By Tom Kilian, Wausau City Council Dist. 3 alderman
The Wausau people are being sold a narrative that a 65% water rate increase is unavoidable due to an increase in plant investment and operating expenses, and due to costs associated with effective PFAS removal. That narrative is false.
The truth is that these necessary goals of plant investment and contamination removal could occur with a much lower rate increase.
This lower rate increase is not occurring, in part, because the City of Wausau continues to collect a $1,590,000 payment annually from the water utility as a property tax equivalent or Payment In Lieu of Taxes (PILOT). Due to the statutory math behind these PILOTs, this payment could potentially increase in the future. The City then uses this regressive revenue stream and scheme to fund things that generally have nothing to do with your water.
A 2021 Milwaukee Journal Sentinel piece calls these water utility PILOTs “a hidden tax on water” that makes affordability issues for lower-income families much worse, stating: “A government that collects taxes on revenue collected by its own utilities is playing a shell game and hoping that its citizens don’t notice.”
If the City were not to collect this payment from the utility, it would have to change its spending priorities, which it should be doing anyway, from my perspective.
While Wisconsin Administrative Code, Section PSC 109.02, establishes a methodology for calculating the maximum local tax equivalent for a municipality, a municipality’s governing body may adopt a resolution authorizing the collection of a lower tax equivalent payment than this maximum defined under PSC 109.02, Wis. Administrative Code.
Let’s look at what this PILOT or utility property tax equivalent means for your and your family’s water rates and, due to its regressive nature, how the situation disproportionately impacts lower income residents and our city’s most economically vulnerable.
Slashing the 65% Water Rate Increase
Some time ago, believing that a set of tactics could possibly dramatically lower the water rate increase without sacrificing plant upgrades and PFAS removal, I started by looking at reforming this property tax equivalent that the utility pays the City as one possible tactic.
I initially explored an approach that would essentially bring the utility’s PILOT down to $0 over a 10-year period. After consulting with the relevant outside consultant, the City’s Finance Director told me that this approach would ultimately result in a 20 percentage point decrease in the water rate increase…from that one tactic alone.
Imagine what applying a set of effective tactics may do to the rates. Imagine what phasing out the PILOT entirely may do for rates and water affordability in Wausau.
Armed with this encouraging data, I proposed this PILOT-reform tactic at several city meetings in order to bring much-needed rate relief. The essence of the pushback and objections that I received in these meetings: the City had, or would have, plans to spend the money from the utility PILOT revenue source, so how could it effectively get rid of it?
But instead of using the utility PILOT to fund and offset future costs of necessities, the City could simply cut borrowing and spending on items non-essential to appropriate governance and achieve the same offset effect, while simultaneously bringing water rates down.
For instance, the City recently approved borrowing of $1.2 million to purchase County Materials property on the riverfront for redevelopment and trail expansion. I voted against the purchase, as did two of my colleagues. Just that purchase cost alone is equivalent to 75% of this year’s water utility PILOT amount. Was purchasing that property more important than Wausonians having more affordable water?
A regressive revenue stream hurts those most who can least afford it
I will state the obvious: if humans do not drink water, they die. In addition, water is critical for essential functions like cooking and bathing. People must have it to survive.
However, importantly, unlike many income taxes and even property taxes in some regard, the manner in which we charge for water is regressive, like this PILOT or “hidden tax on water,” as it has been called.
In a given situation, if a lower-income family in Wausau uses the same volume of water as a more affluent family of an identical size, it takes a larger percentage of income from that lower-income family than it does from the higher-income family. This is highly problematic with water due to its essential uses and life-preserving role.
The impact is similar to what we saw with the City and “fees” — in 2021, I strongly opposed the City’s elimination of the referendum requirement for creating fees – fees that could be used for services like garbage, among others – in part, because it was regressive and would disproportionately impact lower-income residents.
A key difference is that, unlike several days without water, someone will not literally suffer death without several days of garbage collection service.
Time to eject the PILOT
For these reasons, and because of the PILOT’s role in higher water rates, it should be clear that it is not a just or responsible municipal revenue strategy for the City to persist with the PILOT at high levels simply to maintain a source of slush-fund-style dollars. In fact, if we are to have both safe and affordable water, Wausau urgently needs to develop a policy strategy to phase the PILOT out entirely. Clean water shouldn’t be tied to regressive taxation that hurts lower-income residents most.
In the future, other tactics could be coupled with PILOT-reform to continue slashing down the rate increase while preserving contaminant-removal capabilities.
As far back as 2019, some officials were aware that the city would need to address PFAS in our drinking water while the new treatment facility was being planned, but did not inform the public. Had the problem not been buried at the time, I presume it would have drastically reduced the costs we now face for contaminant removal by having to do it after the fact.
Similarly, in the 1970s and 1980s, when TCE and other VOCs were identified in Wausau’s water, including in the drinking water of children’s schools and childcare centers in town, government downplayed the risk and responded too slowly.
We cannot change Wausau’s unfortunate water past, but we are not condemned to repeat its mistakes.
It is imperative that Wausonians have clean, safe water. But it is inappropriate and unjust to tie these clean water outcomes to a municipal revenue scheme that places the greatest financial burden on those Wausonians who can afford it the least.
Tom Kilian is the Wausau City Council alderman representing Dist. 3.
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