Review Proposed Charter Amendment Language related to Franchise Fees

Purpose:  To review and discuss draft language to amend the City's Charter relating to franchise fees.  If there is a consensus with regard to the proposed ordinance, it will be forwarded to the regular Council agenda to approve the language and then to the Charter Commission for review and discussion.  

Background: In March 2013, the City Council discussed the implementation of a long term road maintenance policy.  The discussion was held in work session where Council received a history of previous discussions relating to funding options for such maintenance policy.  The historical information included the results from a 2011 survey of 300 residents.  Residents indicated in their responses that the two largest issues facing the City over the upcoming years were The COR and maintaining an aging roadway system.  The citizens were asked to choose between three financing scenarios with regard to funding the road reconstruction/maintenance.  Option 1 was to raise the general fund levy to accommodate the need; Option 2 was to assess 100 percent of the costs to the benefiting property owners; and Option 3 was to implement a new revenue source (franchise fee).  The option that received the most support was implementation of the franchise fee for road reconstruction.  A very lengthy discussion ensued relating to road reconstruction - the condition of the roads - the cost of reconstruction -  and payment options - getting rid of assessments - not raising the tax levy - establishing a franchise fee - and amount, etc. 

On May 28, 2013, City Engineer Westby provided an update on staff's approach to the City's Long-term Street Reconstruction Program by developing typical sections and street width for both urban and rural sections as well as determining underlying soils that impact the depth of the pavements. 

On July 9, Council discussed, in work session, a topic report titled Review of Long-Term Street Maintenance and Reconstruction Financing Options and Cost Estimate Assumptions.  A fairly lengthy discussion took place regarding design assumptions and cost analysis as well as what should be included in the cost for inflation.

On August 27, in work session, staff presented further information relating to the maintenance program, costs and funding options.  Staff recommended utilizing franchise fees to fund the City's long-term street maintenance and reconstructing program.  Staff requested Council direction regarding their preferred funding options.  Following discussion, Council directed staff to schedule a work session to discuss further. 

As per Council direction, staff scheduled discussion at the September 3 City Council work session - same recommendation - utilizing franchise fees to fund the City's long-term street maintenance and reconstruction program.  Following discussion, the majority consensus of the City Council supported a franchise fee at $8/month/utility (both residential and commercial) that is dedicated for roads, a five-year sunset with "lock box" language, no special assessments, and a rebate program for property owners already paying a road assessment.

On September 10, a case was brought before the Council to approve the draft franchise agreement and ordinance terms, and to order the public hearings for October 8, 2013.  Council ordered such public hearings.

October 8, Council conducted the public hearing for introduction of franchise ordinances with Anoka Municipal Utility and Connexus Energy as the former agreements had expired.  Also for public hearing was introduction of franchise fee ordinance with Anoka Municipal Utility, CenterPoint Energy and Connexus Energy.  The vote was to postpone introduction of all ordinances to the next meeting. 

On October 21, the Charter Commission called a meeting to discuss the provision of the Charter that pertains to funding sources for the City (i.e. franchise fees, general levy, special assessments) and to determine whether applicable Charter amendments should be considered.  Following discussion, the Charter made the motion to request that the City Council review and provide feedback regarding a possible amendment to Charter Chapter 10, Section 10.4, line 4, "Power of regulation reserved," as follows: " .  .  .  except that any franchise fees imposed under applicable State Statutes must be limited to defray increased municipal costs accrued as a result of utility operations and my not be used to raise general operating revenue."     

The franchise agreement and franchise fee ordinances were brought to the City Council for introduction on October 22.  Council introduced the franchise ordinances with Anoka Municipal Utility and Connexus (adopted November 12).  Also at the October 22 meeting, Council was presented with the proposed Charter amendment language  pertaining to alternative funding sources, in particular, the use of franchise fees as a funding source.  Council voted to indefinitely table consideration of the franchise fee ordinances with Anoka Municipal Utility, CenterPoint Energy and Connexus Energy, and to schedule a joint work session with the Charter Commission to discuss the franchise fee language. 

On November 19, Council and the Charter met in joint work session to review funding alternatives and to identify pros and cons of those alternatives.  The Council and the Charter Commission focused on three viable funding alternatives and discussed the possible solutions associated with each - franchise fees, special assessments, and general property tax levy.  The City Attorney summarized the time line as follows:  The City Council received the Charter Commission's recommendation on October 22, and a public hearing is scheduled for December 10.  The City Council would vote on the proposal at their first regular meeting in January 2014.

During the December 10 Council work session, discussion ensued relating to alternative language for a proposed Charter Amendment to Chapter 10.  It was noted that there is a desire to have some limits to the franchise fee and how it is applied, which was addressed in the draft alternatives.  The alternatives address dedicating all franchise fee revenues to long-term street maintenance program projects; a five-year sunset term for any new franchise fee ordinance; assessments shall not be used for road maintenance projects while franchise fees are in effect; franchise fee revenues shall be limited to a percentage of the annual tax levy; and public notification to assure transparency.  It was felt that putting this language within the Charter will provide extra protection but the current amendment language does not well define the limitation (capping as a percentage of the levy) and other issues. 

Also on December 10, at the regular City Council meeting, a public hearing was held to introduce the ordinance amending Chapter 10 (Franchises) of the City Charter as recommended by the Charter Commission.  Attorney Langel reported that staff's recommendation was to deny this amendment because the term to limit franchise fees to "defraying increased municipal costs accruing as a result of utility operations" is ambiguous and leaves open the question to future Councils and the public, subject to potential challenge via lawsuit or other action by residents.  He stated this amendment does not have the transparency or ability to define the limits as the Charter Commission has indicated it desires.  Staff recommended the Council consider alternative language that outlines the terms and limitations for franchise fees. Council voted to not introduce the ordinance amending Chapter 10 of the Charter and directed staff to draft alternative Charter amendment language and open a dialog with the Charter Commission to obtain their review and comment. 

This brings us to the present.  Attached for Council review is the draft language for a proposed Charter amendment as per Council's direction.  Please note that the proposed fee cap, which is based on a percentage of the previous year's tax levy, may require a new fee ordinance each year and will be logistically difficult to administer.  The Council may wish to consider a simple flat rate.  If there is a Council consensus, this language will be forwarded to the City Council tonight for public discussion and possible transmission to the Charter Commission.  The Charter Commission has scheduled a meeting for January 27, in anticipation of reviewing the Charter amendment language forwarded by the City Council.
 

Approximately 30 minutes.

N/A

City Attorney
City Administrator
City Clerk

To develop consensus on the proposed Charter amendment language relating to franchise fees and forward it to the regular City Council meeting this evening for public discussion and possible transmission to the Charter Commission.