Ask ELi: Is the BWL Franchise Fee a Tax?

ELi runs a regular feature called “Ask ELi to Investigate.” Readers submit questions and we provide answers! Today we bring you a question about whether the new BWL franchise fee is, in essence, taxation without representation.

East Lansing’s City Council just approved a franchise fee for BWL customers in East Lansing, effectively raising their BWL electric bills about 5% per month. In response, a reader wrote to us:

“I don’t get it. If I understood the LSJ article (garbled, as usual) 5% is added to EL residents’ bills and BWL then turns that over to the city of EL to do with what they want. What is the economic benefit of this to me? Seems to me that my taxes just went up – without any discussion/vote. Yes, I know they call it a franchise fee, not a tax, but….EL does have now a member on the BWL board but it is a non-voting member. So, no taxation without representation? Is this analysis correct? If not, what is the logic/law?”

Our answers: First, some background. About a week before East Lansing’s City Council held a public hearing and voted on this matter on March 21, we ran a story for East Lansing residents explaining the franchise fee, thinking some citizens might want to be aware of the issue and the public hearing. As we reported there, the “franchise fee” is essentially a way for the City of East Lansing to raise funds. East Lansing’s City Council decided to take advantage of this, effectively increasing revenues for the City by about $1.1 million per year by tacking a 5% fee onto East Lansing BWL electric customers’ bills.

As we explained in our article in advance of the vote, other local municipalities have also taken advantage of this option, charging their BWL-using residents between 3.5% and 5% for a “franchise fee” that comes back to the municipality. BWL simply collects the fee and gives it back to the municipalities. The municipalities effectively set the rate. (Consumers Energy doesn’t collect franchise fees, so this only impacts East Lansing residents who get their electrical service from BWL.)

ELi has been steadily reporting for the last two years that East Lansing is facing serious economic problems. The debt load has been quickly nearing $200 million and the debt is ballooning. By December 2015, our City Treasurer called the numbers “staggering.”

As a consequence, the current City Council appointed a Financial Health Team to try to find places to cut expenses and increase revenues. While the Financial Health Team did not take up the question of the BWL franchise fee, it appears that Council saw this as a kind of “low hanging fruit” option for increasing City revenue.

Our reader asked, “What is the economic benefit of this to me? Seems to me that my taxes just went up – without any discussion/vote.” City Council did hold a public hearing on the matter on March 21, and then they voted to assess this 5% franchise fee. Any economic benefit to people in East Lansing from this will come in the form of supporting the City’s bottom line, not any additional service from BWL.

Our reader asked, “EL does have now a member on the BWL board but it is a non-voting member. So, no taxation without representation?”

BWL is and has always been owned by the City of Lansing, and it serves as a major source of income for that City. Elected representatives of Lansing decide who serves on the Board for BWL. All BWL customers, whether they live in Lansing or not, effectively financially support the City of Lansing through their bills. (By contrast, the franchise fee for East Lansing is paid only by BWL customers in East Lansing.)

Following the political fallout from the prolonged outage of 2013-2014, Lansing voters agreed to allow municipalities like East Lansing, within the BWL service area but outside Lansing, to have non-voting representation on the BWL Board. Our representative is Bob Nelson. As a non-voting member, all he can do is convey our interests.

For customers of Consumers Energy and DTW, there is oversight from the Michigan Public Service Commission whose members are appointed by the governor with the consent of the senate. This means that for customers of Consumers Energy and DTE, there is oversight provided by people selected by our elected representatives. But because BWL is municipally-owned, it is not subject to oversight by the Michigan Public Service Commission.

In other words, East Lansing BWL customers have no chance to vote for the people who decide how BWL operates. That said, the East Lansing franchise fee was essentially determined by our City Council, whom we do elect, so the franchise fee is controlled by people we elect.

You may also be interested in:

Financial Health Team Looks into Significant Cuts in City Services

Council Considers Politics of Income Tax and Property Tax Increase

Ask ELi: BWL and Your Trees—What Are Your Rights?

Sign up for one or both of ELi’s e-mail news alerts and never miss an article!

Have a question you’d like someone on the ELi team to investigate? Contact us! And if you appreciate our service, don’t forget to support it.