Franchise Fee Informational Meeting

Franchise Fees – What? City owned rights-of-way (ROW) are used for roadway, sidewalk and trail purposes, but also for utility services. Every city has a franchise agreement with each utility company (gas, electric, etc.) for their use of city­ owned right-of-way for their business purposes. By law, cities may charge utilities a fee (“rent”) for use of city right-of-way. Utility providers will likely pass this fee onto their customers.

Franchise Fees – How? City charges a fee to utilities for use of city right-of-way. Fees to Gas & Electric service providers proposed Utility providers pay the city this fee. Utility providers typically pass this fee onto their customers. Fee is distributed amongst customers based on meter size (larger meter = larger fee) Based on largest meter size if multiple meters Customers will see fee on their invoice statement from the utility (typically identified as “franchise fee” or “city fee”).

Franchise Fees – Why? Why? To fund Dayton’s increasing need for investment its transportation system. Currently funded through the City tax levy (±$300,000/year) Why now? Dayton Parkway Interchange requires $4M bond ±$400,000/year additional cost for debt service ½ funded by special assessments ½ funded by franchise fee revenues

Franchise Fees – Why? (Goals) Immediate Goal (2020) Fund Interchange debt service Timing of assessment revenue unknown (due to deferrals) Initial franchise fee revenue expected to cover most of debt service Short Term Goal (1-5yrs) Supplement pavement management needs As assessments paid, “excess” franchise fee revenue assigned to pavement management Long Term Goal (10+yrs?) Fully fund pavement management needs using Franchise fee revenue - Eliminate pavement management levy Transportation Funding Presentation

Franchise Fees – Who? All property owners with gas or electric service. Who else does this? At least 12 cities within Hennepin County are known to charge franchise fees It has been reported that: 101 cities in the seven-county metro area that charge fees, and 357 (of 853) in the state as a whole.

Franchise Fees – When? Community Info Meetings – July 2019 Draft Ordinance Revisions – July 2019 Public Hearing/Adoption – September 2019 Implementation (fees imposed) – January 2020

Franchise Fee – Benefits Dedicated revenue for transportation improvements Provides funding for interchange (without levy increase) Allows (future) decrease in levy Equitable method for assignment of cost burden Distributed based land use rather than land value Accounts for tax exempt parcels (they use roads too) Revenue grows with new homes and businesses

Franchise Fee – Proposed Rates Electric Class Rate # Con Annual Revenue Residential $4.00 2,313 $111,024 Small Com (ND) $12.00 159 $22,896 Small Com (D) $45.00 46 $24,840 Large Com $200.00 20 $48,000 Public $16.00 12 $2,304 $209,064 Gas Class Rate # Con Annual Revenue Residential $4.00 2,263 $108,624 Commercial A $7.00 65 $5,460 Commercial B $20.00 48 $11,520 Commercial C $65.00 37 $28,860 $154,464 TOTAL ANNUAL REVENUE $363,528 From sample set of 12 Cities in Hennepin County Residential Rates = 80TH Percentile Non-Residential Rates = 90th Percentile

Franchise Fee – Alternatives Utilize Special Assessments Authority: Not currently used for maintenance or residential area projects Does not entirely eliminate need for additional funding (levy) Increase Tax Levy: Generally higher for residential properties using this approach Annual cost as franchise fee = $96 Annual cost as tax levy = $134* *Assumes median house value (~$316,210)

What’s Next? Adopt franchise fees ordinance September 2019 Impose fees January 2020 Track interchange assessments and adjust pavement management levy annually as appropriate Franchise fee rates to be evaluated annually, no adjustments anticipated for, at least, 5 years

Questions? This presentation, along with answers to other frequently asked questions can be found on the City’s website.