City officials say that if a tax-protest group manages to overturn the city's franchise utility tax, residential water-usage rates could be going up again.

A lawsuit filed in 4th District Court in Provo last October on behalf of the Utah Taxpayers Association claims that the city's franchise utility tax, which levies a 6 percent charge on residents' franchise utility bills - such as those from US WEST and Mountain Fuel Supply - is unconstitutional because it prohibited a referendum vote on the city-imposed tax.Taxpayers Association spokesman Howard Stephenson told the Deseret News in November that the lawsuit was filed as a test case against a 1987 state law that prohibits citizens from holding a referendum vote on taxes imposed by cities.

"Basically, this law allows elected city officials to thumb their noses at the taxpayers. We're using Payson City as defendants in this case to get the ball rolling."

However, City Administrator Glen Vernon said the funds from the tax, which was passed last April, will be used to pay off a $3.6 million low-interest loan from the State Board of Water Resources that funds the installation of a citywide pressurized irrigation system.

"When the City Council passed the tax last year, it was set up to pay for capital improvement projects. Essentially, the council passed the tax to help pay for pressurized irrigation."

The city will pay off the loan with the tax funds, increased water usage revenues and other revenue sources that go toward paying off an existing water bond that is due to be retired at approximately the same time the project begins, said Vernon, who also serves as the city attorney.

Irrigation bills for most residents usually range between $20 to $30 a year. Culinary water-usage rates have a $5 base rate, as well as a 50-cent charge per 10,000 gallons used, which averages out to around $7 to $8 monthly (assuming residents use 100,000 gallons of culinary water monthly).

Current rate revisions call for the culinary rate to stay with the same $5 base rate but would approximately double the usage rate over the 10,000-gallon minimum. Residents' bills would wind up at around $17 to $18 monthly ($10 for culinary usage and $7 to $8 for the irrigation usage, both of which would be unrestricted in times and amounts).

"We calculated our rate revisions with the franchised utility tax in mind," Vernon said. "If the lawsuit should wind up overturning the tax, we'll have to raise our water-usage rates much more than we originally anticipated."

He said that in that instance, the rates would be raised to compensate for the revenue lost, costing most citizens the same or even more than repealing the tax would save them.

"The cost of the lawsuit is not going to be cheap, and recalculating revenue sources to pay for the bonding is not going to be easy," Vernon said. "In receiving the loan for the cost of the project, we committed set amounts of revenue to pay off the bond over a 25-year period. We have to pay off that amount over that time, no matter where the revenue comes from."

Payson City has retained other legal representation and has filed its response to the suit. Vernon said that the Taxpayers Association recently asked the court for a summary judgment on the case, meaning the group believes that a judge can make a decision with the facts on hand and without any testimony.

"We don't necessarily think that's the case," Vernon said. "It's a very complex issue, but we believe that we informed the citizens properly, both when we imposed the tax and when we held public hearings on the pressurized irrigation proposal."