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Franchise Fees
The Northfield City Council approved utility franchise fees as an alternative revenue source from special property tax assessments primarily for street improvement projects, and secondarily for ancillary improvements (i.e. trail gaps, sidewalk gaps and climate actions and initiatives as outlined in the strategic plan).
Northfield maintains nearly 78 miles of paved city streets, and 84 miles of trails and sidewalks.
The city spends $3.5 million annually to maintain city streets.
Home and business owners are assessed between 25 to 50% for street improvement projects. Replacing streets typically occurs every 40 to 50 years. The city uses general property taxes and bonds to pay for the remaining costs of street replacements.
What is a franchise fee?
Many cities in Minnesota have a franchise agreement with each utility company (gas, electric) for the use of publicly-owned right-of-way for their business purpose. The right-of-way is the public property located adjacent to roadways for utilities, construction access, and snow storage. By law (Minnesota Statute 216B.36), cities may charge utility companies a fee to manage the use of the publicly-owned right-of-way to deliver service.
The City determines the amount of franchise fees as established by an ordinance that is mutually agreed upon by the City and the utility company. In Northfield that utility company is Xcel Energy. Xcel Energy currently only allows a flat rate for residential and commercial customers, based on their defined customer categories.
Utility companies have the right to pass franchise fees on to their customers. Utility customers will see a line item on their gas and electric bills for a “city fee.” The utility companies collect this fee and remits all of the payment directly to the City.
What is a street assessment?
Home and business owners are assessed for street improvement projects and owners typically pay between 25% to 50% of the project costs based on the benefit of the improvement to property. The type of street improvement can vary, from a Mill and Overlay, to Reclamation, to Reconstruction. The expected life of a street is between 40 and 50 years. Typically, you will have one type of street improvement on your street every 20 years.
On average, residential property owners have paid an average of $6,800 for their street assessment.
Street assessments are typically based on front footage. An appraiser determines the special assessment linear foot rate. This rate is then applied to the front footage of each property adjacent to the street maintenance project.
What are the benefits of franchise fees over a street assessment?
- Smaller monthly fees instead of one large assessment.
- Less time-consuming and substantially less costly overall for the city (approximately $75,000 less expensive per year).
- Keeps maintenance and reconstruction on a proactive and timely schedule.
- More equitable to people who move into, out of, or within the city.
What are the benefits of franchise fees over increasing property taxes?
- New construction would contribute immediately, which would eliminate the one to two-year lag for the City to receive property taxes for property owners receiving municipal services
- A wider base than property taxes; property taxes exempt renters, non-profits, schools, and other entities that use the public infrastructure pays franchise fees.
How will the franchise fee be used?
Franchise fees primarily are used for street maintenance, which includes mill and overlays, full depth reclamations, and reconstructions.
Secondary use of funds (approximately 8% of the total collected) will assist with implementation of actions in the Northfield Climate Action Plan which may include other transportation infrastructure such as trail and sidewalk gaps.
Why will some of this fee be used toward implementing the city’s Climate Action Plan?
Many city services are funded through collection of fees from the community such as water, sewer, and garbage. At this time, there is no dedicated fee to fund the Climate Action Plan.
How will I benefit from the City implementing the Climate Action Plan?
Carrying out the Climate Action Plan will be beneficial to the City and residents in many ways such as:
- Cleaner air from less fossil fuel emissions
- Healthier community
- More options for transportation/getting around
- Save money by being more energy efficient
- Reduce heat island effect
- Reduce flooding impacts
- Build resiliency and extend the life of infrastructure
- Improve food and water security
- Extend the lifespan of the County landfill
How much will I be charged?
Residents will see a charge of $3.25 on their electric bill and $2.25 on their gas bill every month.
Commercial and industrial properties will need to contact Xcel Energy to find your classification. When contacting Xcel Energy, please identify yourself as a city of Northfield commercial user.
Xcel Energy Business Solution Center
1-800-481-4700
Email Business Solution Center (email may be quicker)
Electric
| Class | Amount per premise per month |
|---|---|
| Residential | $3.25 |
| Small commercial and industrial: non-demand | $4.00 |
| Small commercial and industrial: demand | $32.50 |
| Large commercial and industrial | $999.00 |
| Public street lighting | $0.00 |
| Municipal pumping demand | $0.00 |
| Municipal pumping non-demand | $0.00 |
Gas
| Class | Amount per premise per month |
|---|---|
| Residential | $2.25 |
| Commercial firm: non-demand | $12.50 |
| Commercial firm: demand | $485.00 |
| Small interruptible | $99.50 |
| Medium and large interruptible | $1,880.00 |
| Firm transportation | $0.00 |
| Interruptible transportation | $0.00 |
Why now?
Residents who have gone through a street assessment process have stated they do not like the large unanticipated assessment and the appraisal process is complex and exhausting to figure out the assessment amount. The appraisal process and bonding make the overall projects more expensive. Scheduled assessments in 2020 average $6,800.
By implementing a franchise fee, residents will pay a flat fee per month. This revenue replacement is more manageable and eliminates an unanticipated expense for the projects the City has planned.
Is this just another tax?
This is revenue replacement - a different revenue source for the city. Franchise fees will replace special assessments.
What if I am paying for a street assessment?
Continue to pay your street assessment. A refund program for eligible properties will be put in place to offset the franchise fee.
View information about the refund program
View the resolution for a franchise fee refund program
Why not add this fee to the water bill? Why don’t you just charge a ‘Street Fee’ to each property and bill it similar to a water bill? Why go through a third party for collection?
State law does not allow a city to charge a direct street fee for maintenance. State law does allow for the collection of a franchise fee from utility service providers for their use of the right-of-way. That is why we are charging this fee to the utility companies and then dedicate its use to maintain the city street system. The State Legislature is currently working on a bill (SF 607 and HF 745) that would allow for the direct billing by a city for a street maintenance fee. This same idea has been discussed at past legislative sessions but has yet to be passed and signed into law.
I live in an apartment, town home or manufactured home. Will I be charged the fee?
Yes, you will pay the standard residential fee.
I live on a private road or county road. Will I be charged the fee?
Yes, you will pay the standard residential fee.
When will this go into effect?
The franchise fees go into effect March 2021.
When do I have to pay the franchise fee?
The franchise fee is included on your gas and electric bill every month.
How long will the city have franchise fees?
The fee is expected to be a long-term funding option for the city and not anticipated to be eliminated.