The City of Baxter’s street system is one of the most valuable and costly assets owned by the city. Extending the asset’s life through regular maintenance with a pavement management plan (PMP) provides the lowest possible cost to the city and its stakeholders. A PMP uses actual condition data to estimate the best time to complete maintenance activities. Regular maintenance, including a sealcoating program, extends the life of streets and lowers the overall cost of the street investment by avoiding the need for more frequent and costly reconstruction projects.
In 2013, Baxter commissioned a PMP study to address ongoing maintenance and funding needs of the city’s 85 miles of streets. The study was initiated due to the aging of streets and the associated need for increased maintenance. The PMP study recommended and identified the need for $540,000 of annual average funding for sealcoating in the next ten years. In the past, Baxter’s streets were relatively new because of the installation of city utilities and the development of new subdivisions; the streets did not require significant maintenance and the city did not need a substantial maintenance budget. As a result, this new maintenance expenditure has not been budgeted and the city will begin to incur significant infrastructure costs in the future if the maintenance needs are not addressed. Utility franchise fees were recognized in the study as a potential funding source for the ongoing street maintenance not currently being performed and as a funding source for the city’s street lighting program.
The benefits of utilizing franchise fees include:
- Reliable, stable, and dedicated source of revenue;
- Not subject to loss of revenue due to State budget issues;
- Growth in revenues is proportional to growth in business activity and population;
- New entities immediately begin contributing; and
- Tax exempt properties contribute.
Franchise fees are an authorized funding mechanism for Minnesota cities and have become a more common and desirable alternative to increasing property taxes for the funding street maintenance. The use of utility franchise fees results in a broader funding base for city street maintenance and street lighting services.
Earlier this year, the city engaged its financial advisor to develop a franchise fee system and rate schedule to meet the funding needs of the ongoing sealcoating maintenance program of the PMP and the city’s street lighting program. Data from the city’s two electricity and two natural gas providers was analyzed and a fee schedule was recommended to fund the preventative maintenance sealcoating program and to provide for the installation, maintenance and operation of street lights and traffic control signals within the city.
In June, the city council adopted the franchise fee ordinances. Franchise fee revenues are estimated to generate approximately $394,200 for pavement management activities and $115,000 for street and traffic lighting costs. Approximately $512,200 will be available for pavement management maintenance when the pavement management portion of the franchise fee revenues is added to other existing revenue sources for maintenance.
Under the adopted fee schedule, properties classified as residential by the utility providers will pay $5 per month in combined electric and gas franchise fees. Commercial properties will pay based upon the utility classification of the commercial account. If the needed PMP and street lighting funding was obtained from an increase in the property tax levy, a $150,000 valued residential house also would pay about $60 more in annual property taxes, equivalent to $5 more per month or equal to the adopted franchise fees. Residential properties valued more than $150,000 would have paid more if an increase in the property tax levy was implemented in lieu of franchise fees.
The franchise fees will be collected by the utility providers and remitted to the city. The electric and natural utility franchise fees are scheduled to go in effect in September.