HILL-VU MOBILE HOME PARK, on behalf of itself and all others similarly situated; and ED QUINN, on behalf of himself and all others similarly situated, Plaintiffs-Appellants,
v.
CITY OF POCATELLO, an Idaho municipality, Defendant-Respondent.
2017
Opinion No. 96
Appeal
from the District Court of the Sixth Judicial District of the
State of Idaho, in and for Bannock County. Hon. Stephen S.
Dunn, District Judge.
The
judgment of the district court is vacated and this case is
remanded.
Nathan
M. Olsen, Petersen Moss Hall & Olsen, Idaho Falls, argued
for appellants.
Blake
G. Hall, Hall Angell & Associates, LLP, Idaho Falls,
argued for respondent.
EISMANN, JUSTICE.
This is
an appeal out of Bannock County from a judgment dismissing an
action seeking to recover money unlawfully collected by the
City of Pocatello from users of the City's water and
sewer systems. We vacate the judgment and remand this case
for further proceedings that are consistent with this
opinion.
I.
Factual
Background.
The
City of Pocatello ("City") owns and operates water
and sewer systems for City residents. In 2005, the city
government decided that the City should be able to operate
its water and sewer systems at a profit like private
utilities. By law, the City is required to charge and collect
sufficient fees so that its water and sewer systems
"shall be and always remain self-supporting." I.C.
§ 50-1032. Those fees had to be sufficient to pay when
due all bonds and interest as required by Idaho Code section
50-1032(a) and "to provide for all expenses of operation
and maintenance of such works . . ., including reserves
therefor, " as required by Idaho Code section
50-1032(b). The reserves can also provide for improvements to
such systems. I.C. § 50-1033.
The
City wanted to obtain a profit in excess of the amounts
necessary for the water and sewer systems to remain
self-supporting. This profit was paid into the general fund.
City officials believed that the City should be able to make
a profit just as private utilities are able to do, and so the
City added an additional charge to water and sewer bills. The
City called this additional charge a "rate of
return" or "return on equity, " which was an
increased charge (profit) included in the bills sent to users
of the City's water and sewer systems. As explained by
the City's Chief Financial Officer: "The 'rate
of return' policy refers to city-owned public utilities
(i.e. water, sewer, etc.) making a transfer to the general
fund. These are businesses operated by the public that could
and do operate as for-profit private enterprises in other
communities." This charge was in addition to the
statutorily permitted charges to cover the costs of
operation, maintenance, replacement and depreciation,
including creating and maintaining reserves for such
expenses. The City also adopted a policy called "PILOT,
" which stood for payment in lieu of taxes. Under this
scheme, the city-owned water and sewer departments were
required to pay "property taxes" to the City as if
they were private entities, and the departments then passed
this cost on to their customers. The "property
taxes" were then paid into the City's general fund.
As explained by the City's Chief Financial Officer in
2012: "For the past two years, the rates have been
re-described as a franchise fee (% of gross revenues) and a
payment-in-lieu-of-taxes (PILOT) to make it directly
comparable to private utilities operating in the community
such as Intermountain Gas. The PILOT is calculated on the
prior year city property tax levy rate multiplied by the
estimated market value per the most recent financial plan
prepared by an outside consulting engineer."
By
letter dated December 26, 2006, Pocatello Mayor Chase asked
the Attorney General about the City's policy of imposing
the additional charge for a rate of return. In the letter,
the Mayor stated:
Charging a rate of return is commonly used by public
utilities and private sector companies, and we feel it is a
fairer way to generate revenue for the City. As I am sure you
are well aware, relying on property taxes for revenue will
not work in Pocatello due to the number of property tax
exemptions given by the State. Therefore, it has been my
practice as Mayor to move our city away from property taxes
and to a fee based system. The rate of return is an important
part of this plan.
By
letter dated February 6, 2007, a Deputy Attorney General
responded to Mayor Chase's letter. In that letter, the
Deputy wrote with respect to the City's rate-of-return
charge: "The overall rate of return for the same
utilities [Idaho's three largest electric utilities]
range [sic] between 8.1% and 9.25%. According to the Robinson
letter, the city's "rate of return" is equal to
7% and generates approximately $3.54 million in
revenues." The letter included an analysis of applicable
law, and it concluded that analysis by stating: "In this
instance, the revenue from the rate of return component is
dedicated to the city's general fund and is utilized as a
property tax substitute. Thus, it appears this practice is
contrary to Loomis [v. City of Hailey, 119
Idaho 434, 807 P.2d 1272 (1991)] and therefore not
appropriate."
The
profit earned by the City from the return-on-equity charge
and PILOT totaled about $4 million during fiscal years 2006
through 2011. The City apparently stopped receiving the
return-on-equity charge in fiscal year 2012, and it stopped
receiving the PILOT funds during fiscal year 2014.
On
December 9, 2011, the Building Contractors Association of
Southeast Idaho filed an action against the City challenging
the PILOT, and the district court ultimately held that it was
an unlawful charge. On November 15, 2013, the district court
entered a judgment enjoining the City "from using the
PILOT fee as part of the calculation of user and/or
connection fees charged to the public." When the City
discontinued the PILOT component in the bills sent to users
of the City water and sewer systems, their monthly bills
decreased by about ten percent.[1]
This
shows that the City was operating its water and sewer
"primarily as a source of revenue to the city, " in
violation of Idaho Code section 50-1028. The City made the
decision that its water and sewer departments should be
operated as for-profit corporations in order to raise
revenues for the City's general fund. The ten percent
increase in monthly bills means that the City was earning a
profit of ten percent above the amount that was necessary to
ensure that its water and sewer systems would always remain
self-supporting. That profit went into the general fund, not
into any reserves for the maintenance and improvement of the
water and sewer systems. Indeed, the rationale for the
"rate of return" and the PILOT was the profit that
the City would earn if its water and sewer systems were
for-profit entitities.
On
April 15, 2014, the Plaintiffs filed this action seeking a
refund of the PILOT sums that they had paid. They also sought
class certification for those who had been charged and paid
the illegal sum. On cross-motions for summary judgment, the
district court held that the Plaintiffs' state law claims
were barred under the Idaho Tort Claims Act, that there was
no unconstitutional taking under the Fourteenth Amendment to
the Constitution of the United States, that the decision in
the Building Contractors case would not be applied
retroactively, and that the Plaintiffs' motion for class
certification was denied. The court entered a judgment
dismissing the Plaintiffs' complaint, and they timely
appealed.
When
reviewing on appeal the granting of a motion for summary
judgment, we apply the same standard used by the trial court
in ruling on the motion. Infanger v. City of Salmon,
137 Idaho 45, 46-47, 44 P.3d 1100, 1101-02 (2002). We
construe all disputed facts, and draw all reasonable
inferences from the record, in favor of the non-moving party.
Id. at 47, 44 P.3d at 1102. Summary judgment is
appropriate only if the evidence in the record and any
admissions show that there is no genuine issue of any
material fact regarding the issues raised in the pleadings
and that the moving party is entitled to judgment as a matter
of law. Id. If the evidence reveals no disputed
issues of material fact, then only a question of law remains,
over which this Court exercises free review. Id. In
this case, there is no dispute regarding the material facts.
II.
Did the District Court Err in Holding that Recovery of the
PILOT Was Barred by Idaho Code Section 6-904A?
Idaho
Code section 6-904A states, insofar as is relevant:
A governmental entity and its employees while acting within
the course and scope of their employment and without malice
or criminal intent and without reckless, willful and wanton
conduct as defined in section 6-904C, ...