Utility tax for Tacoma roads hits bumps outside the city

Francis Pero doesn’t get to vote on Tacoma’s Proposition 1, but he could help foot the bill if Tacoma voters approve the increase in the city’s utility earnings tax next month.

That’s because the Roy resident gets his electricity from Tacoma Public Utilities, which could pass along the costs of the higher tax to its customers — nearly half of whom live outside the Tacoma city limits.

Proposition 1 would increase by 2 percent the tax that utility companies pay on their gross earnings from sales of telephone, electric and natural gas service. Tacoma city officials say the tax could raise up to $11 million a year to pay for road repairs to Tacoma city streets.

The lion’s share of the money, about $8 million, would come from Tacoma Power. The utility could seek a rate increase from the Tacoma City Council to cover that cost.

Pero has no problem with Tacoma Power’s service, but the possibility of paying more every time he turns on the lights or makes a pot of coffee has him up in arms.

“We cannot vote on that tax,” Pero said. “… If we are going to put our money into the city of Tacoma, that’s a bunch of hooey.”

That concern is gaining traction. On Monday, the University Place City Council unanimously passed a resolution against Proposition 1, the first area city council to do so. Lakewood’s council could consider a similar measure later this month.

University Place officials say their residents, all of whom are Tacoma Power customers, shouldn’t have to pay to repair streets elsewhere.

Councilman Javier Figueroa sponsored the resolution. He said that after years of Tacoma Power rate increases, he’s putting his foot down.

“At some point, we have to stop this train,” Figueroa said. “We don’t have any benefits coming to us from this particular tax.”

According to TPU, 70,000 residences and 7,500 businesses outside of Tacoma already pay into the city’s coffers through the existing 6 percent utility earnings tax on Tacoma Power’s service.

The city also taxes earnings on cable television service, the city’s rail utility, water use, and any other utility within the city. Last year, the city brought in more than $56 million in utility earnings taxes from all of its sources.

Altogether, more than one in five dollars of city revenue comes from utility taxes, which help fund everything from police officer and firefighter salaries to library books and copier paper.

Should Proposition 1 pass, the city would segregate the money from the additional tax on power, natural gas and telephone utilities to be spent only on road improvements.

Tacoma Mayor Marilyn Strickland defends the tax proposal against critics who argue that nonresidents shouldn’t have to pay to fix Tacoma’s crumbling streets.

“We are all part of Pierce County, and Tacoma is the county seat and its employment center,” she said.

People from outside of the city still shop in Tacoma and visit people there.

“You have to drive on Tacoma roads to do those things,” Strickland said. “If our infrastructure is doing well, we all benefit as an entire region.”

How — or even if — Tacoma Power could recoup all of the costs of a higher earnings tax remains uncertain.

Fircrest Mayor David Viafore has raised questions about what would happen if Tacoma Power has to pay a higher tax on the money it receives from Fircrest customers. Fircrest’s franchise agreement with Tacoma Power calls for the utility to send Fircrest an amount equal to the increase in utility tax revenues.

Tacoma Public Utilities spokeswoman Chris Gleason said the utility’s attorneys are researching whether it would be allowed to keep all of the money it would collect to cover the higher earnings tax and whether it could shift the costs of any refunds to its remaining customers.

Some agreements seem to require Tacoma Power to pay the municipalities if the utility earnings tax rises above 6 percent.

Steve Victor, University Place’s city attorney, said if Tacoma’s City Council were to approve a rate increase to cover an increased earnings tax, University Place would seek to recover that money “for the benefit of University Place instead of Tacoma” under its current franchise agreement.

Fife City Councilman Glenn Hull, whose city has one of the franchise agreements at issue, is conflicted about potential higher power costs.

“Rate increases are concerning,” Hull said. “But I also will say, as cities we have to find ways to sustain and provide funding for some of our most critical infrastructure needs. I think indirectly we all see a benefit from a healthy and vibrant city of Tacoma.”

If voters pass Proposition 1, Tacoma Power — which last year received the City Council’s approval for a 4.2 percent increase for 2014 — is unlikely to seek another rate increase next year, Gleason said. The utilities board would decide whether to ask the council for a rate increase in 2015, she said.

Rates for customers who receive service for natural gas, telephone and electricity in Tacoma might increase by as much as $5 per month if voters approve the utility earnings tax, Tacoma City Manager T.C. Broadnax has said.

But for area businesses, the stakes are higher.

Jeff Hohman, president of Northwest Door Inc. in Frederickson, said a 2 percent increase in the company’s electric bill would cost his business nearly $2,500 per year.

About 200 employees, working in two shifts, make garage doors at the 288,000-square-foot plant. Any rate increase could reduce the competitiveness of his business, Hohman said, and the company would see no added benefit for its contribution to Tacoma’s road fund.

“I’m sure a portion (of employees) live in Tacoma, and a number of the rest of us do not,” he said. “We feel like the connection between the tax and the benefit of the tax is a really poor linkage.”

Kate Martin: 253-597-8542 kate.martin@ thenewstribune.com