The city of Ramsey has introduced an ordinance to eliminate franchise fees, a means of paying for road construction, after a majority of the City Council supported the idea in June.
If approved, the ordinance introduced July 13 would end collection of franchise fees at the end of 2021.
“Residents will be billed through the end of the year under this proposal,” City Administrator Kurt Ulrich said.
The council will vote on the ordinance Tuesday, July 27.
The fee equates to $168 a year for residential properties. Franchise fees were approved last July in a 4-2 vote and have been implemented since October 2020. Last year, Council Members Dan Specht and Debra Musgrove dissented. Since then the council makeup has changed, with Matt Woestehoff and Chelsee Howell being elected last November and Ryan Heineman being elected in February.
In a 4-3 vote last month the council added elimination of franchise fees to its strategic plan for this year. Mayor Mark Kuzma and Council Members Woestehoff and Chris Riley were against the measure.
The fees add $7 to gas and electric bills each month. For businesses, the fee is charged per meter, depending on the meter size. Most churches are charged $20 a month.
There is a rebate program in place for residents who have paid an assessment since 2015. Residents can apply for the rebate annually.
Putting the road construction costs on the tax levy would increase taxes by 15%, Riley said.
Finance Director Diana Lund told ABC Newspapers the city won’t be able to calculate a definite impact on property owners until the city has more discussions regarding the budget and tax levy.
Prior to franchise fees, the city assessed property owners who benefited from a road project 25% of project costs.
Kuzma, who is against the repeal of franchise fees, told the council he was disappointed it introduced the ordinance to repeal franchise fees without discussing it more.
“We agreed to review all road-funding projects, our options, and agreed to whatever was the best option, we’d move forward with it even if it was the franchise fee,” Kuzma said.
He called the ordinance “ill conceived” and a mistake.
Some council members have discussed the idea of getting road funding from the levy, which Kuzma also said was a mistake.
“I can tell you right now that, going through eight budget cycles, really there’s no way we can put our funding into our levy without having some drastic changes,” Kuzma said.
Kuzma named four options the council could consider to fund roads: cutting funding for areas like police, fire, public works and snowplowing; raising taxes “substantially”; doing nothing and letting the roads “go back to dirt”; or continuing with franchise fees.
“At some point, depending on where we end up with the budget process, if we can’t agree on it, we’re going to have to cut,” Kuzma said.
Specht said having homeowners pay their fair shares is important to him, in that homes worth more money should pay more money, and vice versa, “like they do for any city service.”
“Of course, and it’s an unfortunate thing, we’re going to have to find some things to cut, and we’re probably going to have to raise taxes on this,” Specht said.
It’s fairer to the city’s residents to include the street construction budget in the levy, Specht said.
The council has just started looking at the budget for next year. Budget discussions began at a work session July 13.
Heineman said there are plans that have been discussed previously to replace franchise fees, including the alternatives brought up last year when the fees were originally being discussed. Those options include the tax levy or assessments to property owners, he said.
According to numbers Heineman presented, a home valued at $251,000 in 2020 would be paying an additional $125 in property taxes a year with a 15% tax increase, which is less than the annual cost from franchise fees, which is $168. Lund was unable to confirm these numbers, because the budget and tax levy haven’t been finalized yet.
In the city of Ramsey, there are 6,832 residential parcels valued under $300,000, according to city data, compared to 2,834 parcels valued at more than $300,000.
If the city were to implement a 15% property tax increase to replace the franchise fees, Heineman estimated 81% of residents would save money.
“What we have right now is a regressive tax,” Heineman said. “People that have lower value homes pay more for their house value than people with higher value homes. I’m not for progressive tax either, but a proportional tax where every resident pays the same percentage and their house value dictates how much they contribute, but the proportionality is the same.”
Woestehoff, who is hesitant to support the repeal without a clear back-up plan, voiced his disapproval of Heineman’s proportional tax option because home value isn’t tied to how much a resident uses the roads.
“The idea that because I finish my basement means I now drive more is not an equitable solution,” Woestehoff said.
The franchise fee is consistent, whereas property taxes can waver depending on fluctuation of house value, Woestehoff said.
While he isn’t against discussing alternatives, Woestehoff suggested ultimately asking voters for their opinion on the franchise fees.
“Before we do even that we would need more details on what a replacement could look like,” he said.
Riley’s goal, regardless of the outcome of the ordinance vote July 27, is to ensure the roads are fully funded.
“I’m concerned about stopping this form of revenue to fix our roads before we have something else in place,” Riley said. “I liken it to quitting a job before I have secured a new one. ... But if we move forward with it, so be it, I just want to see the roads fully funded.”