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City Council - 11/15/2022 - Workshop APPROVED MINUTES CITY COUNCIL WORKSHOP & OPEN PODIUM TUESDAY, NOVEMBER 15, 2022 CITY CENTER 5:00 – 6:25 PM, HERITAGE ROOMS 6:30 – 7:00 PM, COUNCIL CHAMBER CITY COUNCIL: Mayor Ron Case, Council Members Kathy Nelson, Mark Freiberg, PG Narayanan, and Lisa Toomey CITY STAFF: City Manager Rick Getschow, Police Chief Matthew Sackett, Fire Chief Scott Gerber, Public Works Director Robert Ellis, Community Development Director Julie Klima, Parks and Recreation Director Jay Lotthammer, Administrative Services/HR Director Alecia Rose, Communications Manager Joyce Lorenz, City Attorney Maggie Neuville, and Recorder Kelsey Engelen Workshop - Heritage Rooms I and II (5:30) I. FRANCHISE FEES Public Works Director Robert Ellis began his presentation by explaining all revenue from Franchise Fees goes toward Pavement Management. Ellis presented background on Eden Prairie’s 580 lane miles of roads, stating that the average age is 37 years while the lifespan goal is 60 to 70 years. Councilmember Kathy Nelson remarked sixteen years ago the goal was to get forty years out of roads, and that they must be being well-maintained. Ellis pointed out City Engineer Rod Rue who was in attendance, and responded that Engineering manages all projects, evaluates roads, and determines the type of treatment to be used, and commended the techniques used in Eden Prairie. Ellis defined the various techniques of Pavement Management and their cost beginning with the most affordable method, Preventative Maintenance, which involves crack seals and seal coats, and costs $0.20 per square foot. Next Ellis explained Repair Maintenance which includes mill and overlay and Texas underseal, and costs $1.50 per square foot. Major Rehabilitation is a more aggressive method, which includes full depth reclamation and stabilization, and costs $3.00 per square foot. The technique includes pulling up the existing pavement, re-mixing and reusing the material that was already in place. Finally, when there are no other options, the most expensive method, at $10.00 per square foot, is Reconstruction. Ellis then stated the more you spend on maintenance costs, the less often you need to do major rehabilitation or reconstruction. Ellis went on to dissect the funding of Pavement Management through Franchise Fees which generate around $3.2 million per year. Municipal State Aid Maintenance Dollars contribute $500,000 per year, and another $500,000 comes from General Funds, totaling $4.2 million per year. Narayanan asked about the source of Franchise Fees. Ellis explained Franchise Fee are part of the gas and electric bills for all Eden Prairie residents. The fee is collected by Xcel Energy and CenterPoint Energy, and then are remitted to the city. City Council Workshop Minutes November 15, 2022 Page 2 Mayor Case asked for verification that the $4.2 million in funding and a recommendation to increase Franchise Fees is the topic being presented. City Manager Getschow confirmed the topic and specified the fee was established ten years ago and updated five years ago. Councilmember Toomey inquired if this was the standard timeframe and funding approach in other cities. Ellis summarized the history of Franchise Fees in Eden Prairie, stating the city first adopted Franchise Fees in 2012 when there was virtually no source of revenue for Pavement Management which was funded solely through the General Fund. Ellis explained at that time there were discussions about cutting services and budgets in other departments to maintain Pavement Management. In their task of discovering a viable solution, staff researched several options and with support of the City Council and advice from the Budget Advisory Commission, it was agreed that Franchise Fees were the best option. A preferred alternative to annual street assessments, Franchise Fees are not only more efficient, equitable, predictable, and manageable, but they also avoid litigation, large assessments, and negative public hearings. Ellis also noted 110 other Minnesota cities utilize Franchise Fees, mainly for Pavement Management. Mayor Case, having been around during this decision, outlined three ways to fund Pavement Management; through use of a General Fund, Special Assessments, and Franchise Fees. He specifically noted cities which conduct Special Assessments do not bank funds for roadwork, thus large assessments can generate shock and anger from residents. Case indicated Franchise Fees initiated after Special Assessments have been collected may cause homeowners to feel they are paying twice for the roadwork. Case commended the timing of Eden Prairie’s adoption of Franchise Fees, and noted other cities’ need to prorate fees due to timing of special assessments combined with implementation of Franchise Fees. Ellis affirmed the support of Franchise Fees by the energy companies who value their relationship with the city. The companies see the benefit to their businesses and to customers for ease of operations and cost savings through use of roads, which are paved and plowed by the city; the use of right of ways, which removes their need to acquire private easements; and the complete accessibility of the roadways year-round. Narayanan asked for a breakdown of fees from electric and gas companies. Ellis acknowledged the fees are identical. Narayanan asked for clarification about how the fees are calculated based on usage or price of gas, to which Ellis and Getschow clarified that these are fixed flat fees and not based on usage. Ellis noted around 95% of cities which have adopted Franchise Fees use them in this way, though Minneapolis and St. Paul charge a fixed five percent of bills rather than a flat rate. Getschow added when Franchise Fees were adopted in Eden Prairie ten years ago, there were only around ten other cities in Minnesota using the same method compared to 110 now, making Eden Prairie one of the first. Getschow recalled a positive reception among residents; only two individuals attended the neighborhood meeting, and no one attended the public hearing with concerns. Ellis proceeded to define two Pavement Management goals. First, on a scale of 0 to 100 on a Pavement Condition Index (PCI) rating, the goal is that the average overall condition of all roads be Very Good or Excellent (70 – 100 PCI). The current overall condition is rated 86 PCI, and the goal has been well met over the last ten years. The second goal is to have less than 10 percent of roads in City Council Workshop Minutes November 15, 2022 Page 3 the Poor, Very Poor, or Failed rating (0 – 40 PCI). Currently only 2 percent of Eden Prairie’s roads fall into these ratings. Ellis presented a graph that reflects PCI in relation to the age of pavement for a road receiving routine maintenance only, and another road receiving active Pavement Management. A new road with routine maintenance only and no Pavement Management would ultimately result in road failure after thirty years, requiring replacement. A new road with active Pavement Management on the continuum of the life of the road, including seal coatings, mill and overlay, and full depth reclamation, can last a lifespan of around seventy years. The road with active Pavement Management, when accounting for six seal coatings throughout the lifespan, a mill and overlay, and a full depth reclamation, costs $5.70 per square foot for the seventy years of life. In contrast, it cost $10.00 to undergo complete reconstruction after thirty years resulting in sixty years of road life. Council members Nelson and Narayanan recognized that achievement of superior road quality through active pavement management would cost less than deteriorating road conditions. Ellis acknowledged there is an extra level of effort that is required for additional Pavement Management. Ellis explained historical PCI ratings, showing that since 1995, conditions have been Very Good to Excellent. However, with the current funding model and methods which is $4.50 for utility Franchise Fees, the predicted ratings will fall slowly over the next ten years and into the Good rating in 2031. Incremental increases to Franchise Fees were charted to predict future outcomes to citywide average Pavement Condition Index. PG Narayanan asked how fees might be adjusted based on number of individuals residing in a household or how it might be different for residential homes compared to businesses. Ellis responded residential housing are all a flat fee with no bearing on number of residents or size of the home, but that businesses have different rates. Mayor Case asked if all businesses would pay the same flat rate. Ellis answered that there is a breakdown for business size; after the residential group, there are three categories for business size with specific Franchise Fees for each group. Ellis recommended a $6.50 Franchise Fee, which would achieve citywide average PCI of Very Good or better. It would sustain only around 10 percent of road PCI to fall below or equal to Poor, Very Poor, or Failed. And there would be no need for special assessments. This means that residential bills would increase to $6.50 from $4.00. Small commercial/industrial A would increase to $8.15 from $5.00. Small commercial/industrial B would increase to $20.30 from $12.50. And large commercial/industrial would increase to $89.40 from $55.00. Mayor Case asked where apartment buildings fit into the plan, and more specifically buildings where utilities are included. Ellis responded it is dependent on situation and how accounts are set up; individually metered tenants fall into the residential category, whereas an entire apartment complex bill being paid by the owner likely fall into the large commercial category. Mayor Case noted a sense of regression due to the same flat fee being charged for a $40,000 household as a $2 million household. Case added that he is not interested in charging a percentage of usage as is practiced in Minneapolis, but he questioned if there was a potential of creating another category within residential for apartments. Ellis agreed that this is a downside of Franchise Fees due City Council Workshop Minutes November 15, 2022 Page 4 to constraints based on the way energy companies set up their customer contracts, which limits categories to the four that have been discussed. Mayor Case asked about the concept of scaffolding the fees in four-year increments, i.e. go to $5.50 from 2023 to 2027, then up to $7.50 for the next five years. Ellis responded that in their examination they found that they would have to go to $6.00 for the first five years, then $8.00 for the next five years to achieve close to what would be achieved at $6.50 for the ten-year period. Getschow clarified the plan would be presented as an ordinance revision and is intended to be revisited every five years. The ordinance would be brought back into discussion in 2027 and would not be set in stone for a ten-year period. Narayanan inquired about the uniformity of rate increases across each category and asked if there is room to increase the rate at a higher percent for large commercial/industrial. Narayan shared Mayor Case’s concerns regarding residential and called out the inequity of charging the same rates for single-income apartment renters compared to dual-income households. He expanded the concern to include the relative rate increase for mom-and-pop shops that fall into the small commercial category as compared to the rates for big box stores and other large companies. Ellis explained the makeup of Xcel Energy customers consisting mostly of residential accounts with very few large commercial/industrial, therefore having lower residential rates would create a gap that cannot be made up by large commercial/industrial even with fees were as high as $1,000. Ellis and Narayanan reiterated the constraints on creating additional groups based on how energy companies categorize accounts, which does not allow for a separate group for apartments. Toomey asked about price increases of materials for Pavement Management projects. Ellis responded that prices have indeed increased greatly and explained that 3.11 percent annual inflation was built into the program and is driving the model recommending $6.50. Mayor Case reflected upon the alternative and more costly special assessments that could have been adopted 12 years ago. Case noted cities who do not have the benefit of adopting Franchise Fees at this time because they have been collecting special assessments for the last twenty years. Case emphasized that Franchise Fees equate to less money and has allowed Eden Prairie to maintain great roads. Case concluded Franchise Fees were implemented at the right time. Ellis presented a map of Eden Prairie roads depicting most roads in Eden Prairie having pavement management work done during the last ten years and calculated the cost to homeowners through Franchise Fees over the ten-year period was $780. Ellis compared this value to cities where households are affected by $5,000 to $20,000 special assessments every few years. Council agreed that increases to Franchise Fees to maintain and extend the life of roads is superior to waiting for roads to fail and pay more overall to completely reconstruct. Narayanan observed areas of the city like Bearpath Trail where very large homes with high-income residents will be paying the same fee of low-income households. Mayor Case reiterated agreement that portions of the program are regressive and restrictive in nature. Getschow simplified the philosophical core of the ordinance which states the Franchise Fee is what the City charges the utilities for being in the right of way, and companies choose to charge their customers and name the city on their itemized invoices. City Council Workshop Minutes November 15, 2022 Page 5 Ellis explained if this were to move forward, the next steps would include an ordinance at a future City Council meeting with a first reading followed by a second reading and public hearing requirements. Following approval, it would be sent to Xcel and CenterPoint Energy where it would take approximately 90 days to become effective and for the companies to begin collecting. Mayor Case asked if this new model was anticipated due to inflation when the fees were first enacted, and what is the anticipated plan for the future if there is one; or if this model is a reaction to the inability to keep up with the required maintenance at the expected cost. Ellis suggested that eroded purchasing power in recent years has prompted inflation to be worked into this model where it was absent in the past. He also stated that when populations were rising rapidly in the 1990s, roads were being built without enough Engineers to inspect everything, resulting in unexpected issues requiring additional work to correct poorly engineered roads. Case followed up by asking if any types of additional costly surprises could potentially arise. Ellis answered that the only surprise cost would originate from the Watershed District creating new rules. For example, if during a full depth reclamation, a new regulation dictates that new stormwater management ponds be put in. Toomey inquired about the possibility of grants from the state. Ellis stated that grants are always being pursued. Currently there are two grants Hennepin County and Eden Prairie are looking to be awarded. The first is for a new bridge on Eden Prairie Road over Twin Cities & Western Railroad, and the second is for Pioneer Trail over the Minnesota River Bluff Regional Trail. The two plans will likely be about a $10 million project. Mayor Case requested that Council Members share a dollar value that they are currently feeling amenable toward. All Council Members stated that they are comfortable with $6.50. II. 2023 COUNCIL CALENDAR/COUNCIL APPOINTMENTS Mayor Case advised, with support of Getschow, that council not attend the upcoming neighborhood meeting to avoid presenting as a distraction to the session. The concern being attendees addressing Council Members rather than directing questions to the Ryan Companies. Narayanan asked if city staff will be in attendance, to which Getschow informed that staff may be in attendance with the intention of maintaining awareness of public perception, not to play an active role. Nelson mentioned a desire to ensure that the traffic study be conducted and presented. Getschow confirmed the study had been conducted and the city had advised on ways to present the amount of traffic that will occur. Getschow explained the logistics of the event, starting with a presentation in the Cambria Room, then breaking off into issue-based stations like traffic, environmental and sustainability, or parking. Toomey pointed out that Councilmembers may receive calls from the public following the meeting. Getschow said that the issue could come back to City Council and a Public Hearing would be posted. Mayor Case guided Councilmembers to speak to Getschow regarding the navigation of responses to the issue and reminded Council they were already presented the information that the public would have at the neighborhood meeting. City Council Workshop Minutes November 15, 2022 Page 6 Mayor Case initiated discussion around Town Hall Meetings and expressed a shared sense of success from hosting at the Senior Center as well as morning Council Chamber breakfast sessions. Case proposed a repeat of those successful meeting logistics and suggested expanding on hosting at senior living facilities due to the high turnout from residents living in those facilities. Case voiced his impression that the diversity meeting did not accomplish Council’s objectives, not attracting the intended residents. Case offered an alternative of Saturday afternoon picnics to attempt to appeal to a more diverse audience, and asked Council for thoughts and feedback regarding Town Hall Meetings. Nelson asked about late afternoon chambers sessions, to which Getschow clarified that the business survey session is a late afternoon After Hours session. Case discussed a desire to set up a recurring roundtable focus group with Council and with David Lindahl in an effort to increase involvement from the business community. He mentioned that the Entrepreneurship Program is on track and set to commence in Fall 2023. Narayanan proposed hosting sessions for students at a school. The idea was well-received by Case and other Council members. Narayanan expressed agreement regarding diversity sessions lacking the intended audience and suggested choosing an apartment building to mimic the sentiment behind the senior center location; go to your audience. Getschow called attention to the 2023 draft City Council Calendar, explaining that action will not be taken until January and to make him aware of schedule conflicts. While no special Town Hall meetings are on the calendar, the Board and Commission Banquet, Board and Commission Interviews, a Saturday Council Retreat, any Election Days, and all holidays are included. Some dates, such as the Saturday Council Retreat, are tentative. Getschow wrapped up by informed Council that in January all appointments are sent to groups. Without need for immediate response, Getschow requested communication regarding changes to groups and stated he will assume councilmembers are comfortable with remaining on the same groups if they do not reach out. Nelson pointed out that groups like the Eden Prairie Foundation have a term limit. Open Podium - Council Chamber (6:30) II. OPEN PODIUM III. ADJOURNMENT