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Friday, November 14, 2003 - Page updated at 12:00 AM

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Ruling on streetlight tax darkens city's outlook on filling budget gap

Seattle Times staff reporter

In a decision that could prompt $24 million in refunds to Seattle City Light ratepayers, the Washington State Supreme Court yesterday ruled the city imposed an illegal tax four years ago when it started charging utility ratepayers for streetlights.

Word of the ruling spread quickly at City Hall, where the City Council is already struggling with filling a $24 million budget gap for next year. The court ruling only adds to the budget woes.

"It's huge," said City Councilman Jim Compton before a morning budget hearing. "Everything's up for grabs."

At the very least, the decision adds another $6 million to the city's $24 million budget gap for next year because the general fund will have to resume paying for streetlights.

It was not immediately clear whether the city will also have to refund the estimated $24 million it has charged City Light ratepayers since the tax was created in 1999. The Supreme Court ruling did not say whether refunds were required, and city officials said they haven't decided how to respond to the ruling.

The tax shifted the $6 million-a-year cost of powering and maintaining street lights from the city general fund to City Light, which maintains a separate budget. The shift accounted for two-thirds of a 3 percent rate increase that went into effect in 2000 and has cost the average ratepayer an estimated 60 cents a month since then.

Because the city didn't cut any other taxes when it shifted the cost of streetlights to City Light, the move freed up $6 million a year for other government programs.

Although the city argued it was legitimate to charge utility customers for streetlights, the Supreme Court, in a unanimous opinion written by Justice Mary Fairhurst, ruled the tax an unconstitutional "revenue-raising ploy."

The court said streetlights are a basic governmental service that should be paid for by general tax revenues, not tacked on to electric bills.

"Although the money raised was ostensibly allocated to pay for a regulatory purpose (lighting streets), there was no relationship between the fee imposed on City Light customers and the streetlight service they received," Fairhurst wrote.

The ruling came in a class-action lawsuit filed by utility watchdogs who had long opposed the streetlight tax as an illegal raid on City Light customers.

"I think people ought to be real happy with this. It says the city can't merely pass an ordinance that transfers costs from the general fund to City Light ratepayers," said Rud Okeson, a retired City Light engineer who was one of the four plaintiffs in the lawsuit.

He added that no one should feel sorry for city officials who are now scrambling to fill a budget gap because of the ruling.

"They brought it on themselves, doggone it," Okeson said.

The streetlight tax was first proposed by then-Mayor Paul Schell in 1998. It was approved by the City Council a year later and went into effect at the beginning of 2000.

Since then, the city had been repeatedly warned the tax was illegal.

In 2001, the State Auditor and Attorney General's office said the tax was illegal because state law didn't specifically allow cities to charge a utility tax for streetlights. They told city officials to rescind the tax, but the city disagreed and contested the matter in court.

Yesterday's ruling also affects the cities of Shoreline, Lake Forest Park, SeaTac, Burien and Tukwila, which get electricity from City Light under franchise agreements.

The utility agreed to pay for streetlights in those cities, too, although, with the exception of Tukwila, that cost was never passed on to ratepayers, said Will Patton, utilities section chief for the Seattle City Attorney's office.

Patton and other city officials were disappointed by the ruling, which came despite a law passed by the state Legislature in 2002 that sought to clarify that city-owned utilities could operate streetlights and charge customers for them. The court dismissed that law as essentially irrelevant.

Seattle Deputy Mayor Tim Ceis and Finance Director Dwight Dively met in a closed-door meeting with some City Council members yesterday afternoon to discuss the impact of the ruling.

At the very least, Ceis said, the city will have to come up with an extra $6 million in the 2004 budget that hadn't been anticipated.

But city officials said they weren't sure whether refunds would be forthcoming. That issue may be decided in King County Superior Court, where the lawsuit was initially filed and which had upheld the tax, according to Patton.

Okeson estimated refunds would amount to $40 to $60 for the average household, but stressed that it is difficult to calculate a precise amount without more information.

If the city does have to come up with $24 million or more for refunds, it's not certain it all would have to come out of the budget at once.

"It's a big deal, but there are different ways you could handle it," said Councilman Richard Conlin.

He said one possibility would be for the city to borrow money and stretch out the debt payments over many years.

That's what happened in 1996 after the city was forced to refund $12 million it had collected under a tax to pay for street repairs that was also ruled unconstitutional by the state Supreme Court. Thousands of Seattle property owners received checks averaging $58 as a result of that case.

Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com

Copyright © 2003 The Seattle Times Company

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