Boost in Your Bills

Confused about the city's utility-tax increase? You aren't the only one

Confusion surrounds the utility-tax increase recently adopted by the City Council—and that confusion over the apparent doubling of the present 2 percent levy, to 4 percent, extends to some in the local media.

The Arizona Daily Star wrote on June 10 that the increase "includes 2 percent more on home phone bills, cell-phone bills, electric bills and gas bills."

That isn't exactly the case.

"We pay a franchise tax (to the city) of 3 percent," notes Libby Howell, spokeswoman for Southwest Gas. "So our city customers will see a 1 percent utility-tax increase."

When the City Council originally adopted this revenue source back in 1968, it imposed a 2 percent tax on utility company gross sales within the city limits. It also included a provision which states: "Any franchise payments made by such (company) to the city shall be credited toward the payment of the (utility tax)."

According to Silvia Amparano, the city's acting finance director, Tucson Electric Power (TEP) has a 2.25 percent franchise fee. They'll have to add on 1.75 percent to cover the utility-tax increase.

Tucson Water presently pays a 2 percent utility tax, so that rate will double.

Amparano says the city will start charging the higher amounts on July 1. The rate hike will bring in an estimated $14.3 million more over the next 12 months to City Hall's seriously depleted general fund.

City estimates show a monthly TEP bill of $100 increasing by $1.75. Those with an average monthly Southwest Gas bill of $70 will see about a 70-cent increase.

The average Tucson Water customer, who now pays just less than $20 a month, according to the company, will see a 13-cent rise.

But these same Tucson Water customers will eventually be paying even more, because Tucson Water's electrical and gas bills—which run around $16 million a year combined—will also be going up because of the utility-tax hike.

The percentage increase in the tax hike isn't the only tax-related difference between the three utility companies. While TEP spells out in detail what taxes their customers pay on each bill, monthly statements from Tucson Water show nothing regarding the public utility tax. That's because the tax isn't paid directly, but is embedded in the water rates. Thus, the City Council's decision earlier this year to approve a 10 percent increase in water rates will include the utility-tax hike.

While that may be confusing to customers, Chris Avery of Tucson Water compares it to shopping.

"It's like someone buying a suit from a department store," he explains. "They pay the sales tax, which is shown on the receipt, but they also pay part of the store's property tax through their purchase.

"I don't know why that decision was made," Avery says about including the tax in the rate structure. "It was made a long time ago."

Also confusing the issue is a city policy decision made long ago to impose the utility tax on non-city residents in Pima County who use Tucson Water.

After the 1977 recall vote (see "Down the Drain," Jan. 16, 1997), Tucson City Council members decided to equalize rates across Tucson Water's service area. Thus, according to a Star article in February 1977: "All residential customers (will) pay the same amount for water, whether they live in or out of the city."

That policy remains in place. Because of that, Avery says the increased utility tax will be applied to the sale of water inside the city limits, which represents about 60 percent of the company's total customers. That required tax will then be spread out equally to all Tucson Water ratepayers, wherever they live.

Both Avery and Amparano acknowledge that Tucson Water customers living in unincorporated Pima County help pay the company's city utility-tax bill. But that isn't exactly what the City Council was told a few months ago.

"The public utility tax is only imposed on customers located inside the city," the council was informed in a memorandum. But then the memo quickly contradicts itself by stating, "all customers now contribute (through water rates) to payments of the tax."

While Tucson Water's recent 10 percent rate hike was established before the City Council's recent utility-tax decision, the latter vote will almost certainly impact water increases in years to come.

"Future year rates," the council has been told of Tucson Water charges, "would then factor in the additional tax, and ratepayers would be impacted at that point."

Thus, both the higher utility tax and the company's increased electrical and gas bills will eventually make their way to customers. As a result, the 10 percent water-rate increase already predicted for 2011 may be even larger.

About $1.7 million in new city revenue is anticipated to come from the utility tax increase imposed on Tucson Water customers. But that's assuming customers continue to use the same amount of water they did in 2008.

The utility company saw a historic drop-off in usage last fall, which caused Tucson Water to significantly revise its revenue projections downward.

"We expect to sell the same amount of water this year as last," Avery reports. If that doesn't happen, even with the rate increase, the Tucson utility tax could come up short of revenue projections.

That could really cause some confusion at City Hall.