Iowa City to revisit franchise fee

The City Council may cut in half the 2 percent franchise fee on natural gas and electric bills that it just approved last month.

A majority of council members on Friday, during an initial meeting on the budget for the fiscal year beginning July 1, said they were interested in seeing what the budget would look like with a 1 percent franchise fee.

Doing so, however, may require making cuts in services, reducing staff or even increasing taxes in the proposed $58.1 million general fund budget, although council members seemed reluctant to raise the tax rate.

“I think we have to look very carefully at what our expenditures are,” council member Susan Mims said.

The council directed staff to come up with several scenarios for reducing the franchise fee.

It is estimated that every 1 percent on gas and electric utilities would generate $840,000 a year.

The council approved the fee at 2 percent last month, with it to go into effect April 1. The money is to primarily go toward hiring more firefighters and police officers.

The possibility of reducing the fee was not a surprise. Just before the council approved the fee, interim City Manager Dale Helling said new projections showed that a 1 percent fee should cover the public safety costs.

A split council decided to go ahead with 2 percent and then revisit the matter during budget discussions, which got under way Friday.

At 1 percent, most Iowa City residents and businesses would see no change in their utility bills because a local-option sales tax cannot be collected on natural gas and electric utilities 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 don't pay local-option sales taxes but will be subject to the franchise fee.