The Payson Town Council Thursday took the first step toward raising water rates and boosting taxes on hotel rooms and rental cars.
The council unanimously approved Town Manager Debra Galbraith’s request to set the wheels in motion for a possible 20-percent hike in the water rates after public hearings in May. The rate hike could take effect this summer.
In addition, the council asked the staff to prepare a report on a proposal to increase the town’s hotel bed tax by about 5 percent and to impose a new, 5-percent tax on rental cars.
Payson Mayor Kenny Evans emphasized that the vote on Thursday merely asks for the staff to prepare reports on the proposed tax increases, the first proposed tax increase the council has considered in the face of nearly two years of declining revenue and budget trauma.
“We are merely directing staff to come back to us so we can make a decision,” said Evans in response to questions from the audience about the basis for the proposed increase in water rates. “This is just a vote to start the process.”
The proposed increase in water rates goes back to a 2006 study that recommended the council link Payson’s charges to the rates in other towns and water companies in the region.
The staff report asking the council to launch the process included a table that suggested an approximately 20-percent increase, with little specific detail on the water department budget, reserves and future spending needs.
Councilor Ed Blair observed, “It would be helpful if there could be some background given. A number of people are confusing it all with the Blue Ridge thing. It would save us all a lot of e-mails,” to have the background information up front.
“What we’re doing now,” said Evans, “is trying to dust off a study from 2006 to look at competitive rates and the gap between the cost of delivering services and the fees we charge. Councils eight or 10 years ago began to observe the gap between what it took to maintain an old and deteriorating water system and the rates we charge.”
The water system constitutes the single most expensive department, well ahead of either police or fire. The water department serves a population of more than 16,000 in a 20-square-mile area. The town has 42 wells, 8 million gallons of storage, 120 miles of distribution lines, a groundwater recharge plant and a water treatment plant. All told, the water department employs 19 full-time workers.
The water department’s budget is complicated by the money set aside to build the Blue Ridge pipeline, a $30-million pipe running along Houston Mesa Road that by 2014 will deliver about 3,000 acre-feet of water — doubling the town’s water supply. A portion of the cost of that pipeline has been accumulated by charging a $7,500-per-unit water impact fee on new construction.
The water department also accumulates money for future major improvements, so at any given moment the department has more money than it needs for day-to-day operations. The town council this year borrowed some $1 million from those water department funds to provide a reserve fund for the overall town budget, which has been battered by steep drops in sales taxes and building permit fees.
The council also directed the town staff to work up a report on the proposed 3- to 5 percent increase in the bed tax and a new, 5-percent cost on car rentals.
The bed tax hike would generate an estimated $85,000, which would be earmarked to promote tourism. The car rental tax would bring in an estimated $15,000 to $20,000.
The town staff will now prepare a report on the likely impact of the proposed tax. The council could then approve the tax increase, but only after public hearings in May.
Galbraith said the bed tax money would be earmarked for the promotion of tourism, the town’s leading source of revenue — especially with the collapse of the housing market.
Galbraith said the room tax in 2009 brought in about $106,000, but the town spent more than $320,000 on the tourism department.
Recreation and Tourism Director Cameron Davis said Payson spends far less to promote tourism than other tourism-dependent towns in the region. He noted that Flagstaff spends $1 million annually, Sedona spends $500,000 and the White Mountains communities spend a combined $300,000.