ORDINANCE No. 182487

*Authorize utility license fee settlement with Qwest Corporation (Ordinance)

The City of Portland ordains:

Section 1.  The Council finds:

1.  In 2003, Portland joined nearly 70 cities within Oregon in an Intergovernmental Agreement to jointly audit amounts paid by Qwest and Verizon to the cities. Ordinance No. 177144. Qwest provides telecommunications services within more than 45 of the participating cities, including Portland.

2.  Due to complications posed by pending litigation brought by Qwest and other reasons, the Qwest audit did not begin until 2006. When the audit was initiated, the cities and Qwest agreed the audit period would cover dates between January 1, 2000 to December 31, 2005.

3.  Qwest, and its predecessor US West, make payments to the City under the Utility License Fee. Portland City Code Chapter 7.14. Qwest’s license fee payments are based on a rate of seven percent of revenues derived from exchange access services provided within Portland.

4.  The participating cities initially expected that utility audit adjustments would be based primarily upon two aspects: revenues from bundled services; and addresses not properly coded to the appropriate city for payment of fees. Oregon law does not allow fees to be applied to elements of bundles that have separate tariffs, and generally Qwest had tariffed those elements since before the audit period. In 2007, the cities determined that any other revenue adjustments would most likely have a de minimis financial impact, to the point of not being cost effective to pursue.

5.  Qwest contracted with a subsidiary of Pitney Bowes Corporation to code each service address in Oregon to its underlying tax jurisdiction. Qwest has represented to the participating cities that the review found a statewide discrepancy rate of two percent. Qwest offered to settle the audit with individual participating cities for an equivalent amount through the specified audit period. However, Qwest insisted that its offer of settlement would not be effective for any individual city unless all of the participating cities accepted the proposed settlement.

6.  Several of the participating cities tested the elements underlying Qwest’s offer. Qwest provided the cities with its statewide list of service addresses, coded by city. Separately, Portland staff within the Bureau of Technology Services compared service addresses within Qwest’s list against Portland’s records, and identified a gross discrepancy rate of only 0.51%.

7.  Based upon the comparison of records, the cities determined Qwest’s offer was reasonable. All of the participating cities indicated a preliminary interest in accepting the settlement offer.

8.  If the audit is resolved at this stage, Portland may be able to obtain a partial refund of its contribution to the $100,000 in unpaid audit funds, as distributed back to the various participating cities.

9.  Staff recommends that the City Council accept Qwest’s settlement offer, and approve the settlement of the audit, attached as Exhibit A.

NOW, THEREFORE, the Council directs:

a.  The Director of the Office of Cable Communications and Franchise Management or his designee is authorized to enter into a settlement agreement regarding the City’s financial review of Qwest Corporation’s utility license fees, in the form attached to this Ordinance as Exhibit A, subject to approval as to form by the City Attorney.

Section 2.   The Council declares that an emergency exists because the on-going audit does not allow Qwest to close its financial books for the affected years and the public interest would not be served by any delay in resolving this matter; therefore, this Ordinance shall be in full force and effect from and after its passage by Council.

Passed by the Council: January 22, 2009  GARY BLACKMER

Auditor of the City of Portland

By /s/ Susan Parsons

Commissioner Amanda Fritz            Deputy

DSoloos/BWalters            

January 7, 2009                

BACKING SHEET INFORMATION

AGENDA NO. 55-2009

ORDINANCE/RESOLUTION/COUNCIL DOCUMENT NO. 182487