The city of Federal Way’s plans to impose a 7.75 utility excise tax on Lakehaven Water and Sewer District and other utilities in the city face challenges from two different fronts a week after the City Council approved the ordinance.

In a 5-2 vote, the City Council approved an ordinance March 20 that levies a 7.75-percent tax on water and sewer utilities not already paying excise taxes to the city. Federal Way already charges a 7.75-percent tax on gas, electric, cable, phone and other utilities. The city anticipates collecting $980,000 from this tax, which will offset a budget shortfall of $854,000.

Lakehaven officials have already said the taxing district would sue the city if the ordinance passed. A Federal Way resident has also filed a referendum petition with the city that, if enough signatures are collected, would put the matter before voters to decide whether they support the tax.

Jack Sharlock filed the referendum petition with the city this week but knows the challenge lies in gathering enough signatures within the time frame allotted. Sharlock and others involved in the effort have 30 days to gather more than 7,000 votes, or 15 percent of Federal Way residents who voted in the last general election. Since many businesses prohibit people from petitioning on their property, that limits where he and others can gather signatures, Sharlock said. In turn, he is trying to build up a large group of volunteers who can reach residents in other ways. So far, he has a small group of people, including resident and District 30 state Sen. Mark Miloscia, Linda Kochmar and Jack Dovey, but he would like more people to join.

“I need volunteers to get the ground swell going to stop this hideous tax that the city’s trying to impose,” Sharlock said.

While he is not in favor of the tax, should it reach the ballots, voters would only be asked if the city should impose the tax or not.

“This doesn’t reject it,” Sharlock said of the petition. “This is just another step.

“I think any time we have taxes like that, I think the people should have a vote on what’s going on, not the vote of six or seven people,” he added.

To volunteer for the petition effort, contact jack.utilitytax1@gmail.com; Miloscia at Miloscia@comcast.net; jdovey@gpslockbox.com; lkochmar1@aol.com; or pmjconsults@gmail.com

Volunteers can pick up petition forms and return the completed ones to Roger Flygare’s office, 1715 S. 324th Place, Suite 250, in Federal Way. Those picking up and returning forms are asked to not disturb the office staff.

Potential Lawsuit

At the same time, Lakehaven Water and Sewer Commissioner Peter Sanchez said Wednesday that plans to sue the city have not changed, but the board was meeting with attorneys Thursday to discuss the next steps.

Although some city officials invited the opportunity to continue to speak with Lakehaven officials about possible agreements after the ordinance was approved, Sanchez indicated he considered all discussions or negotiations with the city closed.

“Absolutely not,” Sanchez said after last week’s vote of continuing discussions with city officials. “They slammed the door in our face. They could have voted to postpone the vote on that. They could have postponed to the next council meeting, and perhaps we would or would not reach an agreement, but they didn’t make the effort. As far as I’m concerned, they made no effort, and I can tell you, the Lakehaven commissioners voted unanimously to take the matter to court and pursue it to the Supreme Court if necessary.”

Sanchez said city officials considered imposing a utility tax since the last time officials signed a franchise fee agreement. The city collects a 3.6 percent franchise fee from Lakehaven, but officials have said it costs the city more to assess it than it receives in return. The utility tax would replace the franchise fee.

Lakehaven and city officials have had many discussions about the matter since the last agreement. Sanchez said Lakehaven officials have been willing to discuss amending the franchise fee agreement and have posed the idea of purchasing the French Lake Dog Park from the city. Before the council meeting March 6, during which the City Council approved 5-2 the first reading of the ordinance, at Mayor Jim Ferrell’s request, Lakehaven officials met with Ferrell and three of his staff to discuss those ideas again, but Ferrell rejected Lakehaven’s offers, Sanchez said.

“As far as I’m concerned, the mayor wasted our time,” Sanchez said.

Ferrell said, however, that discussions between the city and Lakehaven have not gone smoothly and none of the suggestions proposed would satisfactorily meet the city’s needs.

“We’ve spent a long time talking to Lakehaven, and the only alternative they proposed was a one-time fee of purchasing our dog park, but that is not an answer to our long-term budget issues,” Ferrell said this week. “We would not be acting responsibly as a city government if we were going to engage in this type of business.”

Ferrell also said he was unhappy with the tone of the conversations between Lakehaven and the city. He said Lakehaven commissioners have made “fairly antagonistic and fairly threatening comments” after city officials said they were going to pursue the utility tax.

“I think that Lakehaven’s stance has been aggressive, accusatory and bellicose, and that’s not necessary,” Ferrell said. “This is what we need to deliver the vital services for this community.”

With the referendum petition already in motion, the city will not begin collecting the utility tax for at least 30 days. Should Lakehaven commissioners proceed with suing the city, their attorneys will ask the court at all litigation stages to prevent the city from receiving any tax revenue until after the final judgment is made, according to a letter from Lakehaven’s law firm, Talmadge, Fitzpatrick and Tribe.

Both sides are confident they would win any lawsuit.

“We wouldn’t be doing it if we thought it wasn’t necessary or we were going to lose,” Sanchez said. “We’re not just doing it for Lakehaven customers. This is a state-wide issue that needs to be addressed once and for all.”

Ferrell said, however, the city expects to prevail. A trial court will likely support Federal Way because the District 1 Court of Appeals ruled in favor of Wenatchee imposing a utility tax on Chelan Public Utility District, establishing precedent, he said. If the District 3 Court of Appeals, which would hear the case between Federal Way and Lakehaven, agrees with District 1, the case probably would not reach the state Supreme Court. If it disagrees with District 1, however, the Supreme Court would likely settle the case once and for all, which would have far-reaching impacts for cities and utilities.

Ferrell said, however, he is confident the city will come out on top.

“I believe we’re on firm legal footing, but that’s what courts are for,” he said at the March 20 City Council meeting.

Alki plays at French Lake Dog Park on Wednesday afternoon. Lakehaven Water and Sewer officials posed the idea of purchasing or leasing the dog park from the city of Federal Way to help reduce its financial woes.Heidi Sander, the Mirror