2024-161 Ordinance Creating City Code Chapter 51.6 - Municipal Gas Use Tax

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MEMO DATE: November 4, 2024 TO: Mayor Julie Moore Wolfe and City Council Members FROM: Tim Gleason, City Manager Jon Kindseth,Deputy City Manager SUBJECT: Ordinance Creating City Code Chapter 51.6—Municipal Gas Use Tax RECOMMENDATION: It is recommended by staff that this Ordinance creating a Gas Use Tax be adopted as presented with a single rate for all users. UPDATE: After the Council deliberation on October 7`h meeting, staff engaged with many of the businesses that Council asked that we collaborate with. Staff had meetings with the Chamber, and many of the biggest natural gas users in Decatur and received various proposals on how to structure this new tax. Most or all of the businesses engaged with recognized the City's need for this new revenue. Based on the feedback received we have rewritten the Ordinance into a single rate structure. Ameren has confirmed that they can administer this collection process as prepared, and the two biggest users have confirmed that they prefer this version of the Ordinance over the version with a bifurcated rate discussed on October 7th. The financial impact to all users remains the largely same in either version. BACKGROUND: In 2019, City management staff became aware of the fact there was an issue with the natural gas utility tax revenue. Users which select alternative suppliers (other than Ameren) for their gas supply do not get taxed on the gas supply, though Ameren does collect 4.25% on the rest of their bill which would be on transmission and distribution charges. The City generates approximately$1.5 million of revenue annually from this tax that applies to residential and commercial customers alike. This issue is unique,to gas and there is not the same issue within the electric utility tax,as Ameren collects the tax even when they are not the supplier for electricity. Illinois Statute allows the City to collect a tax on those natural gas users not paying utility tax on their gas supply,under a gas use tax. Staff is proposing we implement a$.0425 per them on alternatively supplied natural gas for all users to provide equity with our utility tax rate. Manufacturers which use more than 40- million therms annually per account would be capped at only paying this tax on the first 40 million therms. The City recognizes that this 40 million therm cap to the tax liability may be requested by other types of potential industry or users in the future, and City Council could consider extending the cap to those users if determined to be in the best interest of the City at that time. On the point of remaining competitive it is important to consider utility taxes on both natural gas and electric collectively. The City first adopted electric tax in 2002 and then raised it once in 2015 with the gas tax increase that took it to the current rate. Those tax rates for both natural gas and electricity have remained the same since 2016. Since this time compounded inflation has increased by more than 25%. The proposed gas use tax would impact approximately 200 users, with currently only two meeting the threshold described above for really large users. Most of the users impacted by this gas use tax are commercial businesses, though there are a small handful of residents that also are included. This gas use