Proposed Franchise Fee Pavement Management Program (PMP)

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2 Agenda Explain the Purpose and the Need for Additional Funding for Pavement Management Discuss what a Franchise Fees is Input from Audience on Franchise Fee 2

3 Proposed Franchise Fee Pavement Management Program (PMP) Our Goal is to implement changes in the funding of the Pavement Management Program (PMP) by maintaining a sustainable and consistent funding source for PMP Street and Trail projects. 3

4 City Streets 112 Miles of Streets to Maintain Total Estimated Replacement Value Largest Capital Asset $183,000,000 4

5 Pedestrian Trail Miles 60 Miles of Asphalt Trails 37 miles within Street Right-of-way 23 miles in Parks and open spaces $9,100,000 Replacement Value 5

6 The Right Action at the Right Time Prolongs pavement life Keeps City s infrastructure in good condition Maintain or increases property values Have a cost effective program 6

7 Pavement Management Program PMP Started in 1991 Every Street and Trail is surveyed once every 3 years o Document distresses Potholes, Cracks, rutting etc. Data is entered into program to generate a Pavement Condition Index (PCI) o Rating 100= new street, 0=gravel street For Past 10 Years City s average PCI has been around 70 o Generally considered in overall good condition 7

8 Street Maintenance Needs Percent of Streets Constructed in Decade 40% 35% 38 miles 30% 25% 27 miles 20% 15% 10% 5% 0% Pre 1970's 1970s 1980s 1990s 2000s 2010s Most streets where constructed in the 1980 s and 1990 s ( 60%) These streets are now coming due for maintenance PMP estimates PCI will be 44 in 20 years with current funding levels 8

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10 Maintenance Strategies For Life Cycle Extension Pavement Condition Index (PCI) Seal Coating $1.40/sy Mill & Overlay $13/sy Reclamation $21/sy Reconstruct $108/sy Pavement Age (Years) Estimated Cost of Street Maintenance with Routine Maintenance over 60 Years $42.40/sy Estimated Cost of Street Costs with no Routine Maintenance over 60 years $108/sy About 2.5 times more expensive to not do Routine Maintenance 10

11 Funding Need The City has been spending about $2.0M annually on road projects Average 2.6 miles of streets improved annually To maintain a PCI of 70, funding will need to be increased PMP estimates funding levels should increase to $3.3M to maintain the current pavement condition Average yearly street project length would increase to 4.1 miles 11

12 How have we paid for improvements to date? A: Revolving Assessment Construction Fund Started in 2006 with $6.7M in transfers from funds with surpluses (mostly from decertified TIF districts) Has been used to pay for all local street improvements that are assessed to benefiting property owners (40%) Total expenses per year on average have been about $2.0M 12

13 How have we paid for the $2.0M per year in assessed construction projects? The city assessment practice is to assess 40% to benefitting property owners, which would account for roughly $800,000 of the $2.0M per year, leaving $1.2M in city costs to all property owners per year 13

14 How has the city paid for the remaining $1.2M of its share of the costs? Interest earned on repaid assessment Occasional surplus transfers from the city s general fund and other surpluses from other funds have been used Interest earned on the fund balance reserves maintained in the fund since inception In 2015 an opportunity was available to use a decreased debt levy to help fund PMP. That reduced levy was about $400,000 and has been in place since (currently $384,000) 14

15 The Real Need $3.3M not $2.0M The amount of streets needing significant improvements that were built in the 80 s & 90 s (see slide 7) is and will continue to increase If the city goal is to maintain the current PCI at or near 70, $3.3M per year needs to be spent on annual improvements not the current amount of $2.0M, based on our PCI system projections Increasing the spending to $3.3 without increasing the funding will cause the revolving assessment construction fund to be in a deficit by

16 Discussions to this Point (How to achieve funding for the $3.3M) City Council discussed extensively options for funding PMP in 2017 Council Work sessions 1. June 12, August 28, September 11, September 25, October 9, November 27, December 11, 2017 Discussion Options have included: Increase the percentage of assessments Raising the Levy Establishing a Franchise Fee Many Communities use Franchise Fees to Fund PMP Based on these initial discussions, City Council asked staff to seek public comment on the possibility of implementing a Franchise Fee and elimination of special assessments 16

17 What is a Franchise Fee? Cities have statutory authority to have franchise agreements with each utility company (gas and electric) for maintaining city-owned right-of-way Within those agreements cities may charge the utility companies a fee for use of city right-of-way Currently the City of Chanhassen does not impose a franchise fee associated with those agreements 17

18 Who has a Franchise Fee in Minnesota and 7 County Metro Area? Location Franchise Fee Use Brooklyn Center Capital Projects Fund- Street reconstruction fund Champlin Capital Projects Fund- Infrastructure Replacement Capital Projects Fund - Pavement Management& Bike Bloomington Trails Eden Prairie Capital Projects Fund - Pavement Management Elk River Capital Projects Fund - Pavement Management Edina Capital Projects Fund- Sidewalks and Bike Trails Golden Valley Capital Projects Fund - street reconstruction fund for street Minneapolis General Fund -G,E,& C for general use except PEG fees Capital Projects Fund - Burial of electric lines and Minnetonka street lighting New Hope General Fund- Has had for 15 years Plymouth Capital Projects Fund - Street reconstruction fund Capital Projects Fund - Overlay, sealcoating and Richfield removal of diseased trees. Capital Projects Fund - City s Pavement Management Rogers Program Capital Projects Fund - City s Pavement Management St. Louis Park Program Victoria Capital Projects Fund Undergrounding Power Lines 18

19 Why a Franchise Fee vs a Property Tax Levy? A Franchise Fee offers more flexibility than a property tax which charges 83 cents of every dollar to residential properties. A franchise fee could be set to meet a funding goal The city is exploring the idea of funding all costs on a 50/50 basis between residential and commercial/other property owners, rather than 83/17 which is what a property tax levy would achieve Property Tax Levy Franchise Fee Residential Commericial/Others Residential Commericial/Others 19

20 Why a Franchise Fee? Collects from all users of streets; Tax-exempt properties who currently do not pay for PMP would now be contributing to PMP If city levied for all of PMP, the average home ($350,000) would see an increase in their city portion of their property tax bill of between $200-$220 ( whereas a franchise fee based on a 50/50 split would amount to around $120/year on a residential property) 250 What would a residential property pay? Levy Only Levy Only Franchise Fee Only Franchise Fee Only 20

21 How could the $3.3M be funded if the city implemented a Franchise Fee and eliminated special assessments? All remaining assessments and interest would be used All remaining reserves in the revolving assessment construction fund would be used The property tax levy that was added to the fund in 2015, which is currently at $384,000, would continue to be levied and used That leaves about a $2.3M per year funding shortfall in order to achieve the goal of $3.3M per year in projects for the next years 21

22 What would the franchise fee need to be in order to generate the $2.3M mentioned on the previous slide? To achieve the total funding split of 50/50 between residential and commercial/other property owners, the residential franchise fee would need to be $4-$6 per month per utility (about $120 per year) 22

23 Schedule Neighborhood Meetings: February 8, 2018, 6-7:30pm Chanhassen Library April 10, 2018, 6-7:30pm Chanhassen Library City Council May Consider approval of Franchise Fee sometime in the summer of

24 Frequently Asked Questions Is a Franchise Fee a Tax? A franchise fee has the same attributes and impact as a tax. The state statutes surrounding the collection of a franchise fee set the language for what the collection of the funds are called on the utility bills. 24

25 Frequently Asked Questions Why should a resident pay the same per month as a commercial business more frontage to streets and heavier more damaging vehicles? If a funding goal of 50/50 between residential property owners and commercial/other property owners is used, the result would be a franchise fee of $4-$6 per month for each utility for residential and a $10-$280 per month for each utility for commercial accounts. 25

26 Frequently Asked Questions What if the street in front of my house is in more than fair condition, does the city still need to increase funding for those streets? While some streets are still in good/fair condition, if the city continues funding streets with its current funding levels and practices, the result will be a pavement condition index that the city council has chosen to avoid. 26

27 Frequently Asked Questions Will the Franchise Fee Increase over time? We have projected the current pavement conditions along with the projected funding from this franchise fee and confident that there will be no increase in the franchise fee for the next years. 27

28 Frequently Asked Questions I was assessed last year, why do I have to pay a Franchise Fee? Staff and city council are understandably aware of this concern. We are reviewing a number of possible options to see if there is a way to assist those property owners who have been recently assessed. 28

29 Frequently Asked Questions Can the franchise fee be used for other purposes? While the statutes allow for the use of franchise fee revenues for other funding purposes, city council s intention is to use it solely for the Pavement Management Program. 29

30 Frequently Asked Questions When I begin paying the franchise fee will my street be redone within a couple of years? The basis for improvements will be based on the PCI of the road and the overall need. The annual contribution amount per residence could be approximately $120. The current average mill and overlay assessment at 40% is $2,500 per residence. It would take nearly years for your contributions to equal the amount you would pay if assessed. 30

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32 Location Franchise Fee Use Brooklyn Center Champlin Bloomington Eden Prairie Elk River Edina Golden Valley Minneapolis Minnetonka New Hope Plymouth Richfield Rogers St. Louis Park Victoria Capital Projects Fund- Street reconstruction fund for street projects Capital Projects Fund- Infrastructure Replacement Capital Projects Fund - Pavement Management& Bike Trails Capital Projects Fund - Pavement Management Capital Projects Fund - Pavement Management Capital Projects Fund- Sidewalks and Bike Trails Capital Projects Fund - street reconstruction fund for street projects (Douglas Drive) General Fund -G,E,& C for general use except PEG fees Capital Projects Fund - Burial of electric lines and street lighting General Fund- Has had for 15 years, was going to EDA until LGA cuts Capital Projects Fund - Street reconstruction fund for street projects Capital Projects Fund - Overlay, sealcoating and removal of diseased trees. Capital Projects Fund - City s Pavement Management Program Capital Projects Fund - City s Pavement Management Program Capital Projects Fund Undergrounding Power Lines 32

33 Potential Franchise Fee For Commercial Properties Small Commercial - $8-12/month Medium Commercial - $28-34/month Large Commercial - $ /month Small Duel Fuel - $ /month 33

34 Total Levy vs. New Growth 34

35 Actual Property Tax Statement For Proposed 2018 Taxes (School District #112) 35

36 KFS General Fund Per Capita Spending Comparison 36

37 Hennepin County Tax Rates 2017 **Based on Urban Tax Rates 37