Spokane is about to collect a new utility tax … on fewer than 30 properties

After a long standoff, Spokane is poised to tax Spokane County’s wastewater treatment plant – but fewer than 30 property owners out of the thousands who rely on the facility will have to pay.

Elected officials have argued for more than a year about whether Spokane should collect a utility tax on the county’s wastewater treatment facility, which lies within city limits south of Spokane Community College. The facility serves nearly all of Spokane Valley, more than 15,000 customers in unincorporated Spokane County and roughly 1,800 total properties in Millwood and Liberty Lake.

Based on city law, Spokane should have been collecting the tax ever since the county opened the wastewater plant in 2011. Spokane Municipal Code requires the city to levy a 20% tax on the total income of any wastewater system. According to staff estimates, a full tax on the county’s facility would bring the city between $6 million and $8 million a year.

A majority of City Council members have said Spokane must tax the county facility to comply with its own laws. Spokane residents have to pay the tax, so it’s only fair for people outside the city to pay it too, council members have said.

“My position is that taxes have been owed for a while and they need to be paid,” Spokane City Council President Breean Beggs said. “If we don’t do it, we’re basically saying, ‘Oh, city of Spokane, you people have to pay for your sewage that’s treated here but these other people don’t.’ ”

Valley and county officials have strongly rebuffed the City Council’s argument and called on Spokane to rewrite its law. Collecting a tax on people who don’t live in Spokane and can’t elect its politicians is textbook taxation without representation, they say. County and Valley leaders have tried unsuccessfully to pre-empt the tax by changing state law and even threatened financial retaliation against the city if the tax is collected.

While the debate is far from over, the city in January will begin partially collecting the tax. The approximately 28 properties that rely on the county’s facility, and are located in north Spokane within city limits, will have to pay. The average homeowner’s bill will go up by more than $12 per month.

Woodward, who has resisted the council’s directive to collect the tax, said focusing on properties within the city limits was the county’s choice.

“I’m leaving that decision up to them,” she said.

Spokane County CEO Scott Simmons said both the county and Woodward’s administration agreed the new approach is fair since property owners in Spokane benefit from city services.

It’s unclear if collecting the tax exclusively on the city residents who use the county’s facility will resolve outstanding legal questions related to the tax. In a recent report, the state auditor’s office said Spokane should either collect the tax or change city code.

Woodward said the city will have to wait and see if taxing city residents resolves the issues raised in the auditor’s office report.

Beggs said collecting the tax this way clearly doesn’t fix the problem.

The City Council president said he believes Spokane should collect the tax and use the money to pay for projects of regional significance. The city could put the money toward homeless services, Beggs said.

“People all over the county are wanting more homeless shelter beds but not offering money for it,” he said.

How the tax discombobulation came to be

The utility tax fight wouldn’t be happening if Spokane County had built its wastewater treatment facility outside city limits.

That wasn’t a legitimate option, according to former Spokane County Commissioner Todd Mielke.

Mielke, who led the county’s efforts to build a wastewater treatment facility, said the Freya Street location, just south of Trent Avenue, was ideal for one primary reason: It was low, which allowed the county to use gravity to its advantage.

“It had nothing to do with political boundaries,” he said. “It was an exercise in running around and looking at elevations.”

Even if another good location was available, the city never seriously threatened the county with a utility tax, Mielke said. He said the issue came up during negotiations but was “short-lived.” Bruce Rawls, the county’s former utility director, said the tax issue never even came up at the staff level.

Nancy McLaughlin, who served on the City Council when the county was siting the wastewater treatment facility, said collecting the tax would have been “counterintuitive.”

Spokane’s plant was running out of capacity, McLaughlin explained. If the county hadn’t built a new, expensive plant, the city would have had to spend millions of dollars expanding its own.

“It was to the city’s benefit not to tax,” she said.

Spokane County Commissioner Al French, who chaired the City Council’s public works committee when the county was siting its plant, said the city had another reason for not taxing the county.

More than a decade ago, thousands of Spokane Valley homes had septic systems that sat on top of the Spokane Valley-Rathdrum Prairie Aquifer. The city wanted Valley residents to hook up to a sewer system instead.

“We wanted to clean up, eliminate, the potential for more septic tanks to be located over the aquifer and run the risk of a potential contamination of our sole source of drinking water,” French said.

In retrospect, the city should have agreed to not tax the county in the future, French said.

“What we should have done is memorialized that, in hindsight,” he said. “Hindsight’s always 20-20.”