MSD stormwater fee unconstitutional, Supreme Court rules

Back to the drawing board on stormwater fees, spokesman says

MSD stormwater fee unconstitutional, Supreme Court rules

By Gloria Lloyd

Five years after the initial lawsuit, the Missouri Supreme Court has agreed with lower courts that the Metropolitan St. Louis Sewer District’s monthly stormwater charges are unconstitutional, sending MSD back to the drawing board on how to fund future improvements.

“A tax by any other name remains a tax. It cannot be transformed into a user fee by adept packaging, any more than a zoologist can transform a horse into a zebra with a bucket of paint,” Judge Paul Wilson wrote in the 6-0 opinion handed down last week. “Here, no matter how many stripes MSD paints on it, the stormwater user charge is not a user fee.”

Although both lower courts that considered the case also ruled that the “impervious” stormwater fee was actually a tax that violates the Missouri Constitution’s Hancock Amendment, MSD officials contend that the ruling still took them by surprise.

“We felt very confident in what we put together — it wasn’t something we just plucked out of the air. We did exhaustive legal reviews,” MSD Manager of Public Information Lance LeComb told the Call. “… We would not have done something that we thought was iffy or borderline. If anybody thinks that or contends that, they are not aware of how we do things at MSD. We try to make decisions that are fiscally prudent but also prudent on behalf of our ratepayers. And unfortunately, you know, the court did decide against it.”

Expressing his disappointment in the ruling at MSD’s Board of Trustees meeting last week, Executive Director Brian Hoelscher said the next step for MSD officials will be to gather comments from community members and other stakeholders on what to do next to raise more revenue for stormwater projects.

Potentially, that means voters could soon see two additional bond issues from MSD, one for stormwater and one for wastewater. The board meets next month to discuss a potential bond issue for wastewater.

Last year, district residents overwhelmingly voted in favor of $945 million bond issue Prop Y, which will help pay for $4.7 billion in improvements mandated by the U.S. Environmental Protection Agency to stop MSD’s illegal overflows of untreated raw sewage, which were polluting urban rivers and streams.

Historically, MSD has provided minimal stormwater services outside of Interstate 270 and in most of south county, an area that pays a lower tax to MSD than the 20 taxing districts inside I-270 in the county and in the city of St. Louis, LeComb noted.

“It’s because of that lowest tax why there is essentially no service out there,” he said. “The only service we are able to provide is the regulatory stormwater management, and once we get past that cost, there’s nothing left for other services.”

Stormwater management services required under regulations include walking creeks to look for illegal discharges and conditions that would pollute rivers and streams and reviewing development plans in municipalities, LeComb added.

Before 2008, MSD funded stormwater services through property taxes and a 24-cent monthly charge on each bill.

In 2008, however, MSD began charging each customer 12 cents per 100 square feet of “impervious” area, increasing to 14 cents in 2009, which in effect doubled the revenue coming into MSD for stormwater improvements. Impervious area includes non-absorbent property, such as driveways, roofs, garages and parking lots.

William Zweig, a physician in Chesterfield, challenged the fee in court, contending the fee is actually a tax that violates the clause in the Missouri Constitution’s Hancock Amendment, that mandates a tax cannot be instituted without voter approval.

Last week’s ruling also stated, “This court sympathizes with MSD’s predicament. The services it believes are required may cost more than district voters are willing to pay. Under the Hancock Amendment, however, that decision belongs to the voters. The Hancock Amendment assumes voters will make such decisions in their collective best interest, and it is not for MSD — or this court — to ignore that assumption or deny the voters the right to make such decisions for themselves.”

Lincoln County Circuit Judge Dan Dildine first ruled in favor of Zweig in July 2010, after which MSD stopped charging the fee and returned to its previous method of collecting stormwater taxes. MSD took in $90 million during the two years it charged for impervious area, compared to the roughly $22 million it had taken in each year through its flat-fee stormwater charge.

The Supreme Court upheld the lower courts’ ruling that MSD did not have to return that money to customers.

“It’s also important to note that each stage in this process, the plaintiffs’ lawyers also appealed the items in the rulings that they felt were unfavorable,” LeComb said. “And if anything, there was a cost savings here in terms of — you know, we did take in $90 million in revenue from the stormwater rate, $90 million that we spent on stormwater services, and the trial court and all the courts affirmed that we did not have to pay that back.

“To pay that back, we would have had to have raised rates on our customers just to take money in order to give them money back, and it would have been minus a 25 percent cut for (the plaintiffs’) lawyers,” he added. “So if there was a success, there was a success there, but I certainly don’t want to say that that’s the most important thing here — the most important thing here was the validity of the rate, and the court ruled against it, and we respect that ruling. Now it’s back to the drawing board for us.”

The Supreme Court remanded the case back to the trial court to determine appellate fees and costs. In 2011, a lower court determined that the plaintiffs’ attorneys, Greensfelder, Hemker & Gale of St. Louis, could double their legal fees to $4.83 million, since they would receive nothing if they lost the case while MSD’s attorneys would get paid no matter the outcome. MSD’s attorneys in the case were from Kohn, Shands, Elbert, Gianoulakis & Giljum of Clayton and cost $1.5 million, LeComb said.

In their argument for a doubling of their fees, Greensfelder attorneys argued the firm had saved taxpayers $300 million and that MSD could have avoided paying the legal fees if it had followed the Hancock Amendment.

Before MSD cancelled the charge after more than two years of collecting it, it planned to raise the fee to 22 cents a month in 2011, eventually capping at 29 cents a month in 2014. Once the cap was reached, the average homeowner would have paid about $7.50 a month in impervious fees.