Council considers utility tax

The utility tax might make a comeback in Oak Harbor.

During a budget workshop, the Oak Harbor City Council members asked Mayor Patty Cohen to put a 6 percent utility tax on the council agenda. The tax would mean city residents would have to pay an additional 6 percent on all utility bills, from water to garbage.

At the same time, the council is looking at ways to cut costs in next year’s budget, which is in the red by about $550,000.

City Finance Director Doug Merriman, who has been the interim city supervisor on and off over the last couple of years, said the best way to balance the budget will probably be a combination of both tax increases and cost cutting.

The city council approved a 7 percent utility tax last year in order to balance the budget after Initiative 695 passed, which cost the city about $800,000 in sales tax equalization funds. But the utility tax expired at the beginning of this year and the council chose not to reinstate it.

But now they may have little choice.

Next year’s budget was passed last year, but Merriman said it will have to be amended over the next few months to make up the missing half million dollars.

The problem is a combination of the downturned economy and Initiative 747. Because of the ailing economy, the city likely won’t receive as much sales tax money as projected. And since I-747 limits property tax increases to 1 percent a year, the council can’t raise the tax by the 2 percent that was originally planned.

Until I-747 passed, property taxes could be increased by a maximum of 6 percent in a council-declared emergency.

The proposed 6 percent utility tax is on the agenda for the Dec. 6 council meeting as an introduction item, which means the council will set a later date to consider it — probably the Dec. 18 meeting.

The way the tax works is a little convoluted. The city taxes utility providers by 6 percent and the utility providers pass on the tax by raising rates to customers by 6 percent. But since the city provides many of the utilities within the city, that means the city is really taxing itself to tax the citizens.

The proposed 6 percent utility tax would raise about $420,000 a year, according to Merriman. The city council is scheduled to consider a 1 percent increase in the city’s share of property taxes at the Dec. 6 meeting. If passed, that would generate an additional $25,000 in property taxes a year.

Which would leave the city with about $105,000 to slice from the budget. Merriman said the city will look at many different ways of cutting costs, including changes to employees’ medical insurance or foregoing their cost of living adjustment for a year.

Merriman said city officials are also doing a core services analysis to identify which city services are essential and which can be cut.

Yet Merriman says the budget work isn’t finished once the 2002 budget is balanced. He’s working on a five-year budget.

The city’s fiscal future, Merriman says, isn’t all wine and roses. The city likely will lose the $270,000 a year in state bail-out funds — from sales tax equalization funding — after 2002 because the state will also be short of cash due to I-747.

Each year the city’s costs go up by an average of 3.9 percent — the inflation index — but the city’s largest revenue source, property tax, will be limited by 1 percent a year because of I-747.

“The deficit will gradually increase each year,” Merriman said.

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