Tapping into utility funds
City to raise money for sidewalks, alley improvements by taxing itself
The city of Craig will pay for new sidewalks and improvements to alleys by taxing its water, wastewater and solid waste departments.
There has never been a sales tax on city utility services, but the Craig City Council has found a way to get the revenue from a new tax without passing it on to customers.
The city will bill the water, wastewater and solid waste departments a 2.25 percent sales tax on all fees generated. The money to pay that tax will come from the reserves in each of those departments, a combined $2,018,638.
The move a payment in lieu of taxes (PILT) will net the city $73,100 in 2003.
“A lot of communities do this,” City Manager Jim Ferree said. “We decided to do it this year because of some of the projects the city council wanted to do.”
The city council asked at its October budget work session that $20,000 be added to the 2003 city budget for the construction of sidewalks and $30,000 be added for improvements to the alleys behind the Golden Cavvy and behind the Craig Fire Station.
Of the money generated from the tax, $39,600 will come from the water department, $18,200 from the wastewater department and $15,300 from the solid waste department all three of which are enterprise funds.
Enterprise funds are intended to be self-sufficient. Fees collected for a service, in this case water and wastewater treatment or trash collection, pay the entire cost of operating and upgrading those services.
“The bottom line is when people pay for water and wastewater, they have to assume those funds will go back into those departments,” Water Department Director Joe Theaman said. “That’s what enterprise funds are.”
Enterprise funds can be subsidized with tax dollars general fund money but money from an enterprise fund cannot be used to pay for general fund expenditures, according to the city’s charter.
There are exceptions. Utility funds can be billed for costs incurred by the general fund to support utility services salaries, for example.
According to the city charter, taking payments in lieu of taxes is a legal way to get money from an enterprise fund into the general fund.
“We’re just trying to make sure there’s a level playing field, that the general fund is not subsidizing utility funds,” Ferree said.
Several city workers spend part of their time on utility fund projects and those utility funds are billed for that work.
Other utility providers are assessed a sales tax for their service. Natural gas, electric and telephone service providers pay the city 3 percent of their gross revenues for service.
“All other utilities pay taxes into the general fund, now we’re just making this one of those,” Ferree said. “Obviously, when the economy is not growing, you’re more apt to make sure things are being charged correctly.”
This is the third year the city has budgeted for no revenue growth.
Ferree said rates for utility services will not increase because of this move, but Theaman said that might not be the case.
“The rates do have to go up to compensate,” he said. “The more money paid into the general fund, the bigger and bigger the need to raise the rates.”
The city council is considering water and sewer rate increases to keep up with rising operational costs and to boost the water department’s reserves to pay for a plant expansion project expect to happen in 2006.
Ferree said each of the utility funds has sufficient reserves to pay the new tax.
“The only increase in rates will be for plant expansion to reduce what we have to borrow in future years,” he said.
Nothing has been solidified yet. Ferree expects any action on a potential rate increase to be taken after the first of the year.
Christina M. Currie can be reached at 824-7031 or by e-mail at email@example.com.
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