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Franchise fees are still hanging around

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news Farmington, 55024

Farmington Minnesota P.O. Box 192 / 312 Oak St. 55024

Just three days after Farmington City Council members cast a 4-1 vote to take franchise fees off the table as a way of paying for seal-coating, council member Christy Jo Fogarty asked, "What if?"

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In her scenario presented at the March 10 council retreat, Fogarty laid out a scenario. What if, she asked, the state of Minnesota decides to impose levy limits for 2012 and 2013? If the city of Farmington is counting on the ability to increase property taxes to cover the costs of seal coating, what happens if the governor or the legislature enact levy limits and remove that ability?

"And there's nothing we can do about it," she said. "I think it's probable that will happen."

Fogarty wasn't entirely off base. Just a day before a Thursday council retreat, the League of Minnesota Cities issued a press release that talked about the impact a pending House omnibus tax bill. Among the stipulations: HF 481 would prohibit cities from increasing property tax levies in 2012 or 2013 over the 2011 level. The bill is scheduled for a hearing this week.

A problem

Fogarty's concern stemmed from last Monday's decision to increase the tax levy - city staff recommended it be increased by $400,000 annually - to cover the cost of the city's seal-coating projects. The seal-coating program has been running in the city for several years, with residents in the affected neighborhoods paying assessments for part of the cost and the city picking up the balance through its road and bridge fund.

Years of funds going out and nothing coming in has left the road and bridge fund depleted. Council members had to cut the projects for 2011 because they could not agree on how to fund the projects during last year's budget cycle.

Franchise fees were proposed as a way of getting additional funding. The fees, which would be added to gas and electric bills, are used by several surrounding communities as a way to generate the extra funds necessary to get things done. An extra flat fee would be added to each bill, on a monthly basis. The funds generated from those fees would be forwarded to the city to use.

Council members have wrestled with the notion for the better part of a year. In its latest form, presented for consideration at the March 7 council meeting, the proposed fees would be $4.40 a month - $2.20 for gas, $2.20 for electric. But the proposal died with the 4-1 vote.

Or did it?

Still a consideration

Council member Jason Bartholomay said he received a few calls from residents who were upset with the decision not to use the franchise fees. Those residents argued paying a little at a time was a better option than paying a lump sum. Fogarty heard many of the same comments from her constituents.

Under the previous franchise fee scenario, each household in Farmington would pay $52.80 annually, or a total of $369 over the seven-year cycle the city uses for its seal-coating project.

Council member Julie May was not interested in using franchise fees.

"I'll tell you right now, I'll never vote for franchise fees. It's a philosophical issue with me," May said.

With an engineering workshop coming up - and projects like road repairs, seal-coating and capital improvements on the agenda - council members decided to wait and see what came out of that meeting before committing to the amount by which they would increase the levy by to cover seal-coating. Franchise fees somehow crept back in as a possible option.

"The issue is, what is the best way to subsidize seal-coating, and if it's a levy, fine, but we may be coming into very tough territory there," Fogarty said. "They can't deny us franchise fees."

As it stands, the city may already be behind the curve in collecting enough funding for seal-coating in 2012. In order to collect enough revenue - approximately $260,000 - they would have to start collecting franchise fees by April at the latest. If the legislature does pass HF 481 and the city cannot increase its tax levy, the city will either have to find another method of funding, or hold off for another year.

"One year leads to two, two leads to three. I mean, we can already envision a scenario where Farmington gets no seal coats because of the decision that was made Monday (March 7) night. It's a scenario that's realistic," Fogarty said.

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