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HomeMy WebLinkAboutA002 - Court Case on Storm Water Utility Rates - City Attorney's Office 515 Clark Avenue,P. O.Box 811 Caring Penpk Quality gra,»s Ames,IA 50010 ErtepO°nal Service Phone: 515-239-5146 • Fax: 515-239-5142 April 19, 2005 y, The Honorable Ted Tedesco, Mayor APR 2 0 2005 and Members of the City Council CITY of the City of Ames, Iowa CITY OF IOWA Re: Court Case on Storm Water Utility Rates Dear Mayor Tedesco and Council Members: During budget sessions, while Council was discussing rates for the "storm water" utility, I told Council I would provide a copy of the Court case in which Ames was involved on this subject. With this is the 1996 decision in Latunski vs. City of Ames. Yours truly, L;l - John John R. Klaus City Attorney JRK:gmw Enclosure 10/20/2004 09:02 NEUADA CLERK OF COURT 4 AMES CITY ATTY NO. 147 D002 IN THE IOWA DISTRICT COURT FOR STORY COUNTY € MARK D. LATUNSKI, ) Plaintiff, ) Case No. 36526 CITY OF AMES, IOWA, ) ECISIC NS FINDINGS OF FACT, CON OF LAW AND ORDE! ; �mm _ FT r_ Defendant. ) ' m This case was previously tried to the Court. The Plaintiff (Mr. Latunski) appeared personally at the trial and was represented by attorney Joseph M. Isenberg of Ames, Iowa, Defendant City of Ames (the City) was represented by attorney John R. Klaus, also of Ames. Having taken the case under advisement, the Court must now enter its decision_ FINDINGS OF FACT This lawsuit is Mr. Latunski's challenge to a 1994 municipal ordinance establishing a financing system for the City's storm water drainage system. The ordinance provides in relevant part as follows: " With respect to each city water utility service and, alternatively, for each city electric utility service where there is no city water service, a monthly rate of one dollar shall be charged, paid and collected as a rate for a storm water drainage system, from July 1, 1994, until July 1, 1997. "The money paid and collected . . _ shall be held by the city in a special fund to be expended only for the purpose of constructing, operating repairing and maintaining all kinds of conduits, drains, storm water detention devices, flow impediments, ponds, ditches, sloughs, filter strips, rip-raps, erosion control devices and any and all other things useful to the proper control, management, collection, drainage and disposition of storm water in the City of Ames. " 10/20!2004 09:02 NEUADA CLERK OF COURT 4 AMES CITY ATTY NO. 147 D003 i The Ames city council adopted this ordinance after investigating and considering several financing options. The revenue generated under this ordinance since July of 1994 has been used to maintain, operate, and improve the municipal storm water drainage system. That system includes not only pipes, conduits, and similar structures, but also topographic changes relating to the drainage of storm water. When areas of the city are newly developed for residential or commercial purposes the private I developers generally bear the expense of the necessary additions to the storm water drainage system. At the time of trial, the City had a surplus of approximately $80,000 in its storm water drainage system account. When he began this litigation, Mr_ Latunski was attending Iowa State University and living in a house in Ames which had been converted into a 3-unit apartment building_ His lease required the landlord to pay the tenants' water bills_ Each tenant had a separate electrical hookup with the City and paid his or her own electric utility bills. As far as the evidence disclosed, Mr. Latunski's lease did not expressly allocate responsibility for payment of the one dollar monthly storm water drainage system charge. At the time of trial, Mr. Latunski had moved to another address in Ames. The evidence did not disclose the nature of that new residence. Under the challenged ordinance, only residents with a municipal water or electric utility hookup pay the monthly storm water drainage system charges. A resident who disconnects his or her utility hookups, either permanently or temporarily, pays nothing under the ordinance. Iowa State University pays approximately $27 each month in storm sewer charges. A resident's payments under the ordinance are not affected by the size of his or her real property, the amount of storm water drained from the -2- 10/20/2004 09:02 NEUADA CLERK OF COURT 4 AMES CITY ATTY NO. 147 D004 • l � property, or the amount of storm water which the property accepts from adjoining parcels of real estate. The charges under the ordinance are unrelated to the ownership of real estate, That is, city residents pay the monthly charge, whether or not they own real estate in the city. Mr. Latunski challenges the ordinance on several grounds. He asserts that the charges under the ordinance are unreasonable, arbitrary and discriminatory, as well as violative of the "contract" and the "takings" clauses of the United States and Iowa_ Constitutions. He also argues that the use of revenues generated under the ordinance for capital projects violates Iowa Code section 384.84_ For the reasons discussed below in the Conclusions of Law, the Court finds that Mr. Latunski has failed to prove these assertions. CONCLUSIONS OF LAW 1. The Court has jurisdiction over the parties to, and subject matter of, this litigation. 2. Several statutory provisions are germane to this litigation. Iowa Code section 384.81 permits a city to construct and maintain a city utility system. (The parties agree that the storm water drainage system at issue here is a "city utility.u) Section 384.84(1) provides for the financing of such a system: "[t]he governing body of a city utility . . _ may establish, impose, adjust, and provide for the collection of rates to produce gross revenues at least sufficient to pay the expenses of operation and maintenance of the city utility . . . and, when revenue bonds . . . are issued and outstanding _ . _ shall establish, impose, adjust, and provide for the collection of rates to produce gross revenues at least sufficient to pay the expenses of operation and maintenance of the city utility _ _ _ and to have a balance of net revenues sufficient at all times to pay the principal and interest . . . and a sufficient portion of net revenues must be pledged for that purpose. -3- 10/20/2004 09:02 NEUADA CLERK OF COURT 3 AMES CITY ATTY NO. 147 P005 i. i Rates must be established by ordinance of the [city] council." In establishing utility rates, a city council "may not provide use or service at a discriminatory rate, except to the city or its agencies . . . . " Iowa Code section 388.6, i Other limitations on municipal utility rates exist: "The rates charged by a municipal utility must be fair, reasonable, just, i uniform and nondiscriminatory, and the same rules in regard to the reasonableness of private utility companies apply. . _ _ Judicial review may usually be had as to the reasonableness of the rates, but the court may not engage in rate making since this is a legislative function. "Reasonable discretion must abide in the officers whose duty it is to fix rates. Their determination should not be disturbed is there is any reasonable basis for that determination, or unless it is proved that the rates are excessive and the action of the rate-fixing officers illegal and arbitrary. It will be presumed, in the absence of any showing to the contrary, that the municipality acted properly. A rate lawfully established is assumed to be reasonable in the absence of a showing to the contrary, or a showing of mismanagement, fraud, or bad faith, or that the rate is capricious, arbitrary, or unreasonable. Each case must be decided on its own facts. The burden of proof is on the party claiming unreasonableness or discrimination. A city has no duty to justify or explain its actions in setting rates until the party contesting their validity shows their invalidity by competent evidence." State v. City of Iowa City, 490 N.W.2d 825, 828-829 (Iowa 1992), quoting 12 Eugene McQuillin, Municipal Corporations, section 35.37a, at 616-17 (3rd ed. 1986). Under these rules, the city's utility rates are presumed valid_ Mr. Latunski has the burden to prove his claim that the rates are unreasonable, arbitrary, unlawfully discriminatory, and unconstitutional. Until Mr. Latunski produces competent evidence to establish one or more of his claims, the presumption that the rates are valid continues. 3. Mr. Latunski's primary assertion in this litigation is that the storm water drainage system charges are unreasonable, arbitrary, and discriminatory, both in general and as to him, in particular. As a basis for its rate structure, the Ames city -4- 10/20/2004 09:02 NEVHDH CLERK OF COURT RME5 CITY RTTY NO. 147 D006 council drew a connection between the existence of a water or electrical utility hookup and the need for, or benefits from, the municipal storm water drainage system. The evidence fails to show that such basis was unreasonable. When land is developed for commercial or residential use, the need arises for a system to drain and carry away excess surface waters. Without such a system, streets flood, basements fill with water, and certain areas become unusable. The existence of hookups to the municipal water or electric utilities, obviously, indicates that residential or commercial development exists in that area, and that the persons at those locales need the benefits of a storm water drainage system. The City's decision to charge people with utility hookups a nominal fee for the storm water drainage system which benefits them is reasonable. Mr. Latunski, however, argues that, even if the general financing scheme for the storm water drainage system is reasonable, the rate schedule is not. He asserts that all Ames residents with utility hookups should not be charged a uniform monthly fee of $1_ Rather, each resident, or group of residents, should be charged a different monthly fee dependent upon that group's benefits from the system. The reasonableness of the City's rate structure, however, is shown by the very nature of the storm water drainage system. That system consists not only of pipes and conduits at various locations within the city, but also of ponds, topographical changes, and certain design features of city streets. An individual parcel of city real estate, or an individual city resident, benefits in several ways from the system. The drainage system accepts and removes excess storm waters from a parcel of real estate. It also diverts excess waters from neighboring properties. The system's benefits to a particular piece of real estate and its occupants cannot be easily measured or quantified. Those benefits depend upon -5- 10/20/2004 05:02 NEVADA CLERK OF COURT 4 AMES CITY ATTY N0. 147 9007 numerous factors, including, but not limited to, the topography of the particular parcel of real estate, the topography of the adjoining land, the type of development on the land, the design of the improvements on the land, the type of soil comprising the parcel of real estate, its location with respect to municipal improvements, its location with respect to natural waterways, and the vegetation on the land. The evidence demonstrated that no reliable, feasible method exists for quantifying the benefits to an individual parcel of real estate or city resident from the storm water drainage system. Mr. Latunski suggests that such benefits should be determined by considering the type of development on the real estate and the amount of excess water drained from the premises. While these considerations are relevant to a determination of benefits, they are not conclusive. The evidence clearly showed that no reasonable means exists to accurately measure the amount of water drained from a parcel of real estate. Unlike a water or electric utility, no meter or other device exists for measuring the benefits to an individual resident from the drainage system. Given the unique nature of the storm water drainage system, the considerable difficulties in quantifying the benefits from such a system, and the expense of doing so (which would be paid by the City's residents as added costs of the drainage system), the city council did not act unreasonably or arbitrarily in establishing the challenged rate structure. The absence of a precise mathematical formula for setting the rates does not dictate a contrary conclusion, nor does the City's failure to conduct a cost/benefit analysis for each parcel of real estate or city resident. See, State v. City of Iowa City, supra, at 831. Even though the challenged rate structure is not unreasonable or arbitrary, as a whole, the Court must also decide if the structure is unreasonable or discriminatory as -6- 10i20/2004 09:02 NEVADA CLERK OF COURT 4 AMES CITY ATTY NO. 147 DBBB to Mr. Latunski, as an individual. The Court concludes that Mr. Latunski has failed to prove that such is the case. He must demonstrate that the cost to him of the storm water drainage system is "grossly out of proportion to the burden" he places on it. Id. Mr. Latunski has failed to prove the required cost-benefit discrepancy. Even if some discrepancy exists, it is not no so egregious as to invalidate the challenged drainage system charges. Mr. Latunski has not proved that a monthly charge of$1 for the benefits from the drainage system are grossly out of proportion to the burden he places upon the system as an inhabitant of a developed area in the city. In summary, the Court concludes that Mr. Latunski has failed to prove that the rate structure for the municipal storm water drainage system is unreasonable, arbitrary, or unlawfully discriminatory. The Court acknowledges that the city council could have chosen a different financing plan for the drainage system_ Mr. Latunski has argued, in substance, that another plan would have been more reasonable. The question is not, however, whether the City should have adopted another plan which was reasonable, but whether the plan it did adopt was reasonable and nondiscriminatory. The city council's judgment is entitled to deference from this Court, unless Mr. Latunski has proved that their actions were arbitrary and unreasonable. He has not carried that burden of proof. 4. Mr. Latunski also asserts that challenged rate structure violates the "contract' and the "takings" clauses of the United States and Iowa Constitutions. He bears a very heavy burden of proving those assertions. Adair Benevolent Society v. State of Iowa Insurance Division, 489 N.W.2d 1, 3 (Iowa 1992). Mr. Latunski has failed to carry that heavy burden- -7- 10/20/2004 09:02 NEVADA CLERK OF COURT � AMES CITY ATTY NO. 147 D009 l Concerning the "contract clause, Mr_ Latunski asserts that the challenged ordinance unconstitutionally impairs his landlord's obligations under their lease. Article I, Section 10 of the federal constitution and Article I, Section 21 of the state constitution prohibit any statute impairing the obligations of contracts. In order to prevail on this claim, Mr. Latunski must prove that the City's ordinance operates as a substantial i impairment of a contractual relationship. If such an impairment exists, the ordinance can survive the constitutional challenge only if a significant and legitimate public purpose underlies the ordinance, which adjusts the contracting parties' rights and responsibilities based on reasonable conditions appropriate to the public purpose_ Adair Benevolent Society v_ State Insurance ,Division, 489 N.W.2d, at page 5. Mr. Latunski has failed to prove the threshold requirement for a successful constitutional challenge of the City's ordinance. CMC Real Estate v. Department of Transportation, 475 N.W_2d 166, 172 (Iowa 1991). That is, he has failed to establish that the ordinance "substantially impairs" the obligations under his lease. Mr_ Latunski did not introduce into evidence the lease which he claims has been impaired. Also, the evidence at least suggested that the lease had terminated by the time of trial. Further, nothing in the evidence indicates that Mr. Latunski and his landlord had any contractual agreement as to the payment of the fees under the challenged ordinance for the storm water drainage system. Even if they had such an agreement, the ordinance does not prevent the landlord from ultimately paying the fees either directly or by simply reimbursing Mr. Latunski for the fees. In any event, any possible impairment of obligations under Mr. Latunski's lease is not "substantial_" Mr. Latunski also argues that the challenged ordinance unconstitutionally "takes" -8- 10/20i2a04 09:02 NEUADA CLERK OF COURT 4 AMES CITY ATTY NO. 147 D010 i 1 his interests under the lease without just compensation. The 5th and 14th Amendments to the United States Constitution and Article 1, Section 18 of the Iowa Constitution generally prohibit the government's taking of private property without just compensation. In arguing that the challenged ordinance violates these constitutional guarantees, Mr. Latunski assumes that his lease interest in having the landlord pay all of his utility bills except electricity constitutes a "species of real property." In Twin State Engineering & Chemical Co. v. Iowa State Highway Commission, 197 N.W.2d 575,577 (Iowa 1972), the Iowa Supreme Court held that a lessee with a lease interest is entitled to just compensation for the public taking of that interest, absent contrary lease terms_ However, any "taking" triggering the requirement for compensation must, at the very least, substantially deprive the claimant of the use and enjoyment of his property interest. Iowa Coal Mining Co, v. MonrQe County, 494 N_W.2d 664, 670 (Iowa 1993). The evidence failed to show that Mr. Latunski has any property interest which has been taken from him by the City via the challenged ordinance, in any event, any deprivation of a property interest has not been so substantial as to impinge upon Mr. Latunski's constitutional rights. 5_ In his petition, Mr. Latunski asserts that the City's storm water drainage system rate structure violates Iowa Code section 384.84(1). That statute authorizes the City to collect fees "to pay the expenses of operation and maintenance" of a city utility, such as a storm water drainage system_ It does not expressly allow the collection of fees for the construction of such a system. The evidence in this case showed that the City either uses, or intends to use, some of the revenues under the ordinance to fund capital improvement projects for the drainage system. Put another way, the City -9- 1O/2O/2OO4 09:02 NEUADA CLERK OF COURT 3 AMES CITY ATTY N0. 147 DO11 f I i intends to use some of the revenues to improve and upgrade the existing drainage system. The evidence also showed that private developers ordinarily bear the expense of expanding the system into newly-developed lands within the city. In his trial brief, Mr. Latunski has not argued this issue_ Nevertheless, the Court will now address its merits. The Court concludes that the City's ordinance does not violate section 384.84 for several reasons. Improvement of an existing drainage system is part and parcel of "maintaining and operating" that system so that it meets the needs of the municipality. Without the ability to use revenues generated under the ordinance to improve and upgrade the existing system, the City would eventually be unable to effectively "maintain and operate" the drainage system for the benefit of the citizenry. Iowa Code section 384.61 evidences legislative intent consistent with the Court's conclusions_ That statute generally requires that the cost of public improvements be specially assessed against the benefitted property owners, unless the cost of the improvement "is to be otherwise paid." Section 384.84 provides a method for improvements to a city utility " to be otherwise paid," Mr. Latunski has failed to prove that the challenged ordinance violates Section 384.84(1). 5_ Mr. Latunski introduced into evidence trial exhibit 2 entitled"Analytical Study of the Effects of the Rate for Storm Water Drainage Imposed in Ames Using the City of Ames' Definition of Usage with Regard to Rate Discrimination_" That study presented, at least in part, an analysis of the benefits of the storm water drainage system to various types of city residents. Mr. Latunski holds undergraduate degrees in mathematics and chemistry. At the time of trial he was a graduate student at Iowa State University and was teaching courses in statistical methods. Mr. Latunski holds -10- 10/2012004 09:02 NEUADA CLERK OF COURT 4 AMES CITY ATTY NO. 147 D012 I no degrees in civil engineering or other disciplines directly related to the design or Y maintenance of storm water drainage systems, He has no practical experience erience in those fields. The evidence showed that Mr. Latunski is a talented statistician and a gifted graduate student. It did not show, however, that he has any expertise in the design or operation of a storm water drainage system_ The Court has given limited weight to his i opinions concerning the benefits to various city residents from the storm water drainage system. ORDER i I IT IS, THEREFORE, THE ORDER OF THE COURT as follows: 1. The causes of action set forth in the Plaintiff's Petition at Law are hereby dismissed- 2- The court costs of this action are taxed against the Plaintiff. Dated: June 4, 1996_ DALE E. RUIG Judge CLER TO FURNISH COPIES TO.- Joseph M. Isenberg, Esq, John R_ Klaus, Esq. 'o"j'fD TO 0 E CLERK OFpF P1plS0 OFFJ COUrSTY IUVJ,C, -11-