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Spokane, Washington  Est. May 19, 1883

Telephone utility tax proposed

Six percent utility tax, the city’s first, would go into street fund

Spokane Valley residents may soon be paying a 6 percent telephone utility tax to plow and patch their streets.

The City Council Tuesday agreed unanimously to proceed with an ordinance that would establish the city’s first utility tax.

Final action tentatively is scheduled Aug. 12, when the issue will next come before the council. There was no public testimony at Tuesday’s sparsely attended meeting.

At the proposed 6 percent rate – the maximum the council may impose without a referendum – the proposed tax would raise an estimated $3 million to $4 million a year.

It would apply to cellular as well as conventional telephone service and, city officials hope, to telephone service over cable or other broadband connections.

City Finance Director Ken Thompson said telephone companies also want broadband telephone services to be taxed so they can compete on a level field.

“We anticipate having that issue wrapped up in short order,” Assistant City Attorney Cary Driskell said.

He said he was making sure the ordinance complies with recent changes in federal regulations, but he thought the tax could be applied to all telephone service.

Mayor Rich Munson said implementing a new tax “is a very, very difficult decision for this council to make” in view of the pride council members have taken in being “minimalists.”

However, he said a $3 tax on a $50 phone bill would be “worth it” to keep city streets in good shape.

Munson said council members would be “negligent” in their duty to public safety if they didn’t find more money for streets. Police protection and street maintenance presently compete for limited general fund money.

“I think it’s been a great ride for us to go through five years with only two legs of the three legs that most cities have for financing,” Councilman Steve Taylor said.

Cities typically rely heavily on property, sales and utility taxes to balance their budgets.

Taylor said 5-year-old Spokane Valley has been able to get by without a utility tax because of rising sales tax receipts, but those have leveled off.

“While no one likes to increase revenues and raise taxes, it is necessary in this case, and I believe this is a good vehicle for us to use,” Taylor said.

State law allows utility taxes to be used wherever needed, but council members called for an ordinance requiring Spokane Valley’s telephone tax to go only into the street fund.

Munson said he hoped for “great community support” and that residents would “recognize that this is not going into the great black hole of the general fund.” He acknowledged, however, that a future council could change the ordinance.

Thompson said the state gasoline tax currently is the city’s only dedicated source of money for street maintenance, and it falls far short of the need.

The gasoline tax generated less than $2.1 million in 2007 and is producing about $50,000 less than that so far this year. Day-to-day street maintenance costs $4 million to $5 million a year, Thompson said.

On top of that, he said, an estimated $3.5 million a year is needed for long-term preventive maintenance, for a total of approximately $8 million a year.

One of the first uses of the telephone tax would be to repay a proposed $1.17 million loan to the street fund from the general fund.

The loan would replenish the city’s emergency snow-removal fund, which was exhausted by last winter’s above-normal snowfall. Also, the loan would maintain cash-flow in the street fund until telephone tax revenue started rolling in next year.

Thompson said the new tax would forestall a projected deficit in the street fund from next year until 2113 or 2114. Meanwhile, city officials continue to look for new income.

Other ideas under consideration are a utility tax on garbage service, a local vehicle registration fee and a “street utility” fee on residents and businesses.

The council could revisit the telephone tax if it finds a suitable substitute that is more closely related to street use, Councilman Dick Denenny said.

John Craig may be contacted at johnc@spokesman.com.