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North Idaho Building Contractors Association v. City of Hayden

Supreme Court of Idaho

February 26, 2015

CITY OF HAYDEN, an Idaho municipality, Defendant-Respondent

2015 Opinion No. 19

Appeal from the District Court of the First Judicial District of the State of Idaho, in and for Kootenai County. Hon. Benjamin R. Simpson, District Judge.

The judgment of the district court is vacated.

Jason S. Risch, Risch Pisca PLLC, Boise, argued for appellant.

Christopher H. Meyer, Givens Pursley LLP, Boise, argued for respondent.



Page 1087

EISMANN, Justice.

This is an appeal out of Kootenai County from a judgment upholding a sewer connection fee adopted by the City of Hayden. We vacate the judgment of the district court.


Factual Background.

The City of Hayden (the City) provides sewer service to the residents living in the City and to some persons living outside the City. To do so, the City entered into a joint powers agreement with the Hayden Area Regional Sewer Board, which operates a regional wastewater treatment plant serving the City and two other local entities. Pursuant to that agreement, the City collects sewage from its customers and delivers it to the regional treatment facility operated by the Regional Sewer Board. The City is responsible for the construction, maintenance, and operation of its collection system, which includes various components, such as trunk lines, sewer mains, interceptors, and lift stations which collect sewage for transport to the regional treatment facility.

The City charges each customer it serves a bi-monthly fee, which covers a proportionate share of the operation and maintenance of the City's sewer collection system and of the operation and maintenance costs associated with the regional wastewater treatment facility. In addition to the bi-monthly fee, the City charges a one-time " sewer capitalization fee" for each new structure, whether residential or commercial, and for any addition to an existing commercial structure that will result in an increase in the volume of sewage generated. The capitalization fee is charged when a building permit is issued.

The capitalization fee consists of two components: (a) the amount assessed to the City by the Regional Sewer Board for each connection to the City's sewer system, which the City collects and pays directly to the Regional Sewer Board, and (b) a fee retained by the City to fund capital improvements to replace, enlarge, or reconfigure the City sewer system so that it has adequate capacity for future users.

In March 2006, the City contracted with an engineering company to update the City's sewer master plan. In December 2006, the engineering company submitted a capital improvement plan in which it recommended forty projects that would cost about $20 million in order to replace existing infrastructure and to construct new infrastructure so that the sewer system would reach the entire area of city impact and accommodate anticipated future population growth. In order to finance the project, the engineering company recommended that the part of the capitalization fee retained by the City be increased from $735 for one equivalent residence (" ER" ) to $2,280 for one ER.

According to the City's administrator, " The City's portion of the sewer capitalization fee (the collection system component) for one ER was $580.00 during 2001 to 2005, $737.00 during 2005 to 2006, and $774.00 during 2006 and the first half of 2007." The City raised its portion of the fee to $2,280 effective June 7, 2007.

On April 12, 2010, the North Idaho Building Contractors Association (Contractors Association) filed this action to have the fee declared unlawful because it was an impermissible tax rather than a fee for services. The district court held that it was lawful and entered a judgment dismissing the complaint. The City requested an award of attorney fees, which the court denied. The Contractors Association appealed the dismissal of its complaint, and the City cross-appealed the denial of an award of attorney fees.


Did the District Court Err in Holding that the Fee Increase Was Not an Impermissible Tax?

Idaho Code section 63-1311(1).

The district court held that the increased fee was authorized by Idaho Code section 63-1311(1), which provides:

Notwithstanding any other provision of law, the governing board of any taxing district may impose and cause to be collected

Page 1088

fees for those services provided by that district which would otherwise be funded by property tax revenues. The fees collected pursuant to this section shall be reasonably related to, but shall not exceed, the actual cost of the service being rendered.

As the statute states, any fee collected pursuant to the statute " shall be reasonably related to, but shall not exceed, the actual cost of the service being rendered." The issue is whether there was evidence supporting a finding that $2,280 was the actual cost of the service being rendered as of June 7, 2007. There is no evidence in the record that it was. In fact, the evidence in the record shows that it was not.

A house connected to the City sewer system on June 6, 2007, would have paid $774 as the City's part of the capitalization fee, while a house connected to the system the following day would have paid $2,280 for the same service. The City does not point to anything in the record indicating that such increase was because the actual cost of providing sewer service increased by $1,506 or that the City had recalculated the actual cost and discovered that the City had been charging too little. Rather, the City's administrator testified that the fee was raised to $2,280 based upon the engineering company's capital improvement plan " which contained updated analysis of the capital improvements needed to serve new growth, and updated cost and build-out projections."

The purpose of the fee increase was to create a fund to pay the cost of upgrading the existing sewer system and the cost of new construction in order to extend the sewer system to the entire area of city impact and provide sewer service to anticipated new residents of the City. As stated by the City administrator in his affidavit, " Specifically, the capital improvement plan analyzed the need for the replacement of existing infrastructure and construction of future infrastructure based on increases in capacity necessary to provide sewer to serve the ultimate build-out of the City and the area of city impact in accordance with the Hayden Comprehensive Plan."

The additional fee was calculated by dividing the estimated cost of the proposed construction ($20,416,900) by the estimated number of future ER's that could be constructed in the area of city impact.[1] The area of city impact is an area outside the city limits that is defined by considering the trade area, geographic factors, and areas that can reasonably be expected to be annexed to the city in the future. I.C. ยง 67-6526(b). Thus, the additional fee was not to provide sewer service to a house connected to the City sewer system after June 6, 2007, but to accumulate a ...

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