A Polk County judge has ruled that the City of Des Moines must refund aportion of the franchise fee it has charged utility customers since 2004.

Of the $12.6 million a year raised from the franchise fee, the city must refund $9 million, according to the ruling by Judge Joel Novak. The fee, which amounts to a 5 percent charge on gas and electric bills, should have been set at 1 percent, the judge said.

Legislation signed into law by Gov. Chet Culver last week allows cities in Iowa to charge the full 5 percent for franchise fees going forward, but that won’t affect the ruling, which the city has indicated it plans to appeal.

Supporters of the franchise fee say it helps ease the property-tax burden by spreading the cost of government services to nonprofits and other entities that don’t pay property taxes.

Des Moines has collected a utility franchise fee for more than 40 years, but for most of that period it bounced between 1 percent and 2 percent of customers’ utility bills. When the Iowa Legislature phased out its 5 percent statewide utility tax, Des Moines and a number of other Iowa cities raised theirs. In Des Moines, it went to 3 percent in 2004 and 5 percent in 2005.

The Iowa Supreme Court ruled in May 2006 that the city could collect only enough revenue to cover the actual cost of regulating the gas and electric utilities. The court then sent the case back to the district court to resolve whether the amount the city is collecting is justified, prompting Wednesday’s ruling.

The decision could be a big blow to Des Moines’ budget. Last week, City Manager Rick Clark said the city would face a $5 million budget shortfall in 2011, up from an estimated $3.5 million. The prospect of paying back tens of millions in fees collected over the course of five years could force the city to choose between deep cuts — including layoffs — or raising property taxes.