Agenda - Council Work Session - 05/12/2020

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While property taxes are generated based on each property's assessed value, special assessments are a method for having the property owners who more directly benefit from the development pay for a larger portion of the construction. This process is generally familiar to property owners. However, there are high costs associated with the administration of special assessments, such as initial design engineering and the ability of public petition to stop progress and create sunk costs (Zhao, 2010). Franchise fees, which charge utility companies for use of roads have become increasingly popular in Minnesota cities, with approval in 43 municipalities as of September 2013 (City of Ramsey, 2013). Local option sales tax is an increasingly popular funding mechanism; however, this may not be feasible for cities without the ability to generate enough revenue (Zhao, 2010). Capital improvement bonds are a form of debt where the city can borrow money by selling bonds, which is then repaid with interest to the lender (Zhao, 2010). State of Road Financing in the City of Ramsey The City of Ramsey, situated in Minnesota's Twin Cities' seven county metro is currently wearing down its roads faster than it is able to fund its maintenance and construction' (City of Ramsey, 2013b and Ulrich, 2020). Of the roughly 178 miles of road in the City of Ramsey, 142 miles of road are outside of the MSAS designation, and therefore are ineligible for certain state aid funds and rely solely on city funding for their upkeep (City of Ramsey & WSB, 2019). The city estimates costs of $3.06 million per year, assuming the roads will last a total of 40 years, and assuming that sealcoats and overlays were routinely conducted over the road's lifespan2 (Riemer, 2013). The city's existing funding structure for road maintenance and reconstruction activities assesses property owners for up to 25% of the cost of the roads, while the remaining 75% is funded by the general tax levy in the form of property taxes and debt service payments to general obligation bonds or annual state aid payments3 (Resilient Communities Project & City of Ramsey, 2020 and City of Ramsey, 2013b). The city's assessment rates for benefiting properties range from $1,400 to $6,636 for residential properties and $6,500 to $33,364 for commercial or industrial properties which are then added to the property tax over a ten-year period (City of Ramsey & WSB, 2019a). Once properties are assessed and sent the assessment bill, owners are able to appeal to the city and contest whether the benefit to their property exceeds the cost of the project (League of Minnesota Cities, 2019 and Ulrich, 2020). The nature of state law governing special assessments and protecting property owners, means that cities can face costly legal processes when residents appeal assessments as well as delays in construction (Ulrich, 2020 and City of Ramsey, 2013b). Given a number of factors, such as the City's experiences with administering special assessments, the desire to keep the burden on individual property owners low, the increasing annual debt service amount, and the current inadequacy of funding to cover long-term estimated costs, the City has also investigated alternative funding pathways to supplement road related revenue. Specifically, Ramsey has considered implementing a franchise fee, however it was voted down by the City Council in August 2019 (Cummiskey, 2019). To further research road funding mechanisms, the City of Ramsey partnered with the Resilient Communities Project at the Humphrey School of 1 See Table 2 for explanation of road maintenance and construction 2 See Table 2 for description of road maintenance types. 3 See Table 1 for description of funding methods.