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Franchise fee hike could pave way for street improvements

City administator recommends gas, electric increase

Published: Wednesday, July 23, 2014 11:27 a.m. CST • Updated: Wednesday, July 23, 2014 12:04 p.m. CST

The Newton city administrator is proposing a 5 percent increase on gas and electric bills as a possible revenue source for infrastructure and maintenance needs.

Bob Knabel gave a detailed presentation on all of the options the city has to fulfill the annual needs for streets, equipment and extra projects during Monday’s council meeting and proposed his recommendation.

“I recommends that a 5 percent franchise fee be enacted on both gas and electric utilities to support the long-term infrastructure needs of the city,” Knabel said.

Knabel presented the franchise fee as one of five options but said he threw his support behind the fee because it’s more equitable. Further, residents, businesses and nonprofit agencies all share the cost, and it doesn’t rely on property tax. Knabel said the fee would cover the entire cost of a maintenance program and is the least expensive option for residents at an annual cost of $97.69 per average household.

To complete all city projects, the city needs $1,050,000 annually. The breakdown of spending includes $590,000 for streets, which includes surface transportation programs, road use tax and a local road program; $350,000 for equipment for street, fire, police and parks; and $110,000 for extra projects, including sidewalks, bike trails and facilities.

Currently, there is not designated funding for major needs for the streets, Knabel said. For the past 20 years, the city has spent an average of $264,989 per year. In 2010, the city received $812,715 in federal stimulus money.

Knabel found, in order to create a solid maintenance program, the city would require approximately $500,000 per year. If a preventative maintenance program was used, the city would spend $6 per yard of pavement, and the roads would stay in a good to excellent condition over a 25-year period. In the case of a reactive maintenance program, the city would spend $16 per yard of pavement, and the roads would be in fair to very poor condition over the same 25 years. If nothing is done to the roads and complete rehabilitation is needed, the streets would be in very poor to failing conditions and would cost the city around $18 per yard, and the road would need to be replaced after 13 to 15 years of life.

“Over a 25-year period, rehabilitation is three times more costly than regular maintenance (pavement preservation) and 12.5 percent more costly than reactive maintenance,” Knabel said. “Without regular maintenance, over the 13-year life of the roads, there will be an 80 percent drop in the quality of the road condition, with only 12 percent of the road life remaining.”

Knabel proposed a five-year street resurfacing and repair program that allows citizens to be aware of where the work will take place ahead of time and gives the council the opportunity to chart progress and set a future course of action. If enacted, there would be a second and continuing five-year plans to address the rest of the streets in the city.

In order to pay for the project, Knabel gave five options to raise revenue. The first three options would be funded by property taxes. 

• Option 1: an emergency levy, which would tax 27 cents per $1,000 taxable value, raising $121,000 per year. This option would cost the average household $13.95 annually. 

• Option 2: a capital improvement levy, which would tax .675 cents per $1,000 taxable value, raising $302,000. It would cost the average household $34.88 annually. 

• Option 3: a bond issue, would tax $2.27 per $1,000 taxable value, raising $10,500,000. The annual cost for the average household would be $117.34.

• Option 4: a franchise fee, which would be a 1 to 5 percent increase on gas or electric, or both. The annual revenue would be $1,025,000 and the cost per average household would be $97.69 annually. 

• Option 5: using the ending fund balance which varies from $175,000 to $350,00 and costs the average household $19 to $38 annually.

Of all of the options, only the bond issue and the franchise fee would cover the costs completely. In all other cases a combination of options would have to be used to fully fund the project, increasing the amount each household would pay.

After Knabel recommended the option he felt would best serve the city, he discussed the next steps for the council to take. Through the next few meetings, the council is to receive public input with the hopes in discussing the plan in the coming months and how it will fit in the city’s strategic plan. Council member Noreen Otto said she feels maintaining the streets in town is important.

“The residents ranking of our maintenance of the city streets in just absolutely abysmal,” Otto said. “So it is a serious issue, not just for the people who run the city and understand the engineering aspect of it but the people who drive around everyday.”

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