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Exh 8BAGENDA ITEM SB FEBRUARY 11, 2002 CITY OF ATLANTIC BEACH CITY COMMISSION MEETING STAFF REPORT AGENDA ITEM: Franchise Fee Levied by the City of Jacksonville on Outside City Water and Sewer Sales SUBMITTED BY: Jim HansOA,-C.1 DATE: Januazy 30, 2002 BACKGROUND: Atlantic Beach was notified by the City of Jacksonville that it had adopted a new franchise ordinance that affected Atlantic Beach's water and sewer sales outside of ouz City limits. One of the provisions of the ordinance would impose a 5% Franchise Fee which would go into effect on 10/1/01. As a result of our concerns over late notification, Jacksonville has since delayed the effective date unffi Apri12002. The total amount of the outside water and sewer sales in the current year's budget is estimated at $2,595.000. Five percent of that amount would equal $129,750. The Franchise Fee will be in addition to the amounts collected by Atlantic Beach on Jacksonville's behalf for the Water Utility Tax of IO% which is already in effect. At the request of Mayor Meserve, a meeting was held with Jacksonville Council members Jerry Holland, Warren Alvazez and Elaine Brown. Many other Jacksonville and JEA staff members attended that meeting. Mayor Meserve argued that the additional fee would place an unusual burden on our water and sewer customers outside of the City limits because Atlantic Beach had already increased the rates in each of the past two years. The Jacksonville Council members said that they fully expected Atlantic Beach to pass along the cost to the customers and. declined to eliminate the franchise fee requirement. State Law requires that a public heazing be conducted before any jurisdiction can impose a utility rate on outside City customers that is more than 125% of the inside City rate. Because this Franchise Fee would be in addition to that current 125% rate, we have received an opinion from our City Attorney that a public heazing must be conducted if Uxe Commission wishes to consider passing on any portion of that Franchise Fee to the customers. BUDGET: The estimated cost to the City of Atlantic Beach for the 5% Franchise Fee would be approximately $125,000 per yeaz. Becanse there would be seven months remaining in our current fiscal yeaz after the April 1 a date, the cost to Atlantic Beach during this year is estimated at approximately $72,900.00. AGENDA ITEM 8B FEBRUARY 11, 2002 RECOMMENDATIONc Decide if the Commission wants to call for a public heazing to consider passing along some or all of the franchise fee. If the Franchise Fee is absorbed by the City without a general rate increase, the net effect will be a reduction in the amount of funds available for capital investments in water and sewer infrastructure. We expect that other rate changes may be needed by October 1, 2002. The SJRWMD is reviewing City applications for renewal of water withdrawal permits and may require some rate amendments to promote conservation. Second, we discussed the need for some (revenue neutral) restructuring to bring our rate structures more in line with those of neighboring utilities, but postponed these changes until after the last two yeaz's rate increases. A rate increase to keep up with inflation over the last 12 months may also be advisable. It may be prudent to consider a12 these factors at one time in connection with the yeazly budget process.