Allen Dinkel, City Manager
For the past few weeks, we have taken a tour of the various utilities in the City. However, we know there are other utilities that are not operated by the City. This includes electric, natural gas, and communications which would include telephone services. There are about 125 cities in Kansas that have municipal electric utilities including cities near here such as Clay Center, Herington, Chapman, Enterprise, and Wamego that have an electric system that is operated by the City. Some of these cities do have electric generation plants, but they don’t use these for day-to-day generation as they purchase power elsewhere and it is transported on the electric grid. Those with generating plants do have the ability to generate in the summer time to “shave” peak loads or when the power company that brings electric energy has transmission issues such as an outage. The City can operate their generation and “separate” themselves temporarily from the interconnect and keeps the “lights” on in that community. There are about 70 cities in Kansas that operate natural gas. A majority of these cities are in south central and southeast Kansas. These cities, like the ones with municipal electric owns and operate the distribution system in their communities.
In Junction City electricity is brought two this city by two different companies. A large portion of the City is served by Evergy, however the far northwest portion of the City receives electric energy from DS&O Electric Cooperative. It is not a matter of choice, but where you are located. I live in the DS&O territory, but less than 500 feet south of my home is the Evergy territory. The Junction City Middle School and new High School are also in the DS&O territory. We could make comparisons between the 2, but it doesn’t matter as you can’t change anything. On the natural gas side, the entire city is served by Kansas Gas Service.
Okay, so what does the City of Junction City have to do with these utilities and services? All of these utilize City Right-of-Ways and easements to deliver their services throughout the City. In all cases these companies enter into a “Franchise” agreement with the City so they can have their infrastructure in those areas.
All of the franchises the City have include a “franchise fee” of 5%. That is fairly common among all cities in the State and yes serves as a revenue source to the City. Again 5% is common, but there are some cities that have a higher percentage.
Let’s just “Cut to the Chase”. The City receives franchise fees from these firms, but these are passed on to the customer. If you take a look at your electric bill, you will see a franchise fee that is 5% of your bill. As a customer, we all pay this to the company and then the funds go to the City and are placed in the General Fund. The General Fund is where the dollars come from for Police, Fire, EMS, Parks, and Streets expenses.
This is not a small amount. Even though franchise fees are received from all of the companies that have an agreement, I will just focus on the 2 largest today. Electric and Natural Gas. In 2022, the City received $1,403,074.94 from the 2 electric companies in franchise fees and $475,642.00 from natural gas sales. Of course, this amount varies each year, but the 2022 revenues were an “All-time” high for both. Add the other franchise fees in and the total hits near the $2 million mark on an annual basis. If the City did not have the franchise fee revenue, the property taxes would have to be increased by about 10 mills or 25%. Or yes, we could make a cut in the City budget, but what would that be?
Yes, I hear you saying, “Allen, I pay property taxes, but I also pay the franchise fees you are writing about?” Yes, you are correct, but there is more to this story. Naturally, only owners of property pay property taxes. Yes, if someone pays rent, part of that revenue for the landlord then goes for property taxes but that will vary, and I am sure owners just call it another expense. Also, there are properties in any community that are exempt from property taxes either on a temporary or permanent basis, but they are not exempt from franchise fees. Bottom line, the franchise fees are spread across a larger base than property taxes are.
Naturally the more electric and natural gas that is used, the higher the revenue in franchise fees. Pretty simple fact. I can’t exactly break it down, but our industries contribute greatly in franchise fees and are a major generator of this revenue for the City.
In the early days of “Covid” in the spring or 2020, we received a letter from Evergy regarding concerns about a drop in fees. Since revenue effects the franchise fees, there was a major concern that the shutting down of businesses could have a major effect on this revenue stream. And yes, we had that concern at the office as well.
We however got a surprise as the franchise fee revenue held steady and did not drop. A big reason is that a couple of our industries did not shut down and in fact one had a major increase in production during that time. This emphasizes the fact that these businesses not only provide jobs but add revenue to the community in doing so. Again, just another “cog in the wheel” to make the City run.