Lawmakers eyeing update of utility tax

City leaders are gauging residents’ support for a 24-year-old utility tax, in part because updating the tax to avoid legal trouble could require voter approval.

Redwood City’s utility users tax, created in 1983 by the City Council, assesses a 5 percent levy on gas, electricity, cable television and telephone use, both landlines and cellular. While it was enacted with no specific purpose, city leaders agreed to use the funds — which total $8.8 million this year — for capital projects.

Since then, the tax has helped fund projects including new fire and police stations, a new library in Redwood Shores, restoration of the Red Morton Community Center and construction of the Courthouse Plaza, Finance Director Brian Ponty said.

Cities often create utility taxes because they are considered among the most fair. Residents with more income naturally wind up using more utilities and hence pay more in taxes, while those with less income pay less, Ponty said.

However, cities such as Palo Alto have wound up paying hefty settlements to cell phone companies because their utility-tax laws have not been updated to reflect wireless technology. Redwood City hopes to update its own rules before it runs into similar trouble from companies that claim the tax is calculated in ways that are unfair to their customers.

In addition, residents and businesses are using technology like Internet connectivity to skirt the phone system — and wind up skirting the tax, according to Jeff Ira, a member of the City Council’s finance subcommittee.

“When it was written, we had no idea where the technology would go,” Ira said. “We want to write something that’s more broad and open so it’s fair to everyone.” Doing so could require a vote of the public, he added.

That’s why phone surveyors are now calling Redwood City homes to gauge support for the tax. Results should be available by mid-June.

“The tax is pretty important, as far as capital improvement projects, but the city needs to demonstrate what it’s used for and why it should continue,” said resident and former Mayor Judy Buchan.

Tax naysayers, however, have worked hard to reduce or remove such taxes — and succeeded in getting Portola Valley’s utility tax halved, according to resident Jack Hickey.

“Utilities are a necessity, like food, and at least food is not taxable,” Hickey said. “Cities adopt a tax like this for a specific circumstance, but it’s not supposed to be a permanent thing.”

bwinegarner@examiner.com

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