Democracy on the Front Lines
City Administrator’s Blog
Walter Denton
January 5, 2007
You may have seen the recent article regarding Ameren’s proposed electric rate increase and its effect on city governments. We have received calls and complaints about how cities are going to enjoy “revenue windfalls” because of the utility taxes we collect. As the article correctly describes, cities will not be seeing any windfalls and some could be seeing deficits from the rate increases.
Just as residents will receive a large increase to their electric bills, so will the City. We currently pay $691,362 per year to AmerenIP. If our rates go up by 50%, the increase will total $345,681.
On the utility tax side, we collect a 5% tax on all electric and gas bills through AmerenIP. We currently collect around $1 million per year in utility taxes. Assuming a 50% rate increase, our utility tax revenue will increase an additional $409,812.
Subtract our increase utility costs from our utility tax revenue, and we would receive only an extra $64,131 in revenue per year from the increase. This translates to an extra $6.12 per year from each O’Fallon household. An additional $64,000 in revenue is not insignificant, but I would not call it a windfall (particularly compared to a total annual budget of $50 million).
There are three scenarios that could alter these estimates. First, utility tax revenues vary greatly depending on weather. Warm winters and cool summers can significantly impact energy consumption and, in turn, our utility tax revenues. Second, our utility tax revenues also come from natural gas sales, and gas prices are expected to go down this year. Lower gas prices would lesson the increase in the total utility bill. Third, energy conservation can affect electric consumption. When rates go up, people are a lot more diligent about conserving energy and new technologies exist that could make homes much more efficient than they are now. It is conceivable that a concerted conservation effort by residents could significantly lower consumption and would reduce energy bills and utility tax revenues.
For these reasons, it is important to take a “wait and see” approach with the utility tax. Some people would like for us to reduce the tax to compensate for the electric rate increase, but I think that would be unwise at this point. Our utility tax revenue is used for a specific purpose -- namely, paying off the bonds for the construction of the new $8 million Public Safety Facility. It is critical that we collect enough utility taxes to pay the debt service on the building. Tinkering with the utility tax rate in such an uncertain environment would put us too much at risk.
It is a complicated issue, and we will continue to monitor the situation in the state legislature. Nobody likes rate increases, but we will be subject to the rate hikes just like everyone else.
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