Life just got a little more expensive in Oak Harbor.

The Oak Harbor City Council raised property taxes by 4 percent and brought back a 6 percent utility tax at the last council meeting of the year in order to shore up the city’s troubled budget.

In addition, Interim City Supervisor Doug Merriman notified the council of a 3 percent cost-of-living increase in sewer and storm drain rates.

The tax measures were passed easily by a 6-1 vote Tuesday night, with only Councilman Paul Brewer loudly objecting. “I’m very much concerned,” he said. “The voters were loud and clear on (Initiative) 747. And I haven’t seen any real cuts in the city.”

Yet with the city’s 2002 budget in the red by about $420,000, because of property-tax-limiting Initiative 747 and slumping sales tax revenue, the council was faced with limited options for realistically balancing the budget. The future looks even more grim, in a fiscal sense, with the compounding effects of I-747 and the governor’s recent proposal to eliminate motor vehicle excise tax to cities after 2002.

“(Raising taxes) is much preferable to declaring bankruptcy for the city,” said Councilman Richard Davis, “or laying off a police or fireman.”

Councilman Danny Paggao agreed that the city needs to keep the fire department and police department, which make up well over half of the budget, intact for the safety of the citizens.

Although recently-passed I-747 limits property tax increases to 1 percent each year — unless the voters approve a greater increase — the council was able to “unbank” the unused 4 percent increase the council “banked” last year.

Last December, when property tax increases were limited to 6 percent, the council only passed a 2 percent increase and banked the remaining 4 percent.

The 4 percent hike is an increase in the city’s share of property taxes and does not translate into a straight 4 percent increase in a homeowner’s property taxes. Instead, Merriman said it will translate to a 1.2 percent tax hike for Oak Harbor property owners.

Along with the 4 percent, the city passed the maximum 1 percent increase in property taxes at the last meeting. The total 5 percent increase in property taxes translates to about $126,000 in city revenues.

The 6 percent utility rate increase applies to fees for solid waste, sewer, water and storm drain. Since these city-owned utilities are set up so they’re self-sufficient, meaning the user fees go into a fund only to be used for the specific utility, creating a utility tax was a two-step project. First the council created a 6 percent tax on the utility provider — in effect taxing the city itself — then the members passed on the tax to residents by raising utility rates 6 percent.

The 6 percent utility rate hike translates into about a $420,000 increase in city revenues. Merriman said the utility tax is inflation sensitive, which means it will increase with inflation in future years.

The city council enacted a 6 percent utility rate increase two years ago, but the members chose to let it expire at the beginning of this year.

In addition, the city annually reviews each utility fund to see if a rate increase is warranted. Merriman said a 3 percent increase in sewer and storm drains was needed to build the funds up enough to afford general operation, maintenance and the replacement of sewer and storm drain lines in the future.

The 2002 city general fund budget is now balanced, but Merriman warned that the future’s not so bright.

Gov. Gary Locke’s newest budget proposal eliminates the MVET “backfill funding” for cities, which the Legislature enacted after Initiative 695 passed. That’s a $270,000 a year loss for Oak Harbor.

In addition, the police department’s federal COPS grants expire after next year, which means the city is obligated to fund all four officers’ positions.

Worse yet, the effects of the property tax limits under I-747 will compound each year. While the city’s costs of doing business historically have increased by about 4 percent a year, I-747 limits the city’s main revenue source — property taxes — to a 1 percent increase a year, unless a larger increase is brought to the voters.

Merriman said the imbalance between revenue and costs, which he called “a negative gap position,” will mean an endless cycle of budget problems in the city’s future.

“It will erode our purchasing power by about $250,000 a year,” he said.