INSIDE WASHINGTON/Can you hear us now?

An unexpected alliance has formed between government officials and telecommunications representatives as Congress begins to overhaul the 1996 Telecommunications Act. City, county and state lawmakers are working with telecommunications companies to reach a consensus on a new taxing structure that does not unfairly target one segment of the industry.

“Congress will decide our fate if we do not offer some viable alternatives for their consideration,” says Angelo Kyle, Lake County, Ill., board member and president of the Washington-based National Association of Counties (NACo). Local and state government officials are concerned that Congress will stop them from levying taxes on the telecommunications industry — an estimated $18 billion they rely on to help pay for services such as fire, police and public works.

“Each year the federal government adds to the list of unfunded or underfunded mandates it places upon local government,” says Arvada, Colo., Mayor Ken Fellman, who also is chair of the Washington-based National League of Cities Information Technology and Communications Policy and Advocacy Committee. “Protecting our local taxing authority and the vital revenue stream derived from communications taxes and fees is of utmost importance to us.”

Even though the current telecommunications laws are only eight years old, advances in technology and the introduction of new services, such as Voice-over Internet Protocol, have made those laws and the taxing structure outdated. “The old system to raise revenues for state and local governments isn’t working very well,” says Thomas Tauke, a Verizon executive vice president. “If we can come up with something that is predictable, workable, easy to administer and fair to all the players in the industry, this will be a giant step forward.”

State and local government officials say the proposal should be revenue neutral and that the federal government should not prohibit them from taxing voice and data services. They also want the bill to be technology neutral so that one segment of the industry is not favored. The telecommunications industry wants to streamline each state’s procedures for collecting, reporting and auditing taxes, eliminate the discriminatory aspect of taxes and abolish franchise fees, which are paid for using rights-of-way.

While some government officials may favor lowering discriminatory taxes, the Washington-based United States Conference of Mayors opposes abolishing franchise fees. “The conference is engaging the communications industry on the issue of telecommunications tax fairness with the understanding that such discussions will not preempt state and local government taxing authority and do no fiscal harm to local governments,” says Thomas Cochran, the organization’s executive director. “The conference is not engaging [them] on the issue of management and compensation for the use of right-of-way. It is the position of the conference that this is a fee paid for the use of public property, not a tax.”

Both sides hope they will be able to agree on recommendations to Congress this year. “We need to change the model [we use to tax] telecommunications,” says Jeffrey Arnold, NACo’s deputy legislative director. “We understand it is broken.”

The author is Washington correspondent for American City & County.