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Staff Capacity and Project Complexity Limit Right-of-Way Revenue
Published September 12, 2023
King County is projecting a $50 million shortfall in General Fund revenue for 2025, increasing the importance of complete and accurate revenue collections countywide. One of the County’s newer revenue sources is franchise compensation—payment by water, sewer, gas, and electric utilities for using road rights-of-way in unincorporated areas. King County collected $5 million in franchise revenue in 2021 and 2022 combined, 46 percent lower than the projected $9.2 million the County budgeted. For 2023 and 2024, we estimate that franchise revenues will reach $7.6 million, 37 percent below projected revenues of $12 million. Limited staff capacity, competing priorities, and a lack of guidance on how to raise revenue equitably have hindered the ability of the Facilities Management Division and Real Estate Services to meet strategic and programmatic goals. To help achieve these goals, the County will need to establish program priorities, increase efficiency, and develop an equity lens.
Audit Highlights
Through franchise agreements, King County grants utility operators the right to use road rights-of-way in unincorporated areas for the construction and maintenance of their facilities. In exchange, utilities are required to provide reasonable compensation to the County. Franchise agreements also clarify who is responsible for managing risks associated with potentially dangerous conditions in the public right-of-way, reducing risk to the County and its residents.
The County has a backlog of 104 franchise agreements with 89 utilities, delaying revenue collection, creating the potential for risk, and generating uncertainty among utilities. Actual franchise revenues have been well below projections since 2021 due to limited staff capacity. Based on its workload estimates, the Real Estate Services (RES) Section, which began managing franchises in 2023, may need until 2027 to negotiate compensation with all utilities. For the 2023–24 biennium, we estimate that franchise revenues will reach $7.6 million, or 37 percent below projected revenues. The extent to which the County collects franchise revenue over the next few years will depend on how the County staffs and monitors the program as well as how RES organizes its backlog.
Utilities may raise customer rates because of franchise compensation, but the County has not studied the impact of franchise compensation on residents. The County's rules for estimating franchise compensation include a step meant to keep the cost that utilities pass on to customers at a reasonable level. However, since utilities, not King County, set customer rates, the County's rule cannot ensure that cost burdens are affordable or equitably distributed.
We make recommendations to consider hiring temporary staff to work the backlog, clarify program priorities and targets, increase efficiency, and improve processes. We also recommend that RES conducts an equity analysis to identify and mitigate potential inequities in franchise compensation.
King County is expecting a $50 million shortfall in its General Fund in 2025. RES estimates that franchise compensation could generate $11 million in General Fund revenue per year. The County could use this revenue flexibly to provide services it might otherwise reduce or eliminate. But collection of franchise revenue has been slow. Rather than issuing an invoice based on set prices, the County must negotiate compensation one-on-one with water, sewer, gas, and electric utilities operating in the rights-of-way of unincorporated King County. For utilities with current contracts to use rights-of-way, the County can limit negotiation to compensation and append the terms to existing contracts. For those with expired contracts, wider ranging agreements are necessary before collection can begin.