Fee replaces assessments, taxes to maintain streets

by Joni Astrup

Associate editor

A sweeping change is being made to the way the city of Elk River covers the cost of maintaining its nearly 150 miles of streets.

The Elk River City Council voted 4-0 Monday, April 15, to implement a franchise fee that will eliminate the need to assess property owners and levy property taxes for street maintenance projects.

The fee will go into effect this summer. It will total $9 per month for residential properties, $29 to $41 per month for small commercial-industrial properties, $120 to $140 per month for general commercial-industrial properties and $170 per month for large commercial-industrial properties. All properties with gas and electric service in Elk River will be charged the franchise fee on their bills (CenterPoint Energy and Elk River Municipal Utilities or Connexus Energy) starting in July.

The fee is expected to generate about $1.4 million per year, according to City Engineer Justin Femrite. That, combined with state aid allocations, is projected to fully fund the city’s Pavement Management Fund. The fund will be used to pay for street reconstruction and overlays to prolong the life of streets. With proper care, streets should last 50 to 60 years, according to Femrite.

The city currently levies about $270,000 a year for street improvement bonds. With the franchise fee in place, the city will not need to levy for those bonds going forward, according to Finance Director Tim Simon.

4-6-13 road constructionUnder the current system, benefiting property owners are also assessed 33 percent of the cost to replace existing streets or 100 percent of the cost to overlay streets. Proposed assessments for 2013 street projects were up to $8,000 for homeowners and $20,000 for the average business.

Jean Keely, the city engineer in Blaine who lives in Elk River, is one of the homeowners who was proposed to be assessed for a street project this year. That assessment will not happen, now that the franchise fee system is in place.

Keely thanked the Elk River City Council and staff for considering the franchise fee program.

“I’d just rather pay a dedicated fee for street maintenance, in lieu of special assessments and general tax dollars,” she said during Monday’s council meeting. “I think it has a low impact, being a per-month fee, and it’s better for resale of homes than having special assesments levied against your property.”

Property owners who are currently paying assessments for street work, or who prepaid assessments for projects that still have active assessments, will be eligible for a rebate of the franchise fee for the duration of the assessment period. The city will be sending information to property owners who are eligible for the rebate.

The change to a franchise fee came as the city looked at the rising cost of keeping streets in good condition. Without a change in the way the city funds street maintenance, Femrite said the city would need to increase assessments and more than double the annual property tax levy to $600,000 to manage the city’s street network and fully implement an adequate pavement managment plan.

More than 80 percent of the city’s streets have been constructed or reconstructed in the last 20 years, so a growing number require costly maintenance in the near future, according to city officials. Streets are typically overlaid every 20 years and rebuilt after 60 years.

Most of city streets are in good to excellent condition now. Femrite said the average Pavement Condition Index of Elk River’s streets currently is about 80, with zero being the worst condition and 100 being excellent. Without a franchise fee system and at the current funding levels, that would drop to 59 in the next decade, he said.

Under the plan, the city will continue doing major street projects every two years. Projections show the city spending $3.7 million on street maintenance this year, followed by an estimated $4 million in 2015, $4.3 million in 2017 and $4.5 million in 2019.

The city has taken a lot of feedback on the franchise fee. A brochure outlining the proposal was sent to more than 7,000 homes in Elk River and an insert describing the plan to businesses was included in the Elk River Area Chamber of Commerce newsletter. The city also hosted an open house on April 4 and set up a blog.

Femrite said he took a couple hundred phone calls on the matter.

Reaction on the blog was mixed, with some liking the idea of a franchise fee and others critical of it.

One person wrote: “I agree the roads need to get done but not at our expense! We already pay too much in taxes and now you (are) soliciting door to door looking for more? Back to drawing board.”

Another wrote on the blog: “I am 100 percent for this management program. Other cities use this method with success. I do not like the assessment to property owners. It is difficult on many residents and creates stress. A nominal monthly charge can be absorbed.”