Payment in Lieu of Taxes or the PILOT is like a bad stepchild in Kansas City, KS. Nobody wants to claim him and no one has anything good to say about him either.
The PILOT, an additional 11.9% added onto the total utility bill of residents in Wyandotte County, KS, is a pretty tough add-on to an already high utility bill, and few really understand why they have to pay it and where the money goes.
We’ll see if we can help explain it.
BPU, a Public-Owned Utility
Wyandotte County owns, but does not necessarily operate, the Board of Public Utility, a public utility company with its own governing board, management team and employees. Instead of a utility owned by the stockholders, the Board of Public Utilities is a utility company and the citizens of Wyandotte County are the stockholders.
In addition to providing electricity to Wyandotte residents, BPU also provides water services. Residents across the country are more familiar with their city providing their water and sewer services, but a city owning an electric company isn’t very common. According to the American Public Power Association, public utilities generate about 10% of all electricity in the country. Conversely, about 90% of Americans receive their drinking water from public utility companies.
Franchise Fee versus PILOT
Private electric companies receive contracts called franchises to have the exclusive right to provide electricity to designated areas. For that right, they pay the governments in the areas they serve a franchise fee. A typical franchise fee is about 5%.
The PILOT comes closest to being a franchise fee, but the PILOT fee Wyandotte County charges BPU is more than double a typical franchise fee. The same as with Evergy, BPU passes the franchise fee on to its customers as a clear and stand alone charge on their bill. Once collected, both private and public utilities pass the franchise fee/PILOT revenue on to the City.
Collecting for the City
BPU readily tells customers who complain about the PILOT, they just collect the money for the Unified Government. In addition to the PILOT, BPU plays collection agency for the utility services provided by the Unified Government, including trash services, wastewater treatment and storm water charges.
So frustrated by citizen complaints, earlier this month, BPU officials suggested the city collect their own charges. According to BPU, customers complain that their BPU utilities are being turned off because they can’t afford to pay the PILOT or city charges and separating them would allow at least some of their services to continue. With all the utilities on the same bill, it’s either all your services on, or off, which is a pretty hard hit for people who are struggling to pay their bills.
VIEW SLIDES BELOW FOR MORE INFORMATION ON INCREASES
What are PILOT Funds Used For
The City collects $37,000,000 each year from the PILOT that flows to the city’s general fund and is used for general operation of city programs. In this case, it truly is payment in lieu of taxes, with the revenue from the PILOT constituting an amount in excess of 20% of the City’s general fund operating budget.
If the City didn’t collect the PILOT, with one mil equal to about $1.8 million, the city would have to increase the property tax mill levy by 20 mils, or $20 per $1000 in assessed value, to generate that same amount of revenue. Wyandotte County’s Current mil rate is $37.328383 and the KCK mil rate is $38.47693.
In other words, the PILOT keeps Wyandotte County running. At this point, it can’t go away unless additional revenue comes from other sources and currently, there isn’t a readily identifiable source of revenue to replace what the PILOT generates. As an alternative, without a major reduction in services, it would be difficult to find that much money to cut out of the city’s budget.
BPU takes a lot of flak from Wyandotte County citizens and that might be from bad relationships and poor management that dates back decades. However, BPU hasn’t been the one raising your rates.
This year, BPU asked for the first increase in their water rates in 10 years and the first increase in their electric rates in five years. On the other hand, each year for the past 10 years, the Unified Government has increased the rates for their utility services.
VIEW SLIDES BELOW FOR MORE INFORMATION ON INCREASES
Since 2014, the unified government has approved the following rate utility increases:
Waste water: (residential) 66%
BPU Rate Increase
BPU has asked for the following rate increase
Electric: 2.5% increase to the base rate in years 2023 and 2024. Total 5%
Water: 6.0% increase in 2023, 2024 and 2025. Total 18%
Total Benefit of BPU to the City
In addition to the PILOT income, Wyandotte County gains in other ways from BPU. Here are other sources of direct financial income or financial benefits to the City from BPU.
$1,034,300 Billing Services
The UG does not pay BPU for billing and collecting their fees and the PILOT.
$1,312,439 Street Lighting and Signals
The City does not pay for the electricity to run street lights and traffic signals. This also includes the cost of maintaining this equipment, handled by BPU crews.
$642,495 Fire Hydrant Services
BPU crews maintain the UG fire hydrants without charge.
$7,565,529 Electricity and water for UG facilities
The UG does not pay BPU for water and electricity used at its facilities, which gives the UG no incentive to conserve and cut these costs.
$47,583,993 Total Benefit to City from BPU
Let’s Get Evergy in Here
You often hear people saying let’s get rid of BPU and bring in Evergy, but that wouldn’t work fiscally for the Unified Government. The UG wouldn’t make enough money from a typical franchise electric arrangement.
$15,558,000 At a typical 5% franchise fee paid by utilities, the UG would gross less than half of the funds they collect from the PILOT.
Subtract these services the UG receives for free from BPU that they would have to pay Evergy for providing.
<$7,565,529> Electricity and water services for UG facilities
<$1,034,300> Billing services for city services currently paid for by BPU.
<$1,312,439> Cost of keeping street and traffic lights on.
<$642,495> Hydrant services
<$10,554,763> Total fees and services the UG would have to pay
$5,003,837 Net income from Evergy franchise
BPU the City’s Bank
It becomes obvious that the City benefits financially from BPU and its citizens who pay the PILOT, just like Evergy benefits financially from its customers. Evergy passes their earnings on to their stockholders in the way of dividends, while the UG uses their profits to help finance the government.
We could look at the income the City generates from BPU as earnings from operating a successful utility. The problem citizens have is that too much of the profit is generated out of the pockets of Wyandotte County residents, who are small in number and many of them are on a fixed or low income.