Budget Message FY 07
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MEMORANDUM
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January 9, 2006
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Fiscal Year 2007 Budget Transmittal Message
The Fiscal Year 2007 budget process includes new leaders and one leader in a new
role, including:
Mayor Roy D. Buol
At-Large Council Member Ric W. Jones
1st Ward Council Member Kevin J. Lynch
2nd Ward Council Member Karla A. Braig
I welcome them as they continue public service in their new roles. City leadership also
involves veteran Council Members, including:
At-Large Council Member Ann E. Michalski
3rd Ward Council Member Joyce E. Connors
4th Ward Council Member Patricia A. Cline
The City begins this process with four City employees having been called to active
military duty:
Steven L. Olson
Thomas P. Reed
Brant E. Schueller
David B. Welsh
Over the last four years the following City employees have been on active duty and
have returned safely:
Debra R. Bisping
Frederick A. Brimeyer
Jamie S. Karshbaum
Gregory A. Merfeld
Benji M. Young
We thank them for service to our country to protect our hard-earned freedoms.
The Honorable Mayor and City Council Members
January 9, 2006
Page 2
The Fiscal Year 2007 budget is about growth. The things the City needs to do if we
want to continue growing, which of course it must do to provide economic opportunity
for Dubuque families, and the things that need to be done to preserve and enhance the
quality of life for the citizens of today, based on improvements that need to be done in
reaction to growth that has happened in the past.
The best examples of future growth initiatives include budgeting for the extension of
utilities in annexation areas and the construction of IA 32/Southwest Arterial. The best
examples of projects that need to be done in reaction to historical growth are the
expansion of the park system and the Bee Branch Creek Restoration Project.
To provide greater opportunity for economic expansion, while maintaining and
enhancing the quality of life, a community must be willing to invest resources. Those
resources include human capital, like time and talent, and financial capital. These
investments involve emergency services; preventive services; safe drinking water;
treated sewage; properly disposed of waste; engineered, maintained and plowed
streets; planned growth; safe housing; respect for the rights of people; safe construction
practices; sound financial practices; proper record keeping; respect for the law; state-of-
the-art communication systems; appropriate use of technology; communicating with and
providing information to the public; modern and accessible parks and recreation
opportunities; entertainment; education through access to books and the internet;
economic expansion and job creation; transportation; and sound management practices
emphasizing accountability, problem solving, employee and citizen input and forming
partnerships. These are all the role of the City of Dubuque and others. To achieve the
expectations of Dubuque citizens will not be easy and will continue to require a
concerted effort by all those involved.
This Fiscal Year 2007 budget document was built on the City Council Vision, Goals,
Priorities and Management Agenda established in September 2005. Of course it is
understood each year, as that annual strategic planning session provides direction for
budget preparation, that this recommendation is an attempt to interpret the results of
that session through the use of limited resources with competing priorities. That could
be made all the more challenging through this budget process in that three of the
elected officials reviewing the recommendation were not on the City Council when the
2005 Strategic Planning Session was held.
The established City Council Vision, Goals, Priorities and Management Agenda are as
follows:
Dubuque 2020 Vision Statement
Dubuque is a city of history, beauty, opportunities and excitement:
Masterpiece on the Mississippi.
The Honorable Mayor and City Council Members
January 9, 2006
Page 3
The vision statement was approved to include:
'The City of Dubuque is a growing city with a strong, balanced economy and
connections to the world. The Dubuque community takes pride in our history and
heritage and has actively preserved our picturesque river and community.
Dubuque citizens have choices of quality livable neighborhoods and fun things to
do; and are engaged in the community. Dubuque city government is financially
sound and providing services with citizens getting value for their tax dollars."
Five-year goals for the community:
. Improved Connectivity: Transportation and Communications
. Diverse, Strong Dubuque Economy
. Planned and Managed Growth
. Partnering for a Better Dubuque
. Riverfront Development
The City Council adopted a Policy Agenda 2005-2007 and developed 10 priority issues.
These issues were divided into top and high priority:
Top Priority
. Southwest Arterial - Funding for the arterial is once again the NO.1
transportation priority for the City of Dubuque.
. Intermodal Transit Facility in the Port of Dubuque
. Downtown Master Plan Implementation
. Bee Branch Stormwater Improvement Project
. Erosion Control Policy
High Priority
. Municipal Communication Utility Referendum
. Airport Master Plan Implementation
. Police Department Staffing and Deployment
. Neighborhood Crime Reduction Strategy
. Library Renovation
Also established was the Management Agenda for 2005-2007. These 18 issues
represent short-term projects for the City Manager and City of Dubuque staff. Included
in the Management Agenda are items that are considered Major Projects that involve
significant city resources and may span more than one year for completion:
Management Agenda
. Federal Building
. Water Pollution Control Plant Upgrade Plan
· Infrastructure Upgrade Strategy and Action
. Annexation Study Update
. Zoning and Subdivision Ordinance Update
The Honorable Mayor and City Council Members
January 9, 2006
Page 4
. Petroleum Plume Remediation
· Regional Community Safety Training Center
. City Leases: Upgrade
. After School Program Development
. Major Projects
· Casket Company Completion and Tot Lot
· Shot Tower Renovation Plan and Project
. Storm Sewer Projects
. Gateway Landscaping Project
. A.Y. McDonald Park Project
. Pyatigorsk Park Project
. Bergfeld Recreation Area
· Comiskey Park Improvement Project
. Pet Park
The City has a solid foundation to build upon as recognition in the recent past can
attest:
· The City of Dubuque was selected as the 2005 Employer of the Year by
American Legion Post #6.
. Phoenix Award for Port of Dubuque Brownfield Redevelopment from the
United States Environmental Protection Agency Region 7.
· Best Development Award for the America's River project from 1,000 Friends
of Iowa.
· 10 Great Places to Discover Midwest Charm, USA Today.
· All-Star Community Award for America's River project from the Iowa League
of Cities.
. Best New Development Award for America's River project from Main Street
Iowa.
· Certificate of Achievement for Excellence in Financial Reporting from the
Government Finance Officer's Association.
· Superior Levee Maintenance Award from the U.S. Corps of Engineers.
· Excellence in Communication for Interest-Based Bargaining Committee from
the Dubuque Area Labor-Management Council.
. Family Self Sufficiency Program Success from U.S. Department of Housing
and Urban Development Region 7.
. Housing Choice Voucher Home Ownership Program Success from U.S.
Department of Housing and Urban Development Region 7.
· Dubuque Carnegie-Stout Public Library Accreditation by the State Library of
Iowa.
. Police Department accreditation by the Commission on Law Enforcement
Accred itation.
. Tree City USA by the National Arbor Day Foundation.
The Honorable Mayor and City Council Members
January 9, 2006
Page 5
. The Greater Dubuque Area was ranked #1 by the Milken Institute for High
Tech Output Growth, 1998-2003.
· The Metro Business Retention Index for November 2001 ranked the Greater
Dubuque area 2nd in the nation for business retention.
· Forbes magazine ranked Dubuque 13th of 168 cities for the Cost of Doing
Business.
. The May 2004 issue of Expansion Management magazine selected Dubuque
as one of just 50 Five-Star Communities in the country. Identifying schools
and home affordability as the two most important quality of life issues, they
selected Dubuque as #7 for quality of schools and #1 in housing affordability.
They also ranked Dubuque #11 in peace of mind for its level of safety.
. The Milken Institute's 2004 Best Performing Cities Index ranked Dubuque 34th
out of 118 small U.S. metropolitan areas.
· American City and County magazine selected Dubuque as one of only six
Crown communities in 2003.
. A December 2002 Des Moines Register editorial, entitled, "Dubuque shows
how," began "Few Iowa cities were hit harder in the '80s. Few have a better
outlook now." The editorial ended saying, "The Dubuque story might offer
lessons for every Iowa city."
. In 2004, Country Music Television named Dubuque County as the #4 Top
Destination to Visit Worldwide.
. In May 2003, USA Weekend magazine selected the Upper Mississippi River
Valley as the Third Most Beautiful Place in America.
· Dubuque received the Merit Award for Economic Development for the
America's River project in 2004 from the International Downtown Association.
. The National Trust for Historic Preservation named Dubuque to its 2005 list of
America's Dozen Distinctive Destinations, an annual list of unique and
lovingly preserved communities in the United States.
· A 2004 study by the Milken Institute showed one-year wage growth in
Dubuque outpaced 75% of all U.S. smaller metros.
· Dubuque was designated a Preserve America Community in November 2004.
. Inc. magazine ranked Dubuque #62 out of 274 metros measured on its list of
"Best Cities to Do Business in America" in its May 2005 issue. Dubuque
climbed 177 spots from last year!
The Fiscal Year 2007 budget recommendation you will be reviewing over the next six
weeks has been prepared with the intent of minimizing the cost to the taxpayer. A
decrease in the revenue projections from the Dubuque Racing Association of
$8,804,571 over the next five years, and an increase in sales tax that did not meet
aggressive projections have meant less operational and capital resources in Fiscal Year
2007 than was anticipated when the projections were done last year. This has meant
that the property tax impact on the average homeowner was not able to be decreased
as much as hoped for and additional borrowing was required in the stormwater utility,
contributing to a recommended increase in that fee.
The Honorable Mayor and City Council Members
January 9,2006
Page 6
The property tax is recommended to have a decrease in property taxes for the average
homeowner of $18.83 (3.73%). This is a decrease from the cost to the average
homeowner in Fiscal Year 2006 of $504.62, down to $485.79. If this is adopted by the
City Council through the budget process, it will be the sixth decrease of the property tax
impact on the average homeowner in the last twelve years. However, it will not meet
the Budget Policy Guideline established by the City Council in December 2005 of a
5.44% decrease.
The City of Dubuque property tax rate for the City portion of the property tax bill reached
a high of $14.58 per thousand dollars of assessed valuation in Fiscal Year 1987. The
Dubuque Greyhound Park and Casino, the Local Option Sales Tax and operating
efficiencies brought the property tax rate down to $12.61 by Fiscal Year 1994. The
recommendation for the Fiscal Year 2007 property tax rate is $9.9803 per thousand, a
slight increase from the Fiscal Year 2006 property tax rate of $9.6991. This will mean
that the Fiscal Year 1987 property tax rate of $14.58 is 46.1 % higher than the Fiscal
Year 2007 recommended property tax rate of $9.9803.
FY 06 Tax Rate Comparison for Nine Largest Iowa Cities
9 Waterloo $19.16
8 Council Bluffs $18.39
7 Sioux City $17.97
6 Iowa City $17.86
5 Des Moines $16.52
4 Davenport $15.24
3 Cedar Rapids $13.99
2 Ames $10.17
1 Dubuque $9.98 (FY 07)
Average without Dubuque $16.16
Dubuque is the LOWEST in the state for property tax rate. The highest ranked city
(Waterloo) is 92% higher than Dubuque's rate, and the average is 62% higher than
Dubuque.
The reduction of the estimate of available resources from the Dubuque Racing
Association has had the most impact on the Drainage Basin Master Plan funding, with a
reduction of $3,621,000 in DRA resources available over the next five years.
The City of Dubuque gets two major sources of revenue from gaming. The annual
distribution from the Dubuque Racing Association is dedicated 100% to the Capital
Improvement Program. The taxes and lease payments from the Dubuque Racing
Association and Peninsula Gaming are split between the Capital Improvement Program
budget and the Operating Budget for property tax relief. In Fiscal Year 2006 this split
was 62.72% to the Operating Budget and 37.28% to the CIP. In Fiscal Year 2007 the
The Honorable Mayor and City Council Members
January 9, 2006
Page 7
recommended division is 70% to the Operating Budget and 30% to the CIP. This
exceeds the operating guideline adopted in December 2005, which was 62.72% to the
Operating Budget.
The implementation of the Bee Branch Creek Restoration Project is the key to saving
over 1,100 homes from flooding during severe rainstorms that seem to come all too
frequently. Quickening the pace on the part of the project from the 16th Street Detention
Basin through the damming affect of the railroad tracks will allow for a quicker
redevelopment of the former Dubuque Pack site and more timely flood relief for North
End residents. This budget recommendation includes an accelerated rate of increase of
the Stormwater Fee and now the fee caps out at $5.00 in Fiscal Year 2012, instead of
$3.50 in Fiscal Year2013.
FY 13
FY07 FY08 FY09 FY10 FY11 FY12 and
Beyond
Previously approved $2.00 $2.25 $2.50 $2.75 $3.00 $3.25 $3.50
Stormwater Fee
Fiscal Year 2007 $2.25 $3.25 $4.00 $4.25 $4.25 $5.00 $5.00
Recommended Fee
FY 06 Stormwater Rate Comparison for Iowa Cities with Stormwater utilities
14
13
12
11
10
9
9
8
8
7
6
6
5
4
3
2
2
1
Des Moines
Ackley
Cedar Rapids
Carroll
Garner
Davenport
Dewitt
Ames
Dubuque
Marshalltown
Burlington
Iowa City
Boone
Sioux City
Clear Lake
Bettendorf
Marengo
Mason City
$6.12
$3.08
$3.04
$3.00
$2.63
$2.50
$2.50
$2.25
$2.25 (FY 07)
$2.16
$2.00
$2.00
$1.95
$1.84
$1.55
$1.50
$1.50
$1.00
Average without Dubuque $2.39
The Honorable Mayor and City Council Members
January 9, 2006
Page 8
The highest ranked city (Des Moines) is 172% higher than Dubuque's rate, and the
average is 6% higher than Dubuque.
The water fees are recommended to increase by 4%. From Fiscal Year 1983 through
Fiscal Year 2007, this is an average of 1.9% annual increase, with six of those years
showing no increase.
FY 06 Water Rate Comparison for Largest Iowa Cities with Water Softening
6 Iowa City $28.80
5 Ames $18.42
4 Council Bluffs $17.44
3 Des Moines $16.22
2 Dubuque $14.40 (FY 07)
1 Cedar Rapids $14.11
Average without Dubuque $19.00
The highest ranked city (Iowa City) is 100% higher than Dubuque's rate, and the
average is 35% higher than Dubuque.
The sewer fees are recommended to increase by 9%. Increased operating costs
account for 5% of this increase. Debt payment for capital needs accounts for 3% of this
increase. A facility plan will be conducted in Fiscal Year 2007, which will culminate in a
major renovation plan that will require long-term debt, so 1 % of this increase and future
year increases are to provide capacity for that debt. From Fiscal Year 1993 through
Fiscal Year 2007, this is an average of 1.8% annual increase in sewer fees with nine of
those years showing no increase.
FY 06 Sewer Rate Comparison for Nine Largest Iowa Cities
9 Iowa City $31.82
8 Des Moines $25.16
7 Waterloo $18.95
6 Ames $18.45
5 Council Bluffs $17.20
4 Sioux City $17.11
3 Cedar Rapids $16.52
2 Dubuque $15.78 (FY 07)
1 Davenport $13.76
Average without Dubuque $19.87
The highest ranked city (Iowa City) is 102% higher than Dubuque's rate, and the
average is 26% higher than Dubuque.
The Honorable Mayor and City Council Members
January 9, 2006
Page 9
The refuse collection fee is recommended to increase from $8.70 per month to $9.46
per month. This is a 8.74% increase. From Fiscal Year 1994 to Fiscal Year 2007, this
is an average of 0.5% annual increase, with five of those years showing a decrease and
three years having no increase.
FY 06 Refuse Rate Comparison for Nine Largest Iowa Cities
9 Ames $21.00
8 Cedar Rapids $13.85
7 Sioux City $13.13
6 Council Bluffs $13.00
5 Iowa City $12.60
4 Waterloo $12.30
3 Des Moines $11.75
2 Davenport $10.15
1 Dubuque $ 9.46 (FY 07)
Average without Dubuque $13.47
The highest ranked city (Ames) is 122% higher than Dubuque's rate, and the average is
42% higher than Dubuque.
Fiscal Year 2007 Budaet Initiatives
Management Team members attending the Faces
and Voices Diversity Conference in Dubuque
$6,205
Additional Marketing Funds for the Airport
$10,000
Contribute towards a revenue guarantee to get
another hub for the Airport through the existing
carrier or an additional carrier
$250,000
Part-time Inspector in the Building Department
$42,363
$149,600
Part-time Custodial Services for Federal Building,
including a lead custodian position, and a vehicle
Increased funding for the Employee Diversity
Training Program
$28,350
Part-time Library Assistant in Circulation
$16,124
Library van to provide material return boxes on
west side
$12,050
The Honorable Mayor and City Council Members
January 9, 2006
Page 10
Part-time Landscaping Maintenance Worker
$32,682
Matching funds to East Central Intergovernmental
Association to leverage funding for a full-time
Transportation Planner from Federal Government
at ECIA
$5,000
Equipment to make the Municipal Services Center
the back-up Emergency Operations Center
$3,736
Establish Community-Oriented Policing as a
separate unit in the Police Department commanded
by a Captain and the upgrade of the Police Officer
positions in the unit to Corporals
$38,112
Add one additional Corporal to the Community-
Oriented Policing Unit to bring the staffing to five
from fou r
$77,462
Fund the Neighborhood Resource Center at the
new Prescott School building in Downtown
Dubuque
$26,770
Add Wellness and Fitness Classes at Comiskey
Park Community Center, Prescott School
Community Center and Neighborhood Resource
Centers
$3,060
Part-time secretarial position in City Manager's
Office, including equipment and office
reconfiguration
$29,366
Improvements to City technology, including a new
website that will allow for internet payments
$259,449
Vehicle to be shared by City Engineers
Power lift cots for ambulances
$19,000
$26,538
$5,000
Participate in a partnership to do a community-wide
needs assessment for children
Create Police Sub-station at Carnegie-Stout Public
Library for Community-Oriented Policing use
$13,556
The Honorable Mayor and City Council Members
January 9, 2006
Page 11
Renewal of Tutor.com at Library for youth
homework assistance via the internet
Install security cameras at the Riverwalk
Provide equipment for Municipal Services Center to
become an Area Red Cross Shelter
Creation of a Bluffs Comprehensive Plan
Assist Lifetime Center with relocation analysis
Relocate Chaplain Schmitt Memorial
Miller Riverview Park Expansion Study
Renovate Waller-Cooper Park, the last park that
has not been renovated
Carnegie-Stout Public Library Renovation Project
New Airport Terminal Project
Sanitary Sewers related to annexations
Catfish Creek Sanitary Sewer Interceptor
Reconstruction
Bee Branch Creek Stormwater Restoration Project
IA32/Southwest Arterial
Mississippi River Main Channel Transient Boat
Dock Facility
Water Mains related to annexations
E.B. Lyons Interpretive Center Expansion Well
Project
E.B. Lyons Interpretive Center Expansion Septic
Tank Project
Federal Building Renovation
$8,445
$75,000
$13,000
$10,000
$10,000
$80,000
$57,500
$45,000
$1,469,875
$16,610,060
$3,723,000
$1,904,250
$19,813,329
$41,044,857
$3,500,000
$2,175,000
$15,000
$15,000
$2,200,205
The Honorable Mayor and City Council Members
January 9, 2006
Page 12
Intermodal Transportation Facility in Port of
Dubuque
$12,000,000
Design Guidelines for Downtown Master Plan
Implementation
$65,000
Community Health Center
$250,000
$500,000
Community Marketing
The largest operating budget financial issue in this budget deals with the huge increase
in costs of $438,841 related to Transit. I am recommending a combination of service
modifications, a fare increase and an increase in the property tax subsidy from
$708,119 in Fiscal Year 2006 to $923,384 in Fiscal Year 2007, for an increase of
$212,841.
Also looming in the background is the remote possibility that the Iowa Supreme Court
will agree with the Des Moines District Judge that found the City of Des Moines' Utility
Franchise Fee contrary to State law. The Fiscal Year 2007 projection for Utility
Franchise Fees in Dubuque is $1,481,525, all for property tax relief. Should a refund of
past collections be ordered, the City has collected $2,722,669 through 2005. If this 2%
Utility Franchise was no longer collected, it would not save the consumer any money,
because it would be automatically replaced by the 1 % County Local Option Sales Tax
and the 1 % Dubuque Community School District Local Option Sales Tax.
Conclusion
It was another great year for Dubuque, highlighted by the completion of the envision
process by the Dubuque Area Chamber of Commerce and the Community Foundation
of Greater Dubuque.
There were 38 new non-residential permits issued in Fiscal Year 2005. This is a large
increase over the 27 built in Fiscal Year 2004. The valuation of non-residential permits
was $66.1 million, up from $40.3 million in Fiscal Year 2004.
Calendar Year 2005 was the fourth consecutive year of record real estate sales, with
$168 million in sales through October 2005.
Three significant agreements were reached in 2005. The Mediacom Franchise, the
lease that will lead to the expansion of the Mississippi River Museum and Aquarium and
the agreement to allow table games at Dubuque Greyhound Park and Casino.
The Honorable Mayor and City Council Members
January 9, 2006
Page 13
Approximately 3,000 jobs have been added to the local economy since the beginning of
the Greater Dubuque Development Corporation River Valley Initiative. Dubuque ranked
second in the State for job growth between July 2002 and July 2005.
This budget is about growth. In 1999 the City of Dubuque had no 4-lane connections to
an interstate highway system. Now Dubuque has five 4-lane connections to the outside
world:
. 1999 - Highway 61 4-laned to Interstate 80 at Davenport
. 2004 - Highway 20 4-laned to Interstate 35 north of Ames
. 2004 - Highway 151 4-laned to Highway 380 in Cedar Rapids
· 2004 - Highway 218 in Waterloo, connecting to Dubuque by 4-lane
Highway 20, opened 4-lane as part of the Avenue of the Saints that connects
to Minneapolis/St. Paul
. 2005 - Highway 151 4-laned to Interstate 90-94 at Madison, Wisconsin
This was a complex and challenging budget and it required the assistance of many City
of Dubuque staff members. I am especially proud of the work that was done this year,
including input from Department Managers and City Commissioners. I would like to
thank Budget Director Dawn Lang, along with Office Manager Juanita Hilkin and
Secretary Kevin Firnstahl, for putting together the budget, with the assistance of
Assistant City Manager Cindy Steinhauser. Corporation Counsel Barry Lindahl and City
Clerk Jeanne Schneider continue to provide their expertise and assistance throughout
the budget process.
I respectfully submit this budget for consideration and deliberation. While I know that all
needs and requests were not met, I believe the budget as presented keeps the
community moving forward in a fiscally responsible manner.
f\;( k~ /}((1
Michael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
D~~~E
~~~
MEMORANDUM
January 7, 2006
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Utility Franchise Fee
Corporation Counsel Barry Lindahl advises that a District Court in Des Moines has ruled
that the City of Des Moines Utility Franchise Fee is in violation of Iowa Code. Until an
Iowa Supreme Court decision is rendered, this ruling has no impact on Dubuque.
According to the Alliant Energy and Aquila Utility Franchises, the City of Dubuque has
the right to impose a 3% Utility Franchise Fee by unanimous vote of the City Council.
In Fiscal Year 2004, when the State of Iowa reduced City revenues by $1.1 million after
the City budget was adopted and health care costs took a huge unexpected increase,
the City had four viable choices.
1. Make major cost reductions, including employee layoffs.
2. Pay for the deficit by canceling Capital Improvement Projects, a one-time source
of revenue that just delayed the problem for one fiscal year when property taxes
could be raised to deal with the shortfall.
3. Get concessions from the employees.
4. Implement a Utility Franchise Fee.
The City Council chose to do all four (See the Attachment).
Five positions were cut, some Capital Improvement Projects ($378,791) were canceled,
some of the unions and all the non-represented employees had changes in their health
care coverage and dental premiums, and a 2% Utility Franchise Fee was established.
Year-to-date, the Utility Franchise Fee in the City of Dubuque has generated
$2,722,669.53. Should the City be required to reimburse those funds, several Capital
Improvement Projects would need to be canceled.
.
Even more significant is the impact the elimination of the Utility Franchise Fee would
have on the City's operating budget. The Fiscal Year 2007 budget that is being
presented to you on January 17, 2006, will recommend no increase in property taxes to
the average homeowner. In fact, it will recommend an $18.83 (3.73%) decrease from
the Fiscal Year 2006 cost to the average homeowner of $504.62, down to $485.79. If
this is adopted by the City Council through the budget process, it will be the sixth
decrease of the property tax impact on the average homeowner in the last twelve years.
The revenue in Fiscal Year 2007 from the Utility Franchise Fee is projected at
$1,481,525. If the City is not allowed to collect this revenue source, that would mean
significant budget cuts or a property tax increase on the average homeowner from the
recommended level of $485.79 to $527.71, $41.92 (8.6%). Since the Fiscal Year 2007
recommendation is an $18.83 decrease (3.73%) from the Fiscal Year 2006 level of
$504.62, the increased cost over Fiscal Year 2006 to the average homeowner would be
$23.09 (4.58%).
An example of what a citizen of Dubuque paid in December 2005 for the Utility franchise
Fee is $4.43. Remember this Utility Franchise Fee displaces the county 1 % Local
Option Sales Tax and the School District 1% Local Option Sales Tax on the utility bills.
So, if the Iowa Supreme Court agrees with the Des Moines District Judge and Dubuque
can no longer collect the Utility Franchise Fee, the Dubuque citizen saves no money.
They would just begin to pay the Local Option Sales Taxes, and that money would no
longer go to keep down the City of Dubuque property taxes.
I fully anticipate the Iowa Supreme Court to overturn this Des Moines District Court
decision and I believe that the City of Dubuque should proceed through the budget
process as if there will be no change in the Utility Franchise Fee. Should the Iowa
Supreme Court rule against the Utility Franchise Fee after the Fiscal Year 2007 budget
and tax levy is adopted, I would recommend a significant reduction in Fiscal Year 2007
CIP's to delay addressing this problem on a long-term basis until the Fiscal Year 2008
budget process. This would allow time to more judiciously implement a strategy.
01J ~ (~ ()l
MiChael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Dawn Lang, Budget Director
Randy Gehl, Public Information Officer
D~~~E
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MEMORANDUM
July 25, 2003
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Budget
At the July 21,2003 Public Hearing on the Fiscal Year 2004 budget amendment, the
City Council set a public hearing on a proposed Utility Franchise Fee for July 28, 2003
at 6:00 p.m. at the Dubuque Carnegie-Stout Library Auditorium.
After receiving citizen input, listening to the City Council discussions over the last two
months, and further examining the available options, I respectfully request Mayor and
City Council approval of a 2% Utility Franchise Fee effective October 1, 2003, on the
franchises held by Aquila and Alliant Energy for electricity and natural gas. In the
Franchise Fee Agreement with Aquila and Alliant Energy, the Franchise Fee is capped
at 3% and a unanimous vote of the City Council is required for approval.
My recommendation is for a 2% Utility Franchise Fee with a rebate for the full 2% to
organizations currently exempt from sales taxes. By state law, the 2% Utility Franchise
Fee would take the place of the City 1 % local option sales tax and the School 1 % local
option sales tax for those who are required to pay those taxes now. Sales tax exempt
entities would receive a rebate of the franchise fee. This would mean that no
individual, business or organization would see an increase in their costs, but the
City would see an increase in general fund revenues.
The Franchise Fee would allow the restoration of many of the cuts proposed for the
Fiscal Year 2004 budget, including restoring the non-union employee wage freeze;
restoring positions in Fire, Police, Parks and Five Flags departments; restoring library
hours; maintaining existing rates and Saturday service in the Transit department; and
reinstating education and training for city staff.
Under this recommendation for a 2% Utility Franchise Fee, the City general fund would
receive an estimated $641,000 in Fiscal Year 2004 and $879,535 in Fiscal Year 2005.
This change would be done in conjunction with the Fire Union concessions to overtime
1
, .
,
pay and acceptance of the change in dental benefits, saving the City $62,206. The non-
union employees, Teamster's Union, Operating Engineers, and Transit Union also have
agreed to pay 100% of their dental premiums and accept changes in health care
coverage for a savings in Fiscal Year 2004 of $167,379 as part of expense reductions
approved in March 2003.
To make up the remaining funds needed to balance the budget in Fiscal Year 2004
($378,791), I would suggest that the following Fiscal Year 2004 Capital Improvement
Projects be canceled:
CIP projects canceled to make up balance for FY 04:
Fire Dept. Station #2 driveway and exterior improvements
Fire Dept. radio to replace telephone lines
Fire Dept. Station #4 improvements
Fire Dept. Station #5 improvements
Softball Fields at Vets
Historic District Grant program
Total
$ 62,000
$ 17,500
$ 5,800
$ 13,600
$139,500
$139,450
$377.850
The City of Dubuque is struggling with a substantial budgetary shortfall - mainly the
result of a $1,070,425 funding cut from the State of Iowa. This reduction came without
warning, and it impacts every department and division within the City. Even more
unfortunate, this shortfall comes on the heels of a difficult budgeting process and
represents an additional revenue loss.
Planning for the Fiscal Year 2004 budget began with City Council goal-setting in August
2002 and included a thorough, detailed and intense examination of the City's finances.
The budget process continued with a series of public hearings in February and March.
At that time, the City Council addressed a $1 million shortfall, which included a
$312,513 state-mandated increase in police and fire pension costs and a 35% boost in
health insurance. While considering these cost increases, Council Members had to take
into account stagnating tax revenues after a national economic downturn.
Dealing with a budget shortfall is a challenging task. Throughout the process, the City
Council made the difficult, but financially responsible decisions. The Fiscal Year 2004
budget, which included the ninth consecutive year of no property tax increase for the
average homeowner, was approved and sent to the State of Iowa for certification by the
March deadline. Unfortunately, the budget story doesn't end there.
After the budget was certified, the Iowa Legislature passed laws that dramatically
reduced State aid to cities. The City of Dubuque immediate.ly lost $1,070,425 in
revenue or 3.28% of the general fund operating expense. Also, health insurance costs
have continued to increase at a rate exceeding budget expectations. The projected
recurring cost in Fiscal Year 2004 to cover health insurance is an additional $613,766
(with $315,000 in other budget shortfalls). After addressing a $1 million shortfall during
the initial budgeting process, the City's operating budget now faces a reduction of
$1,799,103 in tax funds and a $200,088 shortfall in non-tax supported funds. The State
2
,
of Iowa has permanently eliminated this funding to cities making this reduction an
annual, recurring loss. Therefore, finding a solution for this revenue loss cannot be a
one-time, short-term solution.
The City of Dubuque runs a lean operation that provides excellent services at some of
the lowest rates in the State of Iowa. The following compares Dubuque with the other
large cities in Iowa:
Property Tax
Rank CITY TAX RATE
9 Waterloo 18.37162
8 Des Moines 17.04857
7 Iowa City 16.81344
6 Council Bluffs 16.42850
5 Sioux City 15.95108
4 Davenport 14.63000
3 Cedar Rapids 12.82969
2 Dubuque 10.2730
1 Ames 9.63962
The highest-ranked city (Waterloo) is 79 % higher than Dubuque's rate, and the $14.665 average is
42.8% higher.
Refuse Rates
RANK CITY MONTHLY
FEE PAY AS YOU THROW
7 Ames $20.50 No (average tee tor private service)
6 Cedar Rapids $12.56 Yes
5 Iowa City $12.10 Yes
4 Waterloo $11.00 Yes
3 Des Moines $10.25 No
2 Sioux City $9.50 No
1 Dubuque $7.60 Yes
The highest-ranked city (Ames) is 170 % higher than Dubuque's rate, and the $11.93 average is 57%
higher.
Water rates
RANK CITY WA TER USED
(800 cubic feet/residential average)
5 Ames $18.42
4 Des Moines $15.86
3 Council Bluffs $14.00
2 Dubuque $12.88
1 Cedar Rapids $12.48
The highest-ranked city (Ames) is 43% higher than Dubuque's rate, and the $14.73 average is 14%
higher. '
3
,
Sewer Rates
RANK CITY SEWER FEE
(Based on 800 cubic ftImonth)
9 Iowa City $31.82
8 Des Moines $21.56
7 Waterloo $18.95
6 Sioux City $17.11
5 Ames $16.78
4 Council Bluffs $15.12
3 Davenport $13.76
2 Dubuque $13.12
1 Cedar Rapids $10.73
The highest-ranked city (Iowa City) is 143 % higher than Dubuque's rate, and the $17.66 average is 35%
higher.
Stormwater Utility Rates
RANK CITY RA TE*
* Average Monthly Residential rate
8 Des Moines $4.60
7 Burlington $3.00
6 Gam~ $2.63
5 Cedar Rapids $2.25
4 Boone $1.95
3 Sioux City $1.84
2 Ames $1.50
1 Dubuque $1.29
The highest-ranked city (Des Moines) is 257 % higher than Dubuque's rate, and the $2.38 average is
84.5% higher.
The City of Dubuque workforce has declined by nearly 12 percent or 69 positions since
1981, in spite of adding numerous services. Initiatives during that time period have
included:
Yard waste and recycling
Economic development efforts
County-wide E911 dispatch
Comprehensive housing programs
Community oriented policing
DARE and other drug-related programs
Rental property inspections
Operations of the new leisure pools
McAleece Recreation Complex
City Focus newsletter
Industrial pretreatment and lead and copper testing programs
Fifth Street Parking Ramp
Fourth Street Parking Ramp
Hazardous materials team
4
Advanced life support ambulance service
Government Channel 8 programming
Cable TV monitoring and regulation
Additional commissions including Long Range Planning, Environmental
Stewardship, Investment Oversight, Development Review Committee
Extensions of bike and hike trails
City-operated FBO functions
Increased zoning code enforcement
Developers and builders roundtables
Implementation of riverfront plan
Downtown circulation study
Implementation of the Neighborhood Reinvestment Strategy
Lead paint abatement program
School resource officer program
Washington D.C. initiative
Increased security operations at the airport
Thirteen additional neighborhood parks
Reinstatement of traffic accident investigations
jPolice K-9 unit
Even with a Utility Franchise Fee, the amended Fiscal Year 2004 budget includes the
elimination of five additional positions for a total reduction of 74 or nearly 13 percent of
the workforce since 1981. This has been accomplished despite adding certain
positions, like 15 Police Officers, since 1994.
Public safety exemplifies one of those areas where the City provides excellent service.
The Insurance Service Office (ISO) rating is a national classification system that rates a
community's fire protection capabilities with a score of 1 to 10, with 1 being the best.
The ISO rates 45,898 fire departments nationwide. The City of Dubuque finished higher
than 96.2% or 44,148 of the other fire departments in the country with a Class 3 rating.
The City of Dubuque's ability to deal with a fire is in an elite class of 1,750 departments
that are rated between 1 and 3. This puts the City of Dubuque in the top 3.8% of fire
departments in the country. No fire department in the State of Iowa has a higher
classification than Dubuque.
Under State of Iowa law, franchise fees may be implemented as part of an agreement
between local governments and a utility company. In Dubuque, Alliant Energy and
Aquila provide electric and natural gas services to businesses and residences. These
agreements are made to ensure service to all customers in a community and outline the
terms under which utility companies provide service. The intent of these fees is to
reimburse local governments for use of public rights-of-way and other public services.
A franchise fee typically is calculated on a percentage of the revenues derived from the
sales of gas or electricity to customers in that community.
A franchise fee can be imposed as a percentage of gross sales, so the exact amount
would vary each month. However, the impact of a franchise fee in Dubuque would not
be as significant due to some changes in the State of Iowa taxing system. If the City of
Dubuque were to implement a franchise fee in 2003, residential property would pay the
5
2% franchise fee in addition to the 3% Iowa tax for a total of 5%. However, in 2004 the
State tax declines to 2%, while the franchise fee would remain at 2%. The total in 2004
is 4%. The total in 2005 is 3%. By the year 2006, the State tax is phased out, and only
the franchise fee remains at 2%. When a community implements a franchise fee, local
option taxes cannot be collected. In the case of Dubuque, this 2% in local option sales
taxes would come off of residential, commercial and industrial bills. Therefore the
consumer sees no increase in their costs, but the City would see an increase in general
fund revenues.
,
Commercial/industrial customers are not receiving a break on their state sales tax
(unless the electric or gas is used in processing). Entities that are currently exempt
from sales tax would also be exempt from the franchise fee.
Sales Tax and Potential Franchise Fees on~~,~l!!~,iml!.J Gas and Electric Bills within City Limits
Calendar Year
i
2001
2002
2003.Jan.-June
Cu.rr~~~ J.iily:Sept:
2l).1)~ O<!t-Q~<;,
~O~~
21)Q?
~QQ9 ~tiJ,j.el!Y9.!!9
State Tax
City
Local Option
School
Local Option
Franchise Fee
5.00%
1.00%
0.00%
4.00%
1.00%
0.00%
3.00%
1.00%
0.00%
~.OQ.%
1_.00%
1.090/0
3.00%
Q.OQ.%
2;!fQo/~
0:900/0
Z,Q.9.o/?
2.00%
11,QQ?@
2.00%
~.QQ'4
2.00%
6
Impact on
City Residents
6.00%
5.00%
4.00%
?~.
$~J!!fP
~ig
~ieQ%
?'.Jl!l%
Sales Tax and Potential Franchise Fees ong9'mijJif&l!E!1!~}n!Q!!tj~~ Gas and Electric Bills within City Limits
Calendar Year
State Tax
City
Local Option
School
Local Option
Franchise Fee
I mpact on
Comm.llnd.
2002
5.00%
1.00%
0.00%
6.00%
2003 Jan.-June
5.00%
1.00%
0.00%
6.00%
!!t~i ;,!,iJ)i&fp.1
:i,QQ~!
1.,!i!~~
,1;G@&'.
~~~
~~ ~9Bi!!i~
5.00%
Q~RQ'Y~
Q:l;iQ%
2.;9P%
7,OP.!Y.
2004 and beyond
5.00%
2.00%
7.00%
Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee.
Sales Tax and Potential Franchise Fees on~[@,-~,I!~:~~~mll~:~Rr[p,!nl~~'" within City Limits
Calendar Year
State Tax
City
Local Option
School
Local Option
Franchise
Fee
Impact on
Tax Exempt
2002
0.00%
c\!l!'''ftl (;;Jit1\~s!iPt1b
000%
r,n..,"......
gi~ Rlili~.i
~c~1lli
~()Q<<:((1 wI rebate
2004 and beyond
2.00%
0.00% wI rebate
"Sales tax exempt includes private nonprofit educational institutions, nonprofit private museums, tax~certifying or tax-
levying body or governmental subdivision, including state board of regents, state department of human services, state
department of transportation, all divisions, boards, commissions, agencies, or instrumentalities of state, federal,
county or municipal government which do not have earnings going to the benefit of an equity investor or stockholder.
Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee.
The revenues from a 2% Utility Franchise Fee are projected to be $641,000 in Fiscal
Year 2004 (9 months) and $879,535 in Fiscal Year 2005. Since the City would no
longer collect the City local option sales tax the City could lose $216,399 from the Fiscal
Year 2004 CIP and $324,437 from the Fiscal Year 2005 CIP.
As directed, I met with the leadership of Teamster's Union, Local #421 and the
Dubuque Professional Firefighter's Association, Local #353.
7
The discussions with the Teamsters revolved around the Park Ranger position. The
Teamsters membership had already rejected a wage freeze and already accepted all
the requested health care changes. They asked the City to consider raising the entry
fee at Eagle Point Park from $1 to $2, which would generate over $60,000, more than
enough to pay for the Park Ranger position, or cancel a Park's Division Capital
Improvement Project.
The Firefighters reiterated their willingness to change their FLSA overtime to comp time
and accept paying their full dental premium, which is accepting part of the health care
changes accepted by other employees (except the Police union). This will save the City
$62,206 in Fiscal Year 2004.
I have included this $62,206 savings in my revised budget recommendation.
If the City Council does not approve the Utility Franchise Fee, all the previously
approved cuts, including the non-union wage freeze and the position eliminations, will
be implemented. To fund the three Fire Equipment Operator positions, the Park Ranger
position, restore Saturday Fixed Route Bus Service and not increase Fixed Route or
paratransit fares, the funding will come from the Capital Improvement Program budget
in the amount of $307,729, and the $62,206 offered up by the Fire Union by accepting
the changes in dental premiums and allowing FLSA overtime to be compensated
through time-off, instead of overtime. The canceled CIPs are the Historic District Grant
Program ($139,450), the softball field renovation at Vet's Park ($139,500) and $28,779
of the $62,000 Fire Station #2 driveway and exterior improvements.
Canceling these CIPs and not adopting a Utility Franchise Fee merely pushes this
problem into Fiscal Year 2005, which is already looking at a 10.54% property tax
increase for a maintenance level budget. This will push the anticipated Fiscal Year
2005 property tax increase of 10.54% to 13.77%.
The implementation of this franchise fee also pushes some of the budget issues into
Fiscal Year 2005, but it also provides an additional $238,535 in revenues because the
franchise fee will be collected for 12 months instead of the nine months in Fiscal Year
2004. With a utility franchise fee the projected Fiscal Year 2005 property tax increase is
approximately 12%.
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Pauline Joyce, Administrative Services Manager
8
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Preparer: Barrv A. Lindahl 300 Main Street Suite 330 Dubuque IA 52001 (563) 583-4113
ORDINANCE NO.
ESTABLISHING A FRANCHISE FEE OF TWO PERCENT (2%) OF THE GROSS
REVENUE OF INTERSTATE POWER COMPANY, ITS SUCCESSORS AND
ASSIGNS, GENERATED FROM THE SALE OF ELECTRICITY WITHIN THE CITY OF
DUBUQUE
Whereas, City of Dubuque Ordinance No. 58-93 (City of Dubuque Code of
Ordinances Appendix D), adopted by the City Council on the 4th day of October 1993,
grant~d to Interstate Power Company, its successors and assigns (hereinafter referred
to collectively as the Company), nonexclusive authority for a period of twenty-five (25)
years to maintain and operate its electrical system within the limits of the City of
Dubuque; and
Whereas, Ordinance No. 58-93 provides that the City Council may, impose a
franchise fee not to exceed three (3) percent of the gross revenue of the Company
generated from the sale of electricity within the City of Dubuque; and
Whereas, the City Council has determined that a franchise fee is in the best
interests of the City of Dubuque.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF DUBUQUE, IOWA:
Section 1. Effective October 1, 2003 and for the term of the franchise granted by
Ordinance No. 58-93, there is hereby imposed upon the Company a fee equal to two
percent (2%) of the gross revenue generated from the sale of electricity within the City
of Dubuque; and
Section 2. The Company shall certify to the City Manager in a form acceptable to
the City Manager records establishing the gross revenues from the sale of electricity
within the City of Dubuque and shall pay the fee to the City within thirty (30) days
following the last day of the preceding month; and
Section 3. The fee imposed by Sec. 1 shall not apply to any sale of electricity by
the Company that is exempt under Iowa Code S 442.45 from the tax imposed by Iowa
Code S 442.23 and in computing the amount of the fee, the Company shall not include
such sales, unless it is impracticable to do so, in which event the City Manager may
",
provide for a rebate of the amount of the fee for such exempt sales of electricity to the
Company's customers.
Passed, approved and adopted this 28th day of July, 2003.
Terrance M. Duggan, Mayor
Attest:
Jeanne F. Schneider, CMC
City Clerk
D~~~E
~c/k.~
Pauline Joyce
Administrative Services
Manager
MEMORA__
- ~"..&..
July 17, 2003
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Budget
At the July 9,2003 Public Hearing on the Fiscal Year 2004 budget amendment, the City
Council directed me to further examine a Utility Franchise Fee. After receiving citizen
input, listening to the City Council discussions over the last two months, and further
examining the available options, I respectfully request Mayor and City Council approval
of a 3% Utility Franchise Fee effective October 1, 2003, on the franchises held by Aquila
and Alliant Energy for electricity and natural gas and that a public hearing be set for
Monday, July 28, 2003, at 6:00 p.m. to further consider this matter. In the Franchise
Fee Agreement with Aquila and Alliant Energy, the Franchise Fee is capped at 3% and
a unanimous vote of the City Council is required for approval.
The Franchise Fee would allow the restoration of many of the cuts proposed for the
Fiscal Year 2004 budget, including eliminating the non-union employee wage freeze
and bringing down next year's projected property increase in Fiscal Year 2005 from
10.54% to 8.05%. Recognizing that over the last nine years there has not been a
property tax increase for the average homeowner for the City portion of their property
tax bill, in fact, there has been five decreases totaling 7%, this 8.05% increase in Fiscal
Year 2005 would be a 1.05% increase over a ten year period.
As we are all aware, the State of Iowa handed the City of Dubuque most of this problem
when the State cut funding to local governments state-wide by $60 million, which is a
cut to the City of Dubuque of $1 ,070,425 The State of Iowa might have inadvertently
provided a solution to a budget crisis they created. In 2002 the State of Iowa began
phasing out the 5% State sales tax on residential utility bills. The State is reducing the
tax by 1 % a year through 2006. In 2006, there will no longer be a State sales tax on
residential utility bills. Adoption of a City of Dubuque Utility Franchise Fee of 3% would
be mitigated by this drop of 5% by the State of Iowa.
1
There are further mitigating factors which lessen the impact of the 3% Franchise Fee on
residential properties. Currently. residential properties pay a 2% local option sales tax
(1 % to the City and 1 % to the schools) on their utility bill. State law removes the local
option sales tax from a utility bill when there is a franchise fee. Therefore, a 3% Utility
Franchise Fee only costs the residential consumer 1 %.
The residential consumer would see a high of a 6% charge on their utility bills in 2003
with the State sales tax and Utility Franchise Fee, but go down to a 3% charge in 2006
and beyond, because of the State sales tax reduction and the removal of the local
option sales tax.
The City of Dubuque is struggling with a substantial budgetary shortfall - mainly the
result of a $1,070,425 funding cut from the State of Iowa. This reduction came without
warning, and it impacts every department and division within the City. Even more
unfortunate, this shortfall comes on the heels of a difficult budgeting process and
represents an additional revenue loss.
Planning for the Fiscal Year 2004 budget began with City Council goal-setting in August
2002 and included a thorough, detailed and intense examination of the City's finances.
The budget process continued with a series of public hearings in February and March.
At that time, the City Council addressed a $1 million shortfall, which included a
$312,513 state-mandated increase in police and fire pension costs and a 35% boost in
health insurance. While considering these cost increases, Council Members had to take
into account stagnating tax revenues after a national economic downturn.
Dealing with a budget shortfall is a challenging task. Throughout the process, the City
Council made the difficult, but financially responsible decisions. After approval, the
Fiscal Year 2004 budget, which included the ninth consecutive year of no property tax
increase for the average homeowner, was sent to the State of Iowa for certification by
the March deadline. Unfortunately, the budget story doesn't end there.
After the budget was certified, the Iowa Legislature passed laws that dramatically
reduced State aid to cities. The result for the City of Dubuque is a reduction of
$1,070,425 in revenue or 3.28% of the general fund operating expense. Also, health
insurance costs have continued to increase at a rate exceeding budget expectations.
The projected recurring cost in Fiscal Year 2004 to cover health insurance is an
additional $613,766 (with $315,000 in other budget shortfalls). After addressing a $1
million shortfall during the initial budgeting process, the City's operating budget now
faces a reduction of $1 ,799,103 in tax funds and a $200,088 shortfall in non-tax
supported funds. The State of Iowa has permanently eliminated this funding to cities
making this reduction an annual, recurring loss. Therefore, finding a solution for this
revenue loss cannot be a one-time, short-term solution.
The City of Dubuque runs a lean operation that provides excellent'services at some of
the lowest rates in the State of Iowa. The following compares Dubuque with the other
large cities in Iowa:
2
,
Property Tax
Rank CITY TAX RATE
9 Waterloo 18.37162
8 Des Moines 17.04857
7 Iowa City 16.81344
6 Council Bluffs 16.42850
5 Sioux City 15.95108
4 Davenport 14.63000
3 Cedar Rapids 12.82969
2 Dubuque 10.2730
1 Ames 9.63962
The highest-ranked city (Waterloo) is 79 % higher than Dubuque's rate, and the $14.665 average is
42.8% higher.
Refuse Rates
RANK CITY MONTHLY
FEE PAY AS YOU THROW
7 Ames $20.50 No (average fee for private service)
6 Cedar Rapids $12.56 Yes
5 Iowa City $12.10 Yes
4 Waterloo $11.00 Yes
3 Des Moines $10.25 No
2 Sioux City $9.50 No
1 Dubuque $7.60 Yes
The highest-ranked city (Ames) is 170 % higher than Dubuque's rate, and the $11.93 average is 57%
higher.
Water rates
RANK CITY WATER USED
(800 cubic feet/residential average)
5 Ames $18.42
4 Des Moines $15.86
3 Council Bluffs $14.00
2 Dubuque $12.80
1 Cedar Rapids $12.48
The highest-ranked city (Ames) is 44 % higher than Dubuque's rate, and the $14.94 average is 15%
higher.
3
Sewer Rates
RANK CITY SEWER FEE
(Based on 800 cubic ftfmonth)
9 Iowa City $31.82
8 Des Moines $21.56
7 Waterloo $18.95
6 Sioux City $17.11
5 Ames $16.78
4 Council Bluffs $15.12
3 Davenport $13.76
2 Dubuque $13.04
1 Cedar Rapids $10.73
The highest-ranked city (Iowa City) is 144 % higher than Dubuque's rate, and the $17.65 average is 35%
higher.
Stormwater Utility Rates
RANK CITY RATE'
'Average Monthly Residential rate
8 Des Moines $4.60
7 Burlington $3.00
6 Garner $2.63
5 Cedar Rapids $2.25
4 Boone $1.95
3 Sioux City $1.84
2 Ames $1.50
1 Dubuque $1.29
The highest-ranked city (Des Moines) is 257 % higher than Dubuque's rate, and the $2.38 average is
85% higher.
The City of Dubuque workforce has declined by nearly 12 percent or 69 positions since
1981, in spite of adding numerous services. Initiatives during that time period have
included:
Yard waste and recycling
Economic development efforts
County-wide E911 dispatch
Comprehensive housing programs
Community oriented policing
DARE and other drug-related programs
Rental property inspections
Operations of the new leisure pools
McAleece Recreation Complex
City Focus newsletter
Industrial pretreatment and lead and copper testing programs
Fifth Street Parking Ramp
Fourth Street Parking Ramp
Hazardous materials team
4
Advanced life support ambulance service
Government Channel 8 programming
Cable TV monitoring and regulation
Additional commissions including Long Range Planning, Environmental
Stewardship, Investment Oversight, Development Review Committee
Extensions of bike and hike trails
City-operated FBO functions
Increased zoning code enforcement
Developers and builders roundtables
Implementation of riverfront plan
Downtown circulation study
Implernentation of the Neighborhood Reinvestment Strategy
Lead paint abatement program
School resource officer program
Washington D.C. initiative
Increased security operations at the airport
Thirteen additional neighborhood parks
Reinstatement of traffic accident investigations
Police K-9 unit
Even with a Utility Franchise Fee, the amended Fiscal Year 2004 budget includes the
elimination of five additional positions for a total reduction of 74 or nearly 13 percent of
the workforce since 1981. This has been accomplished despite adding certain
positions, like 15 Police Officers, since 1994.
Public safety exemplifies one of those areas where the City provides excellent service.
The Insurance Service Office (ISO) rating is a national classification system that rates a
community's fire protection capabilities with a score of 1 to 10, with 1 being the best.
The ISO rates 45,898 fire departments nationwide. The City of Dubuque finished higher
than 96.2% or 44,148 of the other fire departments in the country with a Class 3 rating.
The City of Dubuque's ability to deal with a fire is in an elite class of 1,750 departments
that are rated between 1 and 3. This puts the City of Dubuque in the top 3.8% of fire
departments in the country. No fire department in the State of Iowa has a higher
classification than Dubuque.
Under State of Iowa law, franchise fees may be implemented as part of a service
agreement executed between local governments and a utility company. In Dubuque,
Alliant Energy and Aquila provide electric and natural gas services to businesses and
residences. These service agreements are made to ensure service to all customers in
a territory and outline the terms under which utility companies provide service. The
intent of these fees is to reimburse local governments for use of public rights-of-way and
other public services. A franchise fee typically is calculated on a percentage of the
revenues derived from the sales of gas or electricity to customers in that community. A
franchise fee is imposed in lieu of licenses or permits that would otherwise be required.
A franchise fee can be imposed as a percentage of gross sales, so the exact amount
would vary each month. However, the impact of a franchise fee in Dubuque would not
be as significant due to some changes in the State of Iowa taxing system. If the City of
5
.. Dubuque were to implement a franchise fee in 2003, residential property would pay the
3% franchise fee in addition to the 3% Iowa tax for a total of 6%. However, in 2004 the
State tax declines to 2%, while the franchise fee would remain at 3%. The total in 2004
is 5%. The total in 2005 is 4%. By the year 2006, the State tax is phased out, and only
the franchise fee remains at 3%. When a community implements a franchise fee, local
option taxes cannot be collected. In the case of Dubuque, this 2% in local option sales
taxes would come off of residential, commercial and industrial bills.
Commerciallindustrial customers are not receiving a break on their state sales tax
(unless the electric or gas is used in processing) therefore, their overall bill would go up
1 % with the 3% franchise fee. Entities that are currently exempt from sales tax would
not be exempt from the franchise fee, but they would still be exempt from sales tax.
Sales Tax and Potential Franchise Fees on R",stc:!~!iiTi!! Gas and Electric Bills within City Limits
Calendar Year
State Tax
City
Local Option
School
Local Option
Franchise Fee
Impact on
City Residents
2001
5.00%
1.00%
0.00%
6.00%
2002
4.00%
1.00%
0.00%
5.00%
2003 Jan.-June
3.00%
1.00%
0.00%
4.00%
....... ;~riei:il :J1ii~""e ."
,...'" ..I'o....!P.
3~01i~
'1:0.Q~
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~0Q3 pCltr'Q~
3.00%
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3.00%
5:QQ~
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3.00%
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ll1D~
3.00%
a,'Qgj!
6
I
Sales Tax and Potential Franchise Fees on c:o"fuml!fGl~l)l'Idl!1~iistrj~1 Gas and Electric Bills within City Limits
Calendar Year
State Tax
City
Local Option
School
Local Option
Franchise Fee
Impact on
Comm'!lnd.
2002
5.00%
1.00%
0.00%
6.00%
2003 Jan.-June
5.00%
1.00%
0.00%
6.00%
CLiIi~Q! :,J1!iy~~m
;;]JJJ\$
~'.'!lQ~
~~Q(j~
"00'"
7~_. 'ilL!!
2PO:> Oar.,rre~;
5.00%
6;QQ%
lj;oP.%
~\'!:ip.~
llM$
2004 and beyond
5.00%
3.00%
8.00%
Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee.
Sales Tax and Potential Franchise Fees on "g~~~.Xii.K~~~ijjp(Bfi)plfriilfs" within City Limits
Calendar Year
State Tax
City
Local Option
School
Local Option
Franchise
Fee
Impact on
Tax Exempt
2002
0.00%
curreiit l~alj:-SeIiiJ
0.011%
?QQ~ Qf!:;\il~?:
~&Jj~
~;Q~
2004 and beyond
3.00%
3.00%
.Sales tax exempt includes private nonprofit educational institutions, nonprofit private museums, tax-certifying or tax-
levying body or governmental subdivision, including state board of regents, state department of human services, state
department of transportation, all divisions, boards, commissions. agencies, or instrumentalities of state, federal,
county or municipal government which do not have earnings going to the benefit of an equity investor or stockholder.
Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee.
The revenues from a 3% Utility Franchise Fee are projected to be $1,081,997 in Fiscal
Year 2004 (9 months) and $1,622,184 in Fiscal Year 2005. Since the City would no
longer collect the City local option sales tax the City could lose $216,399 from the Fiscal
Year 2004 CIP and $324,437 from the Fiscal Year 2004 CIP.
7
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REVISED 6/16/03
D~~~E
~~~
MEMORANDUM
June 11, 2003
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Budget
Like other cities, Dubuque has experienced many challenges and overcome difficult
obstacles throughout the years. Each experience has tested this community's resolve.
While every city plans carefully to avoid potential problems, in some cases the
unexpected strikes.
The City of Dubuque is struggling with a substantial budgetary shortfall - mainly the
result of a $1.2 million funding cut from the State of Iowa. This reduction came without
warning, and it impacts every department and division within the City. Even more
unfortunate, this shortfall comes on the heels of a difficult budgeting process and
represents an additional revenue loss.
Planning for the Fiscal Year 2004 budget began with City Council goal-setting in August
2002 and included a thorough, detailed and intense examination of the City's finances.
The budget process continued with a series of public hearings in February and March.
At that time, the City Council addressed a $1 million shortfall, which included a
$312,513 state-mandated increase in police and fire pension costs and a 35 percent
boost in health insurance. While considering these cost increases, Council Members
had to take into account stagnating tax revenues after a national economic downturn.
Dealing with a budget shortfall is a challenging task. Throughout the process, the City
Council made the difficult, but financially responsible, decisions. After approval, the
Fiscal Year 2004 budget, which included the ninth consecutive year of no property tax
increase for the average homeowner, was sent to the State of Iowa for certification by
the March deadline. Unfortunately, the budget story doesn't end there.
~
After the budget was certified, the Iowa Legislature passed laws that dramatically
reduced State aid to cities. The result for the City of Dubuque is a reduction of
$1,195.425 in revenue or 3.54 percent of the general fund operating expense. Also,
health insurance costs have continued to increase at a rate exceeding budget
expectations. The projected recurring cost in Fiscal Year 2004 to cover health
insurance is an additional $613,766. After addressing a $1 million shortfall during the
initial budgeting process, the City's operating budget now faces a reduction of $1.9
million in tax funds and a $200,000 shortfall in non-tax supported funds. The State of
Iowa has permanently eliminated this funding to cities making this reduction an annual,
1
recurring loss. Therefore, finding a solution for this revenue loss cannot be a one-time,
short-term solution.
With such a profound funding decrease, the City Council might have considered raising
revenue through a property tax increase. However, once a city has certified its budget
(and tax askings), raising property taxes is no longer an option. With the fiscal year
beginning on July 1, a solution must be found.
There have been many suggestions of how to deal with the budget shortfall, and City
staff has been exploring all opportunities to cut costs. Some ideas, after more research,
have been rejected due to funding restrictions, minimal savings, or other concerns.
One proposal has been to use reserve funds. Although the City of Dubuque does keep
reserves, dipping into those funds at this time is risky, especially during the economic
downturn. The City Council has established the guideline of maintaining a 10-percent
reserve or $2,556,000 for the general fund operating budget. The reserve fund provides
sufficient cash flow to pay bills and provides a safety net during a major catastrophic
event. The City's reserve fund is a measure of its financial health or stability. Bond
rating agencies - the "banks" that cities use to borrow money - will ask about that
reserve policy and examine reserve levels. Drawing on those balances without a plan
to deposit money in the future can damage a city's ability to borrow at reasonable
interest rates. If we spend our reserves, we risk lowering our bond rating and
increasing project costs. Also, the City would not be prepared if there was a
catastrophic event.
Cities FY 02 CAFR indicated a cash balance of $19,876,418 on June 30, 2002.
Following is an explanation of the cash balance and the amount that was undesignated
going into the Fiscal Year 2004 budget process.
Cash Balance per 6/30/02 CAFR (page 24)
Purchase orders outstanding June 30th
Continuing appropriation authority covered
in first budget amendment
$19,876,418
(3,330,054 )
(9,464,028)
Available Balance
$ 7,082,336
Less 10% reserve per Guideline
Less Jan 1, 2002 ORA Distribution used to
Support FY 03 CIP's per Guideline
Plus amount of ORA Distr. used in advance
(2,556,000)
(4,358,000)
578,000
Unencumbered funds needed to support next
Years budget per Policy Guideline
Period 13 correction to fund 410
(200,000)
(127,209)
Uncommitted balance'
$ 419,127
'Used to support FY 04-08 CIP since non-recurring balance
2
Another suggested solution is to delay or eliminate capital improvement projects. It is
important to note that the capital improvement budget is a separate budget from the
operating budget, and capital improvements receive funding from different sources.
Capital improvements are projects that do not occur every year, such as creating a
neighborhood park, repairing a street or fixing a sewer. The operating budget pays for
recurring expenses like salaries, supplies, and utilities. Money collected through certain
taxes, like the local option sales tax and gaming taxes, is restricted and can only
partially be used to pay salaries. Gaming revenues are not as predictable as other
funding sources and are best used for one-time projects. Although the current budget
crisis is caused primarily by outside influences, we do not want to take actions that will
cause a future budget crisis of our own making.
The June 2003 ruling by the U.S. Supreme Court lets stand an Iowa law taxing the
Dubuque Greyhound Park and Casino at a much higher rate than riverboats. This
decision further limits the City's ability to use capital improvement money for salaries.
The City stands to lose $17 million from the five-year capital improvement program
because of the higher state tax rate that may now be imposed on Dubuque Greyhound
Park and Casino. Five million dollars will be made up with a higher stormwater utility
fee, but the remaining $12 million will result in cancelled capital projects. While this will
negatively impact the City's ability to do capital projects, it also helps to demonstrate
why these funds are better left out of the operating budget.
Money put towards capital improvements often can be leveraged for grant dollars. In
some cases, for every dollar spent by the City, the state and federal government, along
with foundations, contribute as much as $9. Eliminating these projects means a loss of
more than just the City contribution. Finally, the capital improvement budget pays for
major maintenance projects. If that maintenance is eliminated or delayed, the cost most
certainly will be higher in the future.
Since learning of the budget deficit, all departments and divisions have been combing
through their budgets in an attempt to eliminate expenses. A hiring freeze planned for
July 1 was implemented immediately. Training and travel budgets were slashed for all
departments.
The police and fire departments are facing budget cuts, and many have questioned why
these departments are shouldering part of the load. When examining the operating
budget, the departments facing the biggest reductions are those that require the most
funding to operate. Nearly 60 percent of the operating budget supports police, fire, and
emergency communications. The remaining 40 percent funds all other City
departments including the library, parks, streets, engineering, health, finance, utilities,
transportation, planning, building, housing, economic development, human rights, and
the manager's office. Each department was given a target reduction based on its
percentage of the operating budget.
The recommendation to City Council does eliminate three Fire Equipment Operator
positions and two Police Officer positions. All five Fire Stations would remain open and
no Police Officers would be lost to Patrol. The three Fire Equipment Operator positions
3
are the drivers for the Assistant Fire Chief/command car. The Police Officer positions
will be covered by reassigning the Traffic Safety Officer to Patrol and the Canine Officer
to a regular beat. The City will still have a Canine Unit. There are sufficient vacancies
in Police to avoid any layoffs. There are no vacancies in Fire, but some may be created
with the proposed retirement incentive.
It is recommended that the City provide employee assistance program services and
outplacement services to any laid-off employees. In addition, each laid-off employee
will be entitled to unemployment compensation. The expense for a laid-off employee
will be approximately $10,000.
To encourage people who are currently eligible to retire to do so, to avoid lay-offs, it is
further recommended that a retirement incentive program be established. Employees
who plan to retire between July 1,2003, and January 1, 2004, will receive a $10,000
cash bonus. As you can see, that was potentially money that was going to be paid out
anyway to the laid-off employee.
Another way to make up the deficit is to increase revenue. To do that, the City is
considering higher fees for services in several departments including building, planning,
and leisure services. Raising fees alone, however, isn't enough to make up the
difference.
The State of Iowa didn't just cut its funding to Dubuque. All cities across the state were
impacted with the $60 million state-wide cuts, and most are struggling to deal with the
revenue loss. In Iowa City, for example, the police, fire, finance, and leisure services
departments all face staff reductions. Des Moines, dealing with a $5 million shortfall,
has recommended eliminating 40 existing positions and not filling 72 others. Library
hours were reduced, five librarians eliminated and fines increased. Cities across the
state are looking at ways to reduce expenses and increase revenues while having the
least impact on services.
Every City department will be impacted by the budget, including the city manager's
office. The city manager's office includes human resources, public
information/graphics, administrative services, and neighborhood development. I am
recommending the elimination of one position and related supplies and services for a
savings of $60,858 and restructuring the administrative services division to save more
than $50,000 over the next two years. Another cost-saving measure is eliminating City
Expo, the City's annual free open house, which is organized through the public
information office. Finally, I am recommending the elimination of City Focus in its
current format. Two years ago, City Focus was completely redesigned and printed in
full color. Although the publication has become a popular and effective communication
tool, City Focus was deemed too expensive to continue.
The elimination of staff and services comes after years of working harder and smarter
with fewer employees. The City of Dubuque workforce has declined by nearly 12
percent or 69 positions since 1981, in spite of adding numerous services. New
programs during that time period have included:
4
Yard waste and recycling
County-wide E911 dispatch
Comprehensive housing programs
Community oriented policing
DARE and other drug-related programs
Rental property inspections
Operations of the new leisure pools
McAleece Recreation Complex
Fifth Street Parking Ramp
Fourth Street Parking Ramp
Thirteen additional neighborhood parks
Reinstatement of traffic accident investigations
Police K-9 unit
And many others
Fiscal Year 2005 is already shaping up to be a very difficult year. You may recall that
on page 44 of the Citizen's Guide for the Fiscal Year 2004 budget, I included
information that said the City could be looking at a 10% increase in the property taxes
for the average residential property. We know this size of an increase would not
happen, so the City is already facing cuts in next year's budgeting process. This was
before the state reduced City revenues by $1.2 million. The City is also receiving
preliminary information from the State of Iowa that revenues will be further eroded in
Fiscal Year 2005 with a significant state-mandated rollback of residential property
values, coupled with a residential equalization order. This impending difficulty with the
Fiscal Year 2005 budget provides further evidence that spending down reserves or
canceling capital improvement projects to just delay the Fiscal Year 2004 budget
problem to Fiscal Year 2005 will probably not be productive. One of the challenges
facing the City Council for Fiscal Year 2005 will be the prospect of considering ways to
enhance revenues or cut services. Two options that will be available to the City
Council, along with others, will be a property tax increase or establishing a franchise fee
on electric and natural gas bills.
The City is allowed to adopt a franchise fee on electric and natural gas bills up to 3%.
The franchise fee adoption is not a referendum issue. By state law the fee may be
adopted by a majority vote of the City Council, but the franchise agreement requires an
affirmative vote of all the members of the Council. If a franchise fee is adopted, the City
may no longer apply the 1 % local option sales tax to these same utility bills. Therefore,
a 3% franchise fee only increases the cost to the consumer by 2%. A 3% franchise fee
would generate an estimated $1.9 million per year.
Until Fiscal Year 2002, the State of Iowa had a 5% tax on utility bills. Beginning in
Fiscal Year 2002, the State of Iowa began reducing that utility tax by 1 % a year until it
reaches zero in Fiscal Year 2007. Legislation has passed the State Legislature, but not
yet signed by the Governor, that would keep the state tax at 3%, still a 2% reduction.
Three concerns expressed about a franchise fee are its impact on non-taxable
properties, 'low income residents and economic development. In the area of economic
development, that concern is partially relieved in the area of natural gas in that large
5
users can buy their natural gas on the open market. Aquila advises that when the tax is
calculated on gross sales, the company only gets charged a fee on the cost to transport
the natural gas to the company, not the product purchased from another company.
To relieve the concerns of non-taxable property, the City could offer a rebate on the fee
for non-taxable property.
To assist low/moderate income residents, the City could offer a rebate to those at 80%
of median income and below, on a graduated basis.
As you can see, there are many variables in this issue. I am not recommending the
electric and natural gas franchise fee to solve the current budget crisis, but it could be
considered during next year's budget process.
To resolve this year's budget shortfall, I am recommending five courses of action. This
includes:
1. Wage freeze for non-bargaining unit employees;
2. Expense reductions that do not involve cutting City positions;
3. Increases in certain sources of revenue;
4. Expense reductions that involve elimination of City positions; and
5. A retirement incentive program to help avoid layoffs of new employees and
outplacement and employee assistance services for anyone who is laid off.
First and foremost, I want to recognize the sacrifice of the non-bargaining unit
employees who will not receive a pay raise in Fiscal Year 2004, for a savings of
$551,100.
The City has five collective bargaining agreements with the following:
Teamster's Union, Local #421
Dubuque Professional Firefighters Association, Local #353
Dubuque Police Protective Association
Amalgamated Transit Union, Local #329
International Union of Operating Engineers, Local #758
Only the Transit Union does not have an agreement for Fiscal Year 2004 and is
currently involved in negotiations. The four remaining unions were asked to not accept
their Fiscal Year 2004 pay raise. If all four unions accepted this proposal and no pay
increase was negotiated with the Transit Union, the City would save an additional
$779,300, or a total of $1 ,230,400, including the non-bargaining unit employees.
The unions refused to accept a one year wage freeze.
6
The Health Care Committee consists of a representative from four of the unions, the
non-represented employees and the City Manager's Office. The Firefighters
Association is no longer a member of the Health Care Committee. Any Health Care
Plan changes must receive a unanimous vote of the committee members. The
agreement to maintain this committee expires on June 30, 2003.
The adopted Fiscal Year 2004 budget approved by the City Council included a
challenge to the Health Care Committee to save $236,000 through plan redesign. The
Police Association voted no to the redesign, so this savings was not realized. The
remaining members of the committee supported the changes as long as a two-year
agreement to maintain the Health Care Committee is in place. The Health Care
Committee would now exclude the Police Association and the Firefighters Association.
Changes in their health benefits would be a subject of collective bargaining upon
contract renewal.
The health plan savings used in this budget recommendation includes only the three
remaining unions and the non-represented employees. Instead of a $236,000 savings,
it is a $167,379 savings.
The budget issues to be addressed are listed in Attachment 1.
In priority order with the first item being the highest priority to ke51P, I recommend the
budget be amended as follows:
1. Non-bargaining Unit Employee Wage Freeze - $551,000 (Attachment 2).
2. General Fund expense reductions that do not involve cutting City positions are
listed on Attachment 3.
3. General Fund increase in revenues are listed on Attachment 4
4. General Fund expense reductions that involve elimination of City positions are
listed on Attachment 5.
5. Cuts/Revenue enhancements for all other funds are listed on Attachment 6.
6. Cuts/Revenues that were considered, but not recommended are listed on
Attachment 7.
7. Departmental explanations by their priority are listed on Attachment 8.
Staff reductions will be effective no sooner than 30 days after City Council approval of
the budget amendment, or such time during the fiscal year as the City Manager
determines best meets the operational needs of the City within the budgeted amount.
The City Manager retains the same flexibility with the hiring freeze.
The City is working to fill a nearly $3 million budget shortfall in the fiscal year that begins
July 1. This must be done realizing that safety of the public cannot be compromised.
7
As the City deals with the state-imposed budget crisis, we must also plan for the future,
recognizing that tough issues face the City. Over the last few years the City has lost
two of the three airlines that serviced the airport. If the City were to lose the last airline
that would have a devastating effect on the economy of our area. The Carnegie-Stout
Public Library faces loss of accreditation with reduced hours, reduced staff, and less
investment in the collection. The library is the City's main contribution to culture and
education in our community. It is free to the user, so no one is excluded by income, and
serves as a door to a brighter future for disadvantaged youth.
The City's budget shortfall is extensive and its impact will be felt throughout the
community. Although our local economy has managed to stay strong, our state and
national economy are struggling. While it's difficult not to dwell on the negative, what
happens to a community when faced with a challenge reveals its true character.
Communities that pursue creative solutions, engage residents, and make the tough
decisions are often those who emerge stronger in the end.
There is an opportunity for public comment on the budget. A public hearing on the
budget amendment is scheduled for 6 p.m. Wednesday, July 9 at the Five Flags
Theater, at the corner of Fourth and Main Streets.
fV!~if! ~ ~
Michael C. Van Milligen "
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Pauline Joyce, Administrative Services Manager
All City Employees
8
As directed, I met with the leadership of Teamster's Union, Local #421 and the
Dubuque Professional Firefighter's Association, Local #353.
The discussions with the Teamsters revolved around the Park Ranger position. The
Teamsters membership had already rejected a wage freeze and already accepted all
the requested health care changes. They asked the City to consider raising the entry
fee at Eagle Point Park from $1 to $2, which would generate over $60,000, more than
enough to pay for the Park Ranger position, or cancel a Park's Division Capital
Improvement Project.
The Firefighters reiterated their wiliness to change their FLSA overtime to comp time
and accept paying their full dental premium, which is accepting part of the health care
changes accepted by other employees (except the Police union). This will save the City
$62,206 in Fiscal Year 2004.
I have included this $62,200 savings in my revised budget recommendation.
If the City Council does not approve the Utility Franchise Fee, all the previously
approved cuts, including the non-union wage freeze and the position eliminations, will
be implemented. To fund the three Fire Equipment Operator positions, the Park Ranger
position, restore Saturday Fixed Route Bus Service and not increase Fixed Route or
paratransit fares, the funding will come from the Capital Improvement Program budget
in the amount of $307,729, and the $62,206 offered up by the Fire Union by accepting
the changes in dental premiums and allowing FLSA overtime to be compensated
through time-off, instead of overtime. The canceled CIPs are the Historic District Grant
Program ($139,450), the softball field renovation at Vet's Park ($139,500) and $28,779
of the $62,000 Fire Station #2 driveway and exterior improvements.
Canceling these CIPS merely pushes this problem into Fiscal Year 2005, which is
already looking at a 10.54% property tax increase for a maintenance level budget. This
will push the anticipated Fiscal Year 2005 property tax increase of 10.54% to 13.77%,
instead of reducing it to 8.05%, as would the implementation of a Utility Franchise Fee.
Administrative Services Manager Pauline Joyce has provided the attached additional
information on these very important issues.
/YiJ/ ft;, );,/1
Mkhael C. Van Milligen '------
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Pauline Joyce, Administrative Services Manager
9
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USA KRAGNES,
CASE NO. CE 49273
Plaiij.tiff,
vs.
RULING ON MOTIONS FOR
SUMMARY JUDGMENT
CITY OF DES MOINES, IOWA,
Defendant.
A contested hearing on the parties' cross-motions for summary judgment was
held before the undersigned on November 22,2005 as previously scheduled. Upon
consideration of the arguments made at the hearing, and having reviewed the court file
and being otherwise duly advised in the premises, the court rules as follows:
The plaintiff seeks various forms of reliet~ both individually and on behalf of a
purported class of similarly-situated individuals, all based on the contention that the
franchise fees charged by the defendant to customers of Mid-American Energy who are
residents of Des Moines is an illegal tax. Specifically, she seeks this court's declaration
iliat the fees are illegal, an injunction prohibiting the continuing charging of the fees, and
a refund of those fees which were improperly charged. In addition, she seeks class
certification pursuantto lowaR.Civ.P. 1.262. This latterrequest is the'subject of a
separate motion, which will be taken up in the event the defendant is unsuccesslu! in its
motion for summary judgment. The plaintiff bas filed two motions for summary
judgment; tbe .first deals ..vith this court's subject matter jurisdiction and has not been
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resisted. The plaintiff's second motion for sllDl!llllI)' jUdgment! (as well as the
defendant's motion) pertains to the merits of the claim that the franchise fees are illegal.
The standards regarding summary judgment are well settled in Iowa.. It is the
moving party's burden to establish both thellhsence of any material factual issues, and its
entitlement to judgment as a matter of law. IowaR.Civ.P. 1.981 (3); American Legion.
Hanford Post 5 v. Cedar Rapids Board of Review, 646 N.W.2d433, 437 (Iowa 2002). In
detennining whether this burden has been met, the court reviews the record in a light
most favorable to the nonmoving party. Barreca v. Nickolas, 683 N.W.2d 111, 116 (Iowa
2004).
If the motion is properly supported, the resisting party may not merely rely upon
its pleadings; it "must set forth specific facts showing that there is a genuine issue for
trial," or summary judgment would be appropriate. lowaR.Civ.P. 1.981(5); Weinzetl v.
Ruan Sinllle Source Transport Co..-587 N.W.2d 809,810 (Iowa Ct.App. 1998).
However, the converse is also true-"When the evidentiary matter tendered in support of
the motion does not affirmatively establish uncontroverted facts that sustain the moving
party's right tojudgment, summary judgment must be denied even if no opposing
evidentiary matter is presented." Griclione v. Martin, 525 N.W.2d 810, 813 (Iowa 1994).
In this case, there is no meaningful dispute as to the underlying facts. In 1987, the
city, of Des Moines passed ordinances extending franchises previously granted to Towa
Power and Light Company and Midwest Gas Company regarding the provision of
electricity and narural gas. These ordinances included the assessment of a franchise fee,
l The plaintiff's se!,ond motion for summary judgment is in actuality a motion for pllttial summary
judgmenr, as it does nor deal with the scope ofporential monetary remedies available to the plaintiff in the
(!;vcnt me fees are declared to be illegal, That will be taken up at a later time, if ne.;essary, once the court
has also dealr with the companion motion for Class certification.
2
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ori~ly in the amount of one percent (1 %) of the gross receipts derived from the
franchisees from the sale of electrical energy or natural gas to customers within the
corporate limits of the city of Des Moines. The city was specifically excluded as a
customer to whom the franchise fees were to be assessed. Effective September 1,2004,
the franchise feeswere increased to three percent (3%).2 At this time, the city also
provided that the fees could be increased to as much as six percent (6%). Effective June
1,2005, the fees were increased to five percent (5%).
in determining the amount of tee to assess, the city never looked at the costs
attributable to the regulation of the operallon ofthe public utilities covered by the
franchises. Instead:, the monies generated by the collection of the franchise fees] were
placed in the city's general fund and used for such purposes as hiring more police and
firefighters, increasing library hours and street improvements. The plaintiff has been a
resident of the city of Des Moines since 1994, and a customer of MidAmerican Energy
and its predecessors for a comparable tinJe. She seeks a refund of any franchise fees
charged from and aJ.tei'Julv~
It is clear from the manner in which the franchise fees have been assessed and
used that they serve the essential purpose of a tax; namely they constitute "a charge to
pay the cost of government without regard to special benefits conferred." Home Builders
Assoc. of Greater Des Moines v. City of West Des Moines, 644 N.W.2d339, 346, '33346,
347 (Iowa2002). The purpose of these fees is not [0 recover the city's expenses in
inspecting, licensing, supervising or otherwise regulating an activity; rather, they have
1 The 2004 ordinances also acknowledged lhe merger of Iowa Power and Light Company and Midwest Gas
Company into a. sIngle entity-~1idAmerican- Energy Company. Separate ordinances were passed
regarding the provision of elecn-ical energy and nflnIrn.1 gas.
J The fraI'Ic.hisc fees. were collected by the utilities from their customers, and in rnrn paid to the city.
~
~
been implemented to raise revenue well beyond the CQstincurred by the city in
overseeing the franchise extended to the utilities in question. See City of Hawarden v.
US West ComIIlUnications. Inc;. 590 N.W.2d 504, 507 (Iowa 1999) The city is by no
means shy regarding the purpose of the franchise fees; it has proudJyack:nowledg~ in its
papers the extent of excess revenue generated by these fees~"franchise fees which
contribute millions of dollars per year to the City treasury and which allowed for one of
the biggesttax cuts in City history,...." Defendant's Brief in Support of City's
Resistance to Plaintiff's Second Motion for Partial Summary Judgment, page 1. The
question then becomes whether the city's claimed ability to levy such a tax can be
justified under Iowa law.
In order to survive such scrutiny, the city must establish specific legislative
authority to do so. "A city may nor levy a tax unless specifically authorized by state
law," Iowa Code 9364.3(4)(2005)4 (quoted in Home Builders, 644N.W.2d at 345). The
city contends this authority. comes from a number of statutes, which when read together
allows for the imposition of a franchise fee in whatever amount the city deems
appropriate.
There are numerous references in the Iowa Code to "franchise fees" that any
municipality may impose involving the operation of a public utility. The primary
reference is found at Iowa Code S364.2( 4)(f), which contemplates the assessment of a
"city franchise fee" upon "customers of a franchise." Iowa Code 9364.2(4)(f) (2005).
The filet that this statute is the source for such a fee is buttressed by the language found in
Iowa Code 9480A.6 (2005), which refers to the collection of a "city franchise
.. While prior editions of the Iowa Code are implicated due to the chronology of events covered .in this
litigation, the COLlrt will generally refer to the current lan,g:uag.c of any given statute. as there hac; been no
change in the srarutory language applicable to this ruling to the present.
4
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fee... pursuantto section 364.2:, subsection 4...." Clearly, the Code allo;ws forfue
imposition of a franchise fee by a municipality such as the defendant. This does not end
the analysis, however. The question then becomes whether the stal:\rtes allow for1:hcUJ>e
of such a fee as a revenue-generating measure, as has been undisputedly done in this -
instance.
Otdimrrily, a fee imposed by a municipality may only be used to cover its
administrative expenses in exercising its police power. Home Builders. 644 Nc W.2d at
347. This has been the case both before and after the advent of home rule for
municipalities. Id. (authorities omitted). Absent specific statutory authority to do so, a
municipality may not justify a revenue-generating fee as an implied incident of its
regulatory or police power. Id. a1.350 ("[A]n implied power to tax [is] a notion
antithetical to Iowa's home rule principles."). The city's argument that the
aforementioned. statutory references to franchise fees allow it to assess such fees "without
limitation as to. .. the amount of the fee" (Defendant's Brief in SUpport of Motion for
Summary Judgment, page 5) isat odds with this holding. In order tojustify its franchise
fees as revenue-generating measures, the defendant must establish starutory grounds for
their use in such a manner. This it cannot do.
The defendant once again points to Iowa Code g480A.6 and its counterpart, Iowa
Code g480A.3, as justification for the use of the franchise fee as a tax. IowaCode
S480A.3 allows for a user fee to be assessed against a utility to be used to recover the
city's "management costs caused by the public utility's activity in the public right-of-
way." Iowa Code S480A.3 (2005). On the other hand, Iowa Code g480A.6 does not
allow for the assessment of a franchise fee against a utility where a user fee pursuant tQ
5
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Iowa Code ~480A.3 has oeen assessed. Iowa Code ~480A,6 (2005). The defendant
argues that this statutory dichotomy allows the use offranchise fees to generate revenues
beyond the amoWlt necessary to cover its expenses in regulating the franchisee. The
defendant reads too much into this language. All these statutes mandate is that a
municipality may use one of two methods to recover its regulatory expenses regarding a
franchise: .it may impose a user fee pursuant to S480A.3. or a franchise fee pursuant to.
S480A.6, but not both.' These statutes (10 not constitute the specific authari2ation
required to justify the franchise fees as a tax,
The legislature has not provided specific statutory autharity for the use, of a city's
~
franchise fee as a revenue-generating measure. Therefore, it constitutes aiax which has
been assessed in violation ofIowa Code 9364.3(4). The plaintiff's second motion for
summary judgment should be and is hereby granted. The court will. enter an appropriate
declaratory judgment, as well as an injunction prohibiting the continued assessment of
the illegal tax.
IT IS THEREFORE ORDERED that the plaintiff's first motionfor summary
judgment is granted as unresisted. The district court has subject matter jurisdiction over
the issues raised by the litigation in question, and the plaintiff's petition states a claim
upon which relief may be granted.
IT IS FURTHER ORDERED that the plaintiff's second motion for summary
judgment is granted. The court hereby declares and orders that the franchise fees
, The same is true regarding the final stnluleS upon which the defendant claims justification for the use of
the franchise fees as a revenue-generating measure, lowa Code ~423B.5 and ~423E.3(2). Both these
statutes refer to aa franchise fee or user fecI> imposed on the salespdce from the sale ofeJectr.iciryor
natural gas. Absent more specific language, these references:only pertain to the options available to a
municipality in recovering its COS15, nO\" as grounds 3S the use-of one (user fee) to recover costs and the-
oilier (franchise fee) to genemtc revenue.
6
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assessed by the City of Des Moines to customers ofMidAmerican Energy Company Of
its predecessors pursuant to Ordinance No. 6280,6281, 14,341 or 14,342 from and after
July 27, 1999 are illegal as constituting unauthori:.:ed taxes. The court further enjoins and
otherwise prohibits the defendant, City of Des Moines, Iowa, from collecting or assessing
any franchise fe.es pursuant to the aforementioned ordinances while this ruling remains in
. VI) "I- led oJ rv(,';
force andeffuct.
IT IS FURTHER ORDERED that issues relative to the monetary relief requested
by the plaintiff, including an award of attorney fees and the issue of court costs, shall be.
determined by such future proceedings as aretequired, depending on the resolution of the
plaintiffs motion for class certification which shall be dealt with in a separate ruling.
IT IS FliRTHER ORDERED that the defendant's motion for summary judgment
is denied.
Dated this 5th day of January, 2006.
:tvlichae1D. Huppert
Judge, Fifth Judicial District
Copies to:
Brad Schroeder ~
Mljl'k Godwin ./
7