Franchise Fee Informational Meeting

1. Franchise Fee Informational Meeting

2. Franchise Fees – What? • City owned rights-of-way (ROW) are used for roadway, sidewalk and trail purposes, but also for utility services. • Every city has a franchise agreement with each utility company (gas, electric, etc.) for their use of city­ owned right-of-way for their business purposes. • By law, cities may charge utilities a fee (“rent”) for use of city right-of-way. Utility providers will likely pass this fee onto their customers.

3. Franchise Fees – How? • City charges a fee to utilities for use of city right-of-way. • Fees to Gas & Electric service providers proposed • Utility providers pay the city this fee. • Utility providers typically pass this fee onto their customers. • Fee is distributed amongst customers based on meter size (larger meter = larger fee) • Based on largest meter size if multiple meters • Customers will see fee on their invoice statement from the utility (typically identified as “franchise fee” or “city fee”).

4. Franchise Fees – Why? Why? • To fund Dayton’s increasing need for investment its transportation system. • Currently funded through the City tax levy (±$300,000/year) Why now? • Dayton Parkway Interchange requires $4M bond • ±$400,000/year additional cost for debt service • ½ funded by special assessments • ½ funded by franchise fee revenues

5. Franchise Fees – Why? (Goals) Immediate Goal (2020) • Fund Interchange debt service • Timing of assessment revenue unknown (due to deferrals) • Initial franchise fee revenue expected to cover most of debt service Short Term Goal (1-5yrs) • Supplement pavement management needs • As assessments paid, “excess” franchise fee revenue assigned to pavement management Long Term Goal (10+yrs?) • Fully fund pavement management needs using Franchise fee revenue - Eliminate pavement management levy Transportation Funding Presentation

6. Franchise Fees – Who? • All property owners with gas or electric service. • Who else does this? • At least 12 cities within Hennepin County are known to charge franchise fees • It has been reported that: • 101 cities in the seven-county metro area that charge fees, and • 357 (of 853) in the state as a whole.

7. Franchise Fees – When? • Community Info Meetings – July 2019 • Draft Ordinance Revisions – July 2019 • Public Hearing/Adoption – September 2019 • Implementation (fees imposed) – January 2020

8. Franchise Fee – Benefits • Dedicated revenue for transportation improvements • Provides funding for interchange (without levy increase) • Allows (future) decrease in levy • Equitable method for assignment of cost burden • Distributed based land use rather than land value • Accounts for tax exempt parcels (they use roads too) • Revenue grows with new homes and businesses

9. Franchise Fee – Proposed Rates From sample set of 12 Cities in Hennepin County Residential Rates = 80TH Percentile Non-Residential Rates = 90th Percentile

10. Franchise Fee – Alternatives • Utilize Special Assessments Authority: • Not currently used for maintenance or residential area projects • Does not entirely eliminate need for additional funding (levy) • Increase Tax Levy: • Generally higher for residential properties using this approach • Annual cost as franchise fee = $96 • Annual cost as tax levy = $134* *Assumes median house value (~$316,210)

11. What’s Next? • Adopt franchise fees ordinance September 2019 • Impose fees January 2020 • Track interchange assessments and adjust pavement management levy annually as appropriate • Franchise fee rates to be evaluated annually, no adjustments anticipated for, at least, 5 years

12. Questions?