LOS ANGELES — A proposed utility tax increase is a credit neutral for Tacoma Power, Moody's Investors Service said in a recent report.
The public utility provides electrical power to Tacoma, Wash., and the surrounding areas.
Tacoma's voters will vote on Proposition No. 1 on Nov. 5, asking them to increase the current utility tax from 6% to 8%. A vote to increase the tax is a credit neutral for Tacoma Power, which is rated Aa3 with a stable outlook, because Moody's incorporates the assumption that the city will pass along any increased cost to ratepayers.
"We understand Tacoma Power's position is to seek full cost recovery if the higher tax is approved," analysts said in a report. "While full recovery of the higher utility tax is credit neutral, passage of Proposition No. 1 will also moderately reduce Tacoma Power's rate competitiveness, which could affect their ability to raise rates in the future for other utility related expenditures."
If the proposition is approved and the higher tax is not passed to ratepayers, however, Moody's would view the event as a credit negative.
In such an event, Moody's estimates Tacoma Power would pay a large majority of the increased utility tax, and an inability to pass on the cost could push Tacoma Power's debt service coverage ratio below 1.5 times, which would be commensurate with a Baa-level rating.
Funds from the proposed increase would be used for the sole purpose of financing citywide street maintenance.
Tacoma's street repair and maintenance backlog has been reported to be $800 million, and Proposition No. 1 is expected to provide $10 million to $11 million per year to address these costs.
Moody's said the city has studied numerous other possible funding sources for street repair and maintenance, such as higher property taxes or motor vehicle fuel taxes, but these options were not considered viable.
