Utility tax in O’Fallon won’t increase under new ordinance as council set to take action
Plans to change the wording without raising the rates is the goal of amending O’Fallon’s utility tax.
The new ordinance, if adopted by the O’Fallon City Council on Monday, Sept. 20, will go into effect Jan. 1. The same kilowatt-hour rates that were in the 2002 original ordinance would be maintained.
The council advanced the amendment Sept. 7, which means final approval is set for the Monday, Sept. 20, meeting. Tom Vorce was the sole alderman voting no.
The current ordinance expires in February 2022. Originally established to pay for the debt service on the public safety building bonds and for the parks program, the amended law would remove the 20-year sunset clause.
In public policy, a sunset clause is a measure within a statute or other law that states it will no longer be in effect after a specific date — unless action is taken to extend the law.
The debt service on the bonds does not mature until January 2024, City Finance Director Sandy Evans told the Finance and Administration Committee on Aug. 23.
The current budget for the utility tax is $1.775 million, of which $534,000 goes to pay the bond debt service; $124,000 (10%) stays in the general fund; and the balance of $1.117 million goes to parks for operating needs.
Based on the projections, increasing to the maximum kilowatt-hour rates could generate an additional $250,000 to the city at a minimal cost to residents.
For instance, a 2-adult household would be billed $1.19 per month, and a 2-adult, 4-teenager household would be $1.66 per month.
Evans said based on the current market, a debt service payment of $530,000 over 29 years could generate project proceeds in the range of $8.1-8.3 million.
Since the ordinance was established in 2002, the maximum rates for kilowatt-hours have increased.
City Administrator Walter Denton explained Ameren rate changes do not affect the utility tax.
The amended ordinance would fund capital improvement projects and park operations — general for right now — but the purpose would be decided later, Evans said.
After much discussion on the issue of increasing the rates, aldermen on the committee voted to not increase the rates. Then, when the bond debt service expires, a capital improvement increasing kwh rates may be considered at that time.
They were in favor of dropping the sunset clause if there wasn’t a specific project targeted. Vorce wanted to be specific about the plans and said there was no need to raise the rate now.
The finance committee recommendation was what the council considered on first reading Sept. 7.
Ameren Tax Department Manager Bob Cecil has reviewed the amended ordinance.
The ordinance code states the city may implement a municipal tax “on persons engaged in distributing, supplying, furnishing or selling gas for use or consumption within the corporate limits.”
The amended tax ordinance states the rate will be 5% of the gross retail receipts of using electricity, which are calculated on a monthly basis.
For the first 2,000 kilowatt-hours used in a month, the rate will be .5112 cents; then the next 48,000 kilowatt-hours would be .3352; and the next 50,000 kw after that would be .3017; the next 400,000 kw would be .2933; and it continues to decrease. For all electricity beyond 20,000,000 kw in a month, it would be .2514.
Other Revenue Options
The city has been discussing revenue source options for several months. Various taxes are a source of revenue: Sales, property, state income and utility.
The finance committee will continue its comprehensive review of those, as well as new sources. This study is expected to be completed in December.
Mayor Herb Roach said the purpose is not necessarily to increase taxes, but to determine if there are more equitable forms of taxes that will better serve the future needs of the city’s growth and development, he has stated.
Discussion on these taxes has been ongoing: Food and beverage, streaming/amusement, wheel, gas and self-storage.
Evans said future committee meetings will include looking at internal departmental fees such as building permits, annexation fees, cemetery fees and so forth.
Long range goals
In prior communications, the mayor has told residents the goal is to make sure the city is set up properly for long-term success and smart growth.
“Will our revenue sources properly accommodate the high-quality amenities that our residents expect and deserve? Is everyone paying their ‘fair share’ for city services?” he wrote in a previous column.
“We have just completed getting input from thousands of our citizens on what they wanted to see in our 2040 Master Plan for the future growth and development for the next 20 years. So, it is most appropriate that we review the types and amounts of revenue that we now receive and whether that matches with our future growth and needs of the city of O’Fallon that our residents have envisioned,” Roach said.
“We do not have any preconceived notions about how this review will go. The committee could recommend no changes or there could be several changes that we should make. Some could result in decreases in some types of taxes while other could result in increases.
“Some types could be eliminated while different ones could be considered. Some taxes are paid by our residents while others are paid primarily by visitors to our community. Should that mix of taxes be changed? All these things will be up for review,” Roach said.
More from the mayor
The mayor explained the city’s review.
“Having just went through a rough stretch of economic times and the projected decline of some of our revenue sources due to the relocation of the St. Clair Auto Mall, I feel that we owe it to each of our residents and businesses to do this type of careful review to set a firm foundation for the future,” he said.
“Our city has had major changes over the years, and we are seeing some loss in some of our current revenue sources. But, on the positive side, we are also seeing growth in some of our other revenue sources. We need to look how these changes have impacted our revenue now and how it will impact them in the future,” he said.
“We need to make sure that we try to make our tax structure as equitable as possible for everyone, so that everyone contributes to the costs of maintaining our city services,” he said.