The merits of Proposition 1 – Tacoma’s proposed 2 percent utility earnings tax – should be separated from another issue: The City Council’s willingness to play politics with Tacoma Public Utilities.
We oppose Proposition 1, but there are decent arguments for approving it next week.
Tacoma’s neighborhood streets are decrepit. The City Council has historically found more enjoyable things to spend its money on, including exceptional pay and benefits for many of its employees.
The ballot measure promises more funding for roads by ratcheting up taxes on utilities that sell electricity, natural gas and telephone services in the city and neighboring communities. Most of the money would come from Tacoma Power.
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We’re not crazy about the way Proposition 1 was developed with minimal input from the neighbors and many businesses it would impact. Still, there are those roads to consider.
The more serious problem is the way city officials have cavalierly suggested that Tacoma Power could swallow most or all of the additional 2 percent tax without passing this cost on to its ratepayers.
For example, some of them are saying that the utility doesn’t have to give pay raises to hundreds of non-union managers and professionals who’ve already gone without raises for more than four years. Or that Tacoma Power can dig into its reserves to keep rates down. (A very temporary fix.)
Those make great political talking points in a grab for more utility revenues. But interfering with Tacoma Power’s ability to recover costs through rates is risky business. Long-delayed pay increases are costs – as the council itself has acknowledged by repeatedly passing out raises to the city’s union employees.
The hard-nosed analysts who rate bonds consider whether officeholders curry favor with the public by holding utility rates hostage. If rating agencies don’t like what they see, the utility’s credit can be downgraded – and ratepayers can wind up paying more when bonds are issued.
An analysis by Moody’s Investors Service, for example, concludes that Proposition 1 itself is “credit neutral.” But get this:
“If Proposition No. 1 is approved and the higher tax is not passed to ratepayers, we would view such an event as credit negative ... an unwillingness to pass on the higher cost would be viewed as a weakening of the city’s willingness to recover costs with sound financial metrics ...”
The 2 percent tax is one thing. Politicizing Tacoma Power’s rates is another. Tacomans are free to approve the tax, but they shouldn’t be swayed by promises that they won’t have to pay for it.