Seattle Community Council Federation

WATER RATES INCREASE -- RATEPAYERS PENALIZED FOR ILLEGAL CITY ACTIONS

The Mayor has sent to the City Council two bills to raise water rates:
(1) C.B. 116441 raises the tax on the City's water service from 15.54% to 24.75% of the gross revenue from May 1 thru December 31, 2009.
(2) Council Bill 116442 increases the tax by 143% from March 16 to May 15th to 148.54% of the gross revenue.
Both taxes would be in addition to the State Utility Tax at 4.7% of gross revenues. (RCW 82.16.020).

The combined state/city taxes under C.B. 116441 would be 29.45% and of 116442 would be 163.24%. The taxes would compel water rates to rise by a greater amount. Seattle water rates have gone up 38% in the last three years.

Last October, the Washington Supreme Court ruled in Lane v. City of Seattle, 164 Wn.2d 875 (2008), that
(1) providing fire hydrants is a governmental responsibility for which the general government of the area must pay;
(2) charging every SPU ratepayer a flat hydrant "fee" in the base fee amounted to an improper tax;
(3) the ratepayers may recover unlawful hydrant fees paid from March 2002 through December 2004 together with interest at the judgment rate; and
(4) Seattle's increase in the utility tax to pay for the earlier practice of providing free water is legal.

The City had been giving water free to its Fire and Transportation Departments for fire fighting and street cleaning. Ratepayers challenged that practice as illegal because state law (RCW 43.09.210) requires that the City pay for utility services at true and full value; and the ratepayers won. The City then started charging ratepayers a "hydrant fee" hidden in the water rate. Ratepayers challenged that subterfuge and again won in the Superior Court. The City appealed. The Supreme Court order requires the City General Fund to pay for water service, to refund the unlawful hydrant fees to ratepayers together with interest, and to pay the ratepayers in the lawsuit their attorney’s fees and costs.
The Seattle Post-Intelligencer, January 29th, estimated the costs of making the refund at $ 22.7 million. The Mayor proposes to tax the utility, forcing it to raise rates, in order to pay the City a tax that will go to the General Fund so that the General Fund can pay for the refunds. Whenever the utility raises rates to pay City taxes, it increases moneys going to the State Utility tax too.
The City General Fund would come out whole, but the ratepayers wind up paying the extra expenses of defending a lawsuit, of paying the attorneys fees and costs of the successful ratepayers, of paying interest at 12% per year (total 38%), of paying for the processing costs of making the refund, of paying a state tax on the higher rates, and now paying a new city tax to make the refund.
It's the latest in a series of lawsuits by vigilant ratepayers in the last fifteen years to stop misappropriation of utility property and services for the benefit of the General Fund.

One suggested remedy may be a state law setting a limit on taxes on water service, such as RCW 35.21.870, which forbids municipal taxes over 6 % on light, gas and telephone services. Another may be to re-establish the independent elected office of City Comptroller to question improper practices before payment. Tacoma has an independent Utility Board to manage its utilities.