Northfield residents expressed mixed feelings on whether the city should shift from assessing impacted property owners for street projects to a yearly fee assessed all parcels in town. Also discussed was whether revenue from the proposed should be used for climate-reducing initiatives.
In a statement delivered to the Northfield City Council prior to a Nov. 17 meeting, Armory Square Event Center co-owner Liz Reppe noted the change does not protect property owners “from excessive amounts charged back for street work,” adding she doesn’t see how property owners could appeal and challenge franchise fee amounts under the new system. She also expressed apprehension at funding work undertaken at other properties after already paying thousands of dollars in street assessments for her property.
“This is the very worst time for the city to cause property owners to pay more for their utilities,” she said. “This is particularly true for commercial properties, most of which are really suffering financially during COVID.”
The Northfield City Council took the first step in shifting from assessments during its Nov. 10 meeting. The 4-3 vote came after councilors were split on allowing for $100,000 in franchise fee revenue to be used for climate initiatives. Mayor Rhonda Pownell and councilors Brad Ness and David DeLong voted no. Due to a language adjustment made during the Nov. 17 meeting, the council pushed back possible final approval to early December.
Northfield City Administrator Ben Martig noted residential property owners would pay $5.50 per month in franchise fees and commercial businesses $16.50; however, he said larger commercial customers and those with more than one property could incur significantly higher fees and should contact Xcel Energy to verify anticipated costs. Property owners with outstanding assessments would be rebated franchise fees on an annual basis. The estimated cost to implement franchise fees is $50,000 per year beginning in 2022 and decreasing $5,000 every year.
To Reppe, though the city routinely discusses how tax increases impacts the average homeowner, it must also value commercial property owners and their contributions made through taxes and providing employment and work to improve the city.
“This appears to be another situation in which commercial property owners are bearing the brunt of city fees/taxes,” she added. “I understand that there are more residential property owners (voters), but the commercial property owners will suffer major increases in fees under the system.”
Carleton College, considered a major property owner within Northfield, submitted a comment to Finance Director Brenda Angelstad prior to the meeting. The comments, though supportive of a franchise fee and a rebate for those who are paying street assessments, expressed concerns.
“Doing so would help streamline the city’s annual street improvement process, relieve the burden on individual homeowners and small businesses, and support the city’s climate action plan,” college officials wrote.
“Under the proposed fee structure, Carleton’s average monthly electric bill would increase by 1 percent and our average monthly gas bill by 9 percent. The additional monthly gas percentage calculated by the college is exceptionally high. At this time, the college does not support this flat gas fee increase and seeks clarification about why this percentage is so high.”
College officials noted Carleton paid nearly $400,000 in assessments related to the mill and overlay project, meaning the college’s total property tax obligation this year is $629,000 — No. 2 in the city for assessments and property taxes paid in 2020.
The most commonly discussed advantage to franchise fees is that all properties — including those that are considered tax exempt, like schools, churches and government buildings — are charged franchise fees. The fee diversifies city revenue sources, potentially reducing any reliance on property taxes, local government aid and assessments. Franchise fees provide a reliable revenue source, are considered easy to administer, and there are no administrative costs charged by utility companies who collect the fees.
Some of the disadvantages Martig discussed include the rate is the same regardless of the value of a property or the utility use. However, franchise fees are seen as possibly posing a financial hardship on commercial businesses, and like property taxes, seen as possibly making a city less desirable than surrounding communities without franchise fees.
Northfield resident Barbara Evans wrote of her support of adding a franchise fee — but only for street assessments.
“Although I’m in favor of the climate proposal, I think that that is a city decision and a city matter that can be adjusted as needed and is a city expense,” she said. “The street assessments to individuals for street repair and curb and gutter is much more of a thing that comes at a homeowner like a shot.”
The addition of $100,000 in revenue to help implement climate action plan initiatives is considered a way for Northfield to achieve carbon-neutrality by 2040. The additional $100,000 is estimated to increase fees on a commercial property by $6 annually.
Fellow Northfielder James Clinton said he was “surprised” to see the proposed flat rate residential franchise fee, seen by some as regressive, after officials have consistently pushed for more affordable living options. Clinton said he supported either sticking with the current special assessment approach until questions related to the impact the tax would have on businesses are addressed, or passing a uniform property tax increase and refunding those who have paid past assessments.
‘A permanent shift’
Martig noted the council intends for franchise fees to completely replace special assessment revenue. He said franchise fees “are common in other communities,” including a number of cities that charge both special assessments and on top of that franchise fees.”
He said past data indicates Northfield’s city property taxes are considered amongst the lowest of peer cities in Minnesota.
“This is not a program that should change regularly but rather a permanent shift in how we finance a portion (about 20%-30% of street reconstruction projects,” he said. “The remaining portion will continue to be funded through the city property taxes. Technically, to change the use of the franchise fee would require a public hearing and two ordinance readings at a minimum. It is very unlikely to switch back in the future, but this council can’t stop future councils from changing from a legal standpoint.”