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Resolution Number 01-7-3-2RESOLUTION NO 01-7-3-2 A RESOLUTION AND RATE ORDER OF THE CITY COUNCIL OF THE CITY OF SAN JUAN CAPISTRANO APPROVING A POSSESSORY INTEREST TAX REFUND PLAN OF COX COMMUNICATIONS, INC., OR A SUBSIDIARY THEREOF ("COX"). The City Council of the City of San Juan Capistrano finds: WHEREAS, Cox Communications, Inc., or a subsidiary thereof ("Cox"), has been granted a franchise to own and operate a cable telephone system in the City of San Juan Capistrano (the "City"). A. The City is authorized to regulate Basic Service rates in accordance with the Regulations established by the Federal Communications Commission (the "Commission"). B. In or about 1990, the Assessor of the County of Orange (the "Assessor") significantly increased the valuation of Cox's possessory interest in public rights-of-way. This increase in possessory interest value, which simply constituted a component of Cox's overall real property located within the County of Orange (the "County"), resulted in significantly higher property tax assessments and actual property taxes due to the County from Cox. Although the Assessor's increase in the valuation of the possessory interest did not result in the imposition of a new tax, said increase did result in a material increase in property taxes payable and said increase will generally be referred to herein as the "Possessory Interest Tax" ("PIT"). C. Cox filed assessment appeals with the Orange County Assessment Appeals Board (the "AAB") for all relevant years. Cox further joined a consortium of other Orange County cable operators (the "Consortium") to pool expertise, experience and resources in collectively prosecuting assessment appeals before the AAB and related litigation. D. In or about 1990, Cox adopted a policy to "pass-through" as a line itemization a pro rata share of the PIT upon subscribers' monthly bills, which practice continued until 1996 (the "Pass -Through Period"). E. The City has joined together with other South Orange County franchising authorities (the "Franchising Authorities") in reviewing Cox's annual Commission rate forms. The Franchising Authorities have consistently hired the same rate consultant, Jay Smith of Public Knowledge, Inc. ("PKI"), to prepare a global report to the legislative bodies of each of the Franchising Authorities analyzing Cox's request for rate modifications and make recommendations regarding appropriate regulatory action upon those requests. F. The Rate Regulations of the Commission allow the externalization (or pass-through) of possessory interest taxes if certain valuation criteria are satisfied. 1 Although the appropriate regulatory treatment of the PIT is unclear, and to great extent relates to the methodology of assessment utilized by the Assessor at the time, a facial reading of the Commission Regulations suggests that pass-through treatment of the PIT may have been appropriate. G. During each of the annual rate reviews between 1994 and 1996, the City questioned (1) the appropriateness of the PIT pass-through; (2) the amount of the PIT pass-through; and (3) the nature and extent of the potential refund obligation. H. Based upon numerous discussions between PKI and Cox, or its predecessor -in -interest, regarding these subject matters, a general understanding was reached between Cox and PKI whereby the City would take no immediate action upon the PIT pass-through but would rather defer resolution of this issue until Cox and the County had resolved the PIT issue by way of either litigation or settlement, and actual refunds were paid to Cox. I. The County entered into a "Framework for Resolution" agreement with Cox on November 7, 1995 (the "Settlement') which, resulted in the payment of refunds from the County to Cox between July 1, 1996 through December 31, 1998. Pursuant to this Settlement, Cox was paid some, but not all, of the PIT plus interest (the 'Refunded Taxes"). J. The Franchising Authorities, including the City, appointed the City of San Juan Capistrano ("San Juan Capistrano") to act as the lead agency in relation to the review and negotiation of a tentative refund plan and selected James Widner, Administrative Services Manager of San Juan Capistrano, and William M. Marticorena of Rutan & Tucker, LLP, Special Counsel, to act as the negotiating team (the "Negotiating Team"). K. After many months of negotiations, the Negotiating Team has reached a proposed settlement and tentative agreement (the 'Tentative Agreement") in relation to the Refunded Taxes with Cox which Tentative Agreement is attached to this Resolution as Exhibit A and incorporated herein by this reference. L. The Negotiating Team has prepared a "Final Report to the City Councils of the City of Dana Point, Laguna Beach, Laguna Hills, Laguna Niguel, Lake Forest, Rancho Santa Margarita, San Clemente and San Juan Capistrano, Relating To The Possessory Interest Tax Refund Plan of Cox Communications, Inc." (the "Final Report") dated April 11, 2001, a copy of which is attached hereto as Exhibit B and incorporated herein by this reference. M. The Final Report constitutes the recommendations of the Negotiating Team to the City Councils of all of the Franchising Authorities relating to a final resolution and settlement of the PIT refund dispute and the approval of a final refund plan pursuant to the rate regulation and consumer protection authority of the City. _ N. This matter is being placed before the City Council pursuant to its authority to regulate Basic Service Tier rates and related equipment charges pursuant to the provisions of the Cable Television Consumer Protection and Competition Act of 1992, as amended (the "1992 Cable Act") as well as the implementing rate regulations of the Commission (47 C.F.R. §§ 76.900, et seg.). Upon approval of this resolution, the annual reviews undertaken by the City of the rate regulation forms filed by Cox and its predecessor -in -interest to the City between 1994 and 1996 are hereby deemed final and concluded. The City Council of the City of San Juan Capistrano hereby resolves as follows Section 1. The Refund Plan attached to this Resolution as Exhibit A is hereby approved and Cox is hereby directed and authorized to implement said Refund Plan. Section 2. Cox shall, within ninety (90) days from the issuance of this Rate Order, document its compliance with the conditions included herein including the provision of a written accounting to the City of Cox's implementation of the Refund Plan. PASSED, APPROVED, AND ADOPTED THIS 3RD day of July, 2001 WYAT"ART, MAYO ATTEST: R. MONAHAN, CITY CLERK STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF SAN JUAN CAPISTRANO ) I, MARGARET R. MONAHAN, appointed City Clerk of the City of San Juan Capistrano, do hereby certify that the foregoing Resolution No. 01.7-3-2 was duly adopted by the City Council of the City of San Juan Capistrano at a regular meeting thereof, held the 3rd day of July 2001, by the following vote: AYES: COUNCIL MEMBERS: NOES COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: Bathgate, Greiner, Gelff, Swerdlin and Mayor Hart None None 'v' tea_ . _ .