This case examined whether a storm runoff charge Lansing imposed on property owners to build and operate a stormwater treatment system was an allowable user fee or an unconstitutional tax under Michigan law. The majority held that the charge was an unconstitutional tax, based in part upon its reasoning that property owners had no choice in how much runoff flowed from their property. However, as the dissent pointed out, property owners can control runoff by limiting the impervious surface area on their property. The treatment system was designed to treat controllable runoff, prevent it from polluting the Grand and Red Cedar Rivers, and to comply with the Clean Water Act. By invalidating the charge, the majority opinion halted the implementation of storm water utilities across the state and prevented municipalities from taking proactive steps to prevent water pollution.
In 1995, Lansing imposed a new “storm water service charge” on property owners in order to help fund improvements to its sewage treatment infrastructure. The old system may have caused Lansing to violate the Clean Water Act because it frequently overflowed during heavy rains, discharging storm water and untreated sewage into the Grand and Red Cedar Rivers. A property owner challenged the storm water service charge, claiming it was a tax imposed without voter consent that therefore violated Michigan’s constitution. The Michigan Supreme Court agreed that the charge was an unconstitutional tax.
Lansing’s combined storm and sanitary sewer system frequently overflowed when it rained heavily, causing storm water and sewage to run into the Grand and Red Cedar Rivers. The city decided to separate the storm and sanitary systems in order to avoid violating the Clean Water Act. However, the new program would be expensive to implement. Lansing hoped to cover 50% of the annual costs by requiring property owners to pay an annual storm water service charge based on estimates of the amount of storm water that would run off each property during the year. The city began billing property owners in 1995.
A property owner sued the city, claiming that the ordinance created a new tax, and therefore violated the Headlee Amendment to Michigan’s constitution. The Headlee Amendment requires voter approval for increased local taxes.
Was the storm water service charge a “user fee” (in which case it would be constitutional) or a “tax” (in which case it would be unconstitutional)?
The Court (Justices Weaver, Brickley, Kelly, and Taylor) found that the storm water service charge was a tax and not a fee, and was therefore unconstitutional.
The Court noted that there are three primary criteria to be considered when distinguishing between a fee and a tax. First, a user fee must serve a regulatory rather than revenue-raising purpose. Second, user fees must be proportionate to the necessary costs of the service provided for the fee. Third, user fees must be voluntary.
In this case, the Court first found that the charge was designed to raise revenues to help fund the sewer separation project and did not serve a regulatory purpose. Second, the charges had nothing to do with the actual costs of using the storm water system. The Court noted that while the city’s goal—improved water quality—would benefit everyone in Lansing, only property owners were required to pay the storm water service charge, and therefore were asked to shoulder a disproportionate burden of the costs of the program. Third, the charges were clearly not voluntary.
Justice Boyle (joined by Chief Justice Mallett and Justice Cavanagh) dissented. The dissenting Justices thought that the storm water service charge was a fee, not a tax, because it was inherently connected to sewage treatment and disposal—services for which Lansing residents already paid fees. They thought that classifying the charge as a fee rather than a tax would also help the city ensure a clean water supply for its residents.