There has been a lot of discussion lately regarding the funding of roads and streets in many cities throughout this region. A recent Star Tribune article – “For homeowners, street work a financial pothole” – discussed the concerns with using special assessments to fund street projects in area communities. This is a process where property owners are assessed a dollar amount for a percentage of street work completed in front of their properties.
Until I came to Eden Prairie, each city I have worked in has used special assessments to fund road improvements. Each of these cities was at an age where the 40-50 year old infrastructure needed to be replaced and a funding source was needed to complete that work. Special assessments had been the main funding tool of choice for many years.
In Eden Prairie, most of our streets are not that old – but they will be. Therefore, we need to plan for a way to fund our current street maintenance and our future street reconstruction. At the request of the City Council, our Budget Advisory Commission spent a good chunk of 2011 evaluating several options for funding street improvements. Options for funding streets included special assessments, increased tax levies and additional debt. However, the option that seemed to resonate most was the use of a utility franchise fee.
Franchise fees are charged to utility companies (e.g. Xcel Energy and CenterPoint Energy) in exchange for allowing them access to the City’s right-of-way. This access provides space to install distribution lines without having to purchase it outright from property owners, and gives the companies paved and plowed access so they can work on those distribution lines when they need to be repaired or upgraded.
The access and existence of distribution lines also results in added costs to the City for street projects and maintenance of the right-of-way. The franchise fees charged to each utility company are typically passed onto customers, which appears as a line item on their billing statements.
Cities have used utility franchise fees in a number of different ways, but in Eden Prairie we are considering only one use for this proposal – road improvements. The article I mentioned earlier stated that assessments range from $4,000 to $16,000 per residential lot for a street that should last at least 20 years. Our franchise fee proposal is a bit less than that. For instance, a resident charged $2.50 per month in franchise fees, per utility ($5 total for gas and electric) would pay $60 per year. That equates to $600 over 10 years and $1,200 over 20 years, assuming no increase in rates. Even if you assume a 20% increase in rates over 20 years, the amount is still less than $1,500.
This pay-as-you-go scenario is less costly for property owners than most street assessment amounts currently being used. In addition, and from my personal experience, the administration of special assessments can involve significant time and cost.
We are now in the community feedback stage regarding the use of franchise fees. Here is what we are doing:
- A link to this blog is posted on the City’s Facebook page, where we are soliciting feedback from the public.
- At the next City Council meeting on Tuesday, March 6, Public Works Director Robert Ellis will present more information on the use and impact of franchise fees.
- At 6 p.m. on Thursday, March 15, the City is hosting an open house/neighborhood meeting on the topic of franchise fees at the City Center.
- The Tuesday, March 20 City Council meeting will include a public hearing on the proposed use of franchise fees.
Open houses and public hearings are nothing new, but the addition of Facebook as a way the public can tell us what they think about an important topic is a first. We hope offering an alternative way for providing feedback will ensure even more of our residents will participate in the discussion, which will be very valuable to our City Council when the time comes to make a decision.