Eugene Weekly : Coverstory 01.02.03

Road Overkill?
City passes biggest tax hike in history - for asphalt.
By Alan Pittman

The Eugene City Council quietly passed the largest tax increase in the city's history last month. The $7.4 million a year tax will go to solve a problem that few citizens have complained about — street maintenance.

The council passed the tax rather than referring it to voters. At the polls questions about the fairness of the road tax and whether its really needed at all would have made it a tough sell.

Is it Needed?

The city bureaucracy claims the road tax is desperately needed. Without the tax revenue, a $90 million backlog in city road maintenance will grow to more than $250 million over the next decade, staff say. The city blames the shortfall on the failure to pass a state gas tax increase and on reductions in the Lane County timber receipt money it shares with other cities.

But outside City Hall, there's hardly anyone calling for the city to spend millions of more dollars on road repairs. Even supporters of the road tax admit the city gets few complaints about the condition of its streets. In contrast, the city is showered with complaints about speeding in neighborhoods. Some residents have even opposed paving or otherwise improving streets on the theory that potholes slow traffic.

To drum up support for the tax, the city spent $20,000 circulating 70,000 copies of a tabloid inviting citizens to "Take a Closer Look" at the claimed maintenance backlog. The tabloid invited testimony and comments, but fewer than a dozen citizens responded. Only six people testified at a public hearing on the tax, including only three tax supporters.

City Council President David Kelly voted for the tax and says he's not surprised that citizens don't recognize the problem. "They don't know what the roads are like."

"By the time you see a pothole, the road is in really bad shape," Kelly says. "It's not something that's citizen complaint driven."

It's far cheaper to repair a road with resurfacing before it shows obvious signs of disrepair than to wait until the road needs to be entirely rebuilt, city officials say.

City officials say the magnitude of the repair backlog was confirmed by an "independent" consultant.

But the true independence of that consultant is questionable. The consultant was chosen, hired, paid and directed by the same city staff that came up with the backlog estimate. Government accounting standards for performance audits generally don't recognize such a relationship as independent because the consultant could feel pressure to report favorably if he or she wanted to continue to do business with the city.

Earlier this year, a city charter review committee unanimously recommended that the City Council hire and supervise an independent performance auditor to provide truly independent reviews. But the city manager opposed hiring an auditor who would not be under his control and the council voted 3-5 to reject the recommendation.

The consultant report on road conditions doesn't display much independence. The report states up front that its "Study Objective and Scope" is "to confirm the results" of the city's analysis of road conditions and funding needs.

Eugene's estimates of its road repair needs are far higher than in other cities. While Eugene staff say they need $9 million a year to keep up with street maintenance, Portland, a city with four times Eugene's population, recently estimated that it needs only $12 million.

Eugene's tax will be the Cadillac of similar "transportation user fees" in the state. Of 13 other cities with such fees, Eugene's is by far the largest. Tualatin's tax raises only $650,000 a year. Wilsonville takes in $525,000 a year and Salem nets $3,000.

Eugene Public Works spokesman Eric Jones admits Eugene's streets aren't that much worse off than other cities. Jones says that when city staff shared their repair estimates with staff from other cities, "Most other cities said, 'That can't be, that can't be.'" Jones says the difference is that Eugene staff have done more detailed analysis of road conditions than other cities. "Most other cities haven't done the studies."

Eugene's tax is estimated at $7.4 million a year, but it could end up much higher. In passing the tax, the council gave city staff and the city manager wide discretion in setting the total amount collected. The council did not cap the tax at a maximum amount.

"It's a formidable tax and it's a tax without a ceiling," said Councilor Bonny Bettman in voting against the road tax.

"I'm not happy with what looks like now a blank check," Councilor Nancy Nathanson said. Nathanson voted for the tax but said she would seek to reduce the amount collected at future meetings. She pointed to competing priorities for tax money and the economic downturn. "These are tough times."

With homeless activists clamoring for the city to help hundreds of poor people left out in the rain, and city school, library and social services facing uncertain funding, its unclear how asphalt suddenly became the city's top priority.

Bettman unsuccessfully argued that the city should refer the road tax to voters to let them choose what they want to spend their money on. "That's a priority they [voters] need to choose because it comes out of their pockets." The council voted 5-3 to pass the tax without a citizen vote.

Did the council majority figure the tax wouldn't pass if it went before voters? That's what the Portland City Council concluded last year after opponents quickly gathered signatures to refer their $12 million tax to voters. Rather than risk near certain defeat, the Portland council rescinded the tax.

Is It Fair?

Imagine if you had the same property tax bill as the largest mansion in Eugene. Imagine if you had to pay the same amount in income taxes as Bill Gates? Such flat per-person or per-house taxes are universally unpopular. Most taxes are based in varying degrees on the ability to pay. That's not the case with the city's new road tax.

Each home in Eugene will pay a flat monthly charge on their utility bill, now estimated at $2.90. A lumber baron in the south hills will pay the same as a poor family struggling to make rent and utility payments in a shack.

A person on the edge of town with a fleet of SUVs he uses to drive miles to shop and work will pay the same as a downtown dweller who doesn't own a car and rides his bike to save the Earth.

The city could have used a graduated income tax, property tax levy, or business income tax to raise road money. But instead, the city chose a road "user fee" to levy the money, modeled after utility fees for water and electricity.

EWEB checks thousands of water and electric meters to charge customers based on their actual use of utilities. But the city will charge a flat rate for every house based on an estimate of the average road use for all home dwellers. Use less electricity and you pay less on your electric bill. Drive less and you still pay the same for roads.

City staff say that while adjusting the road tax using available data about house distance from downtown, house size, number of registered drivers, etc., would be possible, it likely isn't worth their effort. Such adjustments would produce only small changes in household tax rates, they say. But it's hard to imagine EWEB making the same argument about its meter readers.

Other cities have done more to make their road fees more fair. Springfield exempted low-income households from the tax. Beaumont, Tex., Soap Lake, Wash., and Austin, Tex., include similar exemptions for low income residents and/or the elderly or disabled. Austin also exempts carless households.

Wilsonville includes a "truck factor," charging more for businesses that rely on heavy trucks. One passing heavy truck can do as much road damage as 1,000 cars, according to some studies. The failure to make trucks pay their fair share for road maintenance was a major part of the defeat of the 1999 gas tax initiative referral. After the Legislature cut truck weight-mile taxes as part of a gas tax increase, the Oregon branch of the American Automobile Association (AAA) gathered signatures to refer the measure and the state gas tax went down 7-1.

Eugene staff say there's insufficient data available to create a similar truck factor here that would withstand possible legal challenge.

Councilors Bettman and Betty Taylor criticized the city's road tax as unfair to the poor and people who drive less.

"What I really think we should do is find a more equitable taxing system," said Taylor, noting an earlier council vote to not pursue a graduated income tax, business income tax or other progressive tax schemes for city funding. "It disturbs me to add something to someone's utility bill."

Taylor also expressed concerns that the many non-residents who drive to Eugene to shop and work would pay nothing for roads. About 70 percent of Veneta residents commute to work in Eugene, for example. A city income tax on money earned in the city could make commuters pay their fair share but has never received council support.

Bettman argued that a local gas tax would better reflect actual road usage. "The gas tax is a better way to recapture the cost."

But Councilor Kelly says that the progressive rate structure of the road fees for commercial property makes up for the lack of fairness in the road taxes for homes.

While all single family homes would pay a flat rate, businesses generating lots of auto trips would pay proportionately higher rates. Costco would pay about $1,300 a month, a big supermarket $1,154 and a restaurant $215.

The rate system also includes lower fees for apartment dwellers, mobile home parks and retirement communities to reflect lower average trip counts for those classes of property.

Nonprofits normally exempt from taxes would also pay the fee. PeaceHealth would have to pay thousands of dollars, but so would the struggling Eugene Mission homeless shelter and the 4J and Bethel school systems.

Overall, 70 percent of the road tax would come from businesses and 30 percent from residents. By comparison about 40 percent of property taxes come from businesses. "Business is indeed, for a change, paying their fair share," Kelly says.

That 70 percent share lead council conservative Pat Farr to oppose the road tax, arguing that it would cause employers to leave the city. In Portland, business opponents paid to gather the signatures to refer the road tax. In Eugene, city officials have worked closely with the Chamber of Commerce in designing the tax, and so far business groups haven't come out against it.

But Bettman says she's worried that city staff will use the wide discretion granted them by the council to grant big businesses exemptions from the road tax. In the past, city staff have worked secretly to give preferential tax and fee treatment to Hyundai/Hynix.

Although the council vote last month for the tax is a done deal, it's not the end of the story. Because the tax wasn't passed by voters, a council majority could cancel or modify the tax at any time. The road tax sunsets in three years and will need a positive council vote to continue at that time.

Kelly says he may have supported replacing the user fee with a gas tax, but he didn't see the "political will" there to support the 11 cents a gallon tax that would have been needed. The council is considering a gas tax of about 3 cents, raising about $2 million more per year for road repairs.

Kelly says he also may have preferred geographic and other adjustments to make the road fee more fair, but support from the council majority was unlikely. "It was an ugly scene to get even a middle of the road compromise."