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City council considers 2 new fees

Call it a revenue enhancement. Call it a new tax. But Farmington city council members might call proposed franchise fees "necessary."

With $175,000 in state aid cuts in December, and the likelihood the city will lose another $350,000 in state aid in 2009, the city of Farmington has some big financial decisions to make in the coming months. Specifically, does the city start assessing fees for utility companies like gas and electric, or are more cuts -- in the form of personnel and services -- on the chopping block?

In December, Gov. Tim Pawlenty announced a plan to trim the state's $271.4 million budget deficit by cutting the second half of Market Value Homestead Credit Aid from all cities in the state. That meant Farmington lost approximately $175,000 in aid been budgeted for last year.

On the heels of that cut, December 2008 had one of the heaviest snowfalls in recent years, which accumulated, so to speak, in an additional $100,000 for last year's city budget for employee time and salt to keep Farmington's streets clean.

Now nearly two months into 2009, and with the very real possibility that Pawlenty will cut all MVHC aid in the state -- meaning, another $350,000 locally -- city officials are starting to prepare for a "worst-case scenario," according to Farmington finance director Robin Roland.


At Tuesday night's city council meeting, Roland laid out the city's potential financial position for council members, in hopes of getting a feel for what they would like to do to rectify the potential budget shortfall.

Two options were presented: assessing franchise fees to gas and electric companies, which could generate between $350,000 and $400,000 annually; and a streetlight utility, which would cover the $175,000 annual cost of lighting the city.

Both offer relief, Roland said, and are used in many neighboring communities. But there is a catch.

The city of Farmington has the option to assess franchise fees on the utility companies because those companies run their lines through city-owned right of way. According to Roland, fees are typically a percentage of gross revenue or a flat fee per meter.

Ultimately, though, those fees come back to the residents in the form of increased rates. The balance of that increase is then used to pay those franchise fees cities assess.

Right now, Roland said, the cost of running streetlights is currently covered through a separate division of the general fund budget, but not a separate revenue source. That means property taxes pay for streetlights. However, if the streetlights were taken out of the general fund and a utility fund were created, a quarterly charge could be included to all utility customers.

That would mean property taxes could be reduced, but at the expense of spreading the cost to tax-exempt properties, like churches.

Council member Steve Wilson said the terminology may say "fees," but ultimately, "it is a new tax on the community.

"It's going to be really hard for me to support a new tax," he said.

But council member Terry Donnelly pointed out not implementing some sort of fee would mean finding an additional $350,000 in personnel and services to cut next year if the city does not receive its 2009 MVHC.

"But then what goes?" Donnelly asked. "We're already running lean and mean now."

That is why city staff brought the issue to the council in February, city administrator Peter Herlofsky said -- to discuss options and get direction from the city council. Final legislation on Pawlenty's 2009 MVHC cuts is expected in May. In the event the city implements one or both of the proposed financial options, those fees would begin July 1, 2009, and carry through 2010.

The city council directed staff to begin exploring both options, but also asked that they also look at any cost-cutting measures that could be implemented.