Introduce Proposed Ordinance #19-11 Implementing a Gas Franchise Fee on Centerpoint Energy for Providing Gas Service Within the City of Ramsey, Introduce Proposed Ordinance #19-12 Implementing an Electric Franchise Fee on Connexus Energy for Providing Electric Service Within the City of Ramsey and Introduce Proposed Ordinance #19-13 Implementing an Electric Franchise Fee on the City of Anoka Electric for Providing Electric Service Within the City of Ramsey.

The City of Ramsey owns and maintains about 180 miles of public streets.  The city’s oldest streets were constructed in 1974, and during the 10-year period from 1976 to 1985, about 45% or 81 miles of city streets were constructed, making these streets 34 to 43 years old.
 
The life expectancy of streets constructed with bituminous pavement over good granular subgrade soils, which includes Anoka sand plain soils which Ramsey is located on, and that receive routine, regularly scheduled maintenance treatments, is 60 years.  Routine maintenance treatments typically include pothole patching, crack sealing, sealcoating, and pavement overlays. If routine maintenance treatments are not applied, the life expectancy of a bituminous pavement section is about 30 years.  Historically, most streets in Ramsey have not received routine maintenance treatments so the anticipated life expectancy of city streets is somewhere between 30 and 60 years.
 
The life expectancy of city streets can be maximized by employing a long-term pavement management program, which includes routine, regularly scheduled maintenance treatments including a mix of crack sealing, sealcoating, and pavement overlays. Then after 60 years, each street will be reconstructed “as is” without design modifications such as adding curb and gutter and storm sewer, widening or strengthening pavement sections, or adding pedestrian facilities.
 
Below is the current pavement management program schedule that city Staff follows while maintaining and reconstructing city streets:

• Crack seal 3 years after construction, overlays, and reconstructions; and
• Crack seal and sealcoat in years 6, 13, 26, 33, 46 and 53; and
• Mill and/or overlay in years 20 and 40; and
• Reconstruct in year 60 (reclaim, repave, or reconstruct).

 
A successful long-term pavement management program requires a dedicated, reliable funding source.  The ideal funding source for a long-term pavement management program would provide the amount needed year after year to fund the program, and would prevent it from being diverted to other uses.  The ideal funding source would also be equitable and transparent so taxpayers can fully understand how much they are paying, what they are paying for, and where the funds are being spent.
 
Traditional Funding Sources
Traditional funding sources for street maintenance projects have included the use of general fund tax revenue, special assessments, bonds, and Municipal State Aid (MSA) funds. Some of these traditional funding sources are becoming less reliable as funding sources due to shrinking budgets resulting in fewer dollars being budgeted annually for pavement management projects, and due to increased public opposition to the use of special assessments.
 
Special Assessment Concerns
The City of Ramsey’s Charter allows property owners to petition against projects that utilize assessments, making it harder and more expensive to apply special assessments as a funding source.  This leads to significant project delays and cost increases, making it more difficult to reliably and economically deliver assessment projects.  For example, two street reconstruction projects were recently cancelled due to petitions, one in 2018 and one in 2019, resulting in more than $28,000 in sunk costs.
 
Over the last 5 years, special assessments were levied against abutting property owners on pavement overlay and street reconstruction projects. The amounts of the assessments varied from several hundred dollars for overlay projects to over six thousand dollars for street reconstruction projects.  Over the years, assessments have been challenged by several property owners, and the City has typically completed special benefit consultation reports to verify that the assessment amounts are justifiable.  However, these reports cost several thousand dollars each which increase project costs, and therefore assessments.

Optional Funding Sources
Optional funding sources were recently explored by staff including the use of federal and state grants, Public-Private Partnerships, special legislation, and franchise fees.  Of these, only franchise fees would provide the reliable, dedicated funding source needed to ensure that pavement management projects could be completed on a regular schedule, allowing the city to maintain city streets as economically as possible.
 
Public Engagement on Funding Source Options
In 2018, WSB and Associates was hired to assist the City is engaging the public and seeking public input on available pavement management program funding options.  This process included providing information to residents and businesses via direct mailings, the City’s website, and by conducting a series of three public workshops.  In summary, public input did not appear to significantly favor one funding method over another.
 
Franchise Fees
Cities are authorized by state statute to impose franchise fees upon utilities operating within the public right-of-ways.  Franchise fees are charged to private utilities that benefit from using public right-of-ways to conduct their business. These fees are typically passed along to the consumer in the utility company’s invoices, along with a note stating that the fee is being imposed by the city.
 
Franchise fee revenues amounting to approximately $1,900,000 are required to fully fund all of the pavement management program projects identified in the attached 5 year Capital Improvement Plan, which assumes franchise fees for the funding source.  This requires a minimum monthly fee of $7 per each electric and gas utility provider in the City of Ramsey including Anoka Electric, CenterPoint Energy, and Connexus Energy.  This equates to $14 per month or $168 per year for residents using both electric and gas utilities.  Commercial users are proposed to be charged a per meter fee based on meter size.  Churches are proposed to be charged $20 per month ($10 per utility), which is the same as a small commercial fee.  See attached franchise fee rate sheet for more detail. 

There will be no more than one gas and electric franchise fee charged per address.  If a property was to contain more than one meter, example: commercial properties the franchise fee will be calculated based off of the largest meter only. 

Franchise fees can be collected from property renters as well as owners, and also from tax-exempt properties, which seems reasonable since such properties are often significant traffic generators.
 
The following terms and conditions were incorporated into the attached draft ordinances based on input from City Council and Charter Commission.

• Collected franchise fees can only be spent on pavement management program projects.
• A 5-year sunset term applies to all Ordinances to allow a thorough review of revenues versus expenditures, to consider other potential funding sources in the future, and to make adjustments as desired or needed.
   

Staff worked with the gas and electric utilities to prepare the draft Franchise Fee Ordinances.  No formal objections from the utility companies are therefore anticipated.
 
Rebate Program
A rebate program is proposed to prevent those currently paying an assessment levied with a pavement management program project, or who paid their assessment up-front but would otherwise still be paying an assessment, from paying franchise fees on top of their assessment.  See attached franchise fee rebates summary.

Public Hearing notifications for September 10, 2019, will be published in the Anoka Union Herald on August 16, 2019.

Local Street funding study.   The city has requested a local road funding study for fall of 2019, in conjunction with the Charter Commission, through the University of Minnesota.

Proposed Franchise Fee Ordinance Adoption Schedule
At the Council work session on June 25, 2019, City Council consensus was to proceed with the local road funding study requested by the Charter Commission, and to proceed with the introduction of franchise fee ordinances for public review.
 
At the regular Council meeting on July 9, 2019, the City Council authorized an expenditure of up to $5,000 for the local road funding study by the University of Minnesota.
 
City staff has since prepared draft ordinances and the following actions are anticipated as the ordinance is brought forward for review:

• July 29, 2019 - Letters were mailed to utilities notifying them of the City’s intention to introduce a Franchise Fee ordinance.
• August 12, 2019 – The draft ordinances will be reviewed with Council and Council will be asked to establish a public hearing date of Tuesday, September 10, 2019.
• August 13 – August 30, 2019 - Publish and post notice of public hearing.
• September 10, 2019 - Public hearing to officially introduce and complete first readings of ordinances.
• Tuesday, September 24, 2019 – Final reading and adoption of ordinances.  This date is subject to change based upon input at the public hearing and can be established for a later date at the discretion of the City Council.
• November 1, 2019 – Last day to notify utility companies for a January 1, 2020 effective date.  A 60-day notification is required.  This date can be moved to a later date at the discretion of the Council.
• January 1, 2020 - Target date for 2020 implementation (if approved). 

Alternatives:
Alternative #1
Motion to order a Public Hearing for September 10, 2019, to Introduce Ordinances #19-11 implementing a gas franchise fee on Centerpoint Energy for providing gas service within the City of Ramsey, #19-12 implementing an electric franchise fee on Connexus Energy for providing electric service within the City of Ramsey, and #19-13 implementing an electric franchise fee on the City of Anoka Electric for providing electric service within the City of Ramsey.

Alternative #2
Motion of other.

Publication costs will be paid from the PIR fund.

Staff recommends that Council provide feedback on the draft ordinances attached to this case to allow Staff sufficient time to revise the ordinances prior to their introduction on September 10, 2019.
 
Staff recommends charging equal monthly fees in the amount of $7 to each utility on each residential property since there are approximately the same number of gas and electric customers across the city and commercial users are proposed to be charged a per meter fee based on meter size the per meter fee

Since hundreds of property owners are still paying special assessments on previous pavement management program projects, staff recommends that Council adopt a rebate program where property owners who are currently paying an assessment for such a project, or who paid their assessment off early but would otherwise still be paying their assessment, can request an annual rebate at the end of the year in the amount of the franchise fees paid during that year.  This rebate program would only apply to property owners whose assessments for the year are greater than the amount of the franchise fees paid during that year. Rental properties, which would also qualify for rebates, must be in the name of the property owner, not the tenants. To qualify for a rental rebate, the property owner must present copies of their gas and electric bills to be refunded the amount paid toward the franchise fee for that year.

If Council desires to move forward with adopting a franchise fee, staff recommends holding the first reading of the ordinances at a public hearing on September 10, 2019, and the second reading of the ordinances on September 24, 2019, after which Council can adopt the ordinances pending no further revisions.

Staff recommends continuing communications with the public to ensure that the purpose and expected outcome of the franchise fee is well communicated to the public. This is proposed to be done by posting additional literature on the city’s web site, and potentially including literature in utility billings and future editions of the Ramsey Resident.
 
The City Attorney reviewed and approved the draft ordinances.

Order a Public Hearing for September 10, 2019, to Introduce Ordinances #19-11 implementing a gas franchise fee on Centerpoint Energy for providing gas service within the City of Ramsey, #19-12 implementing an electric franchise fee on Connexus Energy for providing electric service within the City of Ramsey, and #19-13 implementing an electric franchise fee on the City of Anoka Electric for providing electric service within the City of Ramsey.