By Gregg Hennigan
IOWA CITY – The long-discussed, long-delayed fourth fire station and new franchise fees will be among the highlights of the council’s Thursday night budget meeting.
The council on Tuesday night began discussing specific services to cut and possible new revenue sources as it looks to cut $250,000 from the budget for the fiscal year that begins July 1, plus another $750,000 in the following year and beyond.
Those figures do not include staffing a new fire station, which would require an additional $750,000.
The Gazette’s story of the Tuesday meeting can be seen here. A copy of a city memo listing recommendations can be seen at the end of this post.
Toward the end of the meeting, which lasted until nearly 10 p.m., council members said they would decide on the fire station on Thursday.
This council has taken a lot of flak for first promising that they’d finally pay to staff the proposed fourth fire station, and then later removing the funding and making it a part of the “priority-setting process” the council currently is undertaking.
Council members gave no clues Tuesday on what they may do.
The majority of the council did seem high on imposing a franchise fee of up to 5 percent for gas and electric utilities. But the discussion was limited because Gov. Chet Culver had not yet signed a bill allowing cities to do so. He later put his signature on the bill.
Cities can already charge a small fee to recover their costs related to utility services, but Iowa City does not do so. In Iowa City, every 1 percent on gas and electric utilities would generate an estimated $360,000 and $490,000 annually, respectively, according to Interim City Manager Dale Helling.
Local-option sales taxes, like the one Iowa City voters just approved, cannot be collected on natural gas and electric utilities if a franchise fee is in place, so Helling suggested the first 1 percent of the fee be used to offset the lost tax revenue, which is to go toward flood-related projects.
But even at 4 percent, the money brought in would be significant, at up to $1.96 million on electric and $1.44 million on gas annually, according to city estimates.
The fee is not without controversy, with a class-action lawsuit in Des Moines alleging that city’s franchise fees are an illegal tax.
Helling said the fee is charged to utility companies, but they have the right to add the amount to customers’ bills.
But John Sehnert, franchise manager with MidAmerican Energy, said in fact the fee goes directly to customers and the utility is just the instrument to collect the fees.
The new law exempts cities from paying the fees.
Helling told the council that, outside of the local-option sales tax, the franchise fee would be the first significant revenue source for the city in a long time that wasn’t a property tax. Property taxes account for nearly 70 percent of the city’s general fund budget.
About 20 Iowa cities already collect the franchise fees. Sehnert said, given the economic downturn, more are likely to enact them.
“The cities are all under a financial crunch,” he said.