TMCNet:  Valley cities tax utilities to help balance the books

[January 22, 2013]

Valley cities tax utilities to help balance the books

GRANDVIEW, Jan 22, 2013 (Yakima Herald-Republic - McClatchy-Tribune Information Services via COMTEX) -- City officials here carry in their wallets a laminated chart the size of a business card that compares the city's overall utility bills with nearby cities.


That way, when a resident complains about, say, the 40 percent tax rate on garbage service, they have a comeback ready. Grandview's overall monthly utility bills are relatively low compared to the Yakima Valley average.

"I've been getting some good-natured ribbing saying we're ripping off our citizens," said Jesse Palacios to his fellow City Council members earlier this month when the cards were passed out.

If only a business card really could explain utility taxes so simply.

Still blaming revenue shortages on the state's $30 car-tab fee limit 12 years ago, Yakima Valley cities have turned to taxes on public utilities -- water, sewer and garbage -- to help balance the books and limit layoffs.

The Yakima Valley's average utility tax rate is about twice the state average, according to a 2012 survey by the Association of Washington Cities. For the most part, they are still going up, too.

Take a look at these changes in just the past year or so: --For this budget year, the city of Selah more than tripled utility tax rates from 6 percent to 21 percent to help make $465,000 in annual bond payments on land it has never used. The city lowered utility rates to ease the burden on residents, but overall monthly bills have jumped about $5 on average.

--Sunnyside, as part of a desperate attempt to balance a 2013 budget that was $2.2 million out of whack, raised utility taxes from 6 percent to 18 percent, meaning bills will increase in the neighborhood of $12.

--Prosser started a new 5 percent garbage tax this year to both make up for a budget shortfall and raise money for, among other projects, fixing a leaky City Hall roof.

--A year ago, as part of the 2012 budget, the city of Yakima raised utility tax rates to hire 12 police officers, a firefighter and start the Gang Free Initiative, a program to combat gangs.

Utility taxes are different from, but related to, utility rates.

Rates, such as the amount a resident pays for water each month, support pumps, pipes, reservoirs and the people and equipment necessary to keep them running. By state law, those funds must go only to the utility, with few exceptions. No robbing the water fund to pay for an extra police officer, no matter how bad the city needs it.

However, city officials are allowed to tax those utility rates and put the revenue toward police cars, employee wages, bond payments and other day-to-day expenses that come out of the general fund, which functions much like the city's checkbook.

They usually target water, sewer and garbage. Tax increases on those utilities do not require voter approval, and state law puts no limit on how high the taxes can go.

The Legislature has not discussed capping water, sewer and garbage taxes, but lawmakers share some responsibility for the financial straits of Yakima Valley cities, said Rep. Bruce Chandler, R-Granger, For example, last year the state reduced by about $10 million the amount of liquor sales tax revenue it shares with cities, even though city police officers often are on the front lines of enforcing booze-related laws. Restoring the funds "would take a lot of pressure off" cities, he said.

"We need to keep honoring the agreement," Chandler said.

City officials defend utility tax increases by saying they are simply trying to pay for the increasing cost of services residents expect.

For the most part, cities' general funds are supported by property taxes, retail sales taxes and utility taxes. Property tax increases are capped at 1 percent per year unless voters approve a higher rate. Meanwhile, few Yakima Valley cities see much retail business. The exception is shopping hub Union Gap, which -- not coincidentally -- is the only city in the Yakima Valley that's been able to avoid utility taxes. Union Gap has typically relied on sales tax revenues for about 50 percent of its budget.

Union Gap elected officials have resisted the temptation to add taxes onto basic necessities such as water and sewer long before the city's retail boom, said Mayor Roger Wentz.

"We need to avoid taxing (utilities) as much as possible because the poorest of our community would be the most hurt by that," said Wentz, in his eighth year on the City Council.

"There have been conversations of utility tax rates in the past and no, we will not go there," he said.

Officials in other cities have few other options except to cut services -- and that usually means employees, such as police officers, firefighters and administrative workers at City Hall.

Yakima Valley cities have made cuts. Grandview has dropped its workforce by about 10 employees over the past decade, while Prosser just laid off five dispatchers to save money, contracting police communications out to a regional center.

Sometimes, however, authorities hit a level below which they don't want to venture. In 2003, Granger raised public utility taxes from 6 percent to 36 percent to ensure 24-hour police coverage, said Alice Koerner, city clerk. In Sunnyside, one of the main priorities of the City Council this year was to keep all patrol officers employed -- "boots on the ground" -- as they like to call them.

The trick is to find the right balance between taxes and cuts, said David Kelly, city administrator of Selah.

"What should the city be doing to be able to take care of its citizens " Kelly asked. "Once you determine that, pay for it." Economic activists of both conservative and liberal persuasions still disapprove.

"Utility taxes are highly regressive -- as are any taxes that are levied by the unit," Marilyn P. Watkins, policy director of the Economic Opportunity Institute, a Seattle nonprofit that lobbies for economic equality, wrote in an email. "Property taxes are less regressive, but the voter initiatives have restricted growth in collections to 1 percent or less -- less than the rate of inflation." Tim Eyman, the Yakima-born anti-tax advocate, is less sympathetic toward City Hall.

"Nobody gets everything they want, not even government," said Eyman, the prolific initiative writer who introduced car tab and property tax limits. Both measures were approved by voters, then passed by the Legislature after courts struck them down.

The Mukilteo resident criticizes cities for not only raising taxes, but also cutting back on maintenance employees and police officers before administrative positions at City Hall.

"They would never, ever cut anything out of the bureaucracy of the government that nobody would notice," Eyman said.

Lowering utility taxes is rare, but a couple of Yakima Valley cities can boast of it. Both Mabton and Toppenish have lowered utility tax rates in recent years, Mabton from 25 percent to 20 percent and Toppenish from 38 percent to 23 percent, though total monthly bills there are still the highest in the Valley.

Frank Sweet, interim city manager in Sunnyside, encouraged council members to revisit the utility tax hikes in a few years after the budget stabilizes. For instance, retail sales tax revenue for Sunnyside came in lower in 2012 than it did in 2011, contributing to the shortfall. That may improve next year.

"When we don't need it, we'll back it back down," Sweet said.

Eyman gives a little credit to the city of Grandview, which may take the issue to voters in April.

City officials in Grandview may ask residents to approve increasing taxes on private utilities, those that the city doesn't provide, such as cable television and cellular phone service, from 6 percent to 7.5 percent or 8 percent.

Unlike public utility taxes, voters must approve private utility taxes and would pay them when they send in their monthly bills to the companies.

Grandview hopes to use the money to restore a few positions cut in the 2013 budget. The city moved Deputy Parks and Recration Director Gretchen Chronis to an empty clerical position at City Hall and left a vacant police officer's spot.

A 2 percent tax increase would bring in about $300,000, enough to restore those positions and perhaps set aside a little money for upgrades to the 55-year-old pool, said Cus Arteaga, city administrator. Council members plan to discuss the issue in depth at a workshop at 6 p.m. today.

Grandview residents overwhelmingly rejected a similar measure in 2008. A tax increase will be a tough sell this time around, too, said longtime council member Mike Bren.

City officials have been cutting costs and employees through attrition for more than 10 years, but the city looks even better in many ways because of federal grants that have paid for numerous construction projects, including a revitalized downtown, a new community center and several improved residential streets.

The city has its publicity work cut out for it on the utility tax vote, Bren said.

"I think it's got to be presented very well," he said.

In the meantime, the pressure is on Chronis' former boss, veteran Parks and Recreation Director Mike Carpenter.

Last Tuesday afternoon at the community center, Carpenter spent almost no time at his desk as he jumped back and forth from supervising a game of pick-up basketball in the gymnasium and helping two girls start a game on the donated Xbox video game console in another room.

"Right now we're trying to get more creative on how we do things," he said.

To help, volunteers have stepped in to call Bingo games and organize dances for the city's senior citizens group. He appreciates the support but longs for his deputy back.

"We need to find a way to get her back over here where she belongs," he said.

--Ross Courtney can be reached at 509-930-8798 or rcourtney@yakimaherald.com.

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