In municipal Monopoly, avoid landing on utilities
Marion and Hillsboro long have defended their policy of overcharging for electric service on grounds that profits reduce property taxes.
As Marion city administrator Roger Holter said in response to a question last week:
“The ‘profit’ you reference is transferred to general fund operations to lessen the need for ad valorem levies that only impacts property owners. Investor-owned utilities use their ‘profits’ to pay their shareholders in dividends. This community-owned utility uses the profits to pay their shareholders, the property owners of the community.”
But do all property owners share equally in this?
According to city documents obtained by the Record, average residents — including property owners — pay far more than more affluent property owners and businesses do because of how the city’s electric rates are set.
The difference in rates is clear.
At Marion County Lake, private utility Evergy charges a standard rate of $14.50 per month plus $0.073512 per kilowatt-hour for up to 900 kilowatt-hours, which is the average for residential electric use in Kansas. That translates to a bill of $80.66 per month per resident.
In Marion, the base rate for residences is $30.00 per month plus $0.1298 per kilowatt-hour, which translates at the same usage level to $146.92 per month.
This means Marion residents pay $66.26 a month — or $795.12 a year — more than Marion County Lake residents, all so they can save on property taxes.
But how much do they save?
In the most recent year for which complete data were available, the city of Marion paid $1,213,520 for electric power and $564,599 for maintaining and operating electric service. In return, it billed residents and businesses $2,155,135 for electric service, turning a profit of $377,016 — equivalent to 13.2 mills of property tax.
For the owner of a home with a median assessed value, that translates to $135.25 in property tax savings.
Not many people would pay $795.12 to get $135.25 back in return.
Increasing the property tax rate by 13.2 mills might cost an average property owner just $135.25 a year, but it would cost the owner of a $500,000 house $759.00.
That home would use roughly the same amount of electricity — perhaps less because it undoubtedly would be better insulated, have more energy-efficient appliances, and might have less need for such things as washers and dryers because there probably are fewer children in the home.
When electric bills and property tax bills are combined, an average resident pays $659.87 more per year than is needed while a more affluent resident breaks even. The rich get richer, and the poor get stuck with the bill.
The imbalance becomes even greater for residents of less than average affluence.
The owner of a $40,000 home still pays the $795.12 a year more than what his or her electricity would actually cost but gets only $67.63 of the savings on his or her property tax bill. Renters, who also tend to be less affluent, get absolutely none of the savings. But businesses get a very large share of it.
Business property valued at $500,000 would save $1,650.00 in property taxes from the overcharging for electricity. It’s pretty clear exactly who benefits and who doesn’t from Marion’s high electric rates.
On the other hand, inflated electric rates are one of the ways in which Marion attempts to compensate for large number of properties that are tax-exempt because they are owned by churches, charities, or especially other units of government.
They pay excess electric rates but do not benefit the way affluent residents and local businesses do from offsetting reductions in property taxes.
Marion makes a similar but smaller profit on sales of water, billing $578,657 for water that cost it $350,631 to purchase, process, and distribute, including operations and maintenance, according to city documents.
That’s $228,026 in profit annually, but the city faces $232,000 in additional expenses annually from its project to replace water lines in some portions of the city.
It apparently intends to recover 100% of that cost from increased water rates rather than apply any of the profit toward that expense.
As a result, the city is poised to increase water rates $16.33 per water meter per month as early as next month or as late as in February, according to documents obtained by the Record.
That’s $195.96 a year or, on a home of median value, the equivalent to a property tax increase of 19.13 mills — all enacted without any referendum to determine whether voters wanted to add to city debt or increase city spending, taxes, or fees.
Fee increases for both electricity, which in coming months will includes addition of a 1-cent surcharge per kilowatt-hour, and water do not factor in additional revenue the city should receive from an unexpected increase in sales tax revenue, which accounts for almost half as much money as is raised by property taxes, or from increases in property valuation.
— ERIC MEYER