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Rogue Valley Sewer Services v. City of Phoenix

Supreme Court of Oregon

July 16, 2015

ROGUE VALLEY SEWER SERVICES, an Oregon municipality, Petitioner on Review,
v.
CITY OF PHOENIX, an Oregon municipality, Respondent on Review

Argued and Submitted February 15, 2015.

CC 103450E2; CA A148968. On review from the Court of Appeals. [*]

Tommy A. Brooks, Cable Huston, LLP, Portland, argued the cause and filed the briefs for petitioner on review. With him on the brief were Casey M. Nokes and Clark I. Balfour.

J. Ryan Kirchoff, James Holmbeck Kirchoff, LLC, Grants Pass, argued the cause and filed the brief for respondent on review. With him on the brief was Kurt H. Knudsen, Jacksonville.

C. Robert Steringer, Harrang Long Gary Rudnick P.C., Portland, filed the brief for amici curiae Clackamas River Water and Special Districts Association of Oregon.

Harry Auerbach, Chief Deputy City Attorney, Portland, argued the cause for amicus curiae League of Oregon Cities. Chad A. Jacobs, Beery, Elsner & Hammond, LLP, Portland, filed the brief for amicus curiae League of Oregon Cities. With him on the brief were Harry Auerbach, Portland, and Sean E. O'Day, Salem.

H. M. Zamudio, Huycke O'Connor Jarvis, LLP., Medford, filed the brief for amicus curiae City of Central Point.

Before Balmer, Chief Justice, and Kistler, Walters, Linder, Landau, and Baldwin, Justices,[**]

OPINION

Page 582

[357 Or. 439] BALMER, C. J.

In this declaratory judgment action, we consider whether a home-rule city can impose a five-percent franchise fee on a sanitary authority with overlapping jurisdiction. The trial court concluded that the city had authority to impose the fee at issue in this case, but declined to reach an additional question whether the amount of the fee was reasonable, because that issue was not presented by the pleadings. The Court of Appeals affirmed, concluding that the city had authority to enact the ordinance providing for the fee and that the sanitary authority's argument about reasonableness was unpreserved. Rogue Valley Sewer Services v. City of Phoenix, 262 Or.App. 183, 202, 329 P.3d 1 (2014). On review, we conclude that the home-rule doctrine is the proper framework for analyzing the fee at issue in this case and that, under that framework, the imposition of the fee was within the authority granted to the city by its charter and was not preempted by state law. We also conclude that the sanitary authority failed to raise the issue of the reasonableness. We therefore affirm.

I. BACKGROUND

Rogue Valley Sewer Services (RVS) owns, operates, and manages equipment for the transmission of sewage. As a " sanitary authority" organized under ORS chapter 450, RVS is a type of local government entity called a local service district. See ORS 174.116(2)(r) (" [A]s used in the statutes of this state[,] 'local service district' [includes a] sanitary authority * * * organized under ORS 450.600 to 450.989." ). Local service districts are municipal corporations and local governments. See ORS 198.605 (" Local service districts, as defined by ORS 174.116, are municipal corporations." ); ORS 174.116(1)(a) (" [A]s used in the statutes of this state[,] 'local government' means all cities, counties and local service districts located in this state[.]" ).

Since 2004, RVS has provided sewer services to residents of the City of Phoenix (city)--also a local government under Oregon

Page 583

law, ORS 174.116(1)(a)--although the relationship between RVS and the city has changed over time. In 2004, the city and RVS entered into an intergovernmental [357 Or. 440] agreement that established the services that RVS would provide and the rates that RVS would charge. At that time, the city was not within the political boundaries of RVS. RVS notes that, under that 2004 contract, it had the right--but not the obligation--to use the city's facilities to provide sewer services.

In 2006, a ballot measure asked voters of the city whether the city should be annexed into the service area of RVS. The ballot indicated to voters that the City Council and the RVS Board of Directors had already " unanimously adopted resolutions supporting this annexation" and that " service rates will not be increased as a result of this annexation." (Emphasis in original, underscoring omitted.) The voters' pamphlet statements with respect to the ballot measure did not mention whether the city would or could impose a franchise fee or tax on RVS. The residents of the city voted to annex the city into the service area of RVS. As a result, RVS became obligated to provide sewer services to the residents of the city because, for the purposes of sewer services, the residents were now within RVS's jurisdiction.

In 2009, the city held a special election, and the voters approved a home-rule city charter. The charter provides that the city " has all powers that the constitutions, statutes, and common law of the United States and of this state now or hereafter expressly or impliedly grant or allow," and that the charter is to " be liberally construed so the city may exercise fully all powers possible under this charter and under United States and Oregon law." City of Phoenix Charter, § 4-5.

In 2010, the city passed Ordinance No. 928 (the ordinance) imposing a " franchise fee in an amount equal to five percent (5%) of the annual Gross Revenue of RVS * * * in addition to taxes or fees, if any, owed to the City." [1] The [357 Or. 441] ordinance directed RVS to pay the fee on a monthly basis starting the first month after adoption of the ordinance.

The ordinance declares that the " primary purpose of the collection of a franchise fee from RVS is to regulate and reimburse the City for its costs associated with RVS, and not to raise revenue." The ordinance elaborates that it was passed for the purposes of " maintenance and operation of the public rights of way" and " recoupment of the full costs and full impacts associated with the use, occupation, and other activities and effects by sanitary authorities and other utilities on the public rights of ways." The ordinance cites costs, including " additional oversight and associated costs incurred from City administration, maintenance and repair of City-owned facilities within City right-of-ways, special services performed by the City, and office and field-related costs." Overall, the ordinance declares that there is a " direct relationship between the fee charged and the burden produced by the fee payer, RVS[ ]."

RVS projected that the five-percent franchise fee, as assessed on the gross revenues that RVS received from residents of the city, would have totaled approximately $30,741 per year. RVS calculated that, " to be fair to all other customers" living outside the city, it would have to raise its rates for single-family residences in the city from $15.90 per month to $16.70 per month.

RVS filed a complaint in circuit court seeking a declaratory judgment and an injunction. Specifically, RVS asked the court to:

" 1. Declar[e] whether the ordinance * * * is valid and whether RVS is required to collect and pay over the fee described in said ordinance.

Page 584

" 2. Grant an injunction prohibiting [the city] from collecting the franchise fee * * *.
" 3. For other such relief as the court may deem equitable."

In the trial court, as part of cross-motions for summary judgment discussed further below, the city reaffirmed the [357 Or. 442] factual assertions set out in the ordinance. The city claimed that it incurs a variety of costs due to the direct impact of RVS's operations in city streets. Although the direct costs of the paving and construction work are borne by RVS, the city argued that there are additional short-term and long-term impacts that the city bears. Short-term impacts are associated primarily with coordination and include review of plans, inspection during construction, locating utilities, processing encroachment permits, providing water from city fire hydrants for flushing sewer lines, and designing other city utility contracts to avoid RVS facilities. Long-term impacts include costs of maintenance and repair of the streets. Whenever a street surface is cut, a slight differential settlement of the repaired surface is expected, and the joint between the surfaces is more likely to be an entry point for water. Over time, the city Public Works Department expects to fill cracks and make minor repairs on cut streets, until it becomes necessary to conduct a complete asphalt overlay of the street. The city also asserted that, as a direct impact of its relationship with RVS, it incurs general administrative expenses, such as the costs of general administration and oversight, budgeting, coordination of services, interactions with the public, and other expenses. Together, the city estimated that the cost of those impacts for 2009 was $29,425. As such, the city asserted that the five-percent franchise fee--at around $30,000 per year--was a reasonable estimate of the annual cost to the city. Additionally, the city pointed out that the five-percent fee was consistent with franchise fees that it imposes on other utilities operating in city streets, including the local gas, telephone, power, and cable television companies.

For its part, RVS disputed the existence of any direct relationship between the franchise fee and the costs that RVS's operations impose on the city. RVS argued that the costs that the city identified are part of the normal operations of a city public works department--such as receiving phone calls from citizens--and therefore are not caused by RVS's operations, while other alleged costs are negligible or nonexistent. RVS asserted that, when it proposes a project within the city, it first submits a plan to the city's Public [357 Or. 443] Works Department for review and comment, and generally receives a phone call or brief letter in response. The city typically observes any paving work to ensure that it meets the city's standards, but, as noted, RVS bears the cost of the paving and construction work associated with its projects. At the time of summary judgment, only one project in the city had required any street cutting or repaving, and only one was planned for the upcoming year. RVS also argued that the costs of its operations in the city are covered by various fees that the city charges--for example, a right-of-way encroachment fee charged to cover the cost of plan review for projects that impact the right-of-way.

Further, in its motion for summary judgment, RVS argued that the city's home-rule authority to impose a franchise fee was preempted by state law because franchise fees are controlled by state statute. RVS also stated in its brief--although in the " Background Facts" section rather than as a legal argument--that, " even assuming that [the city] has authority to impose a franchise fee on RVS, the Ordinance as worded relies upon an improper interpretation of Oregon statutes, is too broadly written and has no rational basis to support the rate." The city filed a cross-motion for summary judgment, arguing that it had authority to enact the ordinance and that the fee " represents a reasonable estimate of the annual cost to the City of the many impacts of RVS identified in the Ordinance," and concluding that " [t]he 5% fee is reasonable by all standards."

The trial court articulated the issue presented as " whether or not the City * * * under its home rule charter can charge a franchise fee on sewer operations provided by [RVS]." ...


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