to know if it should continue paying the lower rate.

At the same time, city officials made no effort to find out whether 12 other official franchise holders are paying the lower rate or not, interviews and records showed Tuesday.

David Auger, vice president and general manager of Time Warner Communications, called the situation ``unbelievable and very disappointing'' in light of the company's query in October 1997. The company asked whether it would be charged the higher tax rate so it could decide about passing on the charge to customers, as the law provides.

``We've heard nothing,'' said Auger.

Jesse R. Juarros, assistant general manager of the city's Information Technology Agency, which oversees the collection of the fees, acknowledged there is no policy in place to ensure the higher rate is collected.

The additional pass-through costs to cable customers would be about 8 cents a month on a $30 bill.

``I don't know why they don't collect it,'' said Ed Perez, the assistant city attorney who provides legal advice to the agency. ``They can collect it at this point in time. There are no legal impediments. They have a legal right to do so.''

Deputy Mayor Jennifer Roth said the mayor's staff did not know the taxes were not being collected, but now would take steps to ensure they are, including any due retroactively.

``There is no excuse for not collecting any revenues that will help fund critical city services,'' Roth said. ``It's frustrating when a department is not proactive, especially when companies ask to pay more taxes.''

Juarros said Time Warner Communications never received an answer to its inquiry, because the city was not required to give one. He said the cable company still technically owes the taxes, which could include several back years of payments.

For Time Warner Communications and its roughly 100,000 Los Angeles customers, that would mean payments would increase by more than $100,000 for each year the tax is levied, Auger said.

Absence of policy

The reason the city didn't take Time Warner Communications up on its notification and start to collect the higher rate was because, in the absence of a policy, it did not want to single out the West Valley's largest provider, Juarros said.

``If we had made a policy decision on one company, that one company could ask, why is this directed at us alone?'' he said, adding he doesn't know when a policy statement will be drawn up.

The agency also was concerned that cable customers would most likely bear the burden of the tax.

``If companies have to pay it back, they'll pass it on to their customers. If they have to pay back $1 million, for instance, that's $200,000 each year if it's a five-year payback. That seems kind of crazy,'' Juarros said.

Deputy City Controller Tim Lynch said the fees should be collected uniformly, in keeping with the law.

``You can't arbitrarily make a policy decision to not collect something,'' Lynch said.

The City Controller's Office released a harsh audit Monday that said the agency has consistently failed to audit cable television franchise fees since its inception four years ago. The agency's sole audit activity has been a review, as yet unfinished, of two companies undergoing ownership transfers.

Last fiscal year, the city received approximately $15.6 million in fees, the audit said.

$500,000 uncollected

But Lynch said there could be ``$500,000 and up'' a year that's not being collected.

Juarros said the agency hasn't had the money to hire new auditors to determine what cable companies are indeed paying in franchise fees, particularly since some embed the fees in their accounting structure, making them difficult to break out.

The agency has requested $300,000 this year as part of a package that would pay for at least one more auditor to review cable companies' franchise fees. When that is completed, the agency expects to recommend a policy to the mayor and council on fee payment and repayment, he said.

Roth, the mayor's deputy, said the funding was put into the budget now pending.

The federal ruling in mid-1997 essentially says that cable companies can be taxed 5 percent on 100 percent of their gross revenues.

Companies like Time Warner Communications essentially are paying 5 percent on 95 percent of their gross revenues. They contend the rest is tax and therefore exempt from further taxation.

``It's horrible,'' Auger said of the federal interpretation. ``It's a tax on a tax, and it's our customers who suffer.''

Lynch said the agency has to get a grip on the franchise fee situation.

``This is not acceptable,'' he said.