Iowa expressly authorizes cities to build publicly owned networks. In 1999, the Iowa Legislature adopted changes to Chapter 63 of the Iowa Acts that defined legislative intent, giving local authorities the unquestionable right to invest in community owned networks.
The new language added broadband to a list of common utilities that we often take for granted and always expect, demonstrating the legislature’s attitude that Internet access had become a necessary part of modern society. Here is the specific language of the Act, which was moved as SF 392 in 1999, and an analysis of some of the changes that have nicked away at Iowa’s relatively friendly community network environment:
Section 1. LEGISLATIVE INTENT. It is the intent of the general assembly to specifically provide that cities of Iowa which create city utilities in the manner provided by law are authorized to provide on a competitively neutral basis with existing local exchange carriers separate or combined cable communications or television, telephone, telecommunications systems or services, including wireless systems or services, through the ownership of systems or offering of the services.
Sec. 2. Section 362.2, subsection 6, Code 1999, is amended to read as follows:
6. “City utility” means all or part of a waterworks, gasworks, sanitary sewage system, storm water drainage system, electric light and power plant and system, heating plant, cable communication or television system, telephone or telecommunications systems or services offered separately or combined with any system or service specified in this subsection or authorized by other law, any of which are owned by a city, including all land, easements, rights of way, fixtures, equipment, accessories, improvements, appurtenances, and other property necessary or useful for the operation of the utility.
At the time, the legislature understood that communities were best poised to decide for themselves if a publicly owned broadband network was a wise choice. Such networks can be essential for economic development, especially where cable and DSL companies are failing to provide the appropriate level of service.
However, local governments are expected to be transparent but they must also be able to plan some aspects of the business strategy in a confidential environment. While open meeting laws encourage civil participation and honest government, the Legislature occasionally creates exceptions. The language below shows that the Legislature understood that publicly owned networks should be more transparent than private cable and DSL companies, but would still need to shield some proprietary information from their competitors.
Sec. 3. NEW SECTION. 388.9 COMPETITIVE INFORMATION.
1. Notwithstanding section 21.5, subsection 1, the governing body of a city utility or combined utility system, or a city enterprise or combined city enterprise as defined in section 384.80, by a vote of two-thirds of the members of the body or all of the members present at the meeting, may hold a closed session to discuss marketing and pricing strategies or proprietary information if its competitive position would be harmed by public disclosure not required of potential or actual competitors, and if no public purpose would be served by such disclosure. The minutes and a tape recording of a session closed under this subsection shall be available for public examination at that point in time when the public disclosure would no longer harm the utility’s competitive position.2. Notwithstanding section 22.2, subsection 1, public records of a city utility or combined utility system, or a city enterprise or combined city enterprise as defined in section 384.80, which shall not be examined or copied as of right, include proprietary information, records of customer names and accounts, records associated with marketing or pricing strategies, preliminary working papers, spreadsheet scenarios, and cost data, if the competitive position of the city utility, combined utility system, city enterprise, or combined city enterprise would be harmed by public disclosure not required of a potential or actual competitor, and if no public purpose would be served by such disclosure. A public record not subject to examination or copying under this subsection shall be available for public examination and copying at that point in time when public disclosure would no longer harm the competitive position of the city utility, combined utility system, city enterprise, or combined city enterprise.
Though private companies can (and do) cross-subsidize from more profitable divisions and territories to less, the Iowa Cable and Telecommunications Association (a trade group of private providers) successfully lobbied to include language in the statute that bars similar transfers within publicly owned networks. For instance, included are express prohibitions on cross-subsidizing between city services. There are also prohibitions preventing funding from the general fund, free sharing of resources (equipment or otherwise) between utilities, or bundling of resources for a lower rate.
In keeping with federal law and regulation, Iowa Code section 364.3, subsection 7, requires competitively neutral treatment of right-of-ways.
Sec. 4. NEW SECTION. 388.10 MUNICIPAL UTILITY PROVIDING LOCAL EXCHANGE SERVICES.
1. a. A city that owns or operates a municipal utility providing local exchange services pursuant to chapter 476 or the municipal utility shall not do, directly or indirectly, any of the following:(1) Use general fund moneys for the ongoing support or subsidy of a telecommunications system.
(2) Provide any city facilities, equipment, or services to provide telecommunications systems or services at a cost for such facilities, equipment, or services which is less than the reasonable cost of providing such city facilities, equipment, or services.
(3) Provide any other city service, other than a communications service, to a telecommunications customer at a cost which is less than would be paid by the same person receiving such other city service if the person was not a telecommunications customer.
(4) Use funds or revenue generated from electric, gas, water, sewage, or garbage services provided by the city for the ongoing support of that portion of a system or service used to provide local exchange services.
b. For purposes of this section, “telecommunications system” means only that portion of a system or facilities which is used to provide local exchange services.Other requirements included that municipal network records be available to the public, a municipal network must charge “actual cost” rates, a municipal network would still be subject to the same requirements that private companies must follow, and municipal networks must pay property taxes on the facilities used to provide the service.
2. A city that owns or operates a municipal utility providing local exchange services pursuant to chapter 476 or the municipal utility shall do the following:
a. Prepare and maintain records which record the full cost accounting of providing local exchange service. The records shall show the amount and source of capital for initial construction or acquisition of the local exchange system or facilities. This section shall not prohibit a municipal utility from utilizing capital from any lawful source, provided that the reasonable cost of such capital is accounted for as a cost of providing the service.b. Adopt rates for the provision of local exchange services that reflect the actual cost of providing the local exchange service. However, this paragraph shall not prohibit the municipal utility from establishing market- based prices for competitive local exchange services.
c. Be subject to all requirements of the city which would apply to any other provider of local exchange services in the same manner as such requirements would apply to such other provider.3. This section shall not prohibit the marketing or bundling of other products or services, in addition to local exchange services. However, a city shall include on a billing statement sent to a person receiving services from the city, a separate charge for each service provided to the person. This subsection does not prohibit the city from also including on the billing statement a total amount to be paid by the person.
Sec. 5. Section 427.1, subsection 2, Code 1999, is amended to read as follows:
2. MUNICIPAL AND MILITARY PROPERTY. The property of a county, township, city, school corporation, levee district, drainage district or military company of the state of Iowa, when devoted to public use and not held for pecuniary profit, except property of a municipally owned electric utility held under joint ownership and property of an electric power facility financed under chapter 28F which shall be subject to taxation under chapter 437A and facilities of a municipal utility that are used for the provision of local exchange services pursuant to chapter 476, but only to the extent such facilities are used to provide such services, which shall be subject to taxation under chapter 433, except that section 433.11 shall not apply. The exemption for property owned by a city or county also applies to property which is operated by a city or county as a library, art gallery or museum, conservatory, botanical garden or display, observatory or science museum, or as a location for holding athletic contests, sports or entertainment events, expositions, meetings or conventions, or leased from the city or county for any such purposes. Food and beverages may be served at the events or locations without affecting the exemptions, provided the city has approved the serving of food and beverages on the property if the property is owned by the city or the county has approved the serving of food and beverages on the property if the property is owned by the county.
Prior to investing in a municipal broadband network (as also is the case with other utilities), however, the local voters must approve the measure. The authority is codified in Sec. 388.2, which is titled “City Utilities” states:
388.2 SUBMISSION TO VOTERS.
1. a. The proposal of a city to establish, acquire, lease, or dispose of a city utility, except a sanitary sewage or storm water drainage system, in order to undertake or to discontinue the operation of the city utility, or the proposal to establish or dissolve a combined utility system, or the proposal to establish or discontinue a utility board, is subject to the approval of the voters of the city, except that a board may be discontinued by resolution of the council when the city utility, city utilities, or combined utility system it administers is disposed of or leased for a period of over five years.
It is important to note that a referendum must happen in other instances also – acquisition, lease, disposal of, discontinuance, etc. This section goes on to state that, if the proposal is voted down, or not approved by more than a majority of the voters, it cannot be voted on for at least another four years.
Summary and Update
Since 1999, several changes in Iowa law have diminished local authority. In 2004, bills were brought forward by Mediacom and the Iowa Telecommunications Association. Both bills were passed and effectively diminished community networks’ ability to plan competitively by chipping away at the open meeting exception and mandating annual audits. The language amended IA Code § 388.10, which had been created with the enacting legislation in 1999. Cities with publicly owned networks were now required to have an annual audit and all audit information was subject to open meeting requirements. The change also prohibited cross-subsidization for cable service, long distance telephone service, and Internet access service. Past laws required such disclosures and prevented cross-subsidization for local exchange services only. The new requirements also imposed sales tax on publicly owned networks for merchandise or services related to municipal communications services. Bundling of city services, such as water, trash, etc., is allowed, but only if there is a separate charge for each service.
The 1999 legislation was by no means perfect for development of community networks, but it was a step in the right direction. With specific authority for networks codified in law, and clear guidelines like those in 1999 Iowa Acts Chapter 63, local communities can choose to be self-reliant.
See the Full Text of 1999 Iowa Act Chapter 63
See MYTH: Municipal communications utilities have unfair advantage over private companies