Politics & Government

Shoreline Water District, City at Odds Over Proposed Utility Tax

Meanwhile, city and water district are negotiating new franchise agreement which may or may not be reached

Editor’s note: This statement presented to the Shoreline City Council Monday, April 23 by Diane Pottinger, manager of the Shoreline Water District was in response to a proposed city Ordinance, No. 634, that would allow a 6 percent tax on sewer and water operations. Entities that have a franchise agreement are exempt, City attorney Ian Sievers said, but a franchise agreement with Shoreline Water District is still being negotiated and is up on June 6, following a couple extensions. Sievers believes the city can legally assess the tax, if a franchise agreement is not reached.

Councilmembers: 

We have learned that the City staff has submitted a utility tax ordinance, Ordinance 634, for your consideration. The ordinance would extend the city’s authority to impose a 6 percent tax on water and wastewater services to Shoreline Water District, Ronald Wastewater District, and Seattle Public Utilities. Shoreline Water District has two objections to the ordinance:

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First, as far as we know, this Ordinance is the first attempt by a city in Washington to impose a utility tax on another local government, whether that is another city, a county, water district, wastewater district, or public utility district. Prevailing law is that a city cannot impose such a tax on another local government.

Your attorney has argued in the staff report that language in a 2000 court opinion shows that such a tax is legal. Shoreline Water District and many other local governments and government associations disagree, and frankly will resist such a tax.

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If the authority for such a tax is so clear; then why has the Association of Washington Cities submitted bills in the Legislature the past few years seeking approval to impose such a tax on other local government utilities? We note Senate Bill 5683 from the 2011 and 2012 Regular Session, House Bills 2637 (Section 7) and 2749 (Section 7) from the 2010 Regular Session and House Bill 2249 (Section 6) from the 2009 Regular Session. And, each time, the bills were not approved in Olympia. At a minimum, this inaction implies that the Legislature does not want cities to impose taxes on other local governments.

Second, the draft Ordinance credits against the tax any franchise fee paid by SPU, Ronald Wastewater District, and Shoreline Water District. This is apparently included in the Ordinance so that the net effect of this ordinance is zero for any of the three utilities with current franchises. 

The problem is that the definitions of income against which the utility tax and franchise fee are calculated are different. For the utility tax, it is 6 percent of the “gross income,” which is defined as the value accruing from sale of services. In the current franchise agreement, the franchise fee 6 percent of “revenue,” which is defined as income derived from the sale of metered water.

The latter is a narrower definition, and does not include other miscellaneous income such as connection charges, cellular antenna leases, streetlights, etc. We wouldn’t be surprised if similar disparities exist between this ordinance and the franchise fees paid by SPU and Ronald.

So, if the City Council passes this ordinance, which we oppose, the draft Ordinance is not only not revenue neutral to the three utilities, but could be a substantial expense increase. Therefore, the definition of gross income must be modified.

Finally, as you know, the City and Water District are presently in the midst of negotiations regarding an amendment to the current franchise agreement that expires on June 6, 2012. The Water District will continue to negotiate in good faith in an attempt to reach resolution. 

Thank you for your consideration.

Diane Pottinger, District Manager, Shoreline Water District


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