Consideration of Approving Draft Franchise Agreement & Ordinance Terms and Ordering Public Hearings

At the September 3rd City Council workshop, staff presented updated estimated costs and available funding sources for the city’s long-term street maintenance program (SMP).

The updated estimated annual costs to maintain all 174.1 miles of city streets (includes 32.28 miles MSAS streets) to a Pavement Surface Evaluation and Rating (PASER) system rating of 7 or better, which is a goal identified in the city’s strategic plan, is $2.2M for the 5 year period 2014–2018, $2.5M for the 10 year period 2014–2023, and $4.4M for the 60 year period 2014–2073. These costs assume that the typical city street has a life expectancy of 60 years, and that regularly scheduled pavement maintenance treatments will be completed per a maintenance schedule including crack sealing all streets 3 years after initial construction, overlay, and reconstruction operations; concurrent crack sealing and seal coating operations in years 6, 13, 26, 33, 46, and 53; an overlay and edge mill in years 20 and 40; then either a reclaim and repave project or a full reconstruction around year 60, after which the maintenance cycle starts over again.

Funding sources for such improvements have traditionally included the use of special assessments (sealcoats and overlays only), MSA allotments, GO bonds, and general levy budgeting. However, these traditional funding sources are becoming less and less reliable due to shrinking budgets and greater public questioning of benefits versus assessment amounts, which can lead to significant project cost increases and delays which then negatively impacts the city’s ability to cost-effectively maintain city streets. Therefore, new alternative funding sources were researched. Such funding sources include grants, Public-Private Partnerships, special legislation (such as Street Improvement Districts), and franchise fees. Of these funding sources, only franchise fess provide the reliable, dedicated and renewable funding source which is essential to ensuring that maintenance operations can be applied on a regular schedule to maintain our streets to a PASER rating of 7 as cost-effectively as possible.

Following considerable discussion during the workshop, the consensus of Council was to stop using special assessments to fund part of the street maintenance program, and to instead adopt utility franchise fees with our electric and gas utility providers (Anoka Electric, CenterPoint Energy, and Connexus Energy) based on the following terms and conditions.
• Ensure that the franchise fees can only be spent on street maintenance program projects and not on other projects.
• Include a 5 year sunset on all new Franchise Agreements, which will allow the city to review the fees against actual and projected costs within 5 years so adjustments can be made if needed.
• Charge each gas and electric utility a fixed franchise fee amount of $8 per month per meter on commercial, industrial, and residential properties alike.
• Develop an equitable rebate program to prevent anyone currently paying an assessment levied with a street improvement 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.

Attached is a copy of the survey completed by the city in 2011 in which 66% or respondents favored the use of a franchise fee to help pay for the long term maintenance of streets.

No notifications are required as part of this case however, if Council orders the required Public Hearings notifications will be posted in the Anoka County Union and in a special edition of the Ramsey Resident at least 10 days prior to the Public Hearing.

Franchise fees, which cities are authorized by state statute to impose upon utilities operating within the public right-of-way, are fees charged to private utilities that benefit financially from using public right-of-ways to conduct their business. This fee is typically passed along to the consumer in the utility companies monthly or quarterly invoice, along with a note stating that the fee is being imposed by the city as a means to help fund specific public improvements. Therefore, electric and gas utilities operating within Ramsey would likely add notes to their invoices notifying customers that the fee is being charged to help pay for the city’s long-term street maintenance program. Again, this fee would be dedicated solely to help pay for the maintenance of city streets and would eliminate the use of special assessments as long as the Franchise Agreements remain in force.

Franchise fees of $8 per month per each gas and electric utility serving commercial, industrial and residential properties throughout the city would generate approximately $1.7M in annual revenues to help pay for our long-term street maintenance program.

If Council approves the draft Franchise Agreement and Ordinance terms outlined above, staff will meet with our local gas and electric utility company representatives to solicit their feedback and receive input on the draft Franchise Agreements and Ordinances for each gas and electric utility provider. Once the Agreements and Ordinances are complete, Council must hold Public Hearings prior before formally adopting the Agreements and Ordinances. A waiting period of up to 90-days as determined by each utility company will then be required following adoption of the Franchise Agreements and Ordinances before invoicing can begin. Therefore, the earliest any franchise fee revenues could be billed would be in January or February of 2014.

Staff recommends that Council approve the draft Franchise Agreement and Ordinance terms outlined above and order two (2) Public Hearings, one for the proposed Franchise Agreements and Ordinances, and one for the Right-of-Way Ordinances, to be held during the October 8th regular City Council meeting. If Council approves the draft terms and orders the public hearings, staff will then work with the gas and electric utilities to prepare the draft Franchise and Right-of-Way Agreements and Ordinances, and will publish notices for the Public Hearings in the Anoka Union on September 27th, and will prepare and mail a special edition of the Ramsey Resident containing notice of the hearings for delivery no later than September 27th. If possible, this special edition of the Ramsey Resident will be mailed with the utility billing. If the Public Hearings are held on October 8th, adoption of the Franchise Agreements and Ordinances could then occur at the following Council meeting on October 22nd after the second reading of the Ordinances.

Staff also recommends communicating with the public early and often throughout the Ordinance adoption process 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 mailing literature to residents and businesses throughout the city, as well as posting literature on the city’s web site.

Preparation of the Agreements and Ordinances would be completed by City staff as part of normal staff duties.

Staff requests that Council approve the draft Franchise Agreement and Ordinance terms, and Order the Public Hearings for October 8th per attached Resolutions 13-09-161 and 13-09-162.