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THE SUBMERGED TAX

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Consideration of the proposal to increase water rates in Fort Wayne deserves thoughtful, serious, consideration. Fort Wayne has a water filtration plant with great excess capacity but it has a water distribution system that is creaky, cranky and old that is prone to water main breaks that at best annoy homeowners and at worst create a risk to public safety. Additional leaks waste nearly 24% of the water sent into that system. My proposal to prohibit the use of added Payments in Lieu of Taxes (PILOT) for anything other than water utility improvement will prevent city government from taxing the tax-exempt and hiding tax increases in water rate hikes.

Fort Wayne is not unlike other older North American cities in that regard. Differing manufacturing techniques of pipe in different eras produced pipe prone to breakage – particularly those installed in the post WW II years.

A water rate increase raises expenses for every household, business, church, and school served by Fort Wayne City Utilities. That much is well known.

However, the proposed water rate increase has folded into it an amount for what is termed "Payment in Lieu of Taxes" or PILOT. A PILOT is a tax payment the water utility pays and passes the costs of on to ratepayers that includes schools, non-profits, and Churches which are typically tax exempt.

That amount jumped from $3.5 million the start of the Henry Administration in 2008 to $7 million last year. PILOT payments essentially function as city property taxes that boost the General Fund. But these are property taxes that you don't realize you pay and it gets paid by utility users whether or not the payer is otherwise exempt from property taxes – such as a church, non-profit charity or a public or parochial school.

Aside from being charged against schools and churches, PILOT differs in another way from property taxes – it exists apart from the property tax control laws. That is, the growth in a local government's property tax levy is capped by state legislation. Those caps were designed to head-off extravagant increases in local general fund spending. The PILOT amount received is above and beyond the capped levy growth.

If the assessed value of the city owned utilities was truly treated as if the utility were privately owned and subject to property taxes, then such assessed value would be included in the total assessed value subject to property taxes and would serve to reduce the property tax rates on all other real and personal property.

Changes in the way commercial property bears property taxes has meant a substantial increase in the amount transferred from City of Fort utility ratepayers to the City general fund.

If PILOT isn't itself capped, then it will reduce each and every year after the rate adoption, the amount going to water main replacement.

For example, once the new UV disinfectant plant comes on line that means an additional $20 million of 'assessed value' will be subject to PILOT. There is created an undesirable situation where expenditures which increase the value of City Utility property means increased amounts of taxpayers dollars being diverted to the City General Fund.

My proposal would cap the PILOT contribution to the amount included in the 2012 City budget. Future amounts would go to a restricted fund that could only be used for construction costs for new water mains. That leadership step would get Fort Wayne closer to the goal of the 100-year standard of water main replacement. That would thereby reduce the rates needed to maintain and rehabilitate our water distribution infrastructure and, at the same time, get Fort Wayne ready for the future.

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