There’s been quite a bit of discussion about the franchise fee in Ramsey, and a few folks have expressed their opposition very loudly. I wanted to take some time to explain my position, and why the residents I’ve discussed this with are in support of the way we’ll be funding our roads.
Five years ago, the Council discussed using either an assessment model or a franchise fee model to fund our roads. At the time, some members of the Charter Commission were against the franchise fee, and put forth an amendment that, if passed, would have severely limited its effectiveness. Because I didn’t want to limit the choices of future council members, I opposed the amendment as it stood, and was quoted in the paper about my position.
In the end, my colleagues and I decided the best course of actions was to use the assessment model, and the Charter Commission’s amendment was never voted on.
Fast forward to 2020 – With the support of our current Council and the Charter Commission, the City of Ramsey partnered with the University of Minnesota Resilient Communities Program to study how other cities utilize franchise fees.
The Council reviewed the study as well as many other data points and input from residents, and found the assessment model not to be cost effective. The Council voted to move forward using the franchise fee for road funding. The Council stipulated a five year sunset, and that the money could only be used for road maintenance and repair.
Some members of the Charter Commission brought back the franchise fee amendment that was discussed in 2014. After much discussion, they voted 5 to 3 not to amend the charter.
Road Funding Options
There are three options available to city governments to fund roads. They are:
- a 100% property tax
- a 25% assessment model, or
- a franchise fee
Ramsey used the 25% assessment model for the past 5 years, and here are some of my thoughts about its effectiveness.
- Under the assessment model, the city had to borrow money, then pay that money back over 10 years with interest. This is a net loss for the city budget.
- Under the assessment model, there was a 5% fee paid to set up the bond sale. Another net loss for the city.
- City engineers had to prepare estimated costs for the road projects to be worked on. Once the city identified its cost share, an assessment on residents was forecast. At this point, residents could petition to stop a project if they did not want to pay the cost. Two projects were cancelled using this method, resulting in over $28,000 of lost staff time.
- When the city made an assessment, the assessment could not be greater than the improved value added by the new road. So, an outside firm would be hired to appraise the values of homes, adding more cost, and then those appraisals could be challenged in court, adding even more time and cost.
- The 25% assessment model hits our residents hard. For example, I received a call from a young family that had just moved to Ramsey and were unaware they would be charged $6,000+ because of construction on their street. Likewise, a retired couple on a fixed income was dismayed to find out they had to pay thousands of dollars above what they had budgeted for.
These examples illustrate why the 25% assessment model was in my opinion not the best option for residents.
The City Council has spent the last 5 years researching road funding, talking with consultants, and meeting with officials from surrounding cities. We have held public hearings and open houses to educate Ramsey residents about why the 25% assessment model is more expensive, and how moving to a franchise fee would be good for the city.
Why the franchise fee is beneficial
- It makes budgeting for road improvements much easier.
- There are no assessments needed.
- Money is collected up front, so the city doesn’t need to pay interest on bonds.
- City engineers can plan projects knowing there is a stable funding source, without worry that their hours of planning will be wasted by a stopped project.
- The franchise fee funds are dedicated to road maintenance and repair.
- The cost for residents is $14 a month (split evenly between gas and electric utility bills) or $168 per year, which makes family budgeting easier.
- The franchise fee has a five year sunset and will be reviewed by council.
- The City has implemented a rebate system for those who have paid assessments in the last 5 years.
Regarding Property Tax Deductibility
After the 2017 Tax Cuts and Jobs Act (TCJA) raised the standard deduction, the Tax Foundation estimates that only 13.7% of all taxpayers will continue to itemize their tax deductions. In addition, the deduction for state and local taxes is now capped at $10,000 which makes it less likely that an increase in property taxes will actually be deductible. Even for those taxpayers who do itemize, the lower tax rates mean that there is less benefit from itemized deductions.
In short, a minority of taxpayers now itemize their taxes. Of those who do, even fewer can take advantage of an increase in property taxes and even then, the benefit is small.
It seems to me that using the franchise fee method is a far better approach for funding our roads than the assessment model, and a majority of the constituents I’ve spoken with agree. There is a clear choice in this election as to who to vote for. To me, experience counts. Do not be fooled if you think my opponent can shift money from other areas of the budget to pay for roads. Whether through the old system of bonding and interest payments, or the new franchise fee, the residents are the ones paying the bill. I believe the franchise fee is the much more conservative approach to achieve this.
If you would like to discuss this further, please reach out to me and I’d be happy to discuss this with you. My phone number is 612-965-3780.
Whether you vote by mail or in person, I hope I can count on your support on November 3rd.