Contractors beat Hayden

HAYDEN - The Idaho Supreme Court on Thursday vacated a 1st District Court ruling that stated a sewer connection fee charged by the city of Hayden was lawful.

The case started in April 2012, when the North Idaho Building Contractors Association, in Coeur d'Alene, filed a lawsuit saying Hayden's "sewer capitalization fee" amounted to an illegal tax. First District Court Judge Benjamin Simpson disagreed with the contractors association and entered a judgment dismissing the complaint.

The contractors association appealed to the Idaho Supreme Court.

"What the builders were telling us was that they thought something was off," because building permits in Hayden cost thousands of dollars more than in other municipalities, said Angela Erickson, associate vice president of the contractors association.

Developers with approved subdivisions looking to build "starter homes" found the fees were too high to continue with construction, she said.

City of Hayden officials have said sewer capitalization fees retained by the city pay for expansion of the sewer system.

The city's primary concern was always that new growth pay for itself, and that existing ratepayers not be required to share in that burden.

A sewer capitalization fee is assessed for each new home or business structure that is to be built. The fee is charged when a building permit is issued, and the city in June 2007 raised its portion of the fee to $2,280 from $774. A separate portion goes to the Hayden Area Regional Sewer Board, which operates a wastewater treatment plant.

"You cannot use the proceeds that are collected for expanding of your system," said Jason Risch, a Boise-based attorney representing the contractors association. "That's exactly what the city was doing in this particular case."

Risch said Thursday he and the contractors association will be seeking a refund on the fees paid to date.

"Because there is nothing in the record showing that as of June 7, 2007, the sum of $2,280 was the actual cost of providing sewer service to a customer connecting to the city sewer system and there is no showing that the amount of the fee was based upon any such calculation, the fee was not authorized by Idaho Code," Justice Daniel Eismann wrote. "The district court erred in holding that it was."

Along with vacating Simpson's decision, the justices remanded the case back to District Court for further proceedings.

The city of Hayden, in a statement released Thursday night, said the Supreme Court didn't "reverse" the District Court's decision.

"It could have reversed and ordered the District Court to enter judgment in favor of (the contractors association)," the statement said. "Or it could have remanded with instructions to proceed to a remedies phase of the litigation."

That didn't happen, the city said.

"Instead, the court remanded to provide the city an opportunity to provide information showing that the cap fee can be justified using a different methodology," the statement said.

The lawsuit has cost the city's sewer ratepayers more than $336,000 in accumulated legal fees since May 2012.

"The city's investment in defending this lawsuit has established once and for all that the city can charge a cap fee based on replacement value and use that money to build more infrastructure," the statement said. "This is not insignificant."

Justice Jim Jones wrote a concurring opinion, saying he was "troubled by the lack of support or explanation for the three-fold increase in the sewer capitalization fee as of June 7, 2007."

Jones wrote that the increase could have been the result of a desire to raise revenue, "which would be an impermissible tax."

He said it's critical that issue be addressed by the lower court. Chief Justice Roger Burdick concurred with Jones' opinion.

"This is huge," said Matt Fisher, residential project manager for Ginno Construction Co., of Coeur d'Alene. "This has statewide implications. Every city across the state is being put on notice as to what they can or cannot do."

Fisher, the association's local president, said the contractors association is not against fees or paying for growth as it happens. The fees are passed to the homeowners and business owners.

"The fees need to be calculated in the way set forth in Idaho code," he said.