It took a prolonged disagreement over whether to spend $100,000 of city funds set aside for climate initiative, but the Northfield City Council has agreed to move away from assessing impacted property owners for street project and instead impose gas and electric franchise fees on all city properties.
After approving the first reading of the proposed change from street assessments to franchise fees by a 4-3 vote during a Nov. 10 meeting, the council could give final approval Tuesday. Councilors David DeLong, Brad Ness and Mayor Rhonda Pownell voted no.
A franchise fee approach would have a $66 annual impact on all residential properties, including $27 for gas and $39 for electric. Under the plan, 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.
Northfield City Administrator Ben Martig said 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.
The council is also considering adding $100,000 in revenue to help implement climate action plan initiatives as 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.
The idea to allocate franchise fee funds to meet climate goals, however, was met with mixed feedback. DeLong said climate initiatives, though important, shouldn’t be tied into street funding and instead called for the funding to be used for parks or other everyday initiatives. Pownell said though she had been leaning toward voting in favor of the first reading, she didn’t support utilizing the funding for climate initiatives. However, fellow Councilor Erica Zweifel said one of the reasons why the gas fee is at a higher rate than electric fees is to encourage a shift away from fossil fuels. Councilor Jessica Peterson White said climate change, because of the possibly catastrophic consequences of not addressing the problem, should be its No. 1 priority.
“It is a matter of our survival,” she said.
Some disadvantages of franchise fees Martig discussed include the rate is the same regardless of the value of a property or the utility use. 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.
DeLong said the flat rate could be seen as regressive and suggested the council should have considered increasing the property tax levy instead of instituting a flat rate.
Special assessments, a common tool in funding street projects, include a relationship between the value received from a completed project and the cost of service and amount paid. Tax-exempt properties pay for improvements they benefit from, and such assessments reduce the overall property tax rate. They can be used to cash flow projects and reduce the size of bond issues. Disadvantages include that the special assessment process is considered complex, long and expensive to administer.
Councilor Suzie Nakasian said franchise fees will strengthen public trust from the current street assessment approach.
Peterson White agreed.
“This is a shift toward a much more equitable, and I believe progressive, way of funding these projects,” she said.
A majority of comparable cities, nine of 13, reportedly have franchise fees. Elk River eliminated assessments in 2013 and created a franchise fee rebate program to reimburse property owners with outstanding assessments. Six of 13 comparable cities use franchise fees and assessments. All cities either collect franchise fees or assessments.
Prior to the meeting, formal mayoral candidate David Ludescher requested the council not implement franchise fees, especially during difficult economic conditions caused by COVID-19.
“Everyone knows that alternative revenue sources are really taxes by another means without calling it taxes,” he said.