Cities charge utility companies (electric and natural gas) a “franchise fee” for the use of city-owned, public right-of-way. This fee is then passed on to utility customers. Many cities across Minnesota use franchise fees to offset city expenses for street maintenance that would otherwise go to the property tax levy.

The City of Prior Lake maintains 110 miles of city streets. Scheduled maintenance is critical for extending the usable life of city streets to between 40 and 60 years before full reconstruction is necessary. Regular maintenance includes crack sealing, seal coating, and mill and overlays.

Every mile of street is inspected every three years. Distresses such as potholes, cracking, and rutting are inventoried and entered into a computerized program to calculate a pavement condition known as the Overall Condition Index (OCI). Streets that are new and have no distresses have an OCI value of 100, while streets that have completely deteriorated have an OCI value of 0. The city’s current overall average OCI is 71. The city’s goal is to maintain an overall average OCI between 70 and 75 for city streets. This goal is consistent with pavement management programs of other metro communities and optimizes the required funding with the overall serviceability of the street network system. The goal of the program is to “do the right maintenance at the right time” to extend the overall life of the road system to 40 to 60 years.

A recently completed Pavement Management Plan identified that an increase in annual funding is necessary to maintain an overall network OCI between 70 and 75 over the next 20 years. Without an increase in annual funding, the city’s road conditions are projected to deteriorate to levels that are unacceptable and would require an even higher increase in funding to return the system to current levels.

While not technically considered a “tax”, this is a new dedicated revenue source for the city which would be collected from utility users in Prior Lake; it will have the same effect as a tax. However, it is not levied in the way a property tax is levied, given that franchise fees are not tied to the value of a property. Thus, all single-family homes would pay the same amount assuming they have both gas and electric services.  This essentially serves as a road user fee.  Specifically, franchise fees are a method of collecting funds from utility companies who use city rights-of-way. These funds are typically collected directly from commercial businesses, tax-exempt properties, and residents that use the street systems. The funds are then passed through to the city to maintain city streets.

The franchise fees would be set aside in a dedicated fund and will be used solely for expenditures related to street improvement projects such as street overlays and reconstruction.

Minnesota State Statutes allow for a city to impose a fee on a utility company for its use of publicly owned right-of-way (MN State Statute 216.36). Many cities throughout the state have adopted franchise fee ordinances to help pay for roadways.

The projected cost of street maintenance in Prior Lake is estimated to be approximately $95 million over the next 20 years or $5 million annually. Prior Lake property owners currently pay a total franchise fee of $10.00 per month ($5.00 on gas bills and $5.00 on electric bills).. Commercial and industrial businesses pay a higher rate based on their usage and meter sizes. The franchise fee amount was established in 2006 and was adjusted in 2021.

Yes, per the current City assessment policy.

Yes, the fees are charged by electric and gas meters and you will pay the standard residential fee. The fee pays for your use and maintenance of the public city streets.

For more information about the franchise fee, please call the City’s Public Works Department at 952-447-9896 or email at pwadmin@PriorLakeMN.gov.