DES MOINES UTILITY FRANCHISE TAX CASE HEADED TO TRIAL
Last week, the Iowa Supreme Court reversed a lower court ruling on a franchise tax issued by the City of Des Moines on utilities. Des Moines had been sued in District Court by Lisa Kragnes seeking to declare the utility franchise tax illegal. She won in district court when the judge granted her motion for summary judgment. The City of Des Moines appealed and the Iowa Supreme Court reserved the summary judgment decision.
The Supreme Court reversed the case because it ruled a geniune issue of material fact exists as to whether all or part of the franchise fees are reasonably related to the City’s administrative expenses. The Court ruled there is no question the grant of the franchises to the utility causes the City to incur some ongoing administrative expenses in the exercise of its police power. These expenses would include the reasonable costs of inspecting, supervising and otherwise regulating the gas and electric utility franchises.
The Court has now remanded the case to the district court for a trial on the merits. The critical issue is whether the fees charged by the City of Des Moines bear a relationship to the cost to the City of the utility’s occupancy of public areas in the City. The Court said the case record is replete with references that the City of Des Moines used a portion of the franchise fees for purposes other than administrative expenses. The Supreme Court, however, ruled that this fact alone does not mean Des Moines is not using other streams of revenue to cover the administrative expenses it incurs as a result of granting MidAmerican the gas and electric utility franchises.
The upcoming trial will determine if the franchise fees are in fact reasonably related to the City’s administrative expenses. If not, the district court will then issue an order disallowing the franchise fees as contained in the ordinances. If the franchise fees are reasonably related to the administrative expenses, the court shall enforce the ordinances up to an amount equal to the fees reasonably related to the City’s administrative expenses in exercising its police power.