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Utility Franchise Fees
What Are Franchise Fees?
In Lakeville, the City currently has franchise agreements with CenterPoint Energy, Minnesota Energy Resources, Xcel Energy and Dakota Electric Association. The agreements allow the utility companies to install their service lines within the City’s public rights-of-way to provide gas and electric services to their customers. The utility companies have historically been allowed to install their services in the City’s right-of-way free of charge. However, under Minnesota Statute, cities can impose a franchise fee on utility companies in exchange for the use of the public rights-of-way.
What Is Their Intended Use?
As the City has grown to the 8th largest city in Minnesota, it is critical that the City provide public safety services to keep up with growth and maintain the service levels expected by the public. Over the next two years the City will be transitioning from a paid-on-call fire department to a hybrid department with both paid-on-call (sometimes called volunteer) and full-time firefighters. This transition will require all four of the existing fire stations to undergo extensive renovations and reconstruction to provide the facilities needed to support a full-time staff. These renovations will include apparatus bay expansion for the fire trucks, the addition of education and training areas within the stations, the separation of decontamination areas from the rest of the station and the addition of sleeping quarters, living areas and kitchen improvements that will be needed for a 24/7 staff. Renovations to the stations may also include future space for EMT staff, ambulances and equipment. The estimated cost for the improvements at all four stations is anticipated to range between $60–$68 million. Read more information about this project here.
In addition to the needed improvements to the fire stations, the City Council has initiated the design and future construction of the FiRST Center. The FiRST Center will be a training facility for first responders. Preliminary plans include a 25- and 50-yard firing range large enough to accommodate vehicle-related scenarios, large and small conference and classroom space, mats training and virtual reality rooms, movable wall systems to create multiple rescue scenarios, areas for smoke out and confined space training, second floor space for tactical and scenario training, and outdoor and warehouse space for vehicle related scenarios and extrication training. The FiRST Center is designed to be flexible to accommodate the training needs of police, fire and medical response teams. Lakeville has received interest from over 18 south metro public safety agencies interested in using the facility for ongoing training. In 2023 the Minnesota Legislature allocated $7.1 million towards the FiRST Center project and in 2024 the City received another $800,000 from federal legislators to go towards the construction of the facility. The City’s cost to fully fund the construction of the project is estimated to be an additional $18 million. Read more information about this project here.
How Is the Fee Determined?
To initially provide the funds needed to pay for the improvements to the fire and police facilities, the City will need to issue general obligation bonds or loans that will be paid back over the next 20 years. The City calculated what the yearly payment would be to repay the 20-year loan and that determined what would need to be collected through the franchise fees. The following chart indicates the monthly franchise fee that would be charged to a typical single-family home for gas and electric service would be no more than $6.00 per utility or a total of $12.00 per household. The fee for commercial and industrial users will vary based on their usage. The franchise fees will be collected over the next 20 years or until the loans are paid off.
Why Franchise Fees and Not a Tax Increase?
Franchise fees are a set flat rate and do not fluctuate from year to year, unlike taxes which are based on property values that change every year. It will be a consistent rate that residential, commercial and industrial property owners can rely on. It is equally spread across all gas and electric users including tax exempt properties such as schools, churches and nonprofits that also benefit from fire and police services. The use of franchise fees also provides the least financial impact versus taxes. For example, the set annual franchise fee cost for a typical residential home is $144. This same home by 2026 would be paying an additional $164.28 in taxes which would also continue to increase annually based on property value. The savings between franchise fees and increased taxes for commercial and industrial property owners is even greater. The following chart is an example of the cost comparisons of franchise fees versus increased taxes.
What Is the Timeframe for Implementing the Franchise Fees?
Per Minnesota State Statute, the City is required to adhere to the following process:
- August 8, 2024: Draft franchise fee ordinances sent to utility companies to notify them of the City’s intent to begin the franchise fee process
- August–October 2024: First round of notices to residents and businesses was completed
- November 18, 2024: City Council held a public listening session to accept public input
- December 2, 2024: City Council considered and adopted the ordinances to collect utility franchise fees
- December 3, 2024: Written notice and the adopted ordinances were sent to utility companies and to the PUC to finalize the franchise fee collection process
- December 3, 2024–April 1, 2025: Second round of notices to residents and businesses
- April 1, 2025: Implementation of franchise fees