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  7.1.       
Meeting Date: 06/23/2020  
By: Diana Lund, Finance

Information
Title
Motion Calling for a Public Hearing on the Proposed Franchise Fee Ordinances
Purpose/Background:
In 2014, the Ramsey City Council adopted a Pavement Management Program that relied on assessments and an annual property tax levy to support the effort.  It was concluded that this method was the best approach at the time and that the funding would be re-evaluated after five-years.

A successful long-term pavement management program requires a dedicated, reliable funding source.  The ideal funding source for such program would provide the amount needed year-after-year to fund the program and would prevent it from being diverted to other areas.  The ideal funding source would also be equitable and transparent so taxpayers can fully understand how much they are paying, what they are paying for and where the funds are spent.

The City is currently in the second, five-year time period of the Pavement Management Program.  Based on the city's current Capital Improvement Plan, the city needs an average of $2.1 million to fund the current method of funding of the Program via Special Assessments and tax levy. 

The City Council is choosing to look at other possible financing methods to fund the Pavement Management Program.   The option that is currently proposed for the next five-year time frame is the implementation of a monthly franchise fee.  The franchise fee would provide a reliable, dedicated funding source that would ensure that the Pavement Management Program could be completed on a regular schedule.  Based on the current Capital Improvement Plan, an average of approximately $1.893M would be required to fund the program (see attached calculation of franchise fees needed).  The difference between the $2.1M, as noted above, and the $1.893M is in regards to the savings that would be attributed to administrative costs associated with special assessments (legal, engineering and finance).

Cities are authorized by state statute to impose franchise fees upon utilities operating within the public right-of-ways.  The City currently has franchise ordinances with Connexus Energy, City of Anoka (Anoka Electric) and Centerpoint Energy.  Within each of these ordinances is a fee provision in consideration of the rights granted to the electric and gas distributors.  These fees are typically passed along to the consumer in the utility company's monthly billings with a separate line item noting that the fee is being imposed by the city.

The City is proposing a franchise fee of $7.00 per utility, or $14.00 per month on residential users that have both electric and gas utilities.  This would equate to $168.00 per year for residents connected to both gas and electric utilities.  Commercial/Industrial users are proposed to be charged a per meter fee based on meter size.  Most churches are proposed to be charged $20 per month ($10 per utility), which is the same as a small commercial fee.  See attached franchise fee rate sheet for more detail.

There will be no more than one gas and one electric franchise fee charged per address.  If a property was to contain more the one meter, example:  commercial properties, the franchise fee will be calculated based off of the largest meter only.

The following terms and conditions were incorporated into the attached draft ordinances based on input from the City Council:
  • Collected franchise fees can only be spent on Pavement Management Program projects.
  • Collected Fees will be deposited into a committed fund - "Pavement Management Program Fund"
  • Annual review by City Council of franchise fees collected, funds expended and balance remaining in Pavement Management Program Fund
  • Rebate Program - Discussed below
  • A 5-Year sunset term on all ordinances to allow a thorough review of revenues versus expenditures, to consider other potential funding sources in the future, and to make adjustments as desired or needed.
A rebate program is proposed that will return the annual franchise fee to those have been assessed since 2015.  The rebate program will apply to those currently paying an assessment on a street reconstruction or overlay project that was levied, starting in 2015 (first year of city's Pavement Management Program), or who paid their assessment upfront (prepaid) and would otherwise still be paying an assessment.  The rebate would be capped at the lesser of the annual assessment amount or annual franchise fees paid.  The rebate is no longer eligible if a property has been sold since the assessment was levied.  Homeowners will need to apply for the rebate annually.  See attached franchise fee rebates summary.
Notification:
Public Hearing notifications for July 14, 2020 will be published in the Anoka Union on June 26 and July 3, and July 10,2020.  Letters were also sent out to Connexus Energy, Centerpoint Energy & City of Anoka Electric on June 11, 2020 notifying them of the city's intention of adopting a franchise fee.
Observations/Alternatives:
The following is the Proposed Franchise Fee Adoption Schedule:
              
May 12, 2020 WS       Consensus of Council directed staff to bring forward franchise fee option.
 
June 9, 2020 WS         Council reviews draft ordinances with proposed franchise fee rates and
                                    terms.  Consensus was a $7 per month per utility for residential and
                                    commercial properties would be charged a fee for each respective utility
                                    based on meter size (if more than one meter, largest meter would be used
                                    to determine fee.  
                             
June 11, 2020              Letters to Connexus Energy, City of Anoka, and Centerpoint Energy
                                    notifying of intention of City to introduce a Franchise Fee Ordinance.
 
June 23, 2020 CC       Motion Calling for a Public Hearing on the Proposed Franchise Fee
                                    Ordinances.
                               
June 26
  • July 10, 2020    Public Hearing Notice Posted in Anoka Union.
 
July 14, 2020              First Reading of Proposed Franchise Fee Ordinances followed by Public
                                    Hearing. 
 
July 28, 2020              Adoption of Franchise Fee Ordinances.
 
July 29, 2020              Connexus Energy, City of Anoka and Centerpoint Energy notified by
                                    Certified mail adoption of Ordinances.
 
July 31, 2020              Posting of adopted Ordinances in Anoka Union.
 
September 28, 2020    Franchise Fee Ordinances become effective.
 
October 1, 2020 or
     January 2021          1st monthly franchise fee billing received by Ramsey residents.
 
 Alternatives:
 Alternative #1:  Motion to order a public hearing for July 14, 2020 to Introduce Ordinances #20-11 implementing a gas franchise fee on Centerpoint Energy for providing gas service within the City of Ramsey, #20-12 implementing an electric franchise fee on Connexus Energy for providing electric service within the City and #20-13 implementing an electric franchise fee on the City of Anoka Electric for providing electric service within the City of Ramsey.

Alternative #2:  Motion of other.

 
Recommendation:
Staff recommends scheduling public hearings to introduce ordinances establishing franchise fees at the rate of $7 per utility, per month on each residential property and the respective per meter fee based on meter size for commercial properties. 
Action:
Motion to Schedule Public Hearing to Introduce Ordinances #20-11 (Centerpoint Energy), #20-12 (Connexus Energy), #20-13 (City of Anoka Electric) establishing franchise fees on gas and electric utilities.

Attachments
Ord 20-11 Proposed Ordinance Franchise Fee on Centerpoint Energy
Ord 20-12 Proposed Ordinance Franchise Fee on Connexus Energy
Ord 20-13 Proposed Ordinance Franchise Fee on City of Anoka Electric
Calculation of Franchise Fee Revenue Needed
FF Revenue Generated
FF Rebates on Special Assessments
Road Funding FAQ

<
Form Review
Inbox Reviewed By Date
Bruce Westby Bruce Westby 06/18/2020 11:25 AM
Kurt Ulrich Kurt Ulrich 06/18/2020 02:06 PM
Form Started By: Diana Lund Started On: 05/19/2020 02:16 PM
Final Approval Date: 06/18/2020

    

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