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Knabel explains possible new fee

Published: Friday, Jan. 18, 2013 12:09 p.m. CDT • Updated: Friday, Jan. 18, 2013 12:10 p.m. CDT

On Monday, the Newton City Council agreed to consider the possibility of enacting electric and gas franchise fees to help pay for city-wide projects.

In 2009, the Iowa General Assembly allowed cities to apply a electric and gas franchise fee up to 5 percent. The city does not have to charge the full 5 percent.

“The basis of it is two-fold,” Newton City Administrator Robert Knabel said. “The comprehensive plan that was done through a lot of citizen group meetings with the planning committee boards, and members had a lot of recommendations. One of them was for the city to address the maintenance issues on (public) streets. Secondly, the goal was to develop a sustainable source of funding for capital needs and operational needs.”

Newton has two options, including the following:

• Leave the roads as-is: This would save money initially but eventually cost more money. Roads would be to be rebuilt rather than maintained.

• Create a means of continued funding to allow Newton a reliable way to maintain the condition of its roads.

“We are challenged operationally,” Knabel said. “As of now, we can do what we need to do based on the requirements with the operational money that we have.”

Knabel said that the city does not meet the infrastructure capital needs of the community, and he suggested that is where the franchise fees revenue be applied.

The city’s operational budget is made up of three parts:

• Personal: Staff who make up the workforce.

• Capital expenditures: When the city spends money to buy fixed assets or add value of a existing assets.

• Operations: Made of supplies, materials and contracts.

“In the past 10 years, Newton committed very few resources to streets,” Knabel said. “Streets are extremely expensive propositions. It never goes away. Once you have a street you are obligated to keep it and maintain it. Over time, you will have to commit resources, or replace them. If you don’t maintain them, then your going to replace them. This is far more expensive.”

Knabel compared street maintenance to oil in a car engine.

“If you don’t replace the oil in your car, you are going to have to replace the engine,” Knabel said. “Where as if you maintain it, it will last longer.”

To get a better understanding of the cost of maintaining a street, Knabel gave an example of a road completion project on E. 17th St. N. that repaired a quarter of a mile.

“It cost $360,000,” Knabel said. “If Newton spent a million dollars a year, based on the cost and work completed of that street, it would take about 123 years to do all the streets in town.”

A million dollars would cover about three quarters of a mile.

The other part that the fee would be applied to other capital needs, such as equipment. When Knabel investigated the equipment of the city he found that 48 percent was past its recommended life cycle.

Two major departments that use equipment are the Newton Fire Department and the Public Works Department.

“We could spend $175,000 - $200,000 a year on a equipment replacement program just to meet the needs of the fire department,” Knabel said

Knabel believes part of the problem lies with state government. A decade ago the state made changes to the machinery and equipment tax. Newton lost about million dollars worth of funding. When something like this happens, the city has to act Knabel said. Newton was forced to lay off workers.

In addition, Newton will have to consider the possibility of losing a percentage of its commercial tax revenue. In order to attract new business, Gov. Terry Branstad is considering taking about 40 percent off the commercial tax.

“We would be laying people off,” Knabel said. “That would mean police, fire, community development -- Down the line.”

Early reports from Branstad suggest that cities will be protected, but that may not be the case.

“City’s are a little skeptical about that promise,” Knabel said. “That same promise was made when they took that machinery and equipment tax away. They did that for a few years, but the state got into a bind and that went away.”

The council also agreed to investigate the possibility of expanding TIF area in the North Central Urban Renewal Area to include downtown.

“The idea is to include the downtown (area) in that district,” Knabel said. “Up into this point, TIF money has typically been used to provide incentives. They may help build parking lots, and those sorts of things.”

TIF money can also be used to support the district by making it more appealing to potential employers by improving such items as streets and roads.

“If you look at streets as a major infrastructure need, and you have a company wanting to locate in that area -- If the streets are unattractive, it’s a challenge,” Knabel said.

Knabel recommended that the city use TIF funds for two-upcoming projects.

“We are recommending in 2014-15 we do two street projects; one in front of the hospital, and one in from of DMACC using Tiff money,” Knabel said.

Staff writer Matthew Shepard may be contacted at (641) 792-3121, ext. 425, or at mshepard@newtondailynews.com.

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