Chip Taylor

Municipal enterprises and hidden taxes

Governing.com News summarizes an article in the Seattle Times:

Electricity customers should receive refunds totaling about $25 million because of an illegal tax imposed by the city, a King County Superior Court judge ruled, citing a state Supreme Court decision finding that the city created an unconstitutional "revenue-raising ploy" when it started charging ratepayers for streetlights.

Apparently, the city's general fund had been paying Seattle City Light for the lighting services. But then officials decided to have the utility enterprise charge ratepayers, freeing approximately $6 million annually from the general fund to be used for other spending.

Municipal enterprise ownership, particularly of big cash cows like electric utilities provide ample opportunity for this sort of cost shifting and tax obfuscation.

Poplar Bluff (Mo.) Municipal Utilities, where I used to work, not only provided "free" streetlighting, but also "free" utilities to all city owned buildings and other facilities. It also paid a portion of the city manager's, city clerk's, city inspector's and city attorney's salaries. Paying a share of the attorney's salary was the only one, in my opinion, that was justified.

The "free" streetlighting and utility service was rationalized by claiming that the tax payers and rate payers were the same group. That's mostly true, but that doesn't mean that paying for those services (or the salary reimbursements) in proportion to your electric consumption was the sensible or fair way to apportion costs. Furthermore, you can imagine the effect on energy consumption that "free" utility service has.

I'm glad to see fairness and common sense prevail in Seattle.