Utility tax could diversify city’s revenue stream

The Camas City Council is looking at whether a utility tax might be a viable option to help diversify the city’s revenue stream.

According to information provided by city officials, a utility tax is “levied on the gross operating revenues earned by private utilities within a city, and by the city’s own utilities.”

The tax is charged by a municipality to a utility, then passed along to the utility’s residential, commercial and industrial customers.

“The customer ultimately pays for it, but it is a tax on the revenue of the utility,” Finance Director Cathy Huber Nickerson said during the initial discussion of the proposal at the Aug. 1 workshop.

Utility taxes can be levied on providers of electricity, natural gas, telephone, sewer, water and cable television services. The tax rate for electricity, natural gas and telephone is capped at 6 percent.

According to Huber Nickerson, the city can use the revenue for any purpose.

“The majority of cities in the state of Washington use it for their general fund,” Huber Nickerson said. “They do sometimes increase those rates, and when they [do] they use it for a specific purpose.”

Property tax revenues currently make up approximately 75 percent of the general fund taxes collected. By law, this can only increase 1 percent per year. City officials have said in the long-term they are facing a structural budget deficit because expenses are projected to outpace revenues.

The Camas population, currently estimated at 21,210, is expected to grow 37 percent during the next decade to reach 35,000 by 2035.

Some of the most significant development during the next two decades will occur north of Lacamas Lake, and in the Green Mountain area bordered by Northeast Ingle and Goodwin roads. Infrastructure investments will be necessary.

The city’s revenue, particularly in the new construction category, is growing. However, expenses are mounting even faster due to factors including higher pension and health care costs, and most significantly labor costs for the city’s 195 employees, which makes up 75 percent of the city’s operating budget.

Other challenges include maintaining a 17 percent reserve fund, a financial goal the city is currently unable to meet.

With these issues in mind, government officials have decided to look at ways to diversify its revenue, which would help to provide insulation in the event of a future recession.

“I think of one of our concerns is how we serve the North Shore area as it starts to build out,” Huber Nickerson said during the Aug. 15 City Council workshop. “We can decide that we are going to reduce levels of service, or if the demand is that we are going to retain those services, here is another tool in the tool box to pay for those things.”

One option discussed Monday was making the impact on customers “net neutral,” by implementing a utility tax while simultaneously decreasing the property tax burden.

“Net-neutral means that we are adding a utility tax, but we’re removing as much as we gain out of the property taxes,” explained City Administrator Pete Capell.

The City Council is also considering scenarios that would result in generating additional revenue, a possibility Councilman Don Chaney expressed some trepidation about.

“It seems like we are going to have to ask our public to make a leap of faith to say that this is a strategy to diversify more than it is to generate more revenue,” he said. “I’m not necessarily saying I’m opposed to that, but I’m likely to challenge it unless I get compelling information to justify it.”

Huber Nickerson described a utility tax as a way to distribute the burden.

“Sales taxes and utility taxes renters pay,” she said. “Homeowners only pay the property tax piece. That is something to be considered, too, It shares the burden a little more broadly.”

Mayor Scott Higgins indicated that this isn’t the first time a proposal to implement a utility tax has been discussed during the past decade.

“It has come up a few times,” he said. “It’s never fun to talk about taxes, but I think the strategy part is what’s important.”

Huber Nickerson said the City Council will continue to discuss the topic during future meetings.