Fees in Flux

The City Council will soon consider Tucson Water's plans for an overall 9.7 percent rate increase

Tucson Water customers, especially those outside of the city limits, won't catch a break if the utility's proposed financial plan is adopted by the City Council.

At the same time, the development community would get a pass, albeit a tiny one.

On Feb. 23, the City Council is scheduled to consider Tucson Water's financial plan for the coming fiscal year. That plan includes an overall, average rate increase of 9.7 percent, including the imposition of in-lieu property tax on the utility.

Tucson Water director Jeff Biggs told the Citizens' Water Advisory Committee (CWAC) last week that including the in-lieu tax was a recommendation of City Manager Mike Letcher's office.

That recommendation certainly isn't surprising; the city is facing a budget deficit exceeding $20 million in its general fund for the next fiscal year, even after making draconian cuts—and the new property tax that would be passed along to Tucson Water customers would raise an estimated $1.6 million to help offset the red ink.

In short, the tax wouldn't do anything for water users other than raise their rates, but it would help out the city's general fund.

As an enterprise utility—which means it should cover its costs with its own revenues—Tucson Water in the past has been exempt from paying property taxes on the property that it controls. However, the City Council has the legal authority to levy the tax inside the city limits.

If the city indeed does that, utility bills would be increased by just less than 1 percent to cover the tax, estimates say. All Tucson Water customers—both inside and outside the city limits—would see the increase. (The rest of the proposed average increase—amounting to an 8.7 percent boost—is slated to cover Tucson Water's increasing costs.)

"Is it this board's position to recommend a tax to benefit the city's general fund?" CWAC member Jim Horvath asked at the meeting. "How we are getting into the city's budget is beyond me."

CWAC member Martha Gilliland refuted that statement. "I'm not in agreement that it's not our role to help out (the city)," she said.

CWAC member Mark Taylor said: "The city is transferring (its budget) burden to its county customers. We need to say we don't agree and don't think they should pay (the tax)."

However, in the end, CWAC easily endorsed the financial plan with the in-lieu property tax included.

If the City Council agrees to the in-lieu property tax, it will only be after a series of reversals and alterations on the part of Tucson Water and the CWAC. The first switch occurred in the background material provided to CWAC on the tax. A year ago, Tucson Water staff informed the committee: "Our research indicates that no other major municipality in the state of Arizona imposes an in-lieu-of-property-tax on a municipal utility."

This year, however, the staff corrected itself: "Our research indicates that one major municipality in the state of Arizona, the city of Phoenix, imposes an in-lieu-of-property-tax on a municipal utility."

In fact, according to a spokesman, Phoenix has levied the tax for at least 20 years.

A year ago, the committee unanimously recommended the in-lieu tax without much comment. This year, however, there was lively discussion in opposition. In February 2009, the City Council adopted a Tucson Water financial plan with the in-lieu tax included, but prior to implementation, the council dropped the tax.

The fairness of forcing the town of Marana and Pima County residents who happen to be Tucson Water customers to help bail out the city's general fund is one question the City Council will have to consider. Another question: Should a similar in-lieu property-tax levy be imposed on the city's two other enterprise operations?

The Environmental Services Department levies a monthly fee of $14.50 to pay its costs. According to its director, Andrew Quigley, the possibility of imposing the in-lieu tax on his agency has been discussed.

"Most of our real property was bought with general-fund money," Quigley indicates, "and nobody wants it." As a result, its value for property-tax purposes may not be substantial.

That isn't the case regarding the city's third enterprise fund: golf. The vast expanse of open space provided by the city's five courses could be worth quite a bit for property-tax purposes.

Despite that, Fred Gray, director of Tucson's Parks and Recreation Department, says the in-lieu tax proposal hasn't come up regarding golf courses.

There's one final reversal that has impacted Tucson Water's financial plan. Before the committee was presented with a draft of the document a few months ago, the committee reviewed a proposed increase in what are known as "miscellaneous fees," and approved revising them upward.

After that vote, Tucson Water staff members met with representatives of the development community to discuss raising these fees. "Their concerns," CWAC members were told last week, "were over pipeline-inspection fees."

As a result of that opposition, and because of the relatively small amount of additional revenue that would be generated, CWAC members rescinded their earlier position, so the fees will stay the same.

The question now: What will the City Council decide on Feb. 23?

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