Many cities aren’t satisfied with the revenue they collect from property taxes, sales taxes, and other sources. Several are considering franchise fee increases—a move that could impact your utility bills.
Background
A franchise fee in Iowa is a charge that cities can impose on providers of utilities and other municipal services (such as gas, electricity, water, cable, and mass transit) for using public property to deliver them. These fees are passed on to consumers as part of their utility bills.
Under Iowa Code §364.2(4)(f), cities can grant franchises to service providers for up to 25 years and include franchise fees in these agreements. The fee is based on the gross revenues of the provider within the city and is capped at 5%. However, Des Moines has a special exception allowing a 7.5% fee to fund the Des Moines Area Regional Transit Authority (DART), even as other cities participating in DART remain capped at 5%.
Cities are required to use the franchise fees they collect to manage rights-of-way. Any remaining funds can then be used for public improvements, property tax relief, emergency services, economic incentives, and other municipal needs.
The practice of imposing franchise fees in Iowa dates back several decades. Historically, these fees were only used to manage the rights-of-way. However, the Iowa General Assembly passed SF478 in 2009, clarifying cities’ authority to implement franchise fees of up to 5%, while also expanding the allowable uses for the funds collected. Before this legislation, about 30 cities in Iowa had been collecting these fees under franchise agreements.
Since 2015, any city council adopting or increasing a franchise fee must hold a public hearing.
Impact to Taxpayers
In 2004, Iowa phased out its state sales tax on utility bills but allowed local option sales taxes if approved by voters. Importantly, cities cannot impose a local option sales tax on gas and electric services if they are also imposing a franchise fee on those providers. Many cities, including West Des Moines and Norwalk, have replaced their 1% local option sales tax with a 1% franchise fee, which often generates more revenue since entities exempt from sales taxes, such as schools and non-profits, must still pay the franchise fee.
Cost to Consumers
The franchise fee is passed on to consumers. For instance, in Fort Dodge, a proposal to replace a 1% sales tax with a 5% franchise fee would have increased costs for residents and businesses. Based on data from MidAmerican Energy, a 5% franchise fee would have resulted in the following annual increases:
Fort Dodge voters rejected this proposal in a September 2024 special election.
Since franchise fees apply to all entities within city limits, including tax-exempt organizations and government offices, they can have broad financial implications. For example, Burlington's proposed 3% franchise fee on natural gas and electricity would cost Des Moines County itself approximately $155,000 to $160,000 annually due to county offices located within the city of Burlington.
Statewide, 276 cities included franchise fee revenue in their fiscal year 2025 budgets, totaling $88.6 million, according to the Iowa Department of Management. Click here to see the most updated list of cities imposing franchise fees on natural gas and electricity from the Iowa Utilities Association.
Why Are Cities Increasing These Fees?
Many cities are not content with the revenue provided to them by property taxes, sales taxes, and other revenue sources. As a result, they are seeking more dollars from other sources. For example, the following communities are all considering franchise fee increases at the moment:
What Can Taxpayers Do?
Timing is critical for taxpayers who want to engage on a franchise fee proposal. The initial grant, amendment, extension, or renewal of a franchise cannot take effect unless approved by voters in an election. However, the city council can waive the election—unless taxpayers submit a valid petition forcing a public vote.
A petition must be signed by at least 10% of voters who participated in the city’s last regular election. The county auditor can provide the exact number of required signatures and submission deadlines. If taxpayers successfully gather and submit the required signatures, the council must put the franchise ordinance to a public vote and cannot waive the election requirement.
Submitting a valid petition before the city council waives the election is the only way to guarantee a vote on the franchise proposal. If a city council wants to bypass a referendum, it may accelerate procedural steps, making it difficult for taxpayers to gather enough signatures in time.
For example, taxpayers might first learn about a proposed franchise fee increase through a public hearing notice published just four days before the hearing. The council could schedule the hearing immediately before a council meeting, hold the hearing, adjourn, then immediately vote on the franchise ordinance — all in one session. If the council also suspends the standard “three-reading” requirement, the ordinance could become final with a single vote. At that same meeting, the council could waive the election requirement—unless voters had already gathered and submitted enough petition signatures beforehand. While such a scenario would require deliberate action by the council to prevent a public vote, it is entirely possible.
Taxpayers should always attend public hearings and make their voices heard. Signature collection may begin after the city council takes its first official action on the franchise proposal, typically publishing the public hearing notice. In Fort Dodge, Marshalltown, and Burlington, taxpayers successfully submitted petitions before the final reading of the ordinance, forcing an election. However, waiting until the third reading—or even the first, if the council suspends the three-reading rule—could be too late.
A city council may call for call for an election on a franchise fee but only during a general election in November. If taxpayers petition for a vote, it will be held during a special election in March or September. In Marshalltown, after taxpayer pressure, the city council agreed to call an election—but chose not to place it on the November ballot, forcing taxpayers to petition for a special election instead.
Conclusion
Franchise fee increases are being proposed at a time when property taxes across the state just increased by more than 7%. While these fees further fund city services, they also impact the bottom lines of families, businesses, and even non-profit organizations. Taxpayers should stay informed, attend public hearings, and engage in the city governance process to ensure transparency and accountability in how these fees are implemented and used.
*This publication is intended to provide general information only and does not constitute legal advice. Do not act or refrain from acting upon this information without first seeking the advice of professional legal counsel.
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