Legislature looks to solve utility tax fight between city, county with new bill

OLYMPIA – The city of Spokane would not be allowed to levy taxes on a wastewater facility operated by the county but located within the city limits, if a bill in the Legislature passes this session.

The bill, which received its first public hearing Wednesday, would exempt county-owned sewer and water facilities revenue from taxes imposed by a city or town.

The proposal came out of a conflict in Spokane County. The bill is co-sponsored by Spokane-area Republican Senators Mike Padden, of Spokane Valley; Jeff Holy, of Cheney; and Mark Schoesler, of Ritzville.

Members of the Spokane City Council want the city to begin collecting a 20% tax on the revenue generated by the Spokane County Regional Reclamation Facility, which opened in 2011 on Freya Street inside the city’s borders. The tax was adopted in 1998 but was never imposed on the facility. The facility serves almost all of Spokane Valley’s residents.

Although the issue is a local one, Padden said he’s hoping a bill at the state level could help spur further negotiations between Spokane and the Valley.

“There’s a lot of frustration in the Valley,” Padden told The Spokesman-Review. “At this point, after what’s happened, it’s necessary to proceed.”

The county calls it taxation without representation. Only 24 residents of the city of Spokane would be affected by the tax, according to testimony Wednesday. Most customers are located in other areas of the county, and because they don’t elect anyone in the city, they would have no say in how that money is used.

City Council members, on the other hand, say it must tax the county facility the same as it does a city facility located within the city borders.

In Wednesday’s hearing, City Council President Breean Beggs said the utility tax was put into place long before the county built its plant within the city. At the time, the county and the city could have negotiated on the tax, but did not.

Beggs said those who would pay the tax did have representation in their elected officials who could have negotiated the tax while discussing the plant location.

“They knew there was a tax, that this was there, and they didn’t resolve it,” Beggs said.

County Commissioner Al French said the new plant was put into the city to accommodate growth in the Valley. At the time, the county was not levying the tax, French said.

He likened the city’s decision to levy the tax to “forcing your neighbor to pay for your new car.”

Under the bill, if a city or town is unable to reach an agreement with the county after “good faith negotiations,” either party could request a board of arbitrators to resolve the matter. That board would consist of one representative from the city or town, one representative from the county and one representative appointed by the other two representatives.

If the board of arbitrators fails to meet an agreement on a third representative, a judge from the superior court of the county owning the facility could appoint the third person.

The board’s final determination is binding, and each party must pay the cost of its representative and one-half the cost of the third representative, according to the bill.

Collecting the tax could raise the utility bills of the average Spokane Valley resident by $12.50 a month, according to previous Spokesman-Review reporting. It would also bring in $6 million to $8 million of revenue of year for the city.

Spokane Valley Mayor Pam Haley said in her testimony the cost to businesses in the county would be “extreme,” if the tax was put into place.

County officials noted in a meeting earlier this week that the bill would likely be an uphill battle.

Candice Bock, of the Association for Washington Cities, testified Wednesday neither in support nor against the bill. She said there were concerns that the bill may end up being very broad and affecting a number of other cities and counties, given how it is currently drafted.

Bock said she encourages a “regional solution” between the city of Spokane and Spokane County, so there aren’t unintended consequences in other parts of the state.

At a meeting earlier this week, the county commissioners also expressed concerns with language in the bill that authorizes a city or town to charge counties to mitigate impacts directly attributable to the facility, if it is demonstrated the charges are reasonably necessary.

Padden said while he knows there may be some disagreement on the language, he thinks it’s fair that there should be some mitigation mentioned in the bill. He also acknowledged there will likely be some changes to the bill before it gets a final vote.

County Commissioner Josh Kerns acknowledged the line is likely a compromise that may bring more cities on board with the idea.

“Taking a bite of the apple might be better than going after the whole apple and getting nothing,” Kerns said.

S-R reporter Colin Tiernan contributed to this report.