Citing ‘crony capitalism,’ Iowa Supreme Court blasts late-night legislative logrolling

In a decision that appears to be highly critical of Iowa legislators, the Iowa Supreme Court has sided with electric transmission companies challenging a law that restricts competition among utilities.

Calling the legislation “quintessentially crony capitalism,” the court described the bill as a “protectionist” maneuver that had to be approved in the dark of night so that lawmakers would remain unaware of what they were voting on.

The central issue in the case is the Iowa Legislature’s practice of “logrolling” — deliberately packaging together unrelated and relatively unpopular pieces of legislation to ensure that a majority of lawmakers will support something in the bill and give the entire package their approval.

The Iowa Constitution prohibits logrolling by requiring that “every act” passed by lawmakers “shall embrace but one subject, and matters properly connected therewith.”

The case that went before the Iowa Supreme Court involves legislation from 2020 that blocks potential competitors in the electric-transmission market from bidding against Iowa operators on any future projects. The legislation granted “incumbent” Iowa electric providers a right of first refusal, or ROFR, on future projects, essentially eliminating competitive bidding on the projects.

As a stand-alone bill, the ROFR legislation repeatedly failed to win approval at the Iowa Statehouse, but it was enacted in the final hours of the 2020 legislative session after it was buried within a 50-page financial appropriations bill that dealt with a variety of issues unrelated to electric transmission.

The companies LS Power Midcontinent and Southwest Transmission sued the state and the Iowa Utilities Board, arguing the manner in which lawmakers approved the bill violated the single-subject provision of the Iowa Constitution.

The district court granted the state’s motion to dismiss the case on the grounds the plaintiffs lacked standing because there were, as of then, no approved projects to upgrade Iowa’s electric grid – and so no harm could be shown.

That decision was taken up by the Iowa Court of Appeals, which affirmed the dismissal, stating that the plaintiffs “swung before the pitch” and could not show any harm caused by the legislation.

The Iowa Supreme Court then granted the plaintiffs’ request for review.

Last week, the justices concluded the district court had erred in dismissing the case. In referencing the appeals court’s baseball analogy, the justices said a “more fitting baseball analogy is that the enactment of (the law) took the plaintiffs off the ballfield before the game began.”

In describing the effects of the Iowa legislation, the court quoted from a Fifth Circuit U.S. Court of Appeals decision that dealt with a similar legislation on electric transmission: “Imagine if Texas — a state that prides itself on promoting free enterprise — passed a law saying that only those with existing oil wells in the state could drill new wells. It would be hard to believe.” And yet, the U.S. Court of Appeals stated, “Texas recently enacted such a ban on new entrants in the building of transmission lines that are part of multistate electricity grids.”

Bill would impose ‘higher costs on Iowans’

In addition to addressing the substance of the ROFR bill, the Iowa Supreme Court had harsh words for the manner in which lawmakers approved it.

The ROFR provision was not germane to the numerous unrelated subjects in the appropriations bill where it was packaged, the court pointed out.

“Importantly,” the court added, “legislators were unsure of what they were voting on. Senators had not seen the ROFR until 1:33 a.m. on the final day of the legislative session. After the ROFR was introduced, the Senate caucused for approximately one hour, and then debate began. The ROFR’s sponsor could not produce a bill history, nor could he accurately describe the ROFR’s demise in the House earlier in the term.”

The court also noted that the ROFR had not been approved by a subcommittee earlier in the session, and “the bill’s sponsor falsely represented the provision as allowing competitive bidding and price-matching.”

The court agreed with the plaintiffs’ claim that the ROFR lacked the votes to pass as a stand-alone measure and represented a textbook example of logrolling, in violation of the single-subject requirement of the Iowa Constitution.

“We are not surprised the ROFR lacked enough votes to pass without logrolling,” the court stated in its opinion. “The provision is quintessentially crony capitalism. This rent-seeking, protectionist legislation is anticompetitive. Common sense tells us that competitive bidding will lower the cost of upgrading Iowa’s electric grid and that eliminating competition will enable the incumbent to command higher prices for both construction and maintenance. Ultimately, the ROFR will impose higher costs on Iowans.”

While stating that its role “is not to second-guess policy choices of the elected branches or regulators,” the court said it still is obligated to determine “whether constitutional lines were crossed” in the enactment of the legislation.

“We are persuaded that (the plaintiffs are) entitled to a temporary injunction that stays enforcement of the ROFR statute pending final resolution of its constitutional claims,” the court concluded, vacating the judgment of the Iowa Court of Appeals and reversing the judgment of the district court.

The matter has now been remanded to district court to decide the merits of the plaintiffs’ constitutional claims. The justices also granted the plaintiffs’ request for a temporary injunction staying the enforcement of the new law pending resolution of the case.

As part of its decision, the Supreme Court also pointed out that it had recently rejected a logrolling claim in a case that challenged legislation establishing a 24-hour waiting period for abortions in Iowa.

In that matter, the justices said, both chambers of the Iowa Legislature had debated the 24-hour waiting period at length, and it was clear the contents and the potential effect of the bill were known to all legislators when they voted.

Also, both sections of the final bill that incorporated the waiting-period language pertained to the government regulation of medical procedures, and no lawmakers who voted in favor of the bill later argued that they would have voted against the waiting-period as a piece of stand-alone legislation.