Tacoma’s utility chief and the city manager still don’t agree whether Tacoma Power will have to pass the costs of a utility tax increase to customers if voters approve it this fall.
In fact, documents released to The News Tribune last week point to a weekslong exchange between City Manager T.C. Broadnax and Tacoma Public Utilities Director Bill Gaines, accusations of misinformation and an air of tension between them and their respective staffs.
Tacoma’s Proposition 1 would charge natural gas, electric and phone companies 2 percent more on their earnings, which would raise up to $11 million for transportation improvements such as filling potholes, repaving streets and adding crosswalks near schools. The rate is now set at 6 percent. Voters will decide the issue in the Nov. 5 election.
Broadnax says he hopes the utility could “mitigate” any rate increases. But Gaines says make no mistake: TPU’s 169,000 customers will have to pay more if voters approve the measure.
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Rate increases would not be immediate, Gaines said. But at some point, the utility would be unable to absorb the extra costs without dipping into its reserves — a concern that a credit reporting agency for investors noted last month, according to the records obtained by the newspaper.
Moody’s Investors Service, a company that rates the creditworthiness of businesses and public agencies around the world, issued a summary Aug. 12 saying the ballot measure would be “credit neutral” if voters approve it and if the City Council, in turn, raises utility rates.
But if TPU is unable to pass on the cost to customers, Moody’s noted, “we could view such an event as credit negative.”
That means the utility’s bond rating could drop from a coveted Aa3 rating to a Baa. TPU would have to pay more to borrow money to pay for capital projects — a cost that would be passed on to ratepayers.
If the ballot measure passes this fall, Gaines said he’s not sure how much rates would have to increase or when, and he doesn’t know if that information will be available by November.
“If I had my way, we would’ve talked about all of these things before the tax was brought forward,” Gaines said in an interview last week.
Meanwhile, Broadnax said in an interview that he won’t acknowledge the City Council will have to approve a rate increase. Instead, he’s telling people that at most, the average household’s rates could increase $5 per month.
That amount could be less if Tacoma Power makes efforts to cut costs, he said.
This disagreement between City Hall and the utility is nothing new. Broadnax and Gaines have been emailing back and forth about the impact of a tax hike since late June, about a month before the Council approved putting Proposition 1 on the ballot. That’s according to more than 50 pages of emails provided by TPU and received by The News Tribune last week.
Gaines’ emails suggest he believes Broadnax is not telling voters the whole story and that the city manager is asking the utility to present a united front to voters. The emails show disagreements between the two about the accuracy of statements made to The News Tribune and of the city’s message to voters.
“I’m all for trying to coordinate messages, but we are not going to be part of a scheme that attempts to mislead,” Gaines wrote July 17.
In Broadnax’s reply that day, he reminded Gaines that neither of them sets the rates; that’s the City Council’s job.
“The City, our message and any official communication will be factual and definitely not misleading,” Broadnax wrote. “My concern for you and I is making sure we communicate what we can control and what our intentions are.”
Again on July 17, Gaines countered Broadnax’s assertion that the utility can “mitigate” for increased costs without consequences.
“While it is true that the Council ultimately approves TPU rates, it is disingenuous for the City and the Council to suggest that TPU could ‘absorb’ a 2% tax increase for any meaningful period of time,” Gaines wrote. “We are a ‘cost of service’ enterprise that must ultimately recover all costs from ratepayers (there is no other source).
“If the thinking is that TPU should reduce other costs so as to absorb a tax increase to fund City street improvements, we need to be straight with each other and with the public about what utility activities (and jobs?) would be eliminated.”
In a memo to City Council and TPU board members last month, Gaines again expressed concerns about public officials saying a tax increase wouldn’t impact utility rates.
“Clearly, Moody’s has been monitoring these statements and has interpreted them as a potential risk to (Tacoma Power’s) financial condition,” Gaines wrote.
Tacoma Power issued more than $200 million in new bonds in 2013 with more planned in the future, he said. The ratings by Moody’s and two other agencies used by TPU can affect the utility’s financial position, he added.
“We will need to respond fully and truthfully to the inquiries from Moody’s,” Gaines wrote. “It is quite likely that we will receive similar inquiries from other ratings agencies.”
In a later email to Gaines, on Aug. 13, Broadnax said there are opportunities for the utility to reduce or phase in any rate increase.
“I look forward to a more productive conversation and effort to identify meaningful opportunities to allay all the ‘drama’ and ‘fear’ surrounding the ballot measure and unifying our message, since the City of Tacoma and Tacoma Public Utilities have at least one thing in common – ‘Tacoma,’” Broadnax wrote.
Broadnax would not comment further on the email exchange when contacted by The News Tribune about it. Instead, he said: “I have the utmost respect for Bill (Gaines) and his organization.”
Gaines told the newspaper the relationship between TPU and City Hall “ebbs and flows.”