City council again turns to increase in Spokane’s utility tax to balance budget

Spokane raised its utility taxes on Monday, bringing the tax rate to 21.5%, one of the highest in the state.

Utility rates set the price city customers pay for water, sewer and garbage; utility taxes determine how much of that payment is diverted from the utility departments and into the city’s general fund, which pays for nonutility functions like police, fire, planning, parks and libraries.

While council members lamented this week that the tax was regressive – shortly before approving an increase currently set to expire at the end of 2026 – utility taxes have proven a popular way for the city to balance its budget over the years. Monday was the third time in 20 years that the City Council, faced with a multimillion dollar deficit, approved an increase on that particular tax to dig itself out of a fiscal hole. Two of those rate increases have occurred in the past three years.

It was not always this way. In 1990, the Spokane City Council actually decreased the utility tax from 18% to 17%.

But after the 2001 initiative spearheaded by anti-tax activist Tim Eyman limited the flexibility of cities and other governments to raise property taxes, jurisdictions that were cash-strapped (or spendthrift, depending on one’s perspective) increasingly eyed utility taxes to help balance their budgets. State law does not set a limit on how high cities can increase taxes on their water, sewer and trash systems.

In 2005, facing a $6.5 million shortfall, the Spokane City Council increased the utility tax to 20% while also successfully asking voters to approve a larger property tax than the new state law would otherwise allow.

“At the time we had the highest utility tax in Eastern Washington,” said former Councilman Bob Apple, one of two council members who voted against the tax hike at the time. “A lot of people, even then, were complaining about how the utility taxes were in Spokane compared to neighboring communities. Now it’s still true.”

The late Steve Eugster, who served as a councilman at the time and called the tax “unfair and terribly regressive,” tried to force the city to shift its reliance from utility taxes to a different revenue source, though one that proved no less controversial: a local business and occupation tax. His proposal floundered for years before in 2006 he filed an unsuccessful initiative that, if approved by voters, would have slashed the utility tax in half.

While the initiative would not have itself instituted a B&O tax, Eugster believed that the city would have been forced to turn there to replace the roughly $9 million in lost utility tax revenue.

But a B&O tax faced similar opposition: Spokane may have had the highest utility tax in the region, but it would have been alone in the county if it implemented a B&O tax. Critics argued that little would prevent businesses from simply setting up shop outside of city limits to avoid the tax.

The city’s chief financial officer at the time, Gavin Cooley, argued in 2006 that shifting the tax burden from residents to businesses would threaten the strong economy Spokane enjoyed.

“Why make that change in the midst of a strong economy?” Cooley asked at the time.

In 2023, then-Mayor Nadine Woodward proposed raising the utility tax to 21% to help fill a $20 million hole in the 2024 budget. In 2024, that “temporary” tax hike continued without much fanfare from the council majority in the 2025-26 biennial budget. Now, in 2025, the city has raised the tax by 0.5%, again saying it is only temporary.

Some expect there’s only one thing temporary about the latest tax hike: calling it temporary.

“Every time a government says they’re going to just temporarily tax, they always, and I mean 100% of the time, always turn it into a permanent tax,” Apple said.