Public hearing on franchise fees draws a crowd in Arden Hills

Another hearing is scheduled next week

A discussion on Xcel Energy franchise fees left just a few empty seats in the Arden Hills City Council chambers last week. The council has been looking for a new, reliable revenue source to fund road, parks and trails improvements given priority as part of the city’s Capital Improvements Plan (CIP), and adding a franchise fee to gas and electric utility bills is being considered as an option. A second public hearing will be held on Monday, Feb. 24 at City Hall. The meeting will start at 7 p.m.

The franchise fee agreement being considered with Xcel to fund CIP projects would add $4.75 per month to residents’ gas and electric bills -- a $3 flat rate for electricity and $1.75 for natural gas. If the fees are implemented, the city could expect to raise just over $439,000 annually. Residential customers would pay for 38 percent of that total, businesses and other non-residential customers would account for the rest. The fee charged to those properties would vary depending on size and the type of service received.

Benefits and drawbacks

City Administrator Patrick Klaers said the council has looked at three possible revenue options -- increasing property taxes, a public referendum to fund a multi-park and trails program and a franchise fee program.

One advantage to franchise fees, he said, is that they would cover a wider revenue base, because all properties using gas and electricity would pay the fee -- this would include the many tax-exempt properties in the city. Franchise fees would provide a reliable source of money and diversify the city’s revenue sources, he added. The franchise fees could also be seen as being more equitable than a tax levy increase because all homeowners would be charged the same flat rate, regardless of a home’s value or the amount of energy consumed.

On the other hand, since the franchise fees would be a flat rate, they could be seen as regressive in nature, Klaers noted. The owner of a $500,000 home would pay the same fee as the owner of a $150,000 home, for example. And, unlike franchise fees on cable TV and other non-essential services, most businesses and homeowners do not have a choice of receiving gas and electric services, he said. Additionally, the fees, unlike property taxes, are not tax-deductible.

Klaers did say, however, that the vast majority of homeowners would pay more in property taxes if the city chose to raise the same amount of revenue that way rather than enacting franchise fees, because so many properties in the city are tax-exempt. 

Mayor David Grant said overall, the city’s financial situation is in good shape.  However, current property tax revenue has fallen short of funding some CIP projects and the city has lost some forms of revenue that have been dependable in the past, such as park dedication fees. But, those funds have stopped coming in, since the city is nearly fully developed -- excluding TCAAP, Klaers explained.

Wants vs. needs

“I think roads are generally in a category that we all understand; they are more of a need than a want. As a community we need to come together and figure out what we want to do with our parks and trails,” Grant said.

For about an hour, the council heard from around 20 individuals with strong opinions on what has become somewhat of a hot button issue.

“This is about wishes not needs,” former council member Gregg Larson told the council. “We’ve always been a fiscally conservative city. In over 62 years we’ve never needed a utility tax to fund our city operations and we don’t need one now.”

Another resident told the council that he was in support of park and trail improvements, and was willing to spend the $57 a year he would likely pay in franchise fees, but would rather pay that through a tax levy increase.

Others commented that they felt the parks were in good shape and expanding the trail system and improving park features in a lagging economy would be financially irresponsible.

A few people spoke out in favor of franchise fees being collected to fund parks, trails and road improvements.

“I think it’s a great opportunity to get some extra resources from some of the nonprofits and others who also benefit from the city and to get some money that is badly needed to improve our parks and trails system,” one man said.

He added that Arden Hills needs to continue to invest in parks and other resources that attract young families or “they would go elsewhere.”

Another resident said investments in parks and trails would add to the quality of life and safety for those in the city, and felt franchise fees “were worth looking in to.”

Currently over 70 municipalities in Minnesota have a franchise fee agreement with Xcel Energy, including Mounds View, New Brighton and Shoreview.

More information about the franchise fee proposal is on the city of Arden Hills website.

Joshua Nielsen can be reached at or 651-748-7824.


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