City Proposes To Tax Itself Back Into The Black

Although Mayor Cary Bozeman is proposing closing a projected $4.4 million budget deficit with $4.1 million in cuts, his 2009 budget also proposes some new revenues.

In several areas Bozeman is proposing fee increases, some small like the 25 cent hike on yearly membership dues for city residents at the Bremerton Senior Center in Manette,

In addition to the fee increases, there are two tax increases in Bozeman’s budget, one is the legal limited increase of 1 percent on property taxes, an obligatory tax cities say doesn’t even allow them to keep up with expenses, and a tax on three city utilities.

That isn’t to be confused with a rate increase for sewer, water, and stormwater, although that is likely coming as well.

The tax is the city taxing the money being paid to the city-owned utilities, called a PILOT, or payment in lieu of taxes. Currently the utilities pay the city a PILOT rate of 8.5 percent. Bozeman is proposing that be increased by 1 percent to 9 .5 percent. Budget writers expect this will pump about $250,000 into the city’s general fund.

It will, likewise, pump $250,000 out of the utilities.

The first reaction to this is, intuitively, that the utilities will turn around and raise rates, thus a shell game of sorts that would provide elected officials cover.

The City Council will vote on a 5.8 percent rate increase on the three utilities, but that is the limit allowed by city statute and would likely have been recommended with or without the PILOT proposal, said Public Works and Utilities Director Phil Williams.

“Believe me, our costs went up at least that much,” he said.

That still will create a hole in the utilities’ budgets which will come out of each construction budget, Williams said.

This move to tax the utilities to provide a boost to sagging revenues may come at little cost now, but the potential problems come in the long term life of the pipes and other infrastructure used by the utilities.

In the short term, the utilities can absorb the increased tax, officials said. In the long term, it leaves less money to replace aging infrastructure.

In case of an emergency, like the broken water main that tunneled a giant sinkhole in Seattle last year, the utilities are required to finish the year with at least a 12 percent cushion, Williams said. That money could be used to pay for an emergency.

And the council has shown a willingness to back down taxes. So Williams said the move doesn’t have to be permanent.

Officials have predicted in about two years revenues from sales and real estate taxes will began flowing back into city coffers.