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Baxter City Council: Council considers paying for street maintenance with fees on energy users

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BAXTER — Should Baxter generate revenue for roads by charging a utility franchise fee to residents, businesses and nonprofits?

Tuesday, the Baxter City Council listened to options to raise money for the city’s street maintenance by using monthly gas and electric franchise fees. In addition, the city would roll in a fee for street lighting.

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Proposed fees using utility customer classes for electric and adding in street lighting would create a monthly flat fee of:

• $3 for residential.

• $15 for small commercial.

• $28 for commercial-demand.

• $122 for large commercial.

The natural gas monthly fee by category:

• $2 for residential.

• $7 for small commercial (non-demand).

• $18 for large commercial (non-demand).

• $65 for commercial-demand/interruptible.

The fees are expected to generate $341,772, covering the city’s expected street maintenance program costs and bringing in $102,384 for street lighting.

A report to the city on franchise fees from Nick Anhut and Rebecca Kurtz of Ehlers stated more than 65 cities across the state charge franchise fees to raise revenues for general funds or a specific project, such as street maintenance.

“Franchise fees have become a more common and desirable alternative to taxes for funding street maintenance in the absence of other funding mechanisms,” according to the Ehlers report.

The report listed benefits included:

• Growth in revenue is proportional to growth in business activity and population.

• New residents begin contributing immediately compared to a nearly two-year lag between construction and the city realizing the tax benefit.

• Tax-exempt properties, government, schools, churches and other nonprofits would contribute to the revenue. Entities such as schools, churches, hospitals are classified as commercial.

Listed disadvantages included having the fees considered another form of taxes, having nonprofits opposed believing benefits do not equal their costs.

Baxter has four different utility providers. Ehlers reported a fixed rate may be preferable as revenues do not change with energy consumption and seasons.

There is no requirement for a public hearing or notice, but the report noted some communities have chosen to have a public hearing to take comments, questions and concerns. At the Baxter workshop discussion, city officials suggested an educational effort using the city’s newsletter.

Council member Jim Klein questioned the connection between roads and electric usage.

“It’s not a perfect correlation,” said Gordon Heitke, city administrator.

Heitke said if the city says forget this and decided to take the street maintenance costs out of the city budget, large commercial would take a bigger financial hit.

Klein also said road users may be coming from businesses located outside the city, such as school buses.

“It’s not a perfect equitable system,” Heitke said.

Klein asked how the city would fare as it competes with others municipalities that won’t be charging these fees. Heitke said the argument is the same for any fee the city charges.

“This is kind of the best shot and it aligns fairly close to the norm we see in other communities,” Heitke said. “Staff thinks this is a better approach than raising taxes.”

Heitke said the city has a month or two cushion to make a decision and notify utilities. Mayor Darrel Olson said the city might need time to explain the reasons behind this decision.

Staff could not say what specific commercial entities would pay as the usage data was between the customer and utility company. Apartments would be listed as commercial entities. If tenants pay separately they would have a residential rate.

Council member Todd Holman supported the plan staff presented, adding he liked the ability to incorporate the lighting and meeting the revenue goal for the street program.

Klein said he had a problem basing road revenues on energy fees. Ehlers representatives reported it is a common use of the revenue. They added some cities charge a fee for cable television in addition to electric and gas.

Heitke said it’s not a perfect system but staff thought it was the best option. Jeremy Vacinek, finance director, said he researched to see how businesses fared with the fee versus property tax increases and in his sample more would be paid in property taxes under this scenario.

Trevor Walter, public works director and highway engineer, said there may be exceptions but most big utility users are also major road users.

Olson said he gets the argument a fee is a tax.

“It seems like if we have to do it, it’s the fairest way to do it,” Olson said.

RENEE RICHARDSON, senior reporter, may be reached at 855-5852 or renee.richardson@brainerddispatch.com. Follow on Twitter at www.twitter.com/Dispatchbizbuzz.

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Renee Richardson
Richardson is a Pacelli High School graduate from Austin, Minn., who earned an applied science degree from the University of Minnesota, Waseca, with an emphasis in horse management. She worked extensively in the resort industry. She received an associate’s degree from Central Lakes College, where she was editor of the Westbank Journal student newspaper, as well as a summer intern at the Dispatch. She graduated from St. Cloud State University summa cum laude with a bachelor’s degree in mass communications and interned at the St. Cloud Times covering business while attending SCSU. She's been with the Brainerd Dispatch since 1996.
(218) 855-5852
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