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CITY O F t C WA C T Y IP2

E RA N D
Date June 24 2009

To City Council

Dale Interim City Manager

From Helling

Re Gas Electric Franchise Fees

The 2009 State Legislature adopted a bill allowing local governments to impose a franchise fee
revenues You will
on electric and gas utility revenues in an amount up to 5 of their gross

recall that Iowa City and other Iowa communities have continued to lobby for the creation of
Cities and
revenue sources in addition to property taxes Working through the Iowa League of

the Metropolitan Coalition cities were successful in getting the franchise fee bill passed

Before the City may enact a franchise fee ordinance it must adopt a revenue purpose
In addition
statement specifying the purpose or purposes for which the revenue will be spent
be used first for the purposes of inspecting supervising and
the law requires that the revenue

otherwise regulatingthe utility The excess may be used for any purpose stated in the Act
which purposes are very broad and stated as follows

a
Property tax relief

and improvement of
b The repair remediation restoration clean
up replacement
and other owned property buildings and
existing public improvements publicly
facilities

future disasters as defined in Section 29C

2
c Projects designed to prevent or
mitigate
d conservation measures for income homeowners income
low low energy
Energy
assistance programs and weatherization programs

e Public safety including the equipping of fire police emergency services sanitation

street and civil defense departments

and
f The establishment construction reconstruction repair equipping remodeling

extension of public works public utilities and public transportation systems

g The construction reconstruction or repair of streets highways bridges sidewalks

and
pedestrian underpasses and overpasses street lighting fixtures public grounds

and the acquisition of real estate needed for such purposes

h tax abatements building permit fee abatements and abatement of other

Property
disaster as defined in Section 29C
2
fees for property damaged by a

Economic development activities and projects

June 24 2009
2
Page

and otherwise regulating the

utility the
With regard to the costs of inspecting supervising
statute reads such that the City will need to estimate the cost it incurs in such regulation In
Kragnes City of Des Moines a case predating the 2009 legislation the
v parties are arguing
about what costs can and cannot be included in the cost of regulating the utility Because the
new legislation is not retroactive this argument will continue A district court decision
determined that the City of Des Moines had annual costs and incidental consequences of
of the franchise fee it was generating but that decision will likely be appealed
approximately 1
Moines is attempting to
to the Iowa Supreme Court In this litigation because the City of Des
the new legislation it is motivated to provide expert
justify a franchise fee of 5 imposed before
identification of every cost that can be attributed to the utility e
g lost opportunity costs and
for our purposes under
way Such detail is not necessary
property tax on the dedicated right
of
the new legislation

The most recent figures Energy earlier in June estimate revenues

received from MidAmerican

000 for each

of approximately 840 1 of franchise fee imposed on gas and electric receipts
000 from those
000 in revenues generated from electricity charges and 349
This includes 491
000 received 352
associated with gas charges Of the total 840 000 would come from
000 from commercial users and 244
residential customers 244 000 from industrial users
Please note that these are estimates and the total amounts and proportions may vary

The statute is somewhat complex and there will be questions regarding meaning and
that will be addressed in the coming weeks It is likely that Council will require
interpretation
information before you reach a final decision on whether or not to impose a franchise fee
more
the broad scope of under the statute it is clear
That notwithstanding and given uses
permitted
intended the franchise fee to serve as an optional alternate source of
that the Legislature
of local services and operations beyond just the regulation of the
revenue for funding a variety
gas and electric franchises

The first question Council should consider is whether or not there is a majority in agreement to
utilize this local option revenue source and if so will revenue be generated for purposes
beyond the inspection supervision and regulation of the utility franchise

if you are willing to entertain that possibility then examining the potential uses of
Secondly
franchise fee revenue will help determine the amount and purpose for which you would

ultimately consider adopting a franchise fee ordinance

Some possible uses of franchise fee revenue were suggested during your budget priorities
discussion in May These are summarized as follows

As indicated above you must first use franchise fee revenue for management and
regulation of the franchise with the excess to be allocated to other uses as permitted by
the statute While it varies cities other than Des Moines have also arrived at a 1 figure
for covering these costs I believe our actual annual dollar costs may be significantly
less Indirect costs could raise that amount however

2 Revenues can be used forvariety of other general fund supported functions as well
a

and could free up existing property tax dollars to relieve some of the projected deficit for
the FY11 budget and beyond

3 You may wish to consider a reimbursement as a direct offset to the flood recovery fund

generatedfrom the recently adopted local option sales tax The sales tax cannot be
collected on MidAmerican customer charges if a franchise fee is in place The lost

sales tax would the amount collected on 1 franchise fee

revenue from the 1 equal
June 24 2009

Page 3

use for franchise fee revenue and thus this money could be
4 Public safety is an approved
used to fund the staffing and operation of Fire Station 4 and to fund additional police
officers as well

and maintaining Fire Station 4 is estimated to be

The annual cost of staffing operating
FY10 dollars This cost over 20 years for
includes the annual
000 in
approximately 950
the construction of the station We have applied to two separate
repaying internal loans for
funding sources JOBS
I and Federal ARRA stimulus funds for 50 or 70 funding for
construction respectively addition application criteria for the SAFER grant program which
In
could provide some funding for firefighters wages for a period of perhaps several years could
lessen our initial costs significantly The availability of construction funds should be known this
Fall SAFER grants will be awarded at a later time but could be available as we begin hiring new
for Station 4 which could be completed by early 2011
firefighters

and police officer is about 000

75 for the first year
The cost of hiring training equipping a new

also in FY10 dollars

A of available to cities in terms of both revenue generated through franchise

options are
variety
s it is allocated For the purpose of Council
fees as well as for what purpose s discussion on

June 29 I ask that you focus on the broader question of whether or not you support a franchise
s Focusing on identified uses we can then come up
fee and if so for what permitted purpose
with more cost figures as compared to revenue generated and determine the overall
specific
forward
impact on the operating budget going

cc Eleanor M Dilkes City Attorney

Kevin O
M alley Finance Director

memo to council
franchise fee
assUmem
mgr doc