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Debate over utility tax lingers after council vote
12/26/2012

By Craig Howard
Splash Contributor

Among the array of issues the Liberty Lake City Council has discussed and approved since incorporation in 2001, Ordinance No. 188 may have had the most ripple effect.

The decision to implement a 6 percent utility tax on cable, phone, electric, gas and garbage occurred in October 2010 as part of a tempestuous budget session featuring emotional debate over proposed cuts at the municipal golf course and library. When the final vote passed, Mayor Pro Tem David Crump emphasized that the governing board would be re-evaluating the topic in six months.

Reviews of the tax have been part of the conversation at City Hall since that autumn, the most recent taking place during deliberations over the 2013 budget. While concerns have been raised by some representatives of council over the past two years - both Josh Beckett and Lori Olander were among the most vocal critics this time around - the toll has remained, much to the chagrin of businesses like Huntwood Custom Cabinets.

"It's disappointing," said Brandon Hunt of Huntwood of the latest vote on the utility tax as part of the 2013 budget. "I thought there would be more discussion about it, but I think the council had a lot of other things going on."

While the utility tax rate was reduced to 3 percent in the 2012 budget, Huntwood will still pay the city around $50,000 this year in utility assessments alone. Hunt said there is hope that the council will consider reducing the amount paid for "necessities" like electricity and gas as compared to cable and phone rates. He pointed out that Mayor Steve Peterson voiced support for such a "cafeteria-style approach" to the tax when campaigning for mayor last fall, but has not brought it up much since being re-elected.

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"He talked about it a lot when he was running for office," Hunt said.    

Hunt said he's been "very surprised" at the lack of organized opposition from the Liberty Lake business community regarding the tax.

"I've talked to a ton of business leaders, and they're completely against it, but you don't see them at council meetings," Hunt said. "A think a lot of people don't understand the effect you can have."

Support for the utility tax started to gain momentum in 2010 when concerns over slipping sales tax revenue - down 22 percent since 2008 - began to emerge. Proceeds from building permits were also on the wane. The resulting frugality at City Hall included cost cutting in areas like the municipal newsletter, watering and fertilizing of municipal grounds and a pass on a proposed pay raise for City Council. 

"The city was facing rapid declines in revenue, and we quickly realized that we need to implement a utility tax to serve as a ‘stop gap' measure until economic conditions improved," said Council Member Josh Beckett. "We never intended this tax to remain in perpetuity, and we knew that putting the tax in place was going to be unpopular with residents and businesses."

Beckett, who said that "other than the utility tax, 95 percent of the budget is very solid," indicated that he will work to eliminate the utility tax in 2013, "especially if we continue spending general funds and reserve funds for things like TIF/LIFT."

Part of the initial pushback to the tax included the formation of a utility tax taskforce by the Greater Spokane Valley Chamber of Commerce in early 2011. Nancy Holmes of Avista, who chairs the taskforce, testified before council a year ago, calling out city officials for initially proposing the tax as a way to cover a projected budget shortfall that never occurred, then underestimating the amount of money that would be generated by the tax. The taskforce also expressed concern over the city's indecisiveness over where the funds would go.

This month, Holmes was back at the podium, reading a prepared statement that complimented the city for lowering the tax to 3 percent and applauded Finance Director R.J. Stevenson for providing "more prudent forecasts" that have enhanced transparency at City Hall.

While the taskforce characterized Peterson's idea to dedicate utility tax revenue to street maintenance and capital projects as progress over last year, the letter also recommended that the city improve upon its efforts in "communicating the precise use of utility tax dollars to the businesses and taxpayers of the Liberty Lake community." Finally, the taskforce encouraged the city to thoroughly review its tax structure and revenue, a process that the group said could "reveal several options, including a restructuring, lowering or repealing of the utility tax."

Certain representatives of City Council believe the utility tax represents a consistent funding mechanism that can support municipal services in a still-recovering economy. 

Reiterating points made by Stevenson at the Dec. 18 council meeting, Council Member Dan Dunne said the utility tax provides a reliable revenue source "that isn't a function of the economy" as sales tax and property tax have historically been.

"I carefully considered the utility tax and the city's revenue and expense requirements," Dunne said. "I believe that right now it's perfectly aligned with our requirements for roads, and I think the amount in question is OK."

Liberty Lake's neighbor to the west faced a similar scenario in 2008. That year, the Spokane Valley City Council approved a 6 percent phone tax to address street upkeep costs. The levy - around $3 on a $50 phone bill - officially kicked in at the beginning of 2009. At the time, city officials pointed to the considerable savings of maintaining streets compared to replacing them. In 2007, the council heard a report from JUB Engineers indicating that a road preserved over 10 years would run $241,000 while the pricetag for replacing a road poorly maintained over a decade rang in at $2.4 million.   

Spokane Valley and Liberty Lake are among 206 jurisdictions in Washington that utilize some form of utility tax. Currently, water, sewer and storm drainage fall outside the tax structure in Liberty Lake. Statewide, the average rate on gas, electric, cable and phone hovers closer to 6 percent while waste management is closer to 9 percent.  

While Council Member Cris Kaminskas recommended that the idea of parceling out the tax based on the necessity of the utility be on the council agenda as the new year dawns, fellow Council Member Lori Olander said she will propose complete elimination of the tax in January. 

"It is on the agenda for January, and I intend to make a case for rescinding," Olander said. "The rationale for imposing the tax never materialized. In my opinion, the current council needs to make changes to align with the current status of the finances."

The utility tax is projected to generate $662,000 next year, according to the budget Peterson presented to the governing board in the fall. Council Member Shane Brickner said he understands concerns over the tax but points out that alternative funding sources for street maintenance have not been forthcoming.

"I think we would all like to see the utility tax eliminated altogether, but is this the most responsible thing to do, going from 6 percent to nothing in just over a year?" Brickner said. "With all the road work we need, I would say no. I am all for doing this if people will come to the table on how to fill that financial loss, and I've asked numerous people to bring ideas forward for the past three months, but I haven't heard one."