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The Spokane Valley News Herald
City of Spokane Valley, WA
Local cities turn to utility tax as revenue resource


News Editor


The deliberation over road funding was more than a footnote on the Spokane Valley City Council agenda in 2008.
The layered narrative included workshops, revenue options, citizen feedback and news that, if nothing changed, the city would be looking at a $2.3 million deficit in the street maintenance budget by 2010. While the idea of establishing a transportation benefit district and implementing an annual $20 car tab fee garnered early support, the council ultimately approved a 6-percent phone tax that was expected to generate around $3 million a year for road upkeep.
“We asked ourselves, ‘Should we pay now, or pay later?’” said the late Richard Munson, then mayor of Spokane Valley, when the vote was passed unanimously in August 2008.
Munson made it clear that the revenue would not get lost in the general fund, but be channeled directly to the road fund. Residents would pay an average of approximately $3 a month on a $50 phone bill.
Along with the TBD, the governing board looked at the possibility of taxing other utilities before settling on the phone levy. Water would be a challenge due to a network of over a dozen districts parceled out over the city. Power – both electric and gas – included a variety of companies, as well. Taxing waste management would also present a dilemma, since one in four Valley residents hauled their garbage to a waste transfer site.
When Spokane Valley implemented the phone tax at the beginning of 2009, it became the 235th city in Washington (out of 276) to institute some form of a utility tax.
Spokane Valley City Council Member Dean Grafos, who serves on the city’s Finance committee, said the current phone tax “is for a good cause” but emphasized that he does not support taxing additional utilities or applying a car tab fee.
“We need to review all our funding options before instituting a new revenue source,” Grafos said.
Spokane Valley Mayor Tom Towey recalls initial criticism of the phone tax being connected to the impression that “it was a Band-Aid.”
“I think most citizens understood that it wasn’t going to solve the problem, but it was going to help,” he said.
As the city continues to discuss funding sources for road preservation, Towey said municipal leaders will first look at “ways to be more efficient.”
When the City Council passed the phone tax ordinance, Ken Thompson, the city’s finance director at the time, said the funds would be “a significant help” in addressing the cost of overseeing streets. Spokane Valley had seen a decrease in both real estate excise tax and sales tax revenue in recent years. Proceeds from sales tax had plummeted from $19.6 million to $18.5 million between 2007 and 2008.
Other factors, such as a drop in returns from the statewide gasoline tax and elimination of the motor vehicle excise tax in 2000 – which replaced the annual car tab charge equaling 2.2 percent of a vehicle’s value with a flat $30 fee – have also taken their toll on cities in Spokane County and across the state.
Millwood Mayor Dan Mork remembers serving on the City Council in 2004 when the town established a 6-percent tax on electric bills. Like Spokane Valley, the revenue goes directly to road maintenance. Last year, the tax generated around $280,000 for streets.
“We were looking at ways to generate more revenue without impacting the citizens too much,” Mork said.
While Millwood does not collect a tax on cable, phone or garbage bills, it has included a 2-percent levy on wholesale natural gas since 1991. At the end of last year, the City Council voted to install a 2-percent tax on brokered natural gas.
“We’re trying to be as efficient as possible without raising taxes,” said Millwood City Clerk Tom Richardson last November. “But we are seeing a reduction in tax revenue.”
Mork said the city continues to look at ways to reduce municipal costs, from printing on both sides of the paper to sending one person to a training conference then imparting information to other employees. When he realized that a stack of city newsletters was left over after each month, Mork had fewer printed.
“These things all add up,” he said. “We’ve realized that these improvements add to our efficiency as a city and save money.”
Like Millwood, Spokane Valley functions as a contract city, minimizing costs through agreements for police and fire protection as well as library services. Both cities have also been known for keeping a streamlined employee roster.
In Liberty Lake, the campaign to implement a utility tax began in 2010 with talk of a projected $700,000 deficit for the following year. The process of organizing a budget for 2011 included recommended cutbacks at the library and municipal golf course, neither of which went over well with residents.
A 22-percent drop in sales tax revenue since 2008 also contributed to the less-than-stable budget scenario in Liberty Lake. Since that same year, the city worked to reduce spending by $1.2 million through various cuts and deferments. Proceeds from building permits also decreased during that time.
City Council voted in November 2010 to implement a 6-percent utility tax on cable, phone, electric, garbage and gas bills. While citizen tumult was minimal, the Greater Spokane Valley Chamber of Commerce did form a utility tax task force that has spoken out critically against the tax. In the process of organizing the 2012 budget, City Council voted to reduce the utility tax to 3 percent across the board.
At the March 6 City Council meeting, Liberty Lake Finance Director R.J. Stevenson provided an overview of the utility tax that included the financial shortfall experienced by the city leading up to the vote to implement the tax. Stevenson said that while variable sales tax revenue and an uncertain economy present budgetary challenges,“the utility tax does provide a stable revenue source.”
Some cities in Spokane County feature utility tax rates that make Liberty Lake, Millwood and Spokane Valley look like a bargain. In Deer Park, a 6-percent levy is applied to gas, phone, cable and electric bills while waste removal, sewer and water is taxed at 12 percent. In the city of Spokane, residents pay a 20 percent for water, sewer and garbage while phone, cable, electric and gas services are set at 6 percent.
“The No. 1 issue with the utility tax, and any tax for that matter, is why do you implement it in the first place and what are the funds utilized for,” said Liberty Lake Mayor Steve Peterson. “The first thing that needs to happen is to identify the priorities of the city and how that money will be spent. As far as the utility tax goes, we’re trying to make sure everyone has the same information and that the citizens are included in that debate.”

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TheSpokane Valley News Herald
is the City of Spokane Valley, Washington's official Newspaper. The City Council of the City of Spokane Valley, Washington named the Spokane Valley News Herald as the city's "official" newspaper. The designation means the Spokane Valley News Herald will publish the city's legal notices on a contract basis for one year.

E-mail: vnh@onemain.com
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2011 Valley News Articles Archive
2010 Valley News Articles Archive