DES MOINES — The city of Des Moines may end up increasing the franchise fee it charges on the gas and electricity bills of city residents just so it can turn around and give the money back to them to repay past overcharges, the city attorney said Monday.
The option was approved in a state funding bill passed by the Iowa Legislature and signed Thursday by Gov. Terry Branstad.
It allows Des Moines city officials to increase the franchise fee to 7½ percent from the current 5 percent for up to seven years. The city first must hold a referendum. If voters approve it by a simple majority, the city could raise the fee. The Legislature also had passed the measure last year but Branstad vetoed it because he was disappointed lawmakers didn’t pass his priority, broader property tax reform. This year the Legislature gave Branstad his tax reform bill and again approved the increased franchise measure for Des Moines and Branstad signed it.
It’s one possible resolution to a lawsuit that has been slowly moving through the court system since 2004 and has been appealed to the Iowa Supreme Court twice. The U.S. Supreme Court last year declined to take the city’s appeal.
The case now rests in Polk County District Court in Des Moines where attorneys are working out the details of how to repay the fee the city collected on the bills of about 100,000 MidAmerican Energy gas and electricity customers. The courts have ordered the city to repay the customers nearly $40 million in overcharged franchise fees between 2004 and 2009.
The city has contended in court appeals that it makes no sense to increase the franchise fee or boost property taxes on citizens to just to turn around and give them their own money back.
City Attorney Jeff Lester said it now appears it will cost Des Moines utility ratepayers $1.35 for every $1 they get back in the court-ordered refund. He said attorney fees and paying an administrator to coordinate the repayment process push the cost of the refund higher than the refunded amount.
Brad Schroeder, the attorney for Lisa Kragnes, the Des Moines woman who sued the city in 2004 after she questioned the rising franchise fee on her MidAmerican Energy utility bill, said no proof has been offered to substantiate the city’s claim.
“They’re estimating it could end up costing 135 percent of the amount of any refunds but I don’t know where that number came from, there’s been no testimony and no supporting documentation,” he said.
Schroeder said the city should have planned for the possibility that it would have to pay refunds and set aside money for it.
“I have a hard time believing that the city’s only approach to this has been, Oh well, if we have to pay it back we’ll just have to lay it on the backs of the taxpayers,” he said. “The thing that’s ironic about this is if they just would have stopped in 2004 when we told them to stop, there would be zero damages.”
The city also could increase property taxes or borrow the money through bonding.
Schroeder said it’s been a virtual certainty for years the city would have to pay something back since it has lost every major court appeal.
To critics who would say the case has served only to enrich attorneys, Schroeder said it’s important that citizens like Kragnes stand up and hold government accountable.
“If you don’t have citizens who stand up and say look you can’t do this where does this stop?” he said. “What’s so frustrating about this is the implication somehow that this was all a wasted effort. If that’s the case it’s entirely of the city’s doing. They had every opportunity to turn away from this course of conduct when they were told it was wrong time and time again and they chose to proceed.”