CSO/Stormwater : Distinction Without A Difference

I think the level of salemanship going on with the issue of the "illegal" CSO/Rainwater "TAX" is a bit humorous. I think this primarily because I have now read the famous OPINION from City Attorney Steven Torres about the matter. For information purposes you can find the slightly longer than one page analysis at this web address:

http://media.townonline.com/fallriver/legalopinion.pdf

In this analysis there is a discussion on the characteristics of a "fee", as laid out by the Mass Supreme Judicial Court in the Emerson College vs. Boston case. There the MA SJC held that a"FEE" must share certain common characteristics to be considered a valid, or legal, fee, which also distinguishes them from TAXES, as follows:

1) they are charged in exchange for a particular governmental service which benefits the party paying the fee in a manner not shared by other members of the society,

2) they are paid by choice, in that the party paying the fee has the option of not using the governemental service and thereby avoiding the charge,

3) the charges are not collected to raise revenue but to compensate the governmental entity providing the services for it's expenses.

In his analysis, Attorney Torres proceeds to lay out his arguments that only the 3rd condition is applicable to the CSO/Sormwater Fee, and since all three conditions  do not apply, the charge is a tax, and further, since the MA Constitution states municipalities as entities are not allowed independent power to charge "taxes" (this can only be done by a vote of the legislature), such a charge constitutes an "Illegal Tax".

Now please understand, this is Attorney Torres' OPINION, not an actual finding by any court in the Commonwealth. Only a decision by the court in a case brought before it would make this opinion effective. So where does this leave Fall River?

Let's look at what happened when the City reached agreement with DOR to solve the Sewer Enterprise Fund deficit problem. DOR recommended a rate sufficient enough to cover the entirety of the deficit in the Sewer Fund, inclusive of any collections related to CSO/Stormwater Fees. In the minds of DOR, there is no discussion of the legality of the CSO/Stormater Fees. No new legal ground was broken here. It was Mayor Flanagan who chose to make this an opportunity to ANNOUNCE he would do away with the "illegal" tax of the "CSO/Stormwater Fee". In fact, to do this, I believe, he specifically refused to adopt the DOR recommended greater revised Sewer Rate and in it's place adpoted a slightly lesser rate, while expending all Sewer Enterprise Fund reserves ($609,000) and cutting a similar amount of FY10 expenses, to cover the remaining deficit. With one exception.  The DOR rate would have covered the outstanding Sewer Enterprise Fund deficit from the close of the prior fiscal year, roughly $600,000, which must now be made good by  FY11 sewer rates and collections. You see, once DOR recommends a solution, and you do not accept their solution, and you still have a deficit in the very fund they tried to help you with, and you do it for blatantly political reasons, you will NOT get a second bite at the apple. This City MUST, and I mean , MUST, cover that roll-forward deficit during FY11. In fact, I would highly recommend that the Sewer Enterprise Fund operate completely at no less than a break even status for FY11, or any deficits in the fund will most definitely be applied against the tax revenues for FY11 and be shown as a Cherry Sheet charge in next Fiscal Years Tax Rate Recap Sheet.

DOR made allowance to set the Sewer Rate without Attorney Torres' analysis in mind. To DOR, the CSO/Stormwater Fee is just fine and dandy as a fee. All Mayor Flanagan has done is made statements that he abolished an "illegal tax" when in fact, he has set a "DE FACTO" fee to cover those related expenses within the larger umbrella of the Sewer Enterprise Fee. And in terms of "Illegal Taxes", any Sewer Enterprise Fund/CSO/Stormwater deficits  MUST, by statute as voted by the MA Legislature, be covered by the City's PROPERTY TAX revenues, when other sources of revenue are insufficient or unavailable. Only DOR, through the Commissioner of Revenue and the Secretary Of Administration and Finance can allow such a deficit NOT to be paid in the year immediately following the actual deficit in which it occurred.

Finally, if all else failed, because the CSO/Stormwater expenses were the result of a Federal Court Judgement against Fall River, DOR would also be allowed to take any yearly expenses related to solving the CSO/Stormwater problem through the Tax Rate Recap Sheet as an un-met Court Judgement and, yet again, apply the expense against property taxes to be collected, as allowed by vote of the MA Legislature.

I am not an attorney, but it seems the effort to decree this CSO/Stormwater Fee an Illegal Tax, while at the same time indicating it also does not meet the MA SJC qualification standards to be declared a FEE, in all practicle terms, would render the City unable to cover the cost of providing the service. This argument between "is it a tax" or " is it a fee"  is a distinction without a difference. This is proven when , in needing to raise the funds necessary to offset the expenses of the CSO/Stormwater construction and ongoing operations, Mayor Flanagan and Fall River agreed to raise revenues - fees - to meet ALL the expenses to provide sewer AND CSO/Stormwater services. Failing that, these expenses would otherwise have to be covered, by statute as voted by the MA Legislature, by the City's property tax rate. Why is this critical?

Let's suppose tomorrow  Attorney Torres and Mayor Flanagan were successful in having this Stormwater Fee overturned. Under their analysis, no fees could be raised to cover CSO/Stormwater expenses, unless , of course, those properties found to be in question had sufficient , effective methods of measuring the cost and metering installed to cover each person/unit involved, say in a 6 apartment tenement aprtment house. The costs would be prohibitive, let alone the political nightmare related to so doing . So what then? The charges would be covered by the property tax rate, by state statute, and would REDUCE the amount of property tax revenues available to pay for police, fire and all other general fund budget operations and assessments. Facing this, while declaring the CSO/Stormwater Fee an illegal tax publicly, Mayor Flanagan , in practice, has done precisely the opposite.
 The basic premise of the argument is false in it's conception. In actual current practice by this administration, the CSO/Stormwater expenses are being collected through a fee mechanism....if not by a fee, the City would have no choice but to include them on the Tax Rate Recap, thus making the "Illegal Tax" arguement moot by actual practice even in Fall River and statutes passed by the MA Legislature. Like I said, a false concept at worst and a dinstinction without a difference at best.

I put it to you my readers, if Mayor Flanagan and Attorney Torres, and whoever was advising them during the campaign, understood even the basic principles of public finance,  it's theory as well as it's actual practice in Massachusetts, they would never have run using an argument that the CSO/Stormwater Fee was an Illegal Tax...because, as it turns out, under actual practice AND the law, it can be considered both a fee and a very, very legal tax. Now, many property owners who voted for Mayor Flanagan on the basis of this promise, mostly teabaggers, are expecting fee rebates, and will be quite unhappy when none are processed or handed out!

That's one heck of a choice to consider.....were Mayor Will Flanagan and his advisers ignorant of even the most basic public finance practice and theory, or were they purposely manipulative during the election campaign? You be the judge.