1. Franchise Fee Informational Meeting

2. 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.

3. 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”).

4. 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

5. 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

6. 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.

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

8. 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

9. 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

10. 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)

11. 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

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