Councillors back away from potential revenue source
Increasing franchise fees for utilities could mean property tax cuts for residents
By: Peter Boer
| Posted: Wednesday, Mar 13, 2013 06:00 am
Would residents rather pay less in property taxes and more on their utility bills or maintain the status quo?
We’ll never know the answer as city councillors voted Monday to simply keep things the way they are without studying the issue of franchise fees further. Sitting as the standing committee on finance, councillors also had the option of hiking the franchise fees charged for natural gas and electricity or discussing a new policy to do so.
St. Albert does have franchise fees – they just don’t amount to much. The fee for gas works out to 18 per cent, while the fee for electricity is set at zero, which is a rarity in Alberta – St. Albert is only one of four communities with a population greater than 10,000 to have a franchise fee set at zero.
“Because we don’t have a franchise fee, our rates are lower than other municipalities that have one,” Coun. Len Bracko said.
A franchise fee is a cost charged to a utility company for exclusive access to municipal rights of way. It also compensates the city for the loss of land used in utility corridors. That fee is then passed on by a utility to consumers.
Hiking the natural gas fee from 18 to 30 per cent would increase city revenue $1.375 million, enough to cut property taxes by 1.85 per cent, said chief financial officer Anita Ho. But money saved on taxes would be charged on utility bills.
“It won’t be new revenue every year but this is ongoing revenue every year,” Ho said.
Franchise fees and the cost to utility customers are also dependent on consumption – the more a customer uses, the more a franchise fee will affect his utility bill. This would mean that while residential customers could see some savings overall, not-for-profit groups and large businesses could see their utility bills climb well above any property tax savings they might realize.
According to a city chart, if both electricity and natural gas franchise fees were increased, the owner of a condo assessed at $200,000 would pay $105 less in property taxes but $90 more on utility bills for a net savings of $15 a year.
A business assessed at $2 million would pay $1,331 less in taxes but $1,892 more in utilities for a net increase of $561.
“There will be an impact, particularly on non-profit or tax-exempt organizations,” said Ho, proposing that if franchise fees were increased, a group be established to help such organizations become more efficient in the use of utilities.
While a majority of council simply voted to maintain the status quo, Couns. Cathy Heron and Wes Brodhead said this could represent a financial windfall for the city.
“I feel it’s council’s job to find revenue sources. It would bring taxes down and hopefully keep it down,” said Heron. “If we’re going to do this, there has to be a subsequent cut to taxes.”
St. Albert has played with franchise fees before, most recently in 2001 when fees were increased one month before the municipal election. Almost every member of that council lost his or her seat and the next council immediately repealed the franchise fee decision.