Municipal Services Committee Receives Presentation On Transportation Utility Funding Study; Hears Attorney’s Legal Concerns; Puts Item On Agenda Of Next Meeting To Discuss

The Municipal Services Committee met 05/23/2022. The item that took up the most amount of time at the meeting was the presentation from Ehlers/raSmith on a Transportation Utility.

The item was an information item which means the committee did not vote on implementing a transportation utility or taking any steps toward implementing a transportation utility. In fact, because the meeting went long, they ran out of time to properly discuss next steps and Alderperson William Siebers (District 1) who is the chairperson of the committee ended up putting the discussion about it back on the agenda for the next Municipal Services Committee meeting to allow more time for them to talk about it.

The representatives from Ehlers/raSmith gave a high-level overview of how transportation utilities work and what the financial impact on Appleton residents might look like in several hypothetical situations. City Attorney Christopher Behrens briefly talked about a couple of lawsuits that are currently underway against municipalities over their transportation utilities, and he urged the committee members to be very cautious about moving forward on implementing a transportation utility due to the legal uncertainties surrounding such utilities in the state of Wisconsin.

Prior to the presentation, Director of Public Works Paula Vandehey gave some background.

• On 08/04/2021, the Council approved Resolution 9-R-21 which directed staff to commission a Transportation Utility Study.
• During the 08/23/2022 Municipal Services Committee meeting, Director Vandehey gave a presentation called “Road Reconstruction 101”. Part of that presentation shared with the committee the kind of challenges the city was having with funding its road reconstruction projects.
• During the 10/06/2021 Common Council meeting, the Council awarded the transportation utility funding study to Ehlers/raSmith.

Today John Cameron and Lisa Trebatoski from Ehlers and Jeff Mazanec from raSmith were before the committee to give a high-level presentation about where they were at with the transportation utility study. Following that, Attorney Behrens wanted to share some insights he had on some of the lawsuits in the state of Wisconsin over Transportation Utilities.

She passed things off to John, the Senior Municipal Advisor with Ehlers, to give the presentation.

A transportation utility essentially equates a city’s transportation network to a utility like a water, sewer, or stormwater utility in that user rates are collected to fund both the operations as well as the capital expenses within the utility.

The creation of a transportation utility necessitates user charges. There has to be a rational nexus between the charge that property owner is paying and their use of the system. For a water utility, there is metered water consumption. For a stormwater utility they look at a measure of impervious surface area and how much storm water runoff a property generates. For a transportation utility, they have found that the method that seems to be the most defensible and that provides the best kind of nexus between a property’s use of the transportation network and the user charges they ultimately pay is the concept of trip generation. Trip generation is basically anytime a vehicle enters or leaves a driveway for a business or residence.

Different properties have different trip generation rates, and there is a very long transportation trip generation manual that has almost every different property class that could be imagined and the associated trip generation rates. Jeff and raSmith had been spearheading the process of looking at the various non-residential properties within Appleton and developing different trip generation for them. They would ultimately do that for every property in the city if Appleton decided to go forward with creating a transportation utility.

He noted that there were other methods out there, but trip generation was really the most defensible method when developing user charges.

He went on to say, “In terms of the authority to create a transportation utility in Wisconsin, currently there is no direct statute to establish a transportation utility. The League of Municipalities published a memo in June of 2020 on the concept of transportation utilities and suggested that municipalities can rely on their Home Rule authority to create a transportation utility. […] It allows municipalities the authority to act for that the good order of the city, for municipality’s commercial benefit, for the health safety and welfare of the municipality, and it gives that municipality the ability to carry out its power by appropriation or other necessary means. But it’s important to point out that this has not been tested yet in a court.” The Home Rule authority was actually the means by with the first 11 stormwater utilities were created prior to direct legislation being enacted to give municipalities the power to create stormwater utilities.

Although this would be a new utility in the city, there were still some generally accepted universal principles that provide guidance in establishing user charges. These come from the American Water Works Association which is the entity that the Wisconsin Public Service Commission relies upon to establish and set water rates across the state. Those general principles were…

• Rates should be cost-based and they should have a budget that sets for exactly what the utility was recovering with the user-charges both from a capital standpoint as well as from and operations standpoint.
• Rates should be equitable across all customer classes and set at a level that they cover the full revenue requirement of the utility, meaning that the rates are set at a self-sustaining level. He did, however, note that Appleton’s transportation network relies on multiple funding sources and if a transportation utility were to be created that wasn’t necessarily going to change.
• Rates should be easy to understand and administer. Customers should be able to understand what they’re being charged and why they are being charged, and utility administrators should find the charges easy to bill customers appropriately and collect payments.
• Rates should follow the principle of cost causation. That means that those who create the cost pay the cost.
• Rates should be stable both in their ability to provide adequate revenues to meet the utility’s day-to-day needs and in their ability from a customer’s perception that they stay steady over time. They would not want to put the utility in place and then immediately jack up the rates and cause rate shock.

In the League of Municipalities memo that came out in June of 2020, they spent some time talking about how, if a community creates a transportation utility, they should avoid making it look like a tax. They came up with 5 different things to monitor.

1. Place fees collected in a separate fund just like one would for a water or sewer utility. Those are enterprise funds of a municipality and the money in them is used to fund the operations of the utility which in the case of a transportation utility would be street maintenance and reconstruction projects.
2. Collect the user charges in the same manner as other utility charges. Those methods should follow suit with how they do collections for water, sewer, and stormwater bills and would end up being added on to property owners’ monthly or quarterly utility bills.
3. Ensure the formula for calculating the fees is as accurate as possible.
4. If a municipality has a credit policy within their utility, they should avoid outright exempting tax-exempt properties from user charges because that gives the appearance of a tax.
5. To the extent possible, consider having some sort of appear or credit policy where if property owners can demonstrate a lower usage of the system that the utility allows them to have a lower fee.

Probably the biggest argument for creating a transportation utility was financial, but another reason was fairness. The slide showed a chart demonstrating the amount of money that various types of property owners pay for transportation costs based on property tax versus what they would pay under a transportation utility. His microphone cut in and out as he was talking, but when it came back on fully, he stated, “The residential class makes up approximately eighty percent of the total equalized value within the city but is responsible for about forty one percent of the total amount of trips within the city.” Under a transportation utility, the burden for transportation costs carried by residents would decrease while that carried by retail, commercial, and industrial-type businesses would increase.

The other reason to consider a transportation utility was for the sustainability of finances. Municipalities were a little over 10 years into experiencing levy limits. They were limited to increasing their levy by the increase in net new construction. Municipalities also had the ability to issue general obligation debt which was, by and large, how most municipalities were going about street reconstruction projects; however, municipalities could issue general obligation debt of no more that 5% of their city’s total equalized value. Most municipalities have to issue debt because, in spite of levy limits, they can increase their property tax levy to make sure that they are able to pay their debt service. However, that does constrain municipalities, and as they move forward in time, they see road construction costs go up but the amount of borrowing still stays limited. The amount of money that gets allocated to roads grows which in turn limits the amount of remaining money that can go to other projects that are financed by general obligation debt. Those limits might also end up causing municipalities to cut down on the number of miles of road they reconstruct each year so that they can focus on other projects instead.

[That seems like an issue with any kind of budget, though. You only have some much money, you need to figure out how to allocate it to best suit your needs, and you end up having to cut some things. I mean, there’s a reason why I have 15-year-old cars and don’t own a vacation home.]

He went through several different scenarios regarding a potential transportation utility and the associated costs.

• SCENARIO 1 – STATUS QUO: This was how the city was currently funding its road construction and reconstruction projects. They were replacing an average of 1.81 miles of roadway per year (0.52% of the transportation system). This cost $7,885,000. $2,685,000 of that was covered by the taxes, $1,200,000 was covered by the wheel tax, and $4,000,000 was covered by General Obligation borrowing.
• SCENARIO 2 – ELIMINATE THE WHEEL TAX AND REPLACE IT WITH A TRANSPORTATION UTILITY: The city would continue to replace an average of 1.81 miles of roadway per year, the $2,685,000 covered by taxes would remain the same, the $4,000,000 covered by borrowing would remain the same, but instead of using the wheel tax to cover the additional $1,200,000 needed they would pay for that with a transportation utility.
• SCENARIO 3 – REPLACE THE WHEEL TAX WITH A TRANSPORTATION UTILITY THAT RAISES MORE MONEY THAN THE WHEEL TAX DID: The city would increase the average miles of roadway it replaces each year to 3.52 (1.02% of transportation system). $2,685,000 would be covered by taxes, $4,000,000 would be covered by debt, and instead of only raising $1,200,000 through the transportation utility, they would raise $4,200,000.

He noted that replacing only an average of 0.52% of the roads per year put the city on a 200-year replacement cycle whereas replacing 1.02% put it on a 100-year replacement cycle. Neither of those were ideal, but Appleton would not be alone in terms of its replacement cycle. Many cities are on a 100-year replacement cycle.

He reviewed the different rate calculations for scenarios 2 and 3.

User charges for utilities were had two components a fixed charge per property and then the use fees such as the volumetric charges for water or sewer utilities and a trip charge for a transportation utility. In both scenario 2 and 3, they preliminarily allocated 10% of the total utility revenue to the fixed charge and the remaining 90% to the trip charge. The percentage remained the same for each scenario but because the total amount of money they were getting from the transportation utility changed in the scenarios the final dollar amount was different in each scenario.

The utility fee was broken into two parts, the Trip Charge and the Fixed Charge. The purpose of having a two-part charge was because some of the costs were allocated based on a user’s use of the system. In this case that would be covered by the trip charge. However, some costs, such as billing and general staff time, were very similar across all users regardless of how much they used the transportation system. He said that if they went forward with a utility, that aspect would be something that they would further refine.

He went on to say that the concept of a trip generation rate was similar to a stormwater utility wherein single-family residences were all assigned a similar number. In the case of a transportation utility, all single-family homes would be assigned a rate of 9.44 trips per day. In Scenario 2 which simply replaced the money being generated by the wheel tax with money being generated by a transportation utility, the annualized trip rate would be $1.48. In Scenario 3 in which a transportation utility was set up to generate more money than the wheel tax, the annualized trip rate was set at $5.03.

He then reviewed how various different types of property would theoretically be affected by the 3 different scenarios.

A single-family home valued at $200,000 with 2 vehicles between property taxes and the wheel tax, currently pays about $203.06 per year toward transportation expenses. That figure was arrived at by looking at the Capital Improvement Plan for the next 5 years, the amount of money expected to be borrowed over the next 5 years, and the city’s annual debt service payments over the next 5 years.

If the wheel tax were eliminated and replaced with a transportation utility, the total amount of money they paid toward transportation costs would decrease to $180.89. If the wheel tax was eliminated and a transportation utility was created which generated more funds than the wheel tax, the total amount of money paid by that single family home toward transportation costs would rise to $223.68.

By comparison, the amount an elementary school paid would go up for each of the 3 scenarios. Currently elementary schools pay nothing toward the maintenance of transportation infrastructure because they do not pay property taxes and they are not subject to the wheel tax which is largely recovered through residential car owners. In scenario two, the amount they paid per year toward transportation expenses would go up to $1,482.34. In scenario 3, that would increase to $5,039.97. This was based on an elementary school with an estimated student population of 440 and an estimated weekday average of trips per student of 2.27.

Currently, a generic bank or credit union with a drive-up window was estimated to pay $733.76 toward transportation expenses. This was exclusively through property taxes because banks are not subject to the wheel tax. In scenario two, a bank/credit union which an estimated weekday average of 100.35 trips would pay $1,480.34 toward transportation expenses, which would be the transportation utility rates added to the amount they were already paying in taxes.

Another example was a fast-food restaurant with a drive-thru window. They would go from paying an estimated $642.10 a year toward transportation expenses through taxes to $2,760.72, to $7,888.56.

An average convenience store gas station which, due to the nature of the business, had the largest trip generation estimate of all the different properties shown, would go from paying $782.68 toward transportation expenses to $4,301.36 to $12,746.20.

At Director Vandehey’s prompting, he clarified that the property tax amount shown in the various scenarios was not the full property tax bill for the properties but only the part that was estimated to go toward transportation costs.

That was the end of the presentation. He opened things up for questions and briefly noted that if the city decided to move forward with the creation of a transportation utility, there were a number of steps that would have to take place including

• Completion of a written Transportation Utility Creation Study
• Development of a Transportation Utility Ordinance and any applicable policies and procedures
• Refinement of a utility billing database and incorporation of that database into the utility billing system
• Further community outreach.

Director Vandehey told the committee that given the amount of internal work that would need to happen to form a transportation utility, if the Council decided in the next couple months that they wanted to do that, the earliest such a utility could be implemented would be January 1 of 2024. If they decided to sit on it for a while, that start date would get moved to January 1 of 2025.

Alderperson Siebers asked if any of the alderpersons had any questions.

Alderperson Denise Fenton asked if they knew from a systems standpoint what they would have to do to terminate the wheel tax. What sort of notice would they have to give to the state? Who would they contact to stop collecting the wheel tax? There was nobody present who knew the answer.

Alderperson Alex Schultz (District 9) owned 2 hybrid vehicles and, on top of the wheel tax, he paid a surcharge for each of them because they were hybrids. He wondered if that surcharge would go away if the wheel tax was eliminated.

Director Vandehey said that was not part of the wheel tax and the city received none of the funds from that surcharge.

[The surcharge is levied by the state. My understanding was that the purpose behind them was to make sure that hybrid and electric vehicle owners were still paying toward highway repairs even though they were not paying as much in gas taxes.]

Alderperson Del Toro (District 4) asked if the transportation utility charges be based on vehicle type. He noted that a large vehicle like a pickup truck would cause different wear and tear on the roads as compared to a small vehicle.

raSmith representative Jeff Mazanec responded that the user charge system was set up on a one-vehicle-type basis. [Essentially, they made no distinction between vehicle types.] Oregon had had transportation utilities set up for 30, and some of the cities there did differentiate between heavy trucks and other vehicles. Oshkosh was also talking about doing that, but, according to Jeff, it was very very difficult for a municipality to fairly administer a utility with that.

Alderperson Del Toro asked him how so.

He responded by asking how they would determine the number of truck trips per property. In the cases they had presented, they had estimated the number of average trips per average weekday for every property based on the size of the property and what happens on the property, but they can’t differentiate types of vehicles.

Alderperson Del Toro suggested some easy differentiation could happen if a home owner had to register their home and why kind of vehicles they had.

Jeff responded that doing that would result in a lot of additional administrative work to make that distinction and then keep it current every year.

Alderperson Del Toro thought it was something worth having the Department of Public Works look into.

Director Vandehey pointed out that it would be one thing to find out how many vehicles a residential property had and what type they were, but other types of property didn’t have registered vehicles. In the example of a gas station, how would they know how many how many trips were generated by tanker trucks and how many by Priuses?

Alderperson Del Toro responded that the data they had just been presented indicated that most of the transportation utility funds would come from residential properties.

Director Vandehey answered, no, it was actually the opposite, and Jeff confirmed that a transportation utility would actually reduce the amount of transportation expenses shouldered by residential properties by about half.

Alderperson Katie Van Zeeland (District 5) asked if they could explain what they defined as a transportation-related expense.

Jeff answered that it was primarily road reconstruction costs, and Director Vandehey added that in also included sidewalks.

Alderperson Chad Doran (District 15) said that the presentation had looked at replacing roads every 200 years and every 100 years. He wanted to know what the ideal timeframe was for replacing roads.

Director Vandehey answered that in an ideal world they would be looking at replacing them every 50 years; however, 100 years was probably where most communities were right now. Appleton was on a 200-year trajectory. “That is not sustainable. So, I think if we can find some way to at least start shooting for the hundred years, that would put us in a much better situation.”

She also noted that although 2 scenarios had been presented, there were any other number of options that the Council could decide they wanted to go with.

Alderperson Doran asked if taking the steps needed to move forward would be covered under the original contract they signed with Ehlers/raSmith or if they would need to sign a new contract with more funding.

Director Vandehey answered that the original contract would get the city close to implementing a transportation utility.

Jeff added that they had gone through the city’s parcel database and identified around 30,200 accounts. Those accounts were not only parcels but sub-parcels which were mostly multiple tenants on commercial properties. They were breaking them down because a strip mall, for example, might have a fast-food restaurant on one end and then a nail salon on the other as well as a tattoo parlor and a financial office. Those were all different types of land uses with very different trip generations.

They had about 800 properties left to resolve out of the original 30,000, and he said they would add another 1,000 properties as they completed it.

Alderperson Siebers then asked Attorney Behrens to give his thoughts on what’s been happening regarding transportation utilities.

Attorney Behrens said, “I guess my comment would be if you’re thinking about moving forward proceed with caution.” There was currently a lawsuit pending against the Town of Buchanan. He had reviewed that, and Buchanan’s transportation utility was a bit different than what had just been presented to the committee. However, he was more concerned with a lawsuit that was recently brought against the Village of Pewaukee because their transportation utility resembled what had just been presented to the committee. That complain was still in the early stages, having just been filed in April, and the judge had just issued a scheduling order. He didn’t know the dates, but his guess was that at the earliest the opposing sides would present their arguments and a decision would be made late summer/early fall. More than likely, regardless of which side lost, it would be appealed and so would be in the hands of the Court of Appeals for a period of time after that. “I would just say proceed with caution. While I haven’t reviewed those briefs, I’ve reviewed the complaint. The complaint was filed by the Wisconsin Manufacturers and Commerce, and there’s some interesting arguments that are made. I don’t want to go into detail here about those, but it will be an interesting case to see how that plays out. I’m aware of at least one municipality that, based on that filing at this point, has decided to kind of put a hold on moving forward to see how that plays out.”

Jeff said that he was working with Pewaukee and the user charge model that they built there was the same as the one they presented to the committee. The reason for that was because that model was as close as they could get to mimicking a water utility. Water utilities were reviewed and authorized by the Public Service Commission which was a high standard, and they had attempted as best they could to make their model meet the same criteria. The challenge against Pewaukee’s transportation utility was based on whether there was a legal footing to create the utility and didn’t address the mechanics of the system.

He confirmed that, as mentioned by Attorney Behrens, the city of West Allis had been about to start a transportation utility study a few weeks ago but decided to hold off after the Pewaukee lawsuit to see what happened with that. In the meantime, Pewaukee had been billing for their transportation utility since July 1 of 2021. The city of Wisconsin Rapids also passed a transportation utility ordinance in March of 2022 and were slated to begin sending out bills July of this year. In addition to Appleton, Oshkosh, Wauwatosa, and the Village of Greendale were all studying transportation utilities and keeping an eye on the situation with Pewaukee.

The committee ran out of time to property discussion what next steps they might want to take, so Alderperson Siebers put that discussion on the agenda for the next meeting.

Alderperson Van Zeeland did register her frustration with the situation commenting that when the transportation utility resolution had first been discussed she had brought up concerns about the lawsuit against Buchanan and had been assured by many of her colleagues that that would not be an issue for Appleton. She found it really frustrating now to see that it was something that might hinder their next steps. [I can appreciate her frustration. It’s going to be vexatious if the city spent money on this study only to find out that transportation utilities aren’t allowed in Wisconsin.]

View full meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=978355&GUID=EE014CCE-AB65-49E7-BE91-DAA800F296CE