Discuss Alternative Language for Proposed Charter Amendment to Chapter 10

Purpose:  The purpose of this report is to discuss alternatives to the language proposed by the Charter Commission for an amendment to Chapter 10 of the City's Charter titled Franchises.

Background:  The Charter Commission met on October 21, 2013, to discuss the pending franchise fee ordinances.  After discussing various revenue issues, the Commission approved an amendment to the Charter to be submitted to the Council.  The proposal added language as follows:  Subject to any applicable state statutes, the council may by ordinance regulate and control the exercise of any franchise, including the maximum rates, fares, or prices to be charged by the grantee, except that any franchise fees imposed under applicable state statutes must be limited to defraying increased municipal costs accruing as a result of utility operations and may not be used to raise general revenue.  (The rest of Section 10.4 would remain the same.) 

This amendment was submitted to the Council pursuant to Minnesota Statutes section 410.12, subdivision 7, which allows the Council to enact the amendment by ordinance.  The statutory process and time line notes the following:  October 22 - Council received proposed amendment from the Charter Commission.  November 22, 2013, deadline for publishing notice of public hearing.  Notice was published in the November 22 edition of The Anoka County Union, the City's official newspaper.  The public hearing is being held this evening during the regular City Council meeting. 

A joint meeting with City Council and the Charter Commission was held on Tuesday, November 19 for the purpose of discussing viable options for funding sources for road reconstruction.  Funding Sources mentioned were:  Franchise Fees, Assessments, General Property Tax Levy, General Obligation Bonds, TIF, Grants and Use of MSA Dollars.  It was determined the top three most viable options were Franchise Fees, Assessments, and General Property Tax Levy.  Pros and cons were discussed for each of the three options as well as solutions.  (The list is attached to this report.) 

The common interest was in limits and that the franchise fee ordinance language may not be enough of a protection for the residents in itself.  The Council and Charter Commission discussed drafting language for the Charter that would place a moratorium on assessments while franchise fees are in place, placing a limit on franchise fees - amount and length of time, and reporting requirements (e.g., annual report on franchise fees). 

Staff is of the opinion that the term "...defraying increased municipal costs accruing as a result of utility operations..." in the current Charter Commission proposal is difficult to interpret and, therefore, might be narrowly or broadly defined, and subject to criticism from both sides of the issue. Consequently, staff would recommend more quantifiable language if any restrictions to the fee were to be put in place.

Also attached is the ordinance amending the Charter recommended by the Charter Commission that will be presented at the City Council meeting for introduction.

 The City Council previously considered the following franchise fee restrictions via ordinances:

• Special assessments must no longer be levied to help fund street maintenance projects.
• Franchise fee revenues must be dedicated only to long-term street maintenance program projects.
Purpose.  The Ramsey City Council has determined that it is in the best interest of the City to impose a franchise fee on those public utility companies that provide natural gas and electric services within the City.  Pursuant to the Franchise Agreement the City has the right to impose a franchise fee on Company.  All franchise fee revenues generated through this ordinance shall be collected in lieu of special assessments for street maintenance projects, and shall be dedicated only to long-term street maintenance program projects including pavement preservation and street reconstruction projects.

• Five (5) year sunset terms must be used for any new franchise fee ordinance.
Effective Date.  This ordinance takes effect as provided by the City Charter.  This ordinance shall terminate 5 years from the date passed and adopted by the City. If the termination date falls within the middle of a 3 month collection period, the ordinance shall terminate at the end of the collection period.

• An equitable rebate program must be implemented to prevent anyone paying an assessment levied with a street maintenance project, or who pre-paid their assessment but would otherwise still be paying, from paying franchise fees on top of assessments.
Rebate Program.  The City will rebate the lesser annual amount paid for franchise fees versus special assessments over the remaining term of the special assessments, regardless if the assessment was pre-paid or is currently being paid through property taxes. Rebates will be in the form of a credit to the fourth quarter municipal utility bill of qualifying property addresses. This rebate program applies strictly to qualifying property addresses during the effective term of their current assessment or this ordinance, whichever expires first.

• Franchise fee revenues must cover the shortfall amount of $1,700,000 so it was proposed each gas and electric utility be charged $8 per month per account across all commercial, industrial, and residential properties.  If the Council were to consider a recommendation for an alternative Charter amendment, the following quantifiable provisions could be considered.            

• % of annual levy cap (e.g., revenue collected via the franchise fee shall not exceed 20% of the City’s annual levy).
• Defined dollar amount (e.g., revenue collected via franchise fees shall not exceed $1.7 million annually).
• % of utility gross revenues (e.g., revenue collected via franchise fees shall not exceed 10% of the utility’s gross revenue).
• Phase-out over 5 years (e.g., 100% year 1, 80% year 2, 60% year 3, and so on)
• Require that any fee be proportional to property value. (e.g., lower valued properties would be charged lower fees)

Approximately 30 minutes.

City Council and City Attorney

To direct the City Attorney to draft a proposed alternative Charter amendment that may define different parameters within the Charter in regard to franchise fees and/or special assessments, based upon discussion.