Did you know that the legislature passed a bill that will allow municipalities to increase taxes on your utility bill by up to 5%? I doubt it. That’s what happened when you were asleep in the early morning hours of Sunday, April 26th.
As the legislative session entered its final phase, it became a war of attrition. This happens every year. Many times decisions are made not to oppose issues like a franchise fee because, in this case, the minority party feared that by doing so, they could provoke the majority party to bring issues like the repeal of federal deductibility or the four major labor-backed bills up for a vote.
Franchise fees are added to your gas and/or electric bills to cover the administrative costs the city incurs relating to local utilities. You pay them to your utility provider, but they simply turn around and pay those dollars back to your municipality. The ability for cities to charge an additional fee on utility bills is something that Des Moines has advocated in favor of for years.
In fact, the city of Des Moines illegally assessed the tax for a number of years until one of its citizens, Lisa Kragnes, filed suit against the city, claiming that the city didn’t have authority to charge such a tax.
The Iowa code states, “Municipal Corporations are granted home rule power and authority, not inconsistent with the Laws of the general assembly, to determine their local affairs and government, except that they shall not have the power to levy any tax unless expressly authorized by the general assembly.” Kragnes won her case in Polk County District court, and that decision was upheld by the Iowa Supreme Court.
At the center of that court case was the question of the difference between a “fee” and a “tax.” The courts define a tax as a charge to pay for the cost of government without regard to special benefits conferred. A fee is designed to cover administrative expenses, meaning it doesn’t create revenue for the municipality, it only covers actual costs for services provided.
When Governor Culver signs the bill that allows cities and towns the ability to charge a franchise fee up to 5%, every Iowan will likely see an instant increase in his or her utility bill. This will be a significant tax increase on Iowans. The city of Des Moines alone collected $12 million annually with this fee. It is estimated that this legislation will raise taxes by at least $75 million just on households, and that figure is more than likely to double when you include businesses.
Proponents of the bill claim that, by allowing cities to charge franchise fees, it will help lower property taxes. On Monday, the Des Moines Register editorial board came out in support of the franchise fee legislation. This is the common response from those who want to sell the public on a tax increase. How many times have we heard that if we pass a local option sales tax, it will reduce your property taxes? Yet our property taxes never go down. Until the legislature creates some sort of mechanism to control assessments, it doesn’t matter what property tax rates are.
Additionally, for this legislation to reduce your property taxes, you have to trust that municipalities will be open and honest about their costs associated with their regulation of utilities. Calculating the administrative expense that the cities are incurring will be difficult; however, it will be easy for cities to inflate what their actual costs are. These cities are more likely to buy a new city vehicle than to return money to the taxpayer.
Governor Chet Culver was adamant when he said, “Now is not the time to raise taxes on hard working Iowans.” Yet, when Culver signs the omnibus spending bill that’s on his desk, he will be raising taxes on all Iowans. This tax will affect us all, but it will especially impact the poor and those on fixed incomes.
While debating Culver’s bonding proposal, State Rep. Scott Raecker said, “Nothing good ever happens after midnight.” Iowans will know exactly what he meant when their utility bills jump by 5%.
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