City Council Minutes 11-27-2006 Special
Special Council Meeting Minute: 11/27/06
MINUTES
SPECIAL MEETING - MONTICELLO CITY COUNCIL
Monday, November 27,2006 - 5: 30 p.m.
Members Present:
Clint Herbst, Wayne Mayer, Torn Perrault, Glen Posusta and Brian Stumpf.
Members Absent:
None
1. Call to Order.
Mayor Herbst called the meeting to order and explained that the reason for the special meeting
was to review the revenue stabilization agreement with Xcel Energy. Mark Ruff from Ehlers
and Associates and Darrin Lahr from Xcel Energy were also present.
2. Review of revenue stabilization a2reement.
The purpose of the revenue stabilization agreement is to provide a steady stream of revenue to
aid the City after the tax base goes down because of changes in how the utility company
property is valued. Damn Lahr said the personal property of the plant is assessed by the State
of Minnesota. Xcel has been requesting the Department of Revenue to review the rule that is
used in valuing utility company property. The Department of Revenue has been studying
changes to the rule and they are starting the process of holding public hearings necessary to
adopt the revised rule. The administrative law judge hearings start in December and the revised
rule should be ready for adoption by April 1, 2007. The revised rule would affect the tax
payment for the year 2008. Goodhue County has adopted the revenue stabilization agreement
and the City of Red Wing is considering adoption ofthe agreement on November 27,2006.
Xcd Energy expects to see a 15% reduction the value oftheir property statewide with the
change in the rule. The rule change would also allow the plant to depreciate more fully over
time.
Clint Herbst asked if this agreement would lock Xcel in at what their value is now or if
something like dry cask storage could be added to the value. Damn Lahr indicated that if dry
cask storage was put in it would be at a cost of$55,000,000 but the value set by the Department
of Revenue would be closer to $25,000,000. Approximately $280,000,000 is proposed to be
invested in the plant over the next few years not including the dry cask storage.
Mark Ruff made a presentation on the revenue stabilization agreement noting this is a
complicated issue. Mark Ruff stated that in most communities the utility company is one ofthe
top taxpayers. In looking at this agreement four factors should be considered: I) Decrease in
the value of Xcel property by the Department of Revenue; 2) Amount of new investment in the
plant; 3) City growth and 4) City tax levy. The value that would be adjusted would be personal
property and buildings not land. Mark Ruff felt much of the impact depends on what the City's
tax rate is going to be. The 2007 tax base is based on $2,170,000 paid to the City in 2007
which is approximately 1/3 of the tax levy. Lower tax levies results in payment to the City. If
tax levies for the City are higher it results in tax abatement. The reason not to do enter into the
agreement is if the tax rate really goes up high then the City would have to make payments to
Xce1. The reason to enter into the agreement is because the Council has worked to keep taxes
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Special Council Meeting Minute: 11/27/06
lower and ifthat trend continues the City would be receiving payments from Xcel. Mark Ruff
cautioned about relying too much on the payments from Xcel since the payments would only
last for ten years. If the tax levy and the tax base increase at the same rate, the City would
receive some payment. If tax levy increases more than the tax base then the City would to
make a rebate back to Xcel. Mark Ruff suggested that it might be beneficial for the Council to
look at some of the project that they feel are priorities and see what it will do to the tax base
over time.
Glen Posusta asked at what point time would the City start getting LGA once Xcel is gone.
Mark Ruff said if you don't get LGA now you won't get in the future under the current formula
used by the state. Mark Ruff showed graphs that reflected the impact of a 6% growth rate and a
7% increase in tax levy. Darrin Lahr said with money being spent on the plant Xcel is
increasing its own value. If Xcel' s value increases by 7% in a year because of their investment,
the City could get out of the agreement or re-negotiate it. Darrin Lahr said Xcel's share of the
tax has dropped in recent years. He explained some of the improvements proposed for the
plant besides the dry cask storage include an extended life cycle upgrade which would rehab
the plant allowing it to run for another 20 years. A power upgrade is also planned which would
allow the production of more power. Darrin Lahr talked about future development and trends
in the energy industry.
Darrin Lahr said if there was a significant change in the tax rate that would be another out for
either party Darrin Lahr said Xcel pays $100,000,000 to $110,000,000 in property tax
annually. Department of Revenue has been asked to do a local tax impact analysis. Damn
Lahr said ifthe Department of Revenue does not approve the rule change, Xeel would go to tax
court over this. Ifthe tax isn't lowered this revenue stabilization agreement is null and void.
Mark Ruff said if everything continues as it has been done for the last several years the revenue
stabilization agreement is a good deal but added that going out to ten year time frame it is
harder to estimate the impact.
The agreement calls for annual meeting between City and Xcel. Mark Ruff said the City has to
watch the amount of risk. Mark Ruff suggested leaving room in the reserve to absorb things
you don't expect. Mark Ruff will contact the County Assessor to see what kind of growth is
reasonable. There was general discussion on upcoming projects and areas of growth.
Damn Lahr said since there is an abatement process in this rule, there would need to be a
public hearing on the abatement process. Glen Posusta suggested this matter be explained in
the paper so that residents understand the abatement process.
3. Adjourn.
BRIAN STUMPF MOVED TO ADJOURN AT 6:35 P.M. TOM PERRAULT SECONDED
THE MOTION. MOTION CARRIED UNANIMOUSLY.
Recording Secretary
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