Excessive Bloomington Franchise Fees "Tax" Everyone

In Part 1 of our coverage of Bloomington’s newly-imposed gas and electric franchise fees, we wrote that Bloomington has justified these fees based on a projected shortfall in city revenue for street and trail maintenance. The projected 2016 shortfall was $550,000.  The City expects that the annual income from the fees will be $4.9 million. 

road-703804__180.jpgThe Bloomington city government had estimated street and trail maintenance costs at around $1.5 Million this year and $2.3 Million for 2017.  The City appears to be anticipating an exponential increase in street and trail maintenance costs, even though the key raw material in pavement repair is petroleum.    A review of the City’s cost projections appeared to be based on historically high petroleum costs.  Those costs have now dropped, but the City staff was unable to indicate what the impact of those lower costs would be on their projections.

The City’s Pavement Management Program has previously covered a majority of these estimated costs (the street maintenance portion).   However, the City is not offering any property tax reduction in light of the significantly higher income anticipated from the franchise fees.  Rather, the City is simply saying that property taxes will now not need to be raised as much as might otherwise have been required.

IMPACTS GO BEYOND INDIVIDUAL PROPERTY OWNERS

Since tax-exempt properties like churches and charitable nonprofits (e.g., VEAP, Bridging) are also billed these fees, donors to those organizations will see about $1000 per year per organization diverted from benevolent work in the community to instead pay for street maintenance.

During budget meetings last summer, Mayor Winstead and Councilman Baloga are reported to have stated that Franchise Fees would make "Those non-profits (i.e., Churches) have to pay their fair share".  

If the franchise fees replace tax funding for road maintenance, how is that spare $ 2.6 MILLION per year in normal tax collections going to be spent?  If households paid yearly fees for only the maintenance costs, they’d have about $50 back in their own pockets.

In response to an inquiry, Councilman Jack Baloga stated:   “All of the funding created from franchise fees will be used to fund future infrastructure improvements to our existing roads and trails.  There will be no surplus.”  But, as of time of publication, he did not respond to a follow-on request for supporting detail that explains the gap between published city estimates of annual costs and the fees collected.

ARE FRANCHISE FEES FOR ROAD AND TRAIL MAINTENANCE POTENTIALLY UNCONSITITUTIONAL?

The question of fees versus taxes gets complex quickly, and has been the focus of more than a few US Supreme Court decisions.  In 2012, the city of Des Moines, IA s was forced to refund $40 million in fees, in part because the State’s courts found charges to tax-exempt organizations like churches to be unlawful.   Peter J.  Nelson’s recent testimony March 3, 2016, to a division of the MN House provided an understandable in-depth look at the legal pitfalls of using franchise fees in place of taxes.   To read his full testimony, click HERE  

He concluded his remarks with this statement: “Ultimately, taxes fund public purposes, whereas a fee is generally a voluntarily incurred charge to people who benefit from a service.  This distinction is very important to maintain if constitutional limits on taxation are to mean anything, and if citizens are to remain able to understand city budgets and hold elected officials accountable.”  

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