After businesses protested, the Apple Valley City Council is considering a less painful option to cover a $960,000 annual shortfall for road reconstruction projects by spending down money set aside for capital projects.

The council postponed until at least late January a vote to decide how to pay for the reconstruction of an increasing amount of deteriorating lanes among the 175 miles of city streets. The city has been studying the issue for about two years.

The council had been considering the two basic financing options cities have for rebuilding roads, but both would have meant residents and businesses would pay more:

• Increasing the tax levy paid by all property owners; or

• Using special fee assessments on property owners along rebuilt roads, or a combination of assessments and a lesser levy increase.

Under the levy and assessment option, the general levy would increase slightly and homeowners would pay a flat $2,500 assessment if their streets are rebuilt. Businesses would pay $48 per curb foot, said Public Works Director Todd Blomstrom.

Now, the council is considering a third option that would require neither a levy increase nor special assessments.

Blomstrom said that based on current street age and wear, it will cost about $5.3 million a year for 10 years to maintain existing road conditions, now rated at 73 on a 100-point scale. The city has about $4.34 million a year available to cover the road work, which leaves a $960,000 annual gap.

The new option would draw down the capital projects fund, now standing at more than $11 million, to cover the gap until 2018, Finance Director Ron Hedberg told the council. In that year, a big chunk of park bonds would be paid off, freeing about $1 million to fund the road work.

Chamber of Commerce President Ed Kearney asked for a delay on Dec. 20 after telling the council that businesses had just learned of the road funding shortage. "We didn't feel there was enough business or public input or education about the subject," which will affect how decades of road work is financed, Kearney said.

After hearing from Kearney and others, the council delayed its decision until January or February to allow more time to educate residents and businesses and collect their opinions and ideas, said Mayor Mary Hamann-Roland.

Blomstrom said the capital fund has enough reserves to cover the road funding gap and other planned capital projects but would drop to about $2 million by 2018. He said the downside is that the levy would have declined if not used for roads and the city "would have a slightly higher tax rate" than other cities that use special assessments to help pay for roads.

Whichever option is chosen, the city would spend $53 million over 10 years to rebuild 4 to 5 miles of streets a year, at a cost of $800,000 to $1 million a mile, Blomstrom said. He said maintaining the 400 lane-miles of streets that the city has built since the mid-1960s is becoming more expensive as a growing share reach their expected 45-year-life span.

Kearney said most business owners he spoke with like the newest option to pay for the work.

"It's a fairly equitable, painless way to redirect how the [levy] money is spent," said Peter Fischer, owner of AVR (Apple Valley Red-E-Mix), who attended the Dec. 20 council meeting. Fischer, who has built roads and worked in his family gravel and concrete business for decades, said improvements in road construction and concrete products in the past 30 years have extended road life from 40 to 60 years or more.

Hamann-Roland said she is open to hearing other solutions but likes the new option because it keeps a stable levy and offers taxpayers "a predictable solution to the problem."

She noted that property owners could challenge special assessments. That would require the city "to prove a benefit to the individual business or homeowner. In this economic climate, with property value moderating or declining it may be hard to prove an additional benefit," she said.

Blomstrom said it is very unusual for a city to use no special assessments to help cover road reconstruction.

A staff survey found many cities, including Bloomington, Eagan, Burnsville, Edina, Maple Grove and Woodbury, use property assessments.

Jim Adams • 952-746-3283