What a franchise fee could mean for West Des Moines’ utility bills

West Des Moines wants to control more of the tax money generated in the city and is working to add a so-called franchise fee to utility bills.

“We have never had a (franchise) fee in West Des Moines and we are currently proposing 1%,” said Tim Stiles, West Des Moines chief financial officer.

For most MidAmerican Energy gas and electric customers in West Des Moines, the switch to a franchise fee would not add additional costs to their bills, according to city officials. Churches and nonprofits that do not currently pay a local option sales tax would see a 1% surcharge on the cost of their utility bills.

Stiles and City Manager Tom Hadden said the city had not heard any concerns about the proposed change from churches or nonprofits.

Here’s how much money the city could keep according to franchise fee calculations, an idea of ​​what it would use the money for and what happens next.

How will West Des Moines spend a franchise fee on utility bills?

The West Des Moines City Council is expected to vote Monday, June 17, on revenue purpose agreements that will determine how it can use franchise fee revenue.

These purposes, as permitted by state law, include:

  • Repair and improvement of public buildings and facilities
  • Disaster mitigation projects
  • Energy conservation measures for low-income homeowners, low-income energy assistance programs and weatherization programs
  • Public safety, including fire, police, sanitation and other services
  • Construction and repair of public utilities and transportation
  • Construction and repair of roads, bridges and sidewalks
  • Property taxes and building permit discounts
  • Economic development activities and projects

Hadden said the city has not yet decided how it will distribute franchise fee revenue among the purposes identified in the agreements.

The franchise fee could generate an additional $1 million for the West Des Moines city budget

It’s estimated that a franchise fee would generate about $1.6 million a year, Stiles said, which would mean a net budget increase of $1 million, based on conservative estimates.

“We will know for sure once we start collecting,” he said.

A franchise fee means more money for the city, because the money it currently collects through a local option sales tax is shared among multiple jurisdictions — West Des Moines’ city limits cross the boundaries of several counties — but that wouldn’t be the case with a franchise rate.

State law prohibits cities from collecting a local option sales tax on gas and electricity sales if there is also a franchise fee on those sales, so cities must choose one or the other.

If the West Des Moines City Council approves the revenue purpose agreements, Stiles said the council could approve changes to the agreements with MidAmerican Energy as early as its July 1 meeting.

From that point, MidAmerican Energy estimates it would take about four months to fully implement the franchise fee collection model into its billing system, according to city documents. MidAmerican would transfer the franchise revenue collected to the city.

What other metro areas have franchise fees and why does West Des Moines want one now?

Altoona, Clive, Des Moines and Pleasant Hill have franchise fees of 5% on gas and electricity sales.

Ankeny has franchise fees for gas and electricity of 2%. Johnston has 1%.

Windsor Heights has a 5% franchise fee for homes and 3% for businesses.

“We’re looking at a five-year plan for our budget and we’re just seeing increasing pressure on the budget, so we wanted to diversify the city’s revenue streams,” Hadden said.

The city had to take several million dollars from savings to balance the budget because of recent state law changes, Stiles previously told the Register.

Among these changes, Iowa lawmakers passed House File 718 to prevent rising property tax bills from culminating in higher tax bills for homeowners in 2023. But the law’s limits on the amount of revenue cities and counties can collect from property taxes have led city leaders around the Des Moines metro to say it will make it harder for them to balance their budgets.

Phillip Sitter covers the western suburbs for the Des Moines Register. Phillip can be reached via email at [email protected] or on X, formerly known as Twitter, at @pslifeisabeauty.