Forget about Winterfest, the proposed exits off Interstate 90 or even Telect’s fancy new office – the main topic of conversation in Liberty Lake these days is the future of a 6-percent utility tax.
The toll on electric, gas, cable, waste disposal and phone services was implemented by the City Council last year in anticipation of a $700,000 deficit in the general fund. While city officials initially projected the tax would raise approximately $825,000, the 2011 total is closer to $1.1 million.
The impact of the tax has residents like Theron Rust, an employee of Liberty Lake-based Huntwood Industries, concerned. Prior to Tuesday night’s budget workshop, Rust claimed that Huntwood, a cabinet manufacturer, has paid around 10 percent of the total levy in 2011, hampering employment rates and profitability.
“We’re very much opposed to the utility tax,” Rust told council members prior to Tuesday’s budget workshop.
Nancy Holmes of Avista, who chairs a utility tax task force organized by the Greater Spokane Valley Chamber of Commerce, applauded city representatives for engaging in constructive dialogue, but said the surplus and the resulting indecisiveness over how to spend it “has been baffling to those paying the tax.”
“We hear it’s going to the shortfall, then the street fund, then debt payoff,” Holmes said. “We just don’t know.”
On Tuesday, Finance Director R.J. Stevenson provided an overview of the city’s financial history – including a diagram charting sales and property tax revenue from 2002 through 2011 – in framing the context for a vote on the utility tax as specified in the 2012 budget. Mayor Wendy Van Orman’s preliminary budget recommended lowering the tax from 6 to 3 percent.
After nearly four hours of discussion on Dec. 6, the City Council decided to table the budget and utility tax discussions for a special meeting scheduled for 6 p.m. on Tuesday, Dec. 13 at City Hall. The city has until Dec. 31 to approve next year’s budget.
In defending the tax, Council Member Judi Owens questioned Holmes over rate increases installed by Avista and said local businesses like Huntwood have a responsibility to pay for infrastructure maintenance and improvements in their home city.
“I look at the impact that they have on our roads and this city, I think they have to pay some of that share,” Owens said.
Council Member Susan Schuler, one of the more outspoken opponents of the tax, asked Stevenson to add projections to the 2012 budget that would include elimination of the 6-percent fee. Later in the meeting, Stevenson reported that doing away with the utility tax would result in a deficit of nearly $239,000 next year and a shortfall of just under $485,000 in 2013.
“I do think we need some form of utility tax,” Stevenson said.
Stevenson pointed out that the volatility of sales tax revenue brings up a valid argument for retaining the utility tax on some level. After a peak of $2.2 million in 2007, sales tax dipped to $2 million in 2008 and $1.7 million in 2009. Revenue has rebounded somewhat this year to $1.9 million, some 14-percent above projections in the 2011 budget.
Stevenson also presented a scenario that would reduce the tax on electricity and gas to 2 and 1 percent, respectively, while keeping the rate at 6 percent for phone, waste disposal and cable.
The windfall from the utility tax has also left a question of how to utilize a $2.8 million ending fund balance this year. In the area of debt service reduction, Stevenson had initially recommended paying off a 6.4-acre parcel of land near the site of the old City Hall, but Tuesday said that retiring the $1.5 million debt on the municipal golf course would make more sense since there is no pre-payment penalty and the city would save a total of around $188,000 in interest.
Council Member Odin Langford, who requested that the budget and utility tax discussions be tabled from the last meeting on Nov. 15, emphasized on Tuesday that the city must have a financial strategy that brings stability over the long haul, including a priority on capital projects and maintaining infrastructure.
“We need to find some balance,” Langford said. “We can’t keep cutting and still do the maintenance.”