Councilors mull utility bill tax

Property tax hike, selling land on table for paying city fiber network debt

By Vickie Aldous
Ashland Daily Tidings

Ashland City Councilors will likely tap a variety of sources to make the payments on the Ashland Fiber Network’s $15.5 million debt.

By Friday, May 19, each council member is supposed to submit a written list of his or her preferences for where to find the money to Ashland Finance Director and Interim City Administrator Lee Tuneberg. He will then prepare a payment plan for the council’s formal adoption.

At a Thursday evening study session, councilors and the mayor gave an early indication of their preferences.

The city must pay $866,000 in the coming fiscal year on the 20-year bond taken out to cover AFN’s debt, followed by $1,056,000 and $1,299,000 in the following two years. Annual payments will plateau at about $1.43 million in the fiscal year that begins in summer 2009, according to Tuneberg.

Councilor Cate Hartzell said she is interested in instituting a tax on entertainment tickets sold in Ashland, reducing the fees AFN pays for its share of city administration, limiting what all city departments pay for materials and services and adding a tax on utility bills.

A $1 tax on tickets for live entertainment would generate about $340,000 from the Oregon Shakespeare Festival alone. Movies and video rentals also could be taxed, according to a list of options Tuneberg presented to the council.

In 2005, many residents balked at paying a $7.50 charge on their electric bills. The council rescinded the charge before it took effect.

A 4.5 percent tax on utility bills — which cover electric, water, sewage, storm drain and transportation services — would cost a typical household about $4 a month and would generate approximately $900,000 each year, according to Tuneberg.

Several councilors said they liked the approach of taxing overall utility bills, which would spread out the cost and not just impact electric bills.

Councilor Russ Silbiger said he also would like the city to sell land it owns across Interstate 5 and use $300,000 earmarked for a remodel of the Ashland Civic

Center on AFN’s debt. The 900 acres could be sold for about $2 million, Tuneberg estimated.

The land had been intended for use as the site where the city would sprinkle treated wastewater from its sewage plant, but several years ago, councilors decided to instead treat Ashland’s wastewater to a higher standard and keep emptying it into Ashland

Creek. Councilor Kate Jackson said she would prefer not to sell the land, which in the future could be used for a large-scale solar project that would reduce Ashland’s dependence on outside power.

“It is certainly a good location for solar. That’s an important thing to keep in mind given the state of the world,” she said, noting that selling the land would provide a one-time cash infusion while the city would not be able to benefit from rising land values if the land were sold later.

Jackson favored the utility bill tax and an increase in city property taxes since those property taxes can be deducted from state and federal income taxes.

Councilor David Chapman said the utility bill tax could be acceptable to him and would generate consistent revenue for AFN’s debt.

“If we sell property, we can drop the rate,” he said, noting that if AFN’s new head, Information Technology Director Joe Franell, improves AFN’s financial performance, that money could go toward the debt as well.

A mixed payment approach that included increased property taxes and selling property would be the best approach, said Councilor Jack Hardesty.

But Mayor John Morrison said selling property should be considered only if there are no compelling reasons to keep the property.

Adopting the utility bill tax, limiting expenses for city departments, considering a property tax increase and diverting money from the city’s hotel/motel tax would be better options, he said.

Councilor Alex Amarotico was not present at Thursday’s meeting.

When Jackson asked if the city can pay ahead on AFN’s debt bonds, Tuneberg said doing so would be a complicated process. Investors who bought the bonds expect a steady, fixed return over many years. Paying off the $15.5 million in bonds would cost roughly $17 million, he said.

“It’s costly. If the market’s right, you can minimize that cost,” Tuneberg said.

AFN Options Committee member and businessman Michael Donovan has previously said that paying off the debt on schedule will ultimately cost about $27 million because of interest.

If that amount were evenly split among Ashland’s 10,000 existing household and business electric customers, each would be responsible for $2,700.

The city so far has been making interest-only payments on AFN’s debt. Interest-plus-principal payments begin in July 2007.

Staff writer Vickie Aldous can be reached at 479-8199 or vlaldous@yahoo.com.

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