Court: Des Moines Must Refund Resident Utility Fee

DES MOINES, Iowa (AP) — The city of Des Moines must refund a portion of the franchise fee it collects on residents' gas and utility bills because some of the fees are unlawful, the Iowa Supreme Court ruled Friday.

The Supreme Court also upheld a lower court's ruling that the case can be certified as a class-action lawsuit to include all Des Moines utility customers.

Lawyers estimate the refund of fees paid by MidAmerican Energy customers between 2004 when the lawsuit was filed and May 2009 could cost the city about $40 million.

Refunds are likely to be a few hundred dollars for the average homeowner. Attorneys estimated that more than 100,000 people are owed refunds. Those who qualify lived in the city limits of Des Moines and paid gas or electric bills to MidAmerican Energy between 2004 and 2009.

The case revolves around permissible use of franchise fees. The court says the city can include the value of trees that must be removed or trimmed for electrical line access but should not recoup money for some other costs.

The fees, which have been around since the 1960s, were designed to compensate cities for the administration and regulation of gas and electric utilities in city right-of-ways. Des Moines, however, decided in 2004 to boost the fees from 1 percent to 3 percent as it faced a budget shortfall and put the money it its general fund to spend on things other than utility regulation.

"This is just another money grab by the city of Des Moines and however they want to term it, couch it, or hide it, that's what it is and it's offered no meaningful tax relief for anyone," said Brad Schroeder, the attorney representing the plaintiffs in the case.

City Attorney Jeff Lester said the case still is in litigation and the opinion addresses only a small part.

He said the city is reviewing its options, which may include appealing aspects of the case to the U.S. Supreme Court to review constitutional issues. Attorneys have 60 days to file such an appeal.

"We haven't taken anything off the table at this point," Lester said.

The court concluded the city can collect about $1.5 million a year for gas utilities and about $2.1 million a year for electric utilities. Any amount collected above that must be refunded.

The city has been collecting about $12.6 million a year from the franchise fee, which was raised a second time in 2005 from 3 to 5 percent.

The Supreme Court ordered the case sent back to Polk County District Court for their final judgment, and determination of the exact amount to be refunded and any restitution.

The case was filed by Lisa Kragnes, of Des Moines, in 2004 after she questioned the franchise fee on her bill. A Polk County District Court judge ordered the city to refund the money in 2009, saying it was overcharging customers and had collected what amounted to an "illegal tax."

The city appealed to the Supreme Court that September.

Friday's decision was not unanimous. Chief Justice Mark Cady wrote in his dissent that state law does not allow class action certification when there is conflict between the class members.

In this case, Cady said, the judgment is so large that the city must raise additional revenue or reduce services to refund the fees. It potentially pits citizens who would oppose that prospect with those who pursued the lawsuit.

"There is little utility in suing yourself, especially when the associated attorney fees and litigation expenses of suing yourself will run into the millions of dollars," he wrote. "Most people would be unwilling to pursue litigation under such circumstances."

Kragnes said any blame lies with the city because she started to challenge the fee in 2004 before the city increased it. The city could have chosen to not raise the fee until the case was resolved and it would not have had to issue refunds.

"If anybody's responsible for an increase in property taxes or a decrease in services it would be the city leaders because they chose this action," she said. "I just told them they could not do it and they didn't believe me."

Lester said there is still a lot of work to be done to determine amounts to be paid and who gets refunds. He said it is premature to estimate figures or to discuss how the city might come up with the money.
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