The Clinton Herald, Clinton, Iowa

Business & Technology

October 23, 2013

Des Moines to borrow $42M to repay franchise fee

DES MOINES — The Des Moines City Council has voted to borrow up to $42 million to repay fees collected on citizens’ utility bills that the courts have declared unlawful.

The city must refund a portion of the city franchise fees paid by gas and electricity customers of MidAmerican Energy to the city from September 2004 through May 2009.

Courts have determined that nearly $40 million in fees the city had charged during that period were an unlawful tax.

City Council members voted Monday night to issue the bonds to refund the fees, the Des Moines Register reported.

The city has not yet decided how to pay back the bonds, which will be issued at a meeting on Nov. 20.

City leaders could take the $42 million from the current budget, which would mean cutting services.

City Manager Rick Clark said that move would be “devastating on the city and our ability to maintain infrastructure and other capital investments in our community.”

Other options include temporarily raising the franchise fee or property taxes.

The Iowa Legislature this year gave Des Moines the authority to raise the fee from 5 percent to 7.5 percent for seven years. Voters must first pass a public referendum. The increase would generate an estimated $5.5 million annually and could only be used to repay the bond.

The city still has about three months to decide whether to put the issue before voters, Clark said. If they do, it likely would be on the ballot in March.

Lisa Kragnes, of Des Moines, sued the city in 2004 after she questioned the rising franchise fee on her utility bill. The case was certified as class action which means about 100,000 MidAmerican Energy gas and electricity customers are eligible for a refund.

Polk County Judge Joel Novak is expected to decide soon how much her attorneys will be paid. They’re seeking $15 million, which would come out of the $40 million court judgment.

The lawsuit has worked its way through the Iowa court system through numerous appeals as the city fought the judgment and made it as far as the U.S. Supreme Court last year. In October the court declined to hear the city’s appeal.

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