HomeMy WebLinkAbout3b. Franchise Fees UpdateCity of Lakeville
Memorandum
To:Economic Development Commission
From:Kati Bachmayer, Economic Development Manager
Copy:Tina Goodroad, Community Development Director
Justin Miller, City Administrator
Date:August 27, 2024
Subject:Franchise Fees Update
The implementation of gas and electric franchise fees have been reviewed and discussed by
the City Council during its February, April and July 2024 work sessions. Justin Miller, City
Administrator will be present at the EDC meeting to provide an update on these discussions.
The July 22, 2024, Work Session packet materials, including recommendations, a schedule for
the public hearing process and a communications plan, are attached for the commission’s
reference.
Franchise Fees
City Council Work Session
July 22, 2024
Lakeville, Minnesota —Positioned to Thrive
•Under Minnesota Statute 216B.36, cities can impose a fee on utility
companies that use the public rights-of-way to deliver service
•The City of Lakeville has franchise agreements with all four utility
providers:
•CenterPoint Energy
•Minnesota Energy Resources Company
•Xcel Energy
•Dakota Electric Association
Overview
—Positioned to Thrive 7/22/20242
City of Lakeville Gas and Electric Providers
—Positioned to Thrive 7/22/20243
•Each service provider has unique
customer classifications to
differentiate pricing for residential
and various commercial and industrial
customers
•A fixed charge could be applied to all
users regardless of type
•However, most cities use a tiered
approach because residential,
commercial, and industrial customers'
consumption vary greatly, making it
difficult to implement a flat fee with
equitable impact
Structuring Franchise Fees
—Positioned to Thrive 7/22/20244
Electric Franchise Fee Classification Gas Franchise Fee Classification
Residential Residential
Small Commerical/Industrial – Non
Demand Franchise Fee
Commercial/Industrial, Small Volume
A Franchise Fee
Small Commercial/Industrial -
Demand Franchise Fee
Commerical/Industrial, Small Volume
B Franchise Fee
Large Commerical Electric
Franchise Fee
Commerical/Industrial, Small Volume
C Franchise Fee
Commercial/Industrial, Small Volume
Duel Fuel A & B
Commercial/Industrial, Large Volume
Duel Fuel A & B
Comparable Cities Rates
—Positioned to Thrive 7/22/20245
Possible Fee Structures
—Positioned to Thrive 7/22/20246
ELECTRIC Franchise Fees GAS Franchise Fees
# Res
-Small
-
-
-Small
- -Large
-Comm/ -Comm/ -Comm/
-Comm/
-Comm/
Total Annual
Revenues
28,858 180 $ 2 $ 10 $ 30 $ 100 26792 510 523 189 4 $ 2 $ 10 $ 30 $ 30 $ 30 $ 100 $ 2,154,840
$ 4 $ 14 $ 32 $ 110 $ 4 $ 14 $ 32 $ 32 $ 32 $ 110 $ 3,641,616
$ 6 $ 16 $ 35 $ 120 $ 6 $ 16 $ 35 $ 35 $ 35 $ 120 $ 5,085,900
$ 12 $ 20 $ 40 $ 120 $ 12 $ 20 $ 40 $ 40 $ 40 $ 120 $ 9,254,880
Funding Targets
—Positioned to Thrive 7/22/20247
Funding Targets – Costs/Timelines
7/22/2024—Positioned to Thrive 8
•FiRST Training Facility
Dec 2024 – Final Design
Feb 2025 – Bidding/Negotiation
April 2025 – Construction Starts
April 2026 – Construction Ends
May-June 2026 – Closeout
July 2026 – Open to Agencies
Total Cost $24,707,572
State of MN ($7,170,000)
Federal grant ($800,000)
Alternatives $1,055,036
City Contribution $17,792,608
Funding Targets – Costs/Timelines
7/22/2024—Positioned to Thrive 9
•Fire Station Remodels/Builds
Spring 2024 – FS4 remodel (1st 6 FT)
Fall 2024 – FS1 remodel (2nd 6 FT)
2025 – Combine #2 + #4 = New #5
2026 – Pause #3/#1 remodels as eval #5
2027 – Sell or repurpose #2
2027– Fully renovate #3 ($18M)
2028 – Fully renovate #1 ($20M)
2029 – Use #4 for equipment/personnel
during renovations. Evaluate sale or reuse
when all projects are completed.
Total Cost $64M
2025 Bonds $26M
2027 Bonds $18M
2028 Bonds $20M
POC fire models are typical in smaller MN jurisdictions.
Volunteer fire departments across America are under
severe stress to train, retrain, and deploy a sufficient level
of volunteer personnel due to changing socioeconomics.
For growing communities like Lakeville, investment in fire
services are necessary to meet the needs of the growth.
Property Tax Levy vs. Franchise Fee
7/22/2024—Positioned to Thrive 10
Annual Levy increase 2025 2026 2027 2028 2029 2030
$450K Residential $ 115.32 $ 164.28 $ 164.28 $ 218.78 $ 218.78 $ 218.78
$1M Commercial/Indust $ 493.31 $ 702.76 $ 702.76 $ 935.47 $ 935.47 $ 935.47
$4M Commercial/Indust $ 2,030.89 $ 2,893.15 $ 2,893.15 $ 3,851.19 $ 3,851.19 $ 3,851.19
Franchise Fees
Per Mo Fee Annual Cost
Residential $ 12.00 $ 144.00
$1M Commercial/Indust $ 70.00 $ 840.00
$4M Commercial/Indust $ 240.00 $ 2,880.00
•4.4% of Lakeville’s tax base is Exempt from property taxes – this is taxable market
value of $603M that is not realized for the city ($134M of this is city-owned).
Exempted Rate Classes
7/22/202411
If cities want to exempt some of their municipal accounts, they exempt the entire rate classifications below:
•Public Street Lighting (Xcel & Dakota)
•Municipal Pumping – Non-Demand & Demand (Xcel only)
•Civil defense sirens (Xcel & Dakota)
one account multiple meters one fee assessed
multiple accounts multiple meters at different rates more than one fee assessed
one account
multiple rate classifications
combined into one
one fee assessed, at largest applicable rate to a single
rate classification
more than one
premise
more than one fee assessed, each premise (address)
will be assessed
Next Steps
—Positioned to Thrive 7/22/202412
•Amend current franchise agreements in place
•Adopt an ordinance for each service provider to enact the fee
•Notify the Minnesota Public Utility Commission, allow time for the utility companies to implement the fees
•The new revenue is collected by the utility providers from their customers along with their normal billing procedures
•Service providers transfer funds to the City on a quarterly basis
•June 26 – Finance Committee – review rates/structure, input on communication strategy
•July 22 – Council Work Session – approve rates and to move forward, review communication strategy
•Aug 20 – Draft notices to utility companies of Proposed Ordinance (90 days prior to Council adoption)
•Aug – Sept – Oct – Communication to residents & businesses
•Nov 18 – Public Hearing and Adopt Ordinance
•send written notice with copy of adopted Ordinance to utility companies by certified mail
•Nov – Dec – Jan – Feb – Communications to residents & businesses
•March 1, 2025 – Effective date of Ordinance with Franchise Fees
7/22/2024—Positioned to Thrive 13
Timeline
1 | P a g e
Communication and Engagement Plan:
Franchise Fees for Electric and Gas
Owner: Tierney Helmers, City of Lakeville Communications
Objective:
Under Minnesota Statute 216B.36, cities can impose a fee on utility companies that use public rights-
of-way to deliver services. These fees can supplement city funds for projects and can be used instead
of a tax levy. Lakeville will enter into franchise agreements with four utility providers: CenterPoint
Energy, Minnesota Energy Resources, Xcel Energy, and Dakota Electric. Other nearby cities of similar
size already have franchise fee rates in place, which are comparable to the proposed rates in Lakeville.
Once the City Council approves the agreements and the utility companies are notified, we need to
launch a communications plan to educate the public and businesses about franchise fees. This plan
will explain what franchise fees are, how they compare to tax levies, their intended uses, the different
fee levels, and when they will take effect.
Schedule:
Begin communicating with residents and businesses from August 2024 to February 2025. The
ordinance with franchise fees will take effect on March 1, 2025, and will appear on bills starting that
date.
Duration:
This campaign will begin in August and continue until the fees take effect. We will maintain an
updated webpage and address questions as they arise by adding new materials, posts, or updates to
the website, including FAQs.
Key Messages:
• Why are franchise fees considered the best option?
o Minnesota State Statute permits cities to use franchise fees instead of tax levies because
utilities are allowed to use public rights-of-way.
o The fee is distributed equally among all users on a tiered approached based on usage.
• Why a franchise fee vs. a tax levy?
o With a franchise fee everyone pays a flat fee, rather than a tax levy, which varies based on
property value and affects everyone differently.
o With a franchise fee everyone pays their fair share including tax exempt properties who
typically don’t contribute taxes to support public safety and city infrastructure services.
• How will the franchise fees be used by the city?
o The City of Lakeville has grown significantly, leading to an increased demand for Public
Safety services, especially fire services, which has become a key focus for the city.
o Revenues generated by this flat franchise fee will be allocated to Public Safety, specifically
the Fire and Police Departments.
o Transitioning to a full-time firefighting staff involves substantial costs for building
modifications, improvements, and constructing new facilities.
2 | P a g e
Campaign Goals:
• Inform the Public: Educate residents and businesses about the new franchise fees, including what
they are, why they are being implemented, and how they compare to tax levies.
• Ensure Transparency: Provide clear and accessible information about the different fee levels, their
intended uses, and the effective date.
• Engage the Community: Address questions and concerns promptly through updated materials,
posts, and FAQs on the website.
• Facilitate Smooth Implementation: Ensure residents and businesses are well-prepared for the
new fees appearing on bills starting March 1, 2025.
Strategy:
1. Initial Announcement (August 2024):
o Launch the campaign with a clear, comprehensive announcement about the new
franchise fees, their purpose, and how they will be implemented.
o Distribute the announcement through multiple channels including the city website,
social media, City News newsletter and newspaper ad.
2. Consistent Communication:
o Regularly update the city’s website with new materials, FAQs and posts to keep the
information current and address emerging questions.
o Use social media platforms to share key information and direct the public to the city’s
website for detailed explanations.
3. Feedback Mechanism:
o Create a location where residents and businesses can submit questions and concerns
on the dedicated webpage for a few months leading up to the launch.
o Monitor feedback and update the communication materials accordingly to address
common queries.
4. Ongoing Updates (August 2024 - February 2025):
o Continue to share information.
5. Final Push (February 2025):
o Intensify communication efforts in the final month leading up to the effective date.
o Ensure all residents and businesses are reminded of the upcoming change and are
aware of where to find information.
6. Post-Implementation Support (March 2025 and beyond):
o Continue to monitor and respond to inquiries as the franchise fees appear on bills.
o Update the community on the impact and benefits of the franchise fees as they are
realized.
Campaign Components:
Messaging package
Schedule
Cable Channel:
o PSAs
3 | P a g e
Medium:
o Create unique and eye-catching GIFs and promo videos
o Create static social posts
Website:
o Create page, include FAQs, charts with costs, chart with levy vs. flat fee
o Emulate parts of other city’s pages
Social Media:
o Twitter
o Facebook
o Nextdoor
o Instagram
Newspaper:
o Put information in bi-weekly advertisement
City News newsletter
o Create multiple articles (first starts in August edition)