Cities ponder utility service fees to offset lost state aid

Tough budget times are pushing some cities to consider another source of revenue -- the utility franchise fee.

Spring Lake Park is the latest to discuss charging utility companies, such as Xcel and CenterPoint, a fee to use its right-of-way for power lines. The companies, in turn, would pass on the increased cost to customers.

Spring Lake Park officials say the minimum $200,000 the fee would generate would help make up for declining state aid.

Dozens of other cities -- from Minneapolis to Hopkins to Mounds View and Oakdale -- already charge franchise fees for electric or gas service, or sometimes both. In some cases, the fees have been in place for years.

Opponents object that, because the costs are passed onto customers, they amount to a hidden tax. The Twin Cities North Chamber of Commerce argues that they add "an undue and unfair burden to the cost of doing business."

But as many cities are seeing less money coming from traditional sources, the franchise and other service fees have again become tempting options for them.

"Cities are just looking for new ways to do business and when possible, they're looking for ways to tie services to who pays and how much they pay," said Anne Finn, a lobbyist with the League of Minnesota Cities.

City manager Gordon Hughes said this alternative is a more appealing option than, say, street light utility fees, because franchise fees are more directly tied to use.

If Edina adopts franchise fees for electricity and natural gas -- the city already has one for cable TV -- Hughes said he will recommend that the money go into a new fund to support long-term capital needs.

He said officials know the fees basically are a tax on residents.

"We don't lose sight of who's paying," he said. "It could easily be called a franchise tax, because [utility companies] are passing the cost on."

Seeking more stable income

"We're trying to find a more stable form of income because you can't rely on what's coming out of St. Paul anymore," said Barry Brainard, code enforcement director for Spring Lake Park, referring to state aid.

In addition, the fee would enable the city to collect money for services from the many tax-exempt properties in town.

Spring Lake Park ranks among the top cities in Anoka County with a high percentage of tax-exempt properties, Brainard said.

"These tax-exempt properties still use the roads and use taxes just as much as regular property does, but they don't pay a fee," he said.

Staff writer Mary Jane Smetanka contributed to this article.