Sen. Jake Flake pro-tax-cuts for water companies

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PHOENIX — Many of the state's more than 300 private water companies are uniting behind a hotly contested bill that would give them substantial tax cuts.

Senate Bill 1077 would set the property valuation for water companies at $500 each, resulting in drastic reductions in the companies' property taxes.

Critics, however, complain the $11 million tax-savings windfall for the private companies would have to be picked up by taxpayers.

The governor vetoed a similar measure last year.

Water company officials say they are struggling to make ends meet in light of rising interest rates, soaring power costs and strict arsenic standards, and the tax relief would allow them to slow the rise in consumer water rates.

The bill has passed two Senate committees and is awaiting action on the Senate floor.

Backers say the measure would give private water companies the same tax status municipal water companies have in urban areas.

Opponents argue the measure ultimately would increase the tax burden for average citizens in some areas, because local governments will have to raise taxes to make up for the lost water company taxes.

Sen. Jake Flake, R-Snowflake, said, "It's just a little tax financial help to keep some of our private water companies from going broke."

The bill's sponsor Sen. Jim Waring, R-Phoenix, said, "I think it's a fairness issue."

The issue arose because municipal water companies that serve most metropolitan areas don't pay property taxes. But private water companies, located mostly in rural and suburban areas, are subject to the taxes, giving them an added operating cost, said Greg Patterson, director of a water utility association.

Waring said Desert Hills Water Co., west of Cave Creek, received numerous complaints after it was unable to deliver water to a growing customer base, while existing customers faced outages and low water pressure. The town of Cave Creek bought the company last fall.

The bill is backed by the Arizona Corporation Commission, whose members were involved in the Desert Hills case. They argue property-tax relief would lower expenses significantly for companies and would keep water rates low for consumers, according to a letter to the Senate Finance Committee.

Jennifer Sweeney, government affairs specialist at the Arizona Association of Counties, said one problem is the $11 million in taxes the companies now pay would be taken out of the pockets of the same consumers who might save money on lower water bills, cutting into any savings.

"Counties' budgets include X number of dollars," Sweeney said. "If they don't get that from the water companies, someone else will have to pay for it."

The less-populated counties, with relatively slow growth, would suffer the most under the bill, because the additional taxes would have be paid by fewer people, Sweeney said.

Even though Arizona Association of Counties officials agree something needs to be done to help water companies stretched too far financially, "We just don't think that this is the right way to do it," Sweeney said.

Water company officials say the measure would make a huge difference in their budgets and their ability to serve customers' water needs.

Property taxes amount to about $2 million per year at the Arizona Water Co., an enterprise that serves about 82,000 customers in mostly rural areas of eight counties, said Bill Garfield, company president.

The cuts would offset some of the $30 million the company recently paid for arsenic treatment, Garfield said, and would be helpful in retaining current rates.

For the Queen Creek Water Co., with just 6,600 customers, mostly in Pinal County, property taxes have been shooting up by more than 30 percent per year, said President Paul Gardner. He said his company paid about $80,000 this year, up from about $50,000 the year before.

"I'm naturally for it," Gardner said. "We have been working for several years to pass it."

The bill passed Flake's Natural Resources and Rural Affairs committee last week.