Friday, April 10, 2015

Raising Utility Franchise Fee Could Mean End of "Street Tax"

The public hearing for this yea's street repair assessment program in Fort Thomas. FTM file. 
The Public Utilities and Building Committee met last month to discuss the renewal of the Duke Energy franchise fee that the utility company pays the city each year, which is then passed along to each Fort Thomas resident. The last time this committee met was 10 years ago when the last Duke energy franchise fee contract was up.

The previous contract had been in place for the past 10 years, during which each resident in Fort Thomas that paid a utility bill, paid a fee of .03% ($.71 per month for gas and electric). Currently, under the existing franchise agreements, Duke Energy pays the city annually $38,400 for the gas franchise and $12,800 for the electric franchise.

The city has an option this year to raise that franchise fee to Duke, which would be passed onto it's customers. The average franchise fee on many Kentucky's city's is around 3%, making Fort Thomas ten times lower on that end.

The franchise fee in Fort Thomas has remained unchanged since 2005 and was first established in 1994.  They were $30,000 for gas and $10,000 for electric when first enacted.  However, city officials are tinkering with raising the franchise fee, which could offset the street reassessment tax.

“Thinking outside the box might be beneficial for the city to discuss the possibility of implementing a larger franchise fee, then eliminating the street resurfacing assessment.  On the surface, this might have merit," said Don Martin, City Administrator, during the meeting.

This year the street assessment tax would apply to residents on Arlington, E. Southgate, Burnet Ridge, N. Fort Thomas Avenue and Churchill Drive and the city is estimating that it will collect $168,000 from residents to pay for streets. Thus, if the city raised the franchise fee from .03% to 1.25%, they would have enough money in the coffer to eliminate residents having to pay to resurface streets. (A chart with estimated amounts of revenue raised with corresponding franchise fee rates are at the bottom of this article).

Councilman Ken Bowman also noted during the meeting that simply having the city take on a larger percentage of the resurfacing program may have merit. "Maybe 70/30 instead of 50/50 with the city bearing more of the cost," said Bowman.

The street resurfacing assessment has been termed by many residents and city officials alike, as the "most hated tax in the city." The "street tax" is paid out of the Road Aid Fund, which has two main sources of revenue: the gas tax and the street assessment from Fort Thomas residents.

"Gas taxes are supposed to cover road repairs. Kentucky's method for allocating money for roads overwhelmingly favors rural areas. Our region, up here, is a big time donor region," said Kevin Gordon of the Independent Business Association of Northern Kentucky. "Fort Thomas residents really take a hit. They are getting less money for roads from the state than they pay in, they pay one of the highest amounts of property taxes in the area, and probably the state, then they have to pay half of their street repairs."

Fort Thomas resident, Catherine Ampfer, agrees.

"I pay city taxes with the expectation that my tax dollars will be used for basic city services such as police and fire protection and the maintenance of local infrastructure like roads and sidewalks," said Ampfer. "Charging residents for a basic city service such as street resurfacing seems like we are being taxed twice."

Over the years, streets are selected to be repaired by city staff and by requests from residents, however most residents do not want the city to select their streets because that means a big bill the following the next year, which is part of the draw to the program.

"If residents don't have skin in the game for street repair, everyone wants their roads done every year," said Mayor Eric Haas.

The street resurfacing tax was implemented in the 1920s and was an accepted practice across the Commonwealth of Kentucky. As years went on, however, other funding mechanisms began to take the place of assessing each resident by the frontage they shared with public streets. Fort Thomas has continued this practice which puts it in little, if any, company with any city in Kentucky.

"It's the way we've always done it,"said Haas. "We even had one resident, who was a math whiz, calculate which method was save the most money. He had spreadsheets and spent a lot of time with it and his estimation was that our method was the best."

The street assessment are viewed as unfair by many residents and the city would acknowledge some "weaknesses" with the tax. For example:

- Many residents simply share more frontages with the street than others. As an example, one resident this year will pay $8,300 to help repave the street, while the average property owner will pay around $600. 

- Many streets get more "wear and tear" than other streets. 

- There is no recourse if a street is not engineered or resurfaced properly and has to be redone is a shorter time period than the city engineer's have indicated. 

- Residents on State Routes do not pay an assessment. An example here would be Memorial Parkway.

- Residents on cul-de-sacs have less street frontage than “normal” lots.

- Residents on corner lots may have to pay for multiple streets to be paved. For example, a resident on Patricia Court also shared frontage on Newman Drive and Jennifer Court. That resident was assessed three times in a short period of time. 

- Utility companies currently do no pay the assessment, but would pay the franchise fee. Examples here include Cincinnati Bell or the Water District. 

- Condominium complexes and those who rent apartments or houses would pay the franchise fee, but not be assessed for street repair. 

- The assessment doesn’t capture everyone who has used the street.  For example, someone who purchases a house a year or two after assessments, then moves ten years later, would never pay the assessment, but have the benefit of driving on the streets.  

- A person who buys a house could be assessed the following year.  They might only live in the house for a year or two.

Essentially the franchise fee that Duke Energy pays the city for is for the repairs the city has to make to streets when the utility company has to work on public streets. By shifting the street assessment tax from residents each year on repaired streets to everyone's utility bill, the "most hated tax in the city" becomes more palatable to everyone.

If the franchise fee is increased, there would be no one-time fee that averages $600 per bill and up to $8300 per resident. The city can impose a 1.25% fee that would be passed onto residents, which would still be less than half of what most cities pay at 3%. This would raise $219,814 dollars. The estimated repair bill for residents this year is $168,000.

"There are pros and cons to each approach. However, if structured in a way that limits revenue collection to only what is actually needed to replace street assessments, I would probably favor using the franchise fee in lieu of the street assessment program," said Councilman, Adam Meier. "There is no perfect formula, but a fixed rate on monthly bills is more fair and less arbitrary as applied to all taxpayers in Fort Thomas.  It's also easier to plan for. Not everyone has the money savings to cover the street assessments when their street is selected, but most can plan for an extra dollar or two a month on their utility bill."

Councilman Jeff Bezold agrees. "I think is a good option for the city to consider. Like with anything else there are a lot of moving parts to consider. We are working through a couple different models on how the fee can be applied, but it is important for the residents to know that this is not an 'additional' fee. We are discussing ways for this to replace the direct out of pocket cost for the residents portion of the street resurfacing program,he said.

"One option we are looking at, and its the approach I favor, is going with a flat fee per customer, instead of a percentage based on usage," said Meier. "It will provide more certainty to our budget given fluctuations in energy prices.  It also ensures that we are only receiving the revenue needed to cover average street assessments each year, rather than have a moving target based on percentage. Also, I think overall, it's the most fair approach, since each tax payer/account holder likely uses the streets in the same manner and to the same extent."

The Public Utilities and Buildings Committee is made up of Adam Meier, Ken Bowman and Jeff Bezold.

"The draft franchise ordinances discussed at the previous meeting will be on the agenda for
first reading at the April 20 council meeting," said Martin. "These ordinances would not adjust the current franchise fees but give the council the authority to adjust franchise fees in the future."

Estimated revenue raised by raising the franchise fee on Duke Energy 
(then passed onto residents' utility bills)

0.5% Franchise Fee - $87,936.08 

1% Franchise Fee -  $175,872.17 

1.25% Franchise Fee - $219,840.21 

1.5% Franchise Fee - $263,808.25 

2% Franchise Fee - $351,744.34 

2.5% Franchise Fee - $439,680.42 

3% Franchise Fee - $527,616.51 

4% Franchise Fee -  $703,488.68 

5% Franchise Fee - $879,360.85 

7 comments:

  1. What about people on a fixed income that live in one of Ft Thomas's beautiful older houses that is not real energy efficient, so you are going to raise the price of their utilities to help pay for the streets, this does not seem fair. And while on the topic of street repavement, they even mention in the article that if they do not do it properly it must be redone over and over.....so why not use the proper materials or techniques so that the streets will last longer...

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  2. I would prefer paying the regular street tax for resurface once every 15-20 years than pay a monthly increased utility fee so every other road in Ft. Thomas can get resurfaced but my own.

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  3. So, if enacted this year, those getting repaved streets this year would be getting a free pass. while those who have been taxed within the past few years get completely screwed as they are now paying for their neighbors resurfacing as well as their own!

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  4. Are all these fees on utilities tax deductible? If not, the property tax should be raised in lieu of fees so the tax can be deductible. The problem with taxes on utilities is that the cost of utilities can sky rocket because of the economy. The individual home owner has no say in how much the utility fee will be - there is no vote. Property Tax cannot be raised more than 4% without a vote.

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  5. Because tying energy consumption to ones share of road repairs makes so much sense.

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  6. Some people have already paid for their street repair giving them financial stress. Had a lien placed on my house until my tax was paid. Didn't have a choice in the matter. Now you're proposing I get my electric bill raise to pay for someone else? BULL!!!

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  7. What about the streets that are not dedicated city streets? The home owners on those streets currently pay to repair/resurface them. If the fee is increased will the City resurface those streets at no cost to the homeowners?

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