The cities of Minnetonka and Hopkins adopted franchise fees this week that will become effective in January. The fees will appear on monthly utility bills, typically as a “city charge” or “city fee.”
Franchise fees in Minnetonka, totaling $9 per month or $108 per year, will help fund a more aggressive buildout of the city’s trail and sidewalk system.
The electric franchise fee will increase from $2.50 to $4.50 per month. One dollar will go toward trails, while the rest will continue to fund power line burial and street lighting. A new gas franchise fee of $4.50 per month will completely go toward trails.
Put simply, residents will contribute an additional $66 per year for trails.
The city has a list of 71 unfunded trail segments with a projected cost of $60 million. Franchise fees will provide $1.8 million per year for trails. The fees will not fund the proposed mountain bike trail at Lone Lake Park.
“With $1.8 million dollars a year, you can start to chip into that list of $60 million dollars. It’s still going to take you 30 years to do that, but at least this gives you a start,” said City Manager Geralyn Barone.
In the past, the city has dedicated $5,000 to $6,000 per year to its trail system. The money mainly came from the tax levy, plus some park dedication fees and a variety of partnerships, but the city struggled to find consistent funding.
“The trail plan has been in existence for 20 years and we haven’t found a way to make meaningful progress on that plan,” said Councilmember Rebecca Schack.
Naturally, that lack of funding has resulted in sluggish progress.
“It’s been a really slow buildout,” Barone said. “Based on the pace that we’ve been at so far, not in my lifetime will we see this system built out.”
The city officials decided to find a way to speed up the buildout due to safety concerns, lack of county funding, increased vitality of village centers, high demand from residents and their willingness to chip in for the amenity, according to city surveys.
“What we’re really seeking is connection to business centers and village centers that don’t have that … Minnetonka is a city that grew up with access via automobile, and the demands and desires are changing. People want our city to be more walkable. … The challenge here tonight is what’s the best way to pay for it,” said Mayor Brad Wiersum.
Franchise fees were selected over other payment methods because it’s an ongoing, dedicated funding source, according to city documents.
“It’s stable funding and ultimately, in order for us to increase the pace to develop these trails, that’s what we need,” said Councilmember Patty Acomb.
Franchise fees are regressive, meaning each residence will be charged the same amount. Many residents at the Sept. 17 meeting said that trails should instead be funded progressively by increasing the property tax levy so that residents with higher property values are charged more.
“The utility franchise fee is just another way of disguising a tax. Whether it’s legal or not legal, doesn’t matter. It is a tax. And what does a franchise fee for trails and walkways have to do with utilities? Nothing. To me, it’s a very sneaky way to add to the tax burden of homeowners, especially retirees,” said Craig Eiler.
A couple residents spoke in support of the franchise fees.
“I’m a parent of three young kids, two of which are learning to ride bikes, and we often will take the routes that are available and safe to do things that we enjoy, and I wish there were more of them. Yes, this is not perfect because someone has to pay for it. But there is enough public desire for this that I feel like this is the best solution,” said David Haeg.
The council voted in favor of the franchise fees on a 5-1 vote. Councilmember Mike Happe, who had previously said he favored a tax levy or referendum, cast the dissenting vote.
Wiersum explained his decision: “It’s important for us to do what we believe is right for our residents and to provide the amenities and the benefits that they expect. Is it expensive? Yes, it is. Is it going to happen fast? Well, if we have a $60 million tariff and we can collect $1.8 million dollars a year, it ain’t happening fast. I’ll probably be dead before that last trail is complete. But you know what? I’ll be proud of the fact that we did it.”
New trails planned over the next five years are along Excelsior Boulevard from Baker Road to Shady Oak Road, Excelsior Boulevard from Glenview Drive to Caribou Drive, Ridgedale Drive from White Birch Road to the Ridgedale Target, Minnetonka Boulevard from The Marsh to Fairchild Avenue and Hopkins Crossroad from Cedar Lake Road to Wayzata Boulevard.
Franchise fees in Hopkins, totaling $7 per month or $84 per year for the next five years, will help fund city hall renovations.
Residential users currently pay $2.20 each, totaling $4.40 per month and $52.80 per year, in monthly gas and electric franchise fees. This generates $610,000 annually, which is divided evenly between the general fund and parks.
Both franchise fees will increase by $1.30 so each residence will pay an additional $31.20 per year. Overall, this generates $360,000 annually, specifically for city hall renovations.
“This increase is designed to fund the city hall renovations,” said Nick Bishop, the city’s finance director.
The remainder of the fees will continue to go toward the general fund and parks.
Bishop took some time at the Sept. 18 meeting to explain what franchise fees are and how Hopkins compares to neighboring cities.
“Technically, they’re not a tax. They act very similarly to a tax. They have a few differences. They can really be used for any public purpose. In the metro and in Minnesota, they’re used for street maintenance, construction, trails, street lights or they go to the general fund. Those are typical uses,” Bishop said.
Anyone with a utility account pays franchise fees, including schools, governments, churches and nonprofits.
“One of the things that is really beneficial is it applies across the board, so people who don’t currently pay taxes do pay franchise fees. The nonprofits, the churches, the schools and the city itself all pay into this, so it makes it little more equitable,” said Mayor Molly Cummings.
All residents pay the same amount in franchise fees.
“They’re not tied to property values, so a $150,000 home would pay the same as a $250,000 home,” Bishop said.
If the city had chosen a tax levy to pay for city hall renovations, median-valued property owners would have to pay more than they do in franchise fees.
“If we were to pay for city hall renovations with a tax levy, it would – based on our estimates for a $236,500 home – cost $39.30 [per year],” Bishop said.
When looking at comparable neighboring cities, Hopkins charges “pretty close to the middle of the road” in franchise fees, according to Bishop. He noted that Minnetonka residents will pay the most and Brooklyn Center residents pay the least.
No public comments were heard. The first reading of the ordinance passed unanimously. The second reading will be 7 p.m., Tuesday, Oct. 2, at city hall, 1010 First St. S.