Jackson Cnty. v. City of Jackson, Docket Nos. 307685

302 Mich.App. 90

836 N.W.2d 903

JACKSON COUNTY

v.CITY OF JACKSON.

Jackson Coffee Company

v.City of Jackson.

Docket Nos. 307685, 307843.

Court of Appeals of Michigan.

Submitted June 27, 2013, at Lansing.

Decided Aug. 1, 2013, at 9:05 a.m.

Cohl, Stoker & Toskey, PC, Lansing (by Timothy M. Perrone), for Jackson County. Brian W. Surgener for the Jackson Coffee Company and Klein Brothers, LLC.

Julius A. Giglio, City Attorney, Bethany M. Smith, Deputy City Attorney, and Miller Canfield Paddock and Stone, PLC (by Michael P. McGee, Detroit, Sonal Hope Mithani, Ann Arbor, and Jeffrey S. Aronoff), for the city of Jackson.

Before: MURPHY, C.J., and HOEKSTRA and OWENS, JJ.

PER CURIAM.

Plaintiffs commenced these original actions in the Court of Appeals under Const. 1963, art. 9, §§ 25–34, popularly known as the Headlee Amendment. The actions were consolidated by the Court of Appeals. The Jackson City Council adopted Ordinance No.2011.02, pursuant to which the city created a storm water utility and imposed a storm water management charge on all property owners within the city to generate revenue to pay for the services provided by the utility, which include, among others, street sweeping, catch basin cleaning, and leaf pickup and mulching. The question posed by these actions is whether the city, by shifting the method of funding certain preexisting government activities from tax revenues to a utility charge, ran afoul of § 31 of the Headlee Amendment, Const. 1963, art. 9, § 31, ¹ as construed and applied in Bolt v. City of Lansing, 459 Mich. 152, 587 N.W.2d 264 (1998). We answer this question in the affirmative and hold that the city's storm water management charge is a tax, the imposition of which violates the Headlee Amendment because the city did not submit Ordinance 2011.02 to a vote of the qualified electors of the city. The charge is null and void.

I

The city maintains and operates separate storm water and waste water management systems. Various state permits authorize the city to discharge storm water through its separate storm water drainage system to the Grand River, as well as other waters of the state. Historically, the city has funded the operation and maintenance of its storm water management system with money from the city's general and street funds. The money in these funds is generated through the collection of ad valorem property taxes, gasoline taxes, and vehicle registration fees. With revenue from these taxes and fees in decline, the city retained an engineering and consulting firm to study the feasibility of establishing a storm water utility for the purpose of funding storm water management through dedicated “user fees.” As acknowledged by the city in its Stormwater Management Manual,

[w]hen subdivisions, roads and commercial developments are built or improved in the City of Jackson the City must pay for managing the resulting storm runoff. The City must install catch basins to capture storm water and storm sewers to convey the storm water to streams or rivers, ensuring it does not drain into the sanitary wastewater system and create sewer overflows. Furthermore the City must maintain the entire storm water collection system. In the past the City performed this work without a dedicated revenue source. The City used money from the general fund or the road budget, thus taking funds away from other critical programs. The storm water system is an expensive piece of the City's municipal infrastructure. The City's water and sanitary wastewater systems each have their own dedicated revenue sources derived from water and sanitary wastewater user fees. Water and sanitary wastewater users pay user fees that are partially calculated based on water consumption. However, this has not been the case with storm water management, which has had no user fees attached to it. Municipalities across the country are changing this. They now view their storm water systems as utilities similar to their water and sanitary wastewater systems. They are developing storm water user fee structures to pay for storm water planning, administration, construction and operation and maintenance.

Following the completion of the feasibility study, the city's Department of Public Works requested that the city create a storm water utility “to fund the activities currently included in the General Fund Drains at Large, Leaf Pickup, Mulching, Street Cleaning and Catch Basin Maintenance in the Major and Local Street accounts.” The Jackson City Council adopted Ordinance 2011.02, known as the “Storm Water Utility Ordinance,” at its January 11, 2011, meeting.

Ordinance 2011.02 establishes a storm water utility to operate and maintain the city's storm water management program. The ordinance funds this program through an annual storm water system management charge imposed on each parcel of real property, including undeveloped parcels, located within the city. All revenues generated by the storm water management charge are deposited in a storm water enterprise fund and “[n]o part of the funds ... may be transferred to the general operating fund or used for any purpose other than undertaking the storm water management program, and operating and maintaining a storm water system.” More specifically, the money in the enterprise fund may be used only to pay the “costs to acquire, construct, finance, operate and maintain a storm water system.”

The management charge is computed using a formula developed by the engineering consultant that roughly estimates the amount of storm water runoff of each parcel. Anticipated storm water runoff is computed in terms of equivalent hydraulic area (EHA). This method of computation involves an estimation of the amount of storm water leaving each parcel of property based on the impervious and pervious surface areas of each parcel. The ordinance defines the phrase “impervious area or surface” as “a surface area which is compacted or covered with material that is resistant to or impedes permeation by water, including but not limited to, most conventionally surfaced streets, roofs, sidewalks, patios, driveways, parking lots, and any other oiled, graveled, graded, or compacted surfaces.” “[P]ervious area or surface” is “all land area that is not impervious.”

The EHA base unit used to compute the amount of a management charge is the square footage for the average single family residential parcel. One EHA base unit is 2,125 sq. ft. The pervious and impervious areas of residential parcels with two acres or less of surface area are not measured individually. Instead, such parcels are assigned one EHA unit and charged a flat rate established by resolution of the city council, which is billed quarterly. For all other parcels, the management charge is based on the actual measurements of the pervious and impervious areas of each individual parcel. The number of EHA units for these latter parcels is calculated by multiplying a parcel's impervious area in square feet by a runoff factor ² of 0.95 and the pervious area in square feet by a runoff factor of 0.15, adding these two areas and then dividing that total by 2,125 sq. ft. The number of EHA units is then multiplied by $2.70 ³ to arrive at the monthly management charge.

The ordinance allows property owners to receive credits against the management charge for actions taken to reduce storm water runoff from their respective properties. At the time plaintiffs commenced these original actions, the ordinance allowed a residential property owner to receive a 50 percent credit against the charge by implementing city-approved “storm water best management practices” to capture and filter or store storm water. Such best practices include the creation of rain gardens or vegetated filter strips or the use of rain barrels or a cistern. The ordinance also allowed an owner of a nonresidential property to receive a credit against the service charge of between 37.5 and 75 percent for implementing best management practices designed to control storm water peak flows through the construction and use of detention or retention ponds. Schools could receive a 25 percent “education credit” for providing students with a regular and continuing program of education concentrating on the stewardship of the state's water resources. Finally, an owner of a parcel of real property that is contiguous to the Grand River could receive a credit of up to 75 percent for directly discharging storm water into the river. After the filing of these actions, and through amendments to the ordinance adopted by the city, the city increased the amount of credit allowed for certain property owners who engage in best management practices identified by the city.

Ordinance 2011.02 creates a right to an administrative appeal, but limits the scope of that appeal to “the grounds that the impervious and/or pervious area of the property is less than estimated by the Administrator or that the credit allowable to the property is greater than that estimated by the Administrator.” Additionally, the ordinance authorizes the administrator of the utility to enforce payment of the management charge by discontinuingwater service to the property of a delinquent property owner, by instituting a civil action to collect any unpaid management charges, and by placing a lien against property for the unpaid charges and enforcing the lien “in the same manner as provided for the collection of taxes assessed upon such roll and the enforcement of the lien for the taxes.”

The city began billing property owners for the management charge in May, 2011. Plaintiffs, who are property owners within the city, received invoices from the city for the management charges assessed against their respective properties, with their respective invoices for water service to their properties.

On December 16, 2011, plaintiff Jackson County commenced its instant Headlee Amendment enforcement action. Plaintiffs Jackson Coffee Company and Klein Brothers, LLC, commenced their...