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Princeton voters could have the option to eliminate the Princeton Public Utilities Commission via a ballot question this November if city leaders decide to take action after discussing a surprise and controversial agenda item.

Princeton City Administrator Robert Barbian confirmed Tuesday afternoon Mayor Brad Schumacher had instructed him to add a Nov. 3 ballot question discussion to tonight's agenda (Thursday, Aug. 13).

“The mayor is often involved in creating the city council agenda,” Barbian said. “The mayor called and we went over the agenda, and he asked that item be specifically added for the council to discuss.”

Mille Lacs County Auditor - Treasurer Eric Bartusch confirmed that Friday, Aug. 21, is the 74-day cutoff for getting a question on the Nov. 3 general election ballot.

“The city would have to let us know what they are doing no later than that date,” Bartusch told the Union-Times Wednesday afternoon. “I would preferring getting the information a little bit sooner so I have more time to work with it. Aug. 21 is the last date it can be submitted to me, because I have to take the information and provide it to the Minnesota Secretary of State so it hits the election ballot.”

Schumacher is at odds with a March 25 decision by PPU General Manager Keith Butcher, former Commissioner Mindy Siercks, Commissioner Dan Erickson, and current Commission Chair Greg Hanson to adopt a resolution to discontinue city financial support through an established payment in lieu of taxes mechanism.

The city previously received a payment “in lieu of” tax from the Princeton Public Utilities to offset the taxes that a private electric company such as Xcel Energy would pay if it provided electric to the city.

A private company like Xcel Energy, Center Point Energy and cooperatives like Connexus, East Central Energy and Great River Energy pay taxes based upon the value of the electric infrastructure necessary to operate their businesses.

In 1997, Princeton Utilities agreed to pay the city $4,375 a month or $52,500 annually.

Commissioners unanimously voted March 25 to discontinue payment in lieu of taxes (PILOT) after a lengthy and sometimes tense discussion that included mention of the city’s franchise fee and the PUC’s cash reserve policy.

The resolution approved by PPU commissioners in March to exit PILOT stated the city’s franchise fee was a mechanism to collect funds as deemed necessary.

Furthermore, the resolution stated that PPU wanted to discontinue its PILOT contribution immediately in order to avoid duplication of city funding resources.

Before the March 25 meeting concluded, Schumacher stated he was “extremely disappointed” the commission discontinued their PILOT payment.

The following week, at the council’s April 2 meeting, Councilor Jules Zimmer brought up the discontinued PILOT fees during a 2020 budget discussion.

Zimmer asked how the city was going to absorb the loss. Barbian noted it was the PUC’s choice to stop paying the fee, even though it had been in place many years.

Barbian and later Schumacher suggested that city department heads should review their 2020 budgets to find cuts to make up for the sudden shortfall.

Finance Director Steve Jackson has previously clarified that the PILOT had been $52,500 annually for more than 20 years.

The city had already collected three months’ worth of PILOT money before PPU commissioners took action on March 25, Jackson said.

The last payment was received in February. The PILOT payments for the balance of the year would have been $43,750, creating a budget shortfall.

Next year’s Princeton city budget anticipated an increase not a decrease from the $52,500.

In mid-May, Zimmer proposed establishment of a city subcommittee that would work on communications with the PUC to resolve the PILOT issue.

During the council’s May 14 meeting, that subcommittee was approved on a 3-2 vote.

Zimmer and Councilors Jack Edmonds and Jenny Gerold voted in favor of the subcommittee and Schumacher and Councilor Jeff Reynolds voted in opposition.

Schumacher contends the PUC has done everything it can to refuse to pay its fair share of property taxes.

He added commissioners are using stall tactics and don’t want to have a community conversation about key issues, and haven’t come up with plan that would result in a fair deal for the citizens of Princeton.

“They want to keep everything hush-hush,” Schumacher said Tuesday. "I want community involvement so the citizens of Princeton have a choice to vote on a PUC commission that is anti-community. They don’t want to pay county, school district or city taxes. That’s what needs to come out. Let the public decide.”

Schumacher said that the council will either talk about the issue Thursday night and place a question on the November ballot or continue conversations with the PUC.

“We are looking for a good, in-depth discussion,” Schumacher said. “For a long time, Princeton Public Utilities has been trying to change its image, and has failed to do so. If it’s up to me, a question will be on the November ballot, and the people of our community will be able to voice their opinion using their vote.”

Furthermore, Schumacher contends Butcher has blocked out the community. “He won’t let the community participate in the conversation,” Schumacher added.

Schumacher was critical of a statement Butcher made in March regarding PPU paying a franchise fee and PILOT.

“He said no utility company in the country pays both. That is a lie.” Schumacher said that Elk River Municipal Utilities pays both.

“There is no progress in paying PILOT,” Schumacher added. “Keith Butcher doesn’t want to pay. He’s been very clear on that, and he will use tactics such as making up things that are not true to get out of paying PILOT. We are getting ready for our 2021 budget process. We need to know if they are going to do PILOT.”

Schumacher said the PUC could be abolished in one of two ways. According to state statute, if there is a two-third vote by the community to disband in response to a ballot question, the PUC would no longer be in existence 30 days after the general election.

Additionally, 15 percent of the people who voted in the last election could force a ballot question.

“The city council can just vote and put this on the ballot,” Schumacher said. “We will see how this shakes out Thursday.”

The Union-Times asked Schumacher if he thought all three PUC commissioners and Butcher would attend Thursday night’s city council meeting.

He replied, “At this point, I can only imagine. None of them will show up. I’m basing that on the fact that they don’t show up to any other meetings. Keith Butcher just doesn’t show up. And he won’t even log into a Zoom meeting. He’s not going to show up.”

Butcher told the Union-Times he will be attending Thursday night’s meeting.

Prior to the item regarding the possible ballot question, Butcher’s on the agenda to present an amended and restated PPU power purchase agreement to the council.

When asked about Schumacher’s claim regarding Princeton being the only utility in the country that had both a franchise fee and PILOT, Butcher referenced the March 25 resolution that was approved by PUC commissioners on a 3-0 vote.

“That resolution says, ‘To our knowledge,’ ” he said. “I was trying to be very careful. At the time, I did not know of any.” The second “Whereas” in the resolution is based upon an experience Butcher had at the American Public Power Association Utility Business and Finance Conference in Minneapolis last fall.

At that conference with municipal utility representatives from across the country, Butcher said he asked about tracking and accounting for a PILOT and franchise fee. “The speaker and audience were surprised that we had both,” he said. That is why it says ‘Princeton Public Utilities is unaware’ of a utility paying both.”

Steve Downer is director of communications and member relations with the Minnesota Municipal Utilities Association, a nonprofit corporation that represents the interests of the state’s 100-plus municipal electric and natural gas utilities.

Municipals are subject to all the state’s laws regarding public bodies. Open, accessible governance is one reason municipals are also known as ‘public power’ utilities.

Princeton Public Utilities is a MMUA member organization.

Downer provided the Union-Times with background on the state statutes that are scheduled for consideration Thursday night by the Princeton City Council.

There are a number of legal and practical arguments for retaining a commission as the governing body for utilities, Downer explained.

The law governing a statutory city’s establishment of a public utilities commission is set forth in Minnesota Statutes 412.321 - 412.391.

The Princeton Public Utilities Commission was established by city council ordinance. According to Downer, its abolition is substantially more difficult.

To abolish a commission or remove a certain utility from the jurisdiction of a commission requires, first, approval by the council or a petition of the citizens, and then it must be submitted to the voters and approved by a majority of the votes cast on the proposition.

The city council does have certain authority in respect to the commission.

Each of three members of the commission is appointed by the council. The council may appoint one of its own members, but not more than one, to serve upon the commission.

The council may initiate an action to submit to the voters of the city whether or not the commission shall be abolished or whether or not to remove a particular utility from commission jurisdiction.

Absent a city council initiative, a petition executed by voters equal in number to at least 15 percent of the electorate voting at the last previous city elections would be required to initiate the vote on abolition, Downer explained.

Beyond these specific powers, the statute does not contemplate any further controls that might be exercised by a council over a public utilities commission.

The cities of North Branch and Truman recently abolished their public utility commissions, Downer said. “North Branch’s action was really messy and acrimonious,” he said. “They abolished their public utility commission just last year. It was a three-ring circus.”

Downer added it’s more common to see utilities go to the legislature to increase their number of governing members from three to five. “If such a measure doesn’t have local support, a legislator won’t carry it,” he said.

Downer said either a city council or appointed commission can govern a local utility effectively, but it helps to have a non-political group of people working together to run the utility as a business. He cited the following comments from justices in Village of Chisholm v. Bergeron, a 1923 Minnesota Supreme Court case:

“We think the manifest object of the Legislature was to place the conduct of municipal-owned public business enterprises in the hands of a stable and independent body, free from the baneful influences which so often result from the frequent changes in the political complexion of an elected council.”

In a background email, Downer explained that there are a number of practical arguments for maintaining the commission form of utility governance.

As noted in Chisolm decision, having a commission govern operations of the utility insulates both utility and the council from politicizing the operations of the utility.

The utilities commission is made up of watchful, concerned citizens. It is not politically motivated and is completely voluntary. As a result, deliberation by a commission tends to promote good long term decisions and discourages sudden changes brought about by temporary political considerations.

Secondly, if a city does abolish its commission, state statutes require a separate city fund be established for each utility in order to ensure local accountability.

Third, utility operations and governance are complicated, requiring some experience and specialization. These qualities are very difficult to develop through the city council, whose members must deal with a wide variety of issues.

Commission members often serve for a number of years and are able to develop significant expertise and provide the commission with an institutional memory.

Zimmer, who is representing the city during PILOT subcommittee discussions with the PUC, provided an update Tuesday on the subcommittee’s progress.

“We are talking,” Zimmer said. “We’ve had three meetings, each about an hour to an hour and 15 minutes long. I don’t know where this is coming from,” he added, referring to the Thursday night agenda item requested by Schumacher.

Zimmer added: “Both parties are talking. It’s gone really well and been positive. I am really puzzled about this. And I’m sure Greg Hanson is going to tell you the same thing.”

There’s been a lot of discussion, and a lot of back-and-forth about the PUC’s failure to pay the PILOT, Hanson told the Union-Times Wednesday afternoon.

“Some utilities don’t pay a PILOT where there’s also a franchise fee. It’s not universally the case,” Hanson said, adding the decision the PUC made March 25 was based on the fact commissioners wanted to get PPU’s financials in order.

“We set goals for what that meant and where our water and electric revenues should be as well benchmarks for days of cash on hand,” Hanson explained.

Hanson said those goals have not changed. Barbian, Zimmer, and Jackson have been involved in discussions to clarify the city’s position regarding PILOT.

“I don’t know where the mayor’s claim about stall tactics is coming from,” Hanson said. “I think we are making some progress. This is a ticklish issue. Everybody is trying really hard to do the right thing for the constituency they represent.”

Zimmer said he was “absolutely livid” when he opened his Aug. 13 Princeton City Council meeting packet and saw an agenda item to discuss and consider a Nov. 3 ballot question to eliminate the Princeton Public Utilities Commission according to state statute.

“This whole thing is political,” Zimmer added. “This entire PUC issue has been political from the get-go. I know when politics are happening.”

Furthermore, Zimmer said Schumacher’s statement about PILOT talks being stalled wasn’t true. “If he says that Thursday, I will tell him that’s just not true. That’s why we are meeting Aug. 21. We have a 10 a.m. meeting at city hall.”

Hanson added there’s nothing secret about the PILOT subcommittee meetings.

“We are trying to figure out what we need to do and a path for getting there,” Hanson said. “Jules Zimmer is very, very devoted to the citizens of Princeton. We as commissioners have a business responsibility to make sure we are taking care of our ratepayers, those people who are paying bills month after month.”

Hanson said he didn’t review the meeting agenda email from the city until Wednesday, adding he will be attending Thursday night’s city council meeting.

“The city is in no position to take over the administration of this utility,” Hanson said. “It’s too expensive and they don’t have the resources. They don’t have the personnel. It’s above and beyond what they could do. That’s the first thought that hit me. The city will have to get a question on the ballot, and if it doesn’t pass, they will have to figure out what’s going to happen. I think it’s a knee-jerk reaction on the mayor’s part, and it’s election year chicane. The mayor has someone running against him, and he has to create an issue to separate himself.”

Zimmer said he’s “very confident” there will be a PILOT contribution again from the PUC. “One of the first things discussed in our initial meeting was being open and honest with each other. I really do believe that has occurred with both sides.”

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