In recent weeks, in libraries and schools all over Tacoma, City Manager T.C. Broadnax has presented the case for Proposition 1 and its bid to fix city streets.
In those presentations, Broadnax has said Tacoma Power customers were not likely to feel the full impact of the utility earnings tax hike because the city-owned utility could bear most, if not all, of the added $8 million annual cost through “mitigation.”
What Broadnax usually didn’t – or wouldn’t – say is how exactly Tacoma Power could absorb the cost. He has stressed that he’s not trying to tell Tacoma Public Utilities Director Bill Gaines how to run the utility.
But at two private meetings last month with business leaders, Broadnax offered some suggestions. He told the business leaders, a group that included Gaines, that the utility could spare at least $5.5 million, in part by tapping money earmarked for proposed raises for TPU managers and other non-union employees.
“I felt compelled to share (my ideas) with them,” Broadnax said, adding that he never meant for the information — essentially an extra slide in his usual Powerpoint presentation about Prop. 1 — to be public.
Prop. 1 would raise up to $11 million to pay for road repairs and other improvements citywide. The money would come from an increase, from 6 percent to 8 percent, in the tax that power, natural gas and telephone companies pay on their earnings. Tacoma Power would pay the biggest share.
Broadnax has said the measure would cost the average home about $5 a month, an estimate built on the assumption that homes have service for natural gas, electricity, a land line and a cell phone. If Tacoma Power can stave off rate increases for its customers, that amount would be less.
He suggests that TPU, which operates Tacoma Power, can find at least $2.7 million from the money the utility is not spending on raises for nearly 400 non-union employees.
In May, City Council unanimously struck down Gaines’ bid for pay raises for TPU workers, which would have totaled $4.7 million over a two-year period. The proposed pay adjustments were based on a survey of wages at similar government agencies and set at the 60th percentile.
City Council members said they did not realize when they approved Tacoma Power’s latest rate increases late last year that the cost of those raises had been built in.
“I did not know that was in the budget,” Councilman Ryan Mello said. “... It was not clear in the slightest that this cost increase, these salary adjustments, were embedded in the TPU budget proposal.”
It was only when Gaines approached council members months later to advocate for the pay raises that they say they found out Tacoma Power customers were already paying for the higher salaries.
“Part of the argument (to give non-union workers raises) was ‘It’s already budgeted, why are you worried about it? Just pass it,’” Mello said. “It’s my job to worry about it.”
Councilmen Marty Campbell and Joe Lonergan separately said they did not know the non-union pay raises were included in the rate hike, but said the move made sense during a normal budget cycle.
“You have to budget for the worst-case scenario,” Campbell said. “... The highest possible expense would be if their raises were passed along.”
Lonergan said budgeting for higher costs is expected.
“You have to budget for the reality that costs increase over time,” he said.
The City Council ultimately voted against giving raises to TPU non-union employees. And now, Broadnax says, that money could instead be used to pay for the added expense of Prop. 1, if voters pass it.
Another $2.8 million could be had from unrealized increases in TPU’s health care costs, Broadnax said. The city’s health insurance rates for 2013 rose only 5 percent, compared with the 12 percent that the city’s budget writers had expected. The city also expects to get a lower-than-expected increase in 2014.
Gaines said the utility can forestall rate increases until after 2014, but only because it has sold $13.2 million more power on the wholesale market than expected so far this year. The utility also has a 4.2 percent power rate increase already scheduled for next year.
But he disagrees with Broadnax’s suggestions of other ways to absorb the costs of Prop. 1, if it passes.
Gaines said it’s wrong to not give raises to non-union employees and that the city’s road improvements should not be paid for on the backs of TPU management.
TPU spokeswoman Chris Gleason said any savings from reduced health care rates would otherwise go to the utility’s reserve account “to offset our expenses and help lower rates in the future.”
Gaines says the utility’s ability to hold off a rate increase might not extend beyond 2014 if Prop. 1 passes. To pay a higher earnings tax, the utility could do one of three things: raise rates, cut service or dip into reserves to pay for the tax.
“The idea that ratepayers aren’t paying for the tax is kind of a red herring,” Gaines said. “They are paying the tax. They aren’t getting the benefit of something else.”
Tacoma public schools lends support to prop. 1
The Tacoma Public Schools board voted 5-0 Thursday to support Tacoma Proposition 1.
Prop. 1 would increase the utility earnings tax by 2 percentage points, from 6 percent to 8 percent. The money raised, up to $11 million per year, would pay for pothole and street repairs, and improvements to school zones.
Within the first five years, the city has said 46 school zones will be addressed, which includes improving crosswalks, flashing lights and crossings that comply with the Americans with Disabilities Act.
Rosalind Medina, the school district’s interim chief financial officer, told the school board the district could pay about $90,000 per year in increased rates for natural gas, electric and telephone service. That’s if the Tacoma City Council allows Tacoma Power, which would pay the bulk of the tax, to pass along the cost to its power customers.
Tacoma Public Utilities Director Bill Gaines has said the utility will not ask for a rate increase until 2015 at the earliest.
Two Pierce County cities whose residents are Tacoma Power customers have expressed opposition to Prop. 1. The University Place and Lakewood city councils both voted unanimously on resolutions against Prop. 1 earlier this month. Pierce County Council will consider a similar resolution against Prop. 1 on Tuesday.