The Iowa Supreme Court has ruled the City of Des Moines will have to pay back some $40-million it collected from electric and gas franchise fees. This ruling comes over two years after the City of Des Moines appealed the ruling that it refund most of what was collected between 2004 and 2009 from the city’s utility franchise fee.

Des Moines attorney, Brad Schroeder represented Lisa Kragnes, who was the lead plaintiff in the class action suit. “When the city made this grab for additional funds, first it said there’s no restriction on what we can do here, we can take as much revenue through this form of taxation as we like. We said ‘no of course that can’t be right’ and we’ve been vindicated in that,” Schroeder says.

Schroeder says after it was ruled the city couldn’t take the franchise fees, the city then said it should be able to keep the money it already took. “Because it’s being used for good purposes like lowering property taxes, restoring library hours, restoring streetlight service, and being used for the hiring of police and fire (officers). All very noble purposes,” Schroeder says.

“The fact of the matter is, these funds went into the general fund and were used just as much for raising the salaries of city administrators as this money was for any good and noble purpose the city cited.” Schroeder says the city said it would have to raise property taxes if it could not get the revenue from the franchise fee. But he says the city is still talking about raising property taxes even though they were still collecting the fees during the appeal of the case.

“What we’ve been saying all along it this is just another money grab by the City of Des Moines, and however they want to term it or couch it or hide it, that’s what it is, and it’s offered no meaningful tax relief to anyone. It’s just increasing the size of the government of Des Moines,” according to Schroeder.

“And sometimes the fact of the matter is we have to make hard choices when we don’t have all the revenue to make the spending decisions we’d like to make.” The legislature passed a law in 2009 pushed by the City of Des Moines to allow cities to collect up to 5% franchise fees.

Schroeder says that law will likely make the impact of the ruling outside of Des Moines much less. “I don’t know that there will be a lot of long-term impact on the rest of the state at this point. There could be additional litigation potentially regarding a few other cities that have done what the city of Des Moines did,” Schroeder says. He says it would impact larger cities the most, as they would have collected the most franchise fees.

Kragnes began the eight-year legal fight by questioning the charge on her bill. She says she stuck with it because she felt she was right. “It was something that I had started and they had continued to do it, and they continued to, I would say almost laugh at the aspect that they could be doing something wrong and they continued to do it,” Kragnes says.

“So that in itself just made me want to continue on and come to this point where we are today where the Supreme Court says ‘you can’t do that, that’s illegal.'” Schroeder says some 100,000 Des Moines residents will get the franchise fee money back. He says the amount of money depends on their usage of electricity and gas.

Schroeder says he wants to see the city give checks as a refund, but they are still working on that. The original Polk County District court ruling said the city had overcharged because the fee didn’t reflect the actual expenses to the city for handling utility lines and infrastructure.

See the complete ruling here: Franchise ruling PDF

The City of Des Moines issued this response to the ruling:

DES MOINES, IOWA – Friday, March 02, 2012 – The City of Des Moines was deeply disappointed to receive the ruling from the Iowa Supreme Court this morning. Chief Justice Cady’s dissent was clearly the better reasoned approach to the circumstance and more reflective of Iowa law.

The City is already beginning to review all options available under the law, including petitioning the U.S. Supreme Court for a Writ of Certiorari to review constitutional issues presented in the majority decision. The legal process is not over as the Iowa Supreme Court has remanded the case to the District Court to structure a final resolution and to determine the actual amount of refunds to be issued, the manner in which refunds must be made and to whom, and to address other remaining legal issues. This will take some time and will allow the City to thoughtfully formulate a plan to finance any refunds ultimately ordered.

In the interim, the City will continue to evaluate all options available under the law, including legislative and financing options in a continuing effort to maintain City services.