3 days ago
Spokane, county fling accusations of 'toxic' relationship as sewer showdown resurfaces amid $57 million threat
May 29—Spokane mailed a whopper of a utility bill this month: $57.4 million.
The bill, from the city to Spokane County, is the remnant of simmering tensions between the two local governments that threatens to spark lawsuits and derail other efforts at regional cooperation.
A yearslong fight over utility taxes that seemed to be resolved in 2022 boiled back up to the surface when Spokane Chief Financial Officer Matt Boston sent Spokane County officials the $57.4 million past-due bill.
"I really think they've blown up whatever trust was there between these jurisdictions," Spokane County Commissioner Josh Kerns said. "We're trying to do some big things here regionally, and I don't know how you work with somebody that can just nonchalantly turn around and drop that on you."
County officials argue the city is reneging on a prior agreement and trying to collect an unjust tax on people who don't live in the city and aren't receiving city services. City officials claim it was the county that tried to hold up agreements in order to win a permanent agreement to avoid the tax, and now the city is just putting its expensive cards on the table to force the county to permanently resolve an issue that has lingered for more than a decade.
Elected officials have argued for more than a year about whether Spokane should collect a utility tax on the county's wastewater treatment facility, which lies within city limits but almost exclusively serves customers outside of the city. The facility serves nearly all of Spokane Valley, more than 15,000 customers in unincorporated Spokane County and roughly 1,800 total properties in Millwood and Liberty Lake.
Based on city law, Spokane should have been collecting the tax since the county opened the wastewater plant in 2011. Spokane Municipal Code requires the city to levy a 20-21% tax on the total income of any wastewater system in city limits. According to past staff estimates, a full tax on the county's facility would bring the city between $6 million and $8 million a year.
Toward the tail end of 2022, then-Mayor Nadine Woodward struck a deal with the county to impose the tax — but only on the fewer than 30 property owners inside city limits connected to the facility.
But that deal was apparently never codified into a signed agreement and existed solely as administrative policy.
Mayor Lisa Brown claims the county had begun holding up agreements — and in at least one case, appears to have reneged on a mutually beneficial infrastructure project unrelated to the county treatment plant — unless the 2022 handshake deal under a previous mayor was made permanent.
While the city under Brown had raised the 2022 agreement with the county commission, it had never actually threatened to break it, she said.
The county refused to come to an agreement to expand a tax diversion program in the Kendall Yards area that has boosted development and public infrastructure there, Brown said, unless the Woodward-era agreement was made permanent. And under the same pretense, the county reneged on an agreement to allow the city to tie into a county-owned pipe for an unrelated $6.7 million sewer facility — after the facility had been built under the understanding that the tie-in had already been agreed to, according to Marlene Feist, city public works director.
In a December letter to the Spokane County Commission, Brown called this an inappropriate and illegal request to tack on, particularly "considering we had agreement in advance from the County. ...
"While the City and County may not always agree, we have always worked well together to manage the community's wastewater needs," Brown wrote. "In response to an anticipated, and rather routine, request to route sewage ... through a County sewer pipe, we have been met with a demand that is outsized compared to the request."
Besides being irrelevant to the tie-in, Brown said it would violate state law for the city to limit the taxing authority of a future City Council.
In response to Brown's letter, Kyle Twohig, senior public works director for Spokane County, argued that a long-term agreement between the two jurisdictions would not preclude future councils from changing it, and that the county needed assurances that its customers would not be "irrationally subject to tax obligations, for the City's exclusive benefit ..."
Failing to come to an agreement, Boston sent the county a bill dated to 2020, when the court case Lakehaven Water & Sewer Dist. v. City of Fed. Way clarified that it was legal for one jurisdiction to tax another.
This bill included the back due taxes themselves, $34.1 million, but also $7.8 million in late fees and $15.5 million in interest.
Brown characterized this letter as more of a negotiating tactic than an actual bill.
"Obviously, there are ways to resolve this, and let's figure out how to do that," she said. "I'm not going to go into what those (solutions) are — hopefully, we just get them involved and there's not a legal strategy involved, but one way or another, it is time to get it resolved."
County and Spokane Valley officials, meanwhile, characterize the letter as a bomb dropped on an already fragile relationship just as the jurisdictions are trying to surmount mutual distrust and partner on issues of greater importance to the region, like homelessness, public safety and addiction treatment.
Spokane County Commissioners Al French and Kerns said the move took them by surprise. They believe it equates to taxation without representation, as the funds collected would be used within the city of Spokane, where the rate payers are unable to weigh in on city priorities through local elections.
The letter sent to county officials is dated the same day the Spokane Valley City Council and the county commission each finalized an intermodal agreement with the city of Spokane to coordinate on homelessness services, and comes just as local leaders from across the region got underway with an ambitious effort to run a tax measure that would reshape the local criminal justice system.
"We are literally passing an ILA of our jurisdictions to work together, and meanwhile their staff is over there drafting a letter that's essentially a $60 million bill," Kerns said. "It's just like, wow, with friends like these, who needs enemies?"
Resurfacing the utility tax fight now jeopardizes any regional partnerships between the county and the city, as well as Liberty Lake, Spokane Valley and Millwood, Kerns and French said.
At least one member of the Spokane City Council has raised similar concerns.
"We've got so much regionality we're trying to achieve, it doesn't make sense to treat your friends and neighbors like this," Councilman Michael Cathcart said in an interview.
He understands that, with a new mayor, the county would want a permanent resolution to an issue that otherwise hung over their heads, and he said he thinks demands for that agreement ahead of other partnerships makes sense.
"If it's been resolved, we should quickly say yes, it's been resolved," Cathcart said. "If it's not been resolved, I understand the county wanting to say we need to get this done."
Commissioner Amber Waldref, who represents the district where the facility is located, declined to speak directly to the utility tax dispute and related correspondences between the two entities because of legal concerns. She said she hopes "the region can work together to address many issues that have been left unresolved."
"These disagreements are making it difficult for our region to move forward together on strategies to improve economic growth and housing, emergency response, and community health and safety," Waldref said in a written statement.
Commission Chair Mary Kuney added in her own statement that she was "outraged" when she saw the letter and could not comment further due to "pending or potential litigation." Spokane County administrators also declined to comment, citing the same reason.
Spokane Valley Mayor Pam Haley echoed the commissioners' concerns about regional collaborations, adding that her fellow council members, despite their ongoing disagreements, are presenting a unified front in opposition to Spokane's demand. Spokane Valley residents account for 80% of the users of the county's wastewater facility.
Haley said the Spokane Valley City Council was not made aware of the city's bill until one of the county commissioners notified them. The lack of communication from Brown and Spokane officials, especially around an issue that would impact almost all Spokane Valley residents, struck on old frustrations between the two cities, Haley said.
"As a matter of fact, I had that conversation probably a few days before that letter came out, with Lisa Brown and Betsy Wilkerson saying, 'You know, you guys do not communicate with us,' " Haley said. " 'It's always a surprise when we find out. It's always after the fact, and it would really go a long way to building relationships if you would stop doing that.'
"And then just a couple days later, it happened again, only with a lot more gusto."
Kuney said she also hopes communication can improve between the local jurisdictions, especially as they seek to collaborate on regional issues. She'd prefer Brown and city leadership approach the county with a conversation, rather than a letter as they tend to communicate through.
Millwood Mayor Kevin Freeman said the city just negotiated and renewed its agreement with Spokane County for treatment and disposal of wastewater in the small town. He said local officials will be "keeping a close eye" on how the dispute shakes out, as Millwood residents have a vested interest.
"This tax, obviously, was not considered as part of the rate structure that was negotiated and set as part of that interlocal agreement," Freeman said. "We, as the city of Millwood, are very concerned as to what the outcome of this is going to be."
The county began exploring building a wastewater management facility in the mid-2000s, after growth in the area began to strain regional infrastructure, and at the start of a decades-long effort to remove septic tanks that sit on top of the area's drinking water.
French, who was on the Spokane City Council at the time, said city leadership were supportive of the effort because of the dwindling infrastructure, the overwhelming cost to fix it and a shared goal of preventing environmental damage from faulty septic tanks.
He pointed to the city's purchase of the former Playfair Race Track under Mayor Jim West as evidence of that support. West told The Spokesman-Review in 2004 he eyed the parcel as a potential waste treatment site, and any unused space into sports fields, as reported by The Spokesman-Review. At the time, the county had narrowed down potential sites to the city-owned Playfair parcel and the county-owned former Old Union Stockyards.
French said the county elected for the latter site because of its proximity to the river and low altitude, allowing gravity to do a lot of the work for the county's system. Based on the newspaper's reporting at the time, and interviews with local officials, the implications of the utility tax statute were not included in any studies or analyses of either site, despite both falling within city limits.
There was never a written agreement put in place dictating that the city would not pursue the tax because the two entities had an established "honorable" relationship, French said.
"It was a much healthier environment than it is today," French said. "I regret that we don't have the same relationship where we could trust our partners and address what's important to our constituents."
He insinuated the county could claw back money provided to Spokane to address regional issues if the city tries to follow through with the tax by saying "every relationship now falls under a different level of scrutiny."
At the very least, French expects the dispute will head to court.
"I've been dealing with the city and county relationship for 23 years," French said. "I've never seen it as toxic as it is right now, due largely to the leadership they have at the city."
