Idaho Supreme Court rules against Hayden sewer fee

North Idaho contractors say they feel vindicated by a state Supreme Court decision Thursday that found the city of Hayden failed to establish legal grounds for a steep fee increase to pay for future sewer expansion.

The North Idaho Building Contractors Association sued the city in 2010, challenging a fee tacked onto building permits for new homes and businesses and certain commercial expansions. The city in 2007 tripled that “sewer capitalization fee” to $2,280 to fund about $20 million in sewer projects related to anticipated growth.

A District Court judge found the fee was legal and dismissed the contractors’ suit, but the Idaho Supreme Court on Thursday voided that decision and sent the case back for further deliberations.

The nonprofit contractors group considers that a major victory in the prolonged dispute and said it hopes the city will lower the fee and issue refunds to those the association claims were overcharged.

“They were trying to get current construction to pay for some hopeful, eventual future construction,” said Boise attorney Jason Risch, representing the contractors group.

Hayden City Administrator Stefan Chatwin issued a statement Thursday saying the contractors association tried to establish that the city lacked authority to charge the fee to fund sewer system expansion resulting from growth. The Supreme Court, however, “affirmed the right of cities” to collect capitalization fees to fund expansion, the statement said.

By sending the case back to District Court, the justices are giving the city “an opportunity to provide information showing that the cap fee can be justified using a different methodology,” the city’s statement said.

The Supreme Court was fairly blunt in rejecting the city’s various arguments justifying how it set and uses the sewer fee.

“There is a black-and-white, step-by-step process in statute that a municipality can follow to do exactly what Hayden was trying to do all along, but they refused to follow that process,” Risch said. “Instead they tried to reinvent the wheel, they tried to do this creative new fee, and it didn’t work for them.”

The fee rose from $580 in 2005 to $774 in 2006, then jumped to $2,280 on June 7, 2007, based on a recommendation from an engineering company hired by the city to update its sewer master plan.

The steep fee hike turned off developers, said Angela Erickson, a commercial lender with Columbia Bank and associate vice president of the contractors association.

“Most of my builders, when they’re looking for lots, tend to disregard Hayden because right out of the chute the permits are another $10,000-$11,000 more there than any of the other municipalities in the area,” Erickson said.

She said a lot of subdivisions had been approved in Hayden between 2004 and 2006 but have not been built.

“A lot of those developers would like to get those going,” Erickson said. “But those were intended for more affordable housing, and it just doesn’t pencil out with some of those fees built into the cost structure. … So they’ve been sitting there four or five years now. It has had a chilling effect.”

Chatwin said the lawsuit has cost the city’s sewer ratepayers over $336,000 in 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 city’s statement said. “This is not insignificant. The city’s major concern has always been that new growth should pay for itself and that existing rate payers should not be required to share in that burden.”

Matt Fisher with Ginno Construction, the association’s immediate past president, said contractors are not opposed to reasonable development fees.

“Growth needs to pay for growth,” Fisher said. “It was the significant increase in the city of Hayden’s fee that clued us and the builders into what was going on up there. Upon further inspection we found how they came up with their fee and what they were doing with it both were illegal.”

Larry Jeffres, the association’s executive officer, said the ruling sets an important precedent in Idaho. But, he added, “The vast majority of cities … do it the right way.”