Last October, the Liberty Lake City Council voted to install a 6-percent utility tax to counteract an anticipated $700,000 shortfall in the municipal budget.
This month, the city’s governing board heard from several residents who consider the new tax counterproductive.
In public testimony at last week’s City Council meeting, Avista’s Nancy Holmes, who chairs a utility tax task force organized by the Greater Spokane Valley Chamber of Commerce, described how the levy on phone, garbage, gas, cable and electric services “is having a negative impact on business in Liberty Lake.” The task force has met seven times since the tax was launched in January, including three gatherings with the City Council and one with Mayor Wendy Van Orman.
Holmes remarked that the city’s projected budget deficit does not seem nearly as dire as indicated last fall while echoing the city’s findings that first quarter returns on sales and property tax that have been higher than anticipated.
“The magnitude of the shortfall doesn’t appear to be impending, even without the utility tax,” Holmes said.
When originally introduced as a way to bridge the budget gap, city officials described how the tax would raise approximately $825,000. Through June, the amount collected was at $586,628.
In talking to business owners affected by the tax, Holmes noted that some were not aware the change had been implemented until well after January. The amount paid by companies varied widely, Holmes, added “from $500 to $100,000 a year.”
In researching the current state of Liberty Lake finances and speaking to council members, Holmes said the task force “found a lot of gray area” in the municipal budget forecast, especially related to revenue expenditures. Task force projections did identify a gap between projected revenue – up 2.17 percent between now and 2016 – and estimated expenditures – up 6.7 percent over the same time frame.
During discussions over the utility tax ordinance last autumn, the City Council did include a provision to revisit the issue six months into the collection process. Van Orman said that while she is “glad to see the numbers are getting better,” the city would need to carefully evaluate the benefits of a utility tax in light of impending expenditures like the hiring of a finance director and ongoing road maintenance.
The 2011 budget also contains a placeholder for a city administrator, although no funds have been allotted yet. Van Orman said the annual salary of a city administrator or city manager would likely be in the neighborhood of $100,000. Liberty Lake residents will vote in November on the question of changing the governance structure from the current strong mayor/City Council system to a city manager/City Council configuration with the mayor in a ceremonial role.
Van Orman added that factors like a colder spring and higher electric bills or a one-time capital purchase by a company could have contributed to the spike in tax revenue. The city has already collected around 71 percent of the anticipated amount for all of 2011.
“We weren’t sure how much we were going to collect,” Van Orman said. “It’s looking like we’ll be able to reduce it down.”
Wayne Frost, another member of the task force who spoke at the July 19 meeting on behalf of Liberty Lake-based developer Greenstone Properties, said the specter of a utility tax was responsible for two companies, a manufacturing company and a retailer, planting roots in cities outside Liberty Lake. Frost added that while the city would have collected approximately $7,000 from the manufacturer in utility taxes, the company would have added around $200,000 annually to the city’s economy.
“We’re losing business because of this tax,” Frost said.
Van Orman countered by pointing out that several companies have moved to Liberty Lake or announced expansion projects since the tax.
“It’s what you invest in the community,” she said. “I don’t buy that this (tax) is a legitimate reason for businesses to leave because other businesses are staying.”
Council Member Susan Schuler said the tax was instituted “like a bridge loan to close the budget gap,” adding she would likely vote against reimplementing the tax for the next budget cycle.
“This was never intended to be a permanent tax,” she said.
Former Liberty Lake Mayor Steve Peterson, who is running against Council Member Josh Beckett for the mayoral bid this November, said the tax, which cost the average Liberty Lake household around $200 annually, “is definitely impacting citizens.”
“They could spend that $200 at local businesses instead of it going into the general fund and collecting less than 1 percent interest,” Peterson said.
The City Council is expected to readdress the topic at its Aug. 2 meeting, equipped with the latest numbers from sales and property and utility taxes through July.