Stormwater Utility Fee Ruled an Illegal Tax
Many stormwater utilities are still opposed on the grounds that the money collected is in fact a tax—which cities often do not have the authority to levy—rather than a fee for service.
By Janice Kaspersen
A court of appeals last week ruled that the Jackson, MI, stormwater utility fee is an illegal tax. This is bad news for the utility, of course, as well as for other cities that might be looking to set up their own utilities as a source of revenue.
Many stormwater utilities are still opposed on the grounds that the money collected is in fact a tax—which cities often do not have the authority to levy—rather than a fee for service. This summary of the issue from several years ago still holds today, as does the advice in this article for avoiding some of the pitfalls in trying to start up a new utility.
A particular issue in the case of the Jackson utility is Michigan’s Headlee Amendment. Approved in 1978, the amendment limits state and local governments’ ability to collect taxes; among other things, it limits the revenue the state takes in from all sources to a percentage of personal income within the state, and it says local governments cannot add or increase taxes or issue certain bonds without voter approval.
The court ruled last Friday that the city of Jackson must pay court fees for the plaintiffs—Jackson County and the owners of two local businesses—but it apparently did not order the city to reimburse utility fees paid by other businesses or homeowners. (Some city council members have said, though, that if the ruling holds, they favor reimbursing all fees that have been collected. The utility has taken in about $3 million since it started in 2011.) Because none of the three plaintiffs actually paid the stormwater fees they were billed—$32,000 to the county and about $4,000 to the two businesses—there will be no reimbursement of their fees. The city has not yet said whether it will appeal the ruling.
Author’s Bio: Janice Kaspersen is the editor of Stormwater magazine.
Source: This blog previously appeared on www.stormh2o.com and is reposted with permission.