Iowa Judge Nixes New Fees

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A Polk County, Iowa, judge has struck down a portion of the state’s newly minted state franchising bill, asserting that a clause retroactively allowing cities to collect franchise fees in excess of the actual cost of regulation is unconstitutional.

District Court Judge Michael Huppert made the ruling in one of seven lawsuits filed by individuals against Iowa cities, challenging the amount of franchise fees collected. The lawsuits against Des Moines, Davenport, Bettendorf, Cedar Rapids, Dubuque, Sioux City and Waterloo, were filed last September.

The plaintiffs contend that franchise fees, charged at a rate of 5% of an operator’s gross revenues but paid by consumers, are an illegal tax under state law because they exceed the actual cost of regulation.

The targeted cities place the fees in their general funds for other municipal uses.

In most parts of the country, franchise fees are considered rent for public rights of way. But in Iowa, a 1917 lawsuit determined the people, not the cities, own the rights of way, so municipal governments can’t rent them out. Therefore, fees charged to users must represent the cost of regulation, not compensation for use of public property.

As the lawsuits have made their way through the court, the legislature took up the issue of cable franchising, approving a bill in June that reassigns franchising authority from cities to the Iowa Utilities Board.

The bill reaffirms the right of cities to collect franchise fees from local video providers and specifically states that the 5% collected does not have to correlate to the cost of regulation. They may be placed in the general funds, according to the new law, which also made this policy retroactive.

Huppert, in his ruling on Sept. 20, said only emergency legislation or laws passed to cure errors in previously approved bills can be applied retroactively. The state franchise bill does not meet either test, he ruled.

The plaintiffs can still pursue the suits, which allege the targeted cities have collected an estimated $50 million in improper fees.

But the judge said damages can’t be collected on fees paid after May 29, the effective date of the new law.

The targeted cities may appeal the county judge’s ruling to the state Supreme Court.

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