City Council Meeting Date: November 10, 2020
To: Mayor and City Council
From: Ben Martig, City Administrator
Title
Public Hearing on Ordinances Implementing Franchise Fees.
Body
Action Requested:
The Northfield City Council holds a public hearing to consider proposed ordinance for gas and electric franchise fees.
Summary Report:
The Northfield City Council has been exploring the possibility of implementation of franchise fees for gas and electric for some time. On October 20, 2020, the Northfield City Council approved a motion calling for a public hearing on November 10, 2020 at 6 pm to consider proposed ordinance for gas and electric franchise fee with the following two ordinance combinations:
Option C:
• Gas Franchise Fee 5.0% streets & trails and Climate; and
• Electric Franchise Fees 4.0% streets and trails and Climate
The attached notice was published in the Northfield News on Wednesday, October 28, 2020. The proposed attached ordinances were posted on the City’s website on October 28, 2020.
The Northfield City Council is considering utility franchise fees as an alternative revenue source from special property tax assessments primarily for street improvement projects, and secondarily for ancillary improvements (i.e. trail gaps, sidewalk gaps and climate actions and initiatives as outlined in the strategic plan).
Northfield maintains nearly 78 miles of paved city streets, and 84 miles of trails and sidewalks.
The city spends $3.5 million annually to maintain city streets.
Home and business owners are assessed between 25% to 50% for street improvement projects. Replacing streets typically occurs every 40 to 50 years. The city uses general property taxes and bonds to pay for the remaining costs of street replacements.
Many cities in Minnesota have a franchise agreement with each utility company (gas, electric) for the use of publicly-owned right-of-way for their business purpose. The right-of-way is the public property located adjacent to roadways for utilities, construction access, and snow storage. By law (Minnesota Statute 216B.36), cities may charge utility companies a fee to manage the use of the publicly-owned right-of-way to deliver service.
The City determines the amount of franchise fees as established by an ordinance that is mutually agreed upon by the City and the utility company. In Northfield that utility company is Xcel Energy. Xcel Energy currently only allows a flat rate for residential and commercial customers, based on their defined customer categories.
Utility companies have the right to pass franchise fees on to their customers. Utility customers will see a line item on their gas and electric bills for a “city fee.” The utility companies collect this fee and remits all of the payment directly to the City.
Home and business owners are currently assessed for street improvement projects and owners typically pay between 25% to 50% of the project costs based on the benefit of the improvement to property. The type of street improvement can vary, from a Mill and Overlay, to Reclamation, to Reconstruction. The expected life of a street is between 40 and 50 years. Typically, you will have one type of street improvement on your street every 20 years. On average, residential property owners have paid an average of $6,800 for their street assessment. Smaller commercial properties may typically see assessments of $8,500 to $10,000 but for larger commercial customers can be in the tens of thousands of dollars.
Street assessments are typically based on front footage. An appraiser determines the special assessment linear foot rate. This rate is then applied to the front footage of each property adjacent to the street maintenance project.
There are a number of benefits of franchise fees over a street assessment including the following:
o Smaller monthly fees instead of one large assessment; and
o Less time-consuming and substantially less costly overall for the city (approximately $75,000 less expensive per year); and
o Keeps maintenance and reconstruction on a proactive and timely schedule; and
o More equitable to people who move into, out of, or within the city.
There are a number of benefits of franchise fees over increasing property taxes including the following:
o New construction would contribute immediately, which would eliminate the one to two-year lag for the City to receive property taxes for property owners receiving municipal services; and
o A wider base than property taxes; property taxes exempt renters, non-profits, schools, and other entities that use the public infrastructure pays franchise fees.
The proposal before the City Council is to dedicate franchise fees primarily to street maintenance, which includes mill and overlays, full depth reclamations, and reconstructions.
Secondary use of funds (approximately 8% of the total collected) will assist with implementation of actions in the Northfield Climate Action Plan which may include other transportation infrastructure such as trail and sidewalk gaps.
See links to the following capital projects planned and Climate Action Plan.
Construction projects <https://www.ci.northfield.mn.us/291/Current-and-Future-Projects>
Climate Action Plan <https://www.ci.northfield.mn.us/1306/Sustainability>
Many city services are funded through collection of fees from the community such as water, sewer, and garbage. At this time, there is no dedicated fee to fund the Climate Action Plan despite it being a strategic priority of the City.
There numerous benefits to the climate action plan to the City and residents in many ways such as:
o Cleaner air from less fossil fuel emissions
o Healthier community
o More options for transportation/getting around
o Save money by being more energy efficient
o Reduce heat island effect
o Reduce flooding impacts
o Build resiliency and extend the life of infrastructure
o Improve food and water security
o Extend the lifespan of the County landfill
Staff is in the process of developing a policy specific to the use of Climate Action Plan funds for the City Council to consider should the proposed ordinance. The policy would propose to set the annual revenue dedicated to climate action items to $100,000 which was discussed by the City Council when options were considered with the fee. Additionally, the policy would require City Council approval of funds annually through the budget review for regular consideration of specific use of the funds to achieve the goals of the Climate Action Plan. Staff anticipates the policy would be drafted for Council initial review in January of 2021 should the Council move forward with the ordinances.
Staff is preparing a public hearing presentation for next Tuesday. The presentation will be provided as supplemental information. There are previous presentations included in the background that will be included.
Frequently Asked Questions
Why now?
The City Council is looking at franchise fees because of feedback from residents. Residents who have gone through a street assessment process have stated they do not like the large unanticipated assessment and the appraisal process is complex and exhausting to figure out the assessment amount. The appraisal process and bonding make the overall projects more expensive. Scheduled assessments in 2020 average $6,800.
By implementing a franchise fee, residents will pay a flat fee per month. This revenue replacement is more manageable and eliminates an unanticipated expense for the projects the City has planned.
Construction projects <https://www.ci.northfield.mn.us/291/Current-and-Future-Projects>
Is this just another tax?
Technically, it is a “fee” by definition of state law not a “property tax”. However, it is a cost to the general public similar to property tax.
The majority of the fees are revenue replacement in lieu of special assessments, both of which are revenues generated from properties in the City. The primary revenue will replace special assessments. The franchise fees have been established at a rate to fully sustain our pavement management program needs for the long term. Under the previous funding approach, property taxes covered about two-thirds of the cost of the pavement management program. The other third consisted of special assessments against the properties along a particular project area.
The fees do include some new expenses related to implementing climate action plan initiatives that are a Strategic Priority for the City.
Why not add this fee to the water bill? Why don’t you just charge a ‘Street Fee’ to each property and bill it similar to a water bill? Why go through a third party for collection?
State law does not allow a city to charge a direct street fee for maintenance. State law does allow for the collection of a franchise fee from utility service providers for their use of the right-of-way. That is why we are proposing to charge this fee to the utility companies and then dedicate its use to maintain the city street system. The State Legislature is currently working on a bill (SF 607 and HF 745) that would allow for the direct billing by a city for a street maintenance fee. This same idea has been discussed at past legislative sessions but has yet to be passed and signed into law.
I live in an apartment, town home or manufactured home. Will I be charged the fee?
Yes, you will pay the standard residential fee. If the owner is paying utility fees they may be recapturing the fee through rents.
I live on a private road or county road. Will I be charged the fee?
Yes, you will pay the standard residential fee.
What if I am paying for a street assessment?
Continue to pay your street assessment. A reimbursement plan will be put in place to offset the franchise fee.
When will this go into effect?
The City Council is still determining the exact schedule. We anticipate franchise fees going into effect around March 2021.
When do I have to pay the franchise fee?
The franchise fee is included on your gas and electric bill every month.
How long will the city have franchise fees?
The fee is expected to be a long-term funding option for the city and not anticipated to be eliminated.
Public Input for the Public Hearing
eComment
Residents can comment on any agenda items until 4:00 p.m. on the day of the meeting by using the eComment (electronic comment) system. Once the City Council agenda is published, the eComment link will be active. Residents can review agenda item details, indicate their position on an item and leave feedback by clicking on the eComment tab on the City Council meetings page:
Review City Council meeting information and leave a comment <https://northfield.legistar.com/Calendar.aspx>
Email
Send an email no later than 4:00 p.m. the day of the meeting to the Finance Director Brenda Angelstad and copy City Clerk Deb Little noting public hearing comment in the subject line and type your comment in the body of the email or attach a document if necessary.
Email Brenda Angelstad and Deb Little <mailto:brenda.angelstad@ci.northfield.mn.us;%20deb.little@ci.northfield.mn.us>
Letter
Send a letter containing your input to:
1. City Clerk Deb Little, City of Northfield, 801 Washington Str., Northfield, MN 55057
2. Letters must be received prior to the meeting.
Attend in person via electronic means
Because the meeting is being held online, prior to the start of the Council meeting on November 10, you may call in or connect via computer with the following GoToMeeting information to provide your oral comments, input, or testimony:
o Dial 1-224-501-3412 and enter conference/access code:394-938-805.
o Join the meeting from your computer, tablet or smartphone <https://global.gotomeeting.com/join/394938805>
If you desire to make oral comments to the City Council during the public hearing on November 10, 2020, you are requested, but are not required, to contact Finance Director Brenda Angelstad via e-mail and copy City Clerk Deb Little no later than 4:00 p.m. on November 10 to notify the City of the same so that arrangements can be made for your participation at the City Council public hearing.
Request to make oral comments with Brenda Angelstad and Deb Little <mailto:brenda.angelstad@ci.northfield.mn.us;%20deb.little@ci.northfield.mn.us>
If you register as provided above, you will be called on by the presiding officer when it is your turn to speak; when called upon please unmute your device, turn on your camera, if applicable, and state your name and address before making your comments. If you do not register, the presiding officer will call for public comment at which time you may make your public comments; please unmute your device, turn on your camera, if applicable) and state your name and address before making your comments. During the hearing, please mute your phone or device and turn off your camera at all times until the presiding officer calls on you.
Sign up for text and email updates
In the next few months, materials regarding franchise fees will be included in the City Council packets. Also, information regarding updated information, decisions or changes to franchise fees may be included in general news. You may find it useful to be signed up for these lists:
o City Council packets
o General news
Sign up for text and email updates <https://www.ci.northfield.mn.us/list.aspx>
Alternative Options:
This is a public hearing. The Council will consider ordinance actions under separate action. The alternatives could include not moving forward with the ordinances and funding changes.
Financial Impacts:
These are the proposed rates; the City Council must approve.
Residents will see a charge of $3.25 on their electric bill and $2.25 on their gas bill every month.
Commercial and industrial properties will need to contact Xcel Energy to find your classification. When contacting Xcel Energy, please identify yourself as a city of Northfield commercial user. Business Solutions Center: 1-800-481-4700 or email Business Solutions Center: bsc@xcelenergy.com <mailto:bsc@xcelenergy.com> (email may be quicker)
Electric
|
Class |
Amount per month |
|
Residential |
$3.25 |
|
Small commercial and industrial: non-demand |
$4.00 |
|
Small commercial and industrial: demand |
$32.50 |
|
Large commercial and industrial |
$999.00 |
|
Public street lighting |
$0.00 |
|
Municipal pumping demand |
$0.00 |
|
Municipal pumping non-demand |
$0.00 |
Gas
|
Class |
Amount per month |
|
Residential |
$2.25 |
|
Commercial firm: non-demand |
$12.50 |
|
Commercial firm: demand |
$485.00 |
|
Small interruptible |
$99.50 |
|
Medium and large interruptible |
$1,880.00 |
|
Firm transportation |
$0.00 |
|
Interruptible transportation |
$0.00 |
Staff is preparing a separate discussion related to potential rebates for the new franchise fees property owners that either have current outstanding assessments or who have paid franchise fees over the last 10-years. That is included under the regular agenda for review.
Tentative Timelines:
November 10 - Public hearing, first reading of ordinance
November 17 - Second reading of ordinance
November 18 - If approved, notice to Xcel (90-day implementation)
March 2021 - If approved, revenue commencement