Would a tax by any other name smell the same? Funding in the age of austerity

26 Aug 2013

As demands for municipal services increase, costs go up and tax revenues flatten or fall, what is a municipality to do?  In most places in Michigan, politicians have decided that even to suggest more taxes is the kiss of death.  For example, everyone agrees Michigan’s roads need work.  Governor  Snyder proposed increasing the gas tax and registration fees some 8 months ago and it has gone nowhere.  Some legislators are talking about asking the voters to approve an increase in the State sales tax to 7% – this might come before the voters next year.

So, when municipal governments try to fund environmental initiatives, like managing stormwater (required by federal law), what is a municipality to do?  Well, the cities of Lansing, Jackson and Detroit have all adopted stormwater “fees” which are based on the paved acreage of various properties within their jurisdiction.  Clearly, to the municipalities, this seems like a good idea – otherwise, why would they keep doing it? Reportedly, nine Michigan communities have created stormwater utilities to impose such charges (Adrian, Ann Arbor, Berkley, Chelsea, Harper Woods, Jackson, Marquette, New Baltimore, and St Clair Shores).

Unfortunately for them, the Michigan Courts keep striking them down as illegal taxes.  In the recent case of Jackson County v City of Jackson, Case No. 307685, the plaintiffs challenged a stormwater management charge imposed by the Jackson City Council. The Court of Appeals ruled that the charge was a tax imposed in violation of §31 of the Headlee Amendment to the Michigan Constitution. The court held that the charge: (1) did not serve a regulatory purpose because it shifted funding of certain activities from the general fund to the charge; (2) was disproportionate to the benefits conferred upon the payor as there were no payor-specific benefits; and (3) was not voluntary because there was no way to avoid the charge by doing, or not doing, something.   The Court of Appeals cited the 1998 case of Bolt v Lansing, 459 Mich 152 (1998), which invalidated a similar stormwater charge on similar bases. Ultimately, both courts held these “charges” to be taxes subject to, and failing to meet, Headlee Amendment requirements.

Interestingly, one City, Adrian, has reportedly voted to refund the fees it collected.

Will the Detroit “fee” fall to a similar challenge? Every case is different but the recent history would indicate yes – if the City wants to have a stormwater “charge” based on acreage, it will have to go to the voters and make the City’s case.  Otherwise, the City will have to fund these expenses out of general funds.

 

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