Iowa City Council passes franchise fee at 2 percent

The City Council last night approved a 2 percent franchise fee on natural gas and electricity bills in Iowa City - at least for now.

The 4-2 vote came after three other ones on the franchise fee ended in ties during a special meeting

The split occurred over whether to lower the fee to 1 percent. There seemed to be a desire by a majority of the council to do so, but there was disagreement over the timing.

Interim City Manager Dale Helling reported last night that projections showed that a 1 percent fee should cover the hiring of more firefighters and police officers, which is what the council wants the fee for.

“I would be very happy to amend the franchise fee to 1 percent,” council member Mike Wright said.

But Mayor Regenia Bailey and council members Mike O'Donnell and Ross Wilburn said they wanted more financial information so they knew for sure the city could get by on 1 percent. The city's preliminary budget comes out later this month and contract negotiations with union employees are ongoing.

“Do you think it would be better to go from a 2 (percent fee) to 1 (percent) than a 1 to 2?” O'Donnell asked, referring to how lowering the fee now only to raise it later might sit with the public.

A vote to set the fee at 1 percent failed with a 3-3 tie. Bailey, O'Donnell and Wilburn were against it. Champion, Matt Hayek and Mike Wright were in favor. Amy Correia was absent.

Many customers would see little change in their bills with a 1 percent fee because a local-option sales tax cannot be collected if a franchise fee is in place. Iowa City has a 1 percent local-option sales tax, meaning a 1 percent franchise fee would in effect replace that. Tax-exempt entities like the University of Iowa would see an increase because they would be subject to the franchise fee.

As it stands, the 4-2 vote was what was needed to pass and adopt the 2 percent fee, with collections scheduled to start April 1. Champion and O'Donnell cast the dissenting votes.

The matter is likely to be revisited early next year, when more is known about the city's upcoming budget and two new members join the council.