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City Considers Franchise Fees to Pay for Road Projects

The City of Fergus Falls is considering implementing a five percent franchise fee on utilities (gas and electricity) for residents in Fergus Falls. This new funding mechanism would provide funds to resurface and reconstruct city streets, a high priority for the public and council.  Unlike the name may imply, a franchise fee has nothing to do with a store or restaurant franchise. Rather it is a fee paid by a utility company to the city for the use of our public rights-of-way (usually underground) for utility lines, transmission, etc.
In Fergus Falls, this impacts Otter Tail Power Co., Lake Region Electric Co., and Great Plains Natural Gas Co. They, in turn, have the right to pass franchise fees on to their customers, which is noted on gas and electric bills as a “City Fee.” The utility companies collect the franchise fees and send them to the city.
We anticipate this revenue will generate nearly $1.3 million annually to help cover street projects. The regular proposed budget will not be reduced; instead, the funds will augment the plan to address several street projects beyond what would otherwise be possible through our regular street funding sources (municipal state aid, assessment, bonds, property taxes).
Utility franchise fees would apply to all utility customers in the city regardless of whether they pay property taxes. This includes non-profit organizations, schools, churches, and government customers. There would be a monthly cap for larger utility customers of $1,000 per account (per utility).
While a franchise fee concept may be new to many Fergus Falls residents, they are already implemented by nearly half of Minnesota cities. Also, cable television subscribers in Fergus Falls currently pay a franchise fee to help cover the cost of PEG Access. Our utility partners have experience with other municipal customers that use franchise fees and have been great partners as we move toward a possible March 2024 implementation.
The presentation from Wednesday morning’s Committee of the Whole meeting is on the web site, as is a list of frequently asked questions: The presentation includes examples of how this would impact a utility customer. For example, if a combined gas and electric bill is $250/month, that bill will increase $12.50/month, or $150.00/year.  We encourage the public to learn more about Franchise Fees by attending an open house on Thursday, October 26 at 5 p.m. in the City Council Chambers. Additional information will be included in utility bills, on the city’s web site and other platforms.

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