A franchise fee was implemented in January 2018. Franchise fees on utilities (gas and electric) would help fund the unfunded costs relating to city streets, parking lots and trails. A franchise fee is collected by 357 cities out of 853 cities in Minnesota. There are 101 cities in the seven-county metropolitan area that currently have franchise fees. Implementing franchise fees has become a common way for a city to raise revenue.
What does that mean for residents?
Utility companies have the right to pass franchise fees on to their customers, which is noted on their gas and electric bills noted as a “City Fee.” The utility companies collect the franchise fees and remit them to the City.
The franchise fee was proposed at a $2 fee per month, per account, on residential gas bills and a $2.75 fee per month, per account, on residential electric bills. That means residential utility customers would see total fees of $4.75 per month. Commercial rates are proposed to vary based on the utility company’s account class. The commercial fees will range from $13.50 to $195.
Why does the City need to implement a Franchise Fee?
The proposed franchise fees will generate approximately $1,000,000 in revenue annually that will help the city cover unfunded costs relating to city streets, parking lots and trails. On average, the city needs $4,150,000 per year for the next five years to cover costs not paid for from taxes, special assessments or other funding sources. Franchise fees will help offset the associated costs without increasing property taxes. Utility franchise fees would apply to all utility customers in the city regardless of whether they pay property taxes. This includes non-profit organizations, schools, churches and government customers. Thus, these fees are more equally distributed than property taxes.
If a franchise fee is not approved by the council another financing option is to increase the tax levy by approximately $1,000,000 dollars.
Here are examples of adding approximately $1,000,000 to the tax levy:
•A business with a taxable value of $563,700 would see a monthly tax increase of $14.32.
•A business with a taxable value of $3,058,200 would see a monthly tax increase of $82.19.
•The mean residential property with a taxable value of $231,176 would see a monthly tax increase of $5.14.
•The median residential property with a taxable value of $194,834 would see a monthly tax increase of $4.33.
The City has 30 years of award winning transparent financial reporting,and understands the importance of providing timely, accurate and transparent fiscal information. In an effort to be transparent, franchise fees will be reported in a separate fund called the Franchise Fee Special Revenue Fund. All projects paid for out of this fund will be reported.