11-29-2023 Council Packet - Laserfiche WebLink

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Proposed Electric Franchise Fee Increase: City staff initially brought forward the topic of potential increases to the franchise fees at the at the Council Workshop on July 12th. Electric franchise fees currently bring in approximately $360,000 each year. The Council also reviewed the gas franchise fees for other communities in the metro area and discussed the pros and cons of establishing a gas franchise fee for Little Canada. After much discussion, the consensus was move forward with a 50% increase in electric franchise fees. The increase is projected to bring an additional $180,000 per year or $1,800,000 over a ten-year period. Proposed Gas Franchise Fee: The Council also discussed the pros and cons of establishing a gas franchise fee for Little Canada. At the September City Council workshop, staff explained that franchise fees may be utilized for any purpose and have provided an essential source of revenue for street infrastructure and capital projects through the Capital Infrastructure Fund (Fund 450). The Council recommended that if a gas franchise fee were added it should be dedicated to a specific purpose. Staff provided examples of current priorities and expenditures that do not have a dedicated source of funding include gateway signage and street lighting. All street lights on public streets, in public parks, on city property, and in public rights-of-way (ROW) are the financial responsibility of the City. These expenditures have traditionally been budgeted and paid for by the General Fund and have increased from $58,000 in 2019 to $72,000 in 2023. After much discussion, the consensus was to adopt a new gas franchise fee in the amount of $100,000 to be dedicated to gateway signage and wayfinding. Gas Franchise Fee Impact on General Capital Fund (Fund 400): Based on the direction of the City Council, a new gas franchise fee was included in the fund balance projection for fund 400 at the adoption of the 2024-2033 Capital Improvement Program (CIP) on November 8th. The yearly estimated revenues generated from the gas franchise fee is projected at $75,000 in year one (2024) and $100,000 thereafter (2025-2033). The initial proposed use of the new gas franchise fee will be allocated to fund the City’s proposed gateway signage and wayfinding improvements over the next four years (2024-2027). If the proposed Gas Franchise Fee Ordinance is not implemented, the adopted 2024-2033 CIP budget would run a deficit of approximately $830,000 over the ten-year period. As a result, the proposed gateway signage and wayfinding improvements that are included in the City Council’s strategic plan will need to be delayed or removed and alternative revenue sources will need to be identified. Additional Information and Considerations: According to Minnesota Statute 216B.36, a city may impose a franchise fee on a gas or electric utility for the use of the public right-of-way by adopting an ordinance that establishes fee terms, including structure, collection, schedule and effective dates. Franchise fees are established by ordinance which provides an opportunity for the City Council to adjust these fees as needed. Franchise fees can be used for any public purpose, but the City of Little Canada has traditionally used these fees exclusively for capital improvement costs. Municipalities have the option of imposing a flat fee (e.g., $3 per month) or a percentage fee (e.g., 3 percent) based on utility usage. While a flat fee is constant from month-to-month, a percentage-based fee will change seasonally. Franchise fees for the City of Little Canada have traditionally been rounded to the nearest $0.25 and applied as a flat fee.