The Duty To Serve

1. The Duty To Serve The Obligation of the Community & State to Serve Its Residents

2. Overview • If a city creates a utility district, does it actually have an obligation to serve all residents in the district? • Can a utility district force its services on the residents?

3. Robinson V Boulder, 1976 • Appellees (landowners) sought to subdivide approximately 79 acres of land in the Gunbarrel Hill area northeast of Boulder and outside of its city limits. The landowners proposed a residential development in conformity with its county rural residential (RR) zoning. Gunbarrel Hill Subdivision CITY OF BOULDER

4. Actions • Boulder County, before it would grant final approval to Gunbarrel Hill, requires the developer to seek sewer and water services from the City of Boulder • Boulder operates a water and sewer utility system. In the mid 1960's it defined an area beyond its corporate limits, including the subject property, for which it intended to be the only water and sewer servicing agency. • Boulder contracted with and provided water and sewer service to the Boulder Valley Water and Sanitation District which is located within the service area. Gunbarrel Hill is immediately adjacent to the district boundaries, but is still within the district

5. The District & The Plan Area Gunbarrel Hill Subdivision CITY OF BOULDER Boulder Valley Water and Sanitation District

6. Gunbarrel Hill is Shot Down • The landowners apply to the district for inclusion, and the application was approved by the District however, Boulder disapproved the action on the grounds that the landowners' proposal was inconsistent with the Boulder Valley Comprehensive Plan and various aspects of the city's interim growth policy. • The owners of Gunbarrell Hill file suit with the district court on the basis that Boulder, who controlled the sewer and water district, had a duty to serve all seekers if they met the utility standards

7. The Trial Court • In terms of supplying water and sewer services, it must treat all members of the public within its franchise area alike -- including these landowners. The court held that Boulder had unjustly discriminated against Gunbarrel Hill by denying them service, while having previously approved service extensions to neighboring residential and industrial developments • The court concluded that Boulder can only refuse to extend its service to landowners for utility-related reasons. Growth control and land use planning considerations do not suffice.

8. Boulder Appeals • On appeal Boulder argues that its service program is not a public utility • Boulder contends that it has never held itself out as being ready to serve all members of the public to the extent of its capacity • Boulder argues that its decision to deny the extension of services to the landowners in this case was based on the proposed development's noncompliance with growth projections outlined in the comprehensive plan. In the event of an alleged conflict between Boulder's public utility and land use planning duties the master plan should rule and be controlling

9. The Appeals Court Finds That: • Boulder's total control and dominance as the exclusive water and sewer servicing agency in the Gunbarrel area is demonstrated by the fact that Boulder County planning authorities, routinely and in compliance with the city's agreement, refer area landowners in need of such services to Boulder • The course of conduct followed by Boulder in providing water and sewer services to this area indicates that it has held itself out to be the one and only such servicing agency in the Gunbarrel area.

10. Conclusion • The Court holds that Boulder is the sole and exclusive provider of water and sewer services in the area surrounding the subject property, it is a public utility. As such, it holds itself out as ready and able to serve those in the territory who require the service. • There is no utility related reason, such as insufficient water, preventing it from extending these services to the landowners. Unless such reasons exist, Boulder cannot refuse to serve the people in the subject area.

11. Dateline Builders v City of Santa Rosa, 1983 • Dateline Builders held an option on a parcel of real property located beyond the limits of the city boundary, on Todd Road in an undeveloped rural area known as the Santa Rosa Plain. Todd Road City of Santa Rosa Dateline Property

12. The Santa Rosa Plain

13. Agreements • The City and the Board of County Commissions of Santa Rosa County entered into a cooperative agreement to prevent scatter development that is not served by city facilities and utilities • New subdivisions would have to be consistent with the city’s standards and regulations • The city would allow new developments to connect to their facilities if they furthered the goals of compact development and contributed to orderly and efficient utility service

14. Dateline Applies for Subdivision • Builders wanted to subdivide and develop its Todd Road property as a single family moderate and low income home tract. It was zoned for agricultural use • The Todd Road property was not contiguous with the City but was contiguous to one of the City's trunk sewer lines. Builders had obtained FHA approval for the project under a loan program for homes in communities of less than 10,000 population. • The sewer hookup was not a condition for the availability of the federal funds. Builders planned to build 66 single family homes and submitted a tentative subdivision map to the County

15. The County Gives Conditional Approval • The County approved the tentative map but attached 24 conditions, including sewer hookup approval from the City and rezoning of the property to R-1 residential use by the County. • For a project of the size contemplated by Builders, the County required a sewer system rather than septic tanks. After that date, Builders never performed any of these conditions nor took any steps to do so.

16. The City Shoots It Down • Datelines’ application for a certificate was reviewed by the City for consistency with its plan, and development policies and standards • The City determined that Builders' proposed development in an agricultural area well beyond the City boundaries represented "leap-frog“ development inconsistent with the City's plans, policies and standards • The City denied the request; builders never submitted a subsequent or renewed application for a certificate.

17. Dateline Appeals • Dateline appealed to the City again • Nope, says the City – “the proposal is not consistent with the requirements of our plan” • We have the capacity – but you can’t have it • You are not in our district and we do not have to extend it to you

18. Dateline Fights Back

19. The Trial Court Hears the Case • The City was not a public utility charged with providing sewer connections to Builders' proposed development • The City's urban development strategy in the implementation of its general plan, development policies and standards involved fundamental policy decisions in an exercise of the police power • As a result of Builders' failure to perform any of the conditions, Builders was never in a position to receive any benefit from an approval of its application to the City for a certificate • The City acted reasonably in determining that Builder’s proposed development was inconsistent with its adopted land use plan, policies and then denying the certificate

20. The Appeals Court • Dateline argues that the City was acting in its proprietary capacity as a public utility and was the only provider of utility services for the Santa Rosa Plain, the City's refusal to grant the certificate was arbitrary and constituted unjust and unlawful discrimination as a matter of law • And the City had no power to act beyond its boundaries • And even more – that Dateline was a third party to a contract to receive sewer and water and that the City’s refusal constitute breach of contract

21. The Appeals Court’s Analysis • Dateline is not a third party! • The Court says that: “We do not think either the City nor the County intended to compensate a developer who does not own the property he wishes to subdivide for damages that are at best speculative because he was not granted a permit to hook up to the sewer system. The “Plains Agreement”: was made for the public as a whole.

22. The Next Finding • Dateline is not in Santa Rosa’s district – however, the City has extended services to developments that met its planning criteria in the past • Therefore, under the Plains Agreement, the City must extend services if the development meets all the approvals of the County and City • Dateline did not cut it. They neither complied with the conditions of the county – and they were classified as “leap frog” development

23. Conclusion • The City did not violate its cooperative utility agreement • It acted reasonably to deny an extension of services to an uncooperative and undeserving developer Dateline Provides Its Own Water Service

24. First Peoples Bank of New Jersey v Medford Township, 1991

25. Background • In the mid-1970s Medford experienced rapid land use development that overburdened the municipal sewer system. Consequently, the New Jersey Department of Environmental Protection imposed a sewer connection ban. • Medford's initial response was to adopt a "Flow Equalization Plan," which involved the use of holding tanks to store effluent during peak periods. • By 1983, the sewer plant was again at its limit. The City was under an order to increase the capacity of its pumping station • Land use development came to a halt

26. Medford Twsp. Pop. 1940 - 2000

27. New Ordinances • Medford Townships passes ordinances to place a moratorium on development • It also passes another ordinance that allows the Township to allocate new sewer capacity before the plant expansion is finished • A land owner may apply and pay for advance sewer permits – the number of permits would equal the number of lots that could be developed under the present zoning • The fees from these advance sewer permits would help pay for the new expansion

28. About The Ordinances • If you buy the permits now, you get a deal! If you wait, the cost goes up annually • The township reserves the right to “not honor the permits” if it is in the best interest of the public • In that case, the township has to repay the permit holder • Well guess what? • The township sent out warnings to all developers who had not purchased permits telling them to get with it because they were again reaching processing capacity based on the number of permits issued

29. Then What Happens • A large land owner buys all the remaining unsold permits for a total of $3.3 million – and wants more • The Township says we have issued all the advance permits that we can and imposes another permit moratorium • About 2 days later the Peoples Bank applies for several permits • The bank goes to district court to attack the validity of the ordinance

30. The Judicial Review • The trial court found for the Township saying that they had acted reasonably within their authority • The Bank says – no they didn’t and appeals • The Bank argues that: • The township should have saved some permits and sold so many to the “big developer • The Bank contends that the ordinance does not contain adequate standards to guide the municipality in determining whether to exercise its option to repurchase.

31. Standards • The court found that the challenged ordinance, although not exquisitely drafted, contains sufficient standards to withstand the Bank's challenge • These standards require the Township to give six months' written notice to a permit owner of the Township's intent to repurchase • When deciding whether to repurchase a permit, the Township acted by resolutions adopted after discussions at public meetings.

32. Conclusion • This is not a case in which a municipality has rigidly refused to construct needed sewer capacity. • The record does not support an inference that Medford's refusal "is the result of a determination not to discharge a plain duty” • Because of a municipality's greater familiarity with local conditions and expertise in constructing sewer capacity, a court should supplant the exercise of municipal discretion only in a compelling case.

33. Differential Rates • Can a city control growth and timing by charging differential rates for water and sewer service to those located outside it service district? • Must rates be uniform? WE ARE BACK IN KANSAS AGAIN

34. Mitchell v City of Wichita, 2000 • This is a class action suit brought by plaintiffs David Mitchell and Nolan O. Luke challenging the authority of the City of Wichita, Kansas to charge users of its water and sewer utility who live outside the city limits a fee for water and sewer service which is 55% higher than the fee charged the users within the city limits. • The plaintiffs' challenge is to both the authority of the City to impose such a surcharge and to the reasonableness of the City's 55% surcharge.

35. Background • Basic History • In 1957, the City acquired the Wichita Water Company, a privately owned company that had previously provided water services to the city as well as nonresidents surrounding the city. • Prior to 1957, the Wichita Water Company charged its residential water customers who lived outside the city limits of Wichita a 100% surcharge. • After the City's acquisition of the Wichita Water Company in 1957, the City reduced the surcharge for nonresidents to 40%. Sometime between 1974 to 1989, this surcharge was increased from 40% to 55%. The surcharge has remained at 55% since that time.

36. Mitchell and Nolan Luke

37. The Lukes’ Own A Transportation Company

38. Statutory Authority In Kansas • Both the trial court and the Supreme Court reviewed the statutes authorizing municipalities to set rates and charge for water services • Since this is a straight forward examination, the courts conclude that since there was nothing included in the statues to prohibit differential rates – then the legislative silence indicated that this decision was up to the local rate making authority • "No person, firm, corporation, or association, nor any city department, shall be allowed free use of water, nor shall there be discrimination among water users of like classes as to rates, and rebates in rates shall never be allowed to any person, firm or corporation or city department except as an inducement to prompt payment of water rates."

39. SO, What About Discrimination and the Duty To Serve? • The fact that the rates charged within the city are different than those charged outside the city does not of itself characterize the rates as discriminatory • Although a municipality may charge higher rates for customers living outside the city limits, rates must still be reasonable, and persons and corporations dependent on the utilities are entitled to judicial protection against rates when they become unreasonable.

40. What Is Reasonable? • What is a fair and reasonable rate comprehends more than just enough revenue to get by. Sound fiscal practice would seem to dictate that provision be made for future contingencies and that reasonable reserves be set up to provide for the repair, improvement and replacement of the physical plant and facilities comprising a water distribution system. The rule generally followed is that in the absence of statutory restrictions, a municipal corporation which operates a water system has authority to charge such rates as will yield a fair profit, so long as the rate is not disproportionate to the service rendered."

41. Conclusion • The Supreme Court concluded that the only measure they could use was whether or not the differential rate was excessive or confiscatory • The Court notes that water rates 100% higher than for district residents are common – certainly 55% is not out of bounds • This is especially true when district residents are charged with maintenance and upgrade to the water plant while out of district residents cannot be taxed for these improvements • The burden was on the Lukes to show that the rates were excessive and unreasonable – too bad – so sad!

42. Solid Waste & Interstate Commerce

43. Oregon Waste Systems, Inc v Environmental Quality Control, 1994 • Does an ordinance by the State of Oregon imposing a $2.25 per ton surcharge on the in-state disposal of solid waste generated in other States and an $0.85 per ton fee on the disposal of waste generated within Oregon violate the neutrality provision of the Commerce Clause? • Key Words • Interstate commerce • Commerce Clause • Duty to Serve

44. The Background • Like other States, Oregon comprehensively regulates the disposal of solid wastes within its borders. The Oregon Department of Environmental Quality oversees the State's regulatory scheme by developing and executing plans for the management, reduction, and recycling of solid wastes • To fund these and related activities, Oregon levies a wide range of fees on landfill operators. In 1989, the Oregon Legislature imposed an additional fee, called a "surcharge," on "every person who disposes of solid waste generated out-of-state in a disposal site or regional disposal site

45. The Fee • The amount of that surcharge was left to the Environmental Quality Commission to determine through rulemaking, but the legislature did require that the resulting surcharge "be based on the costs to the State of Oregon and its political subdivisions of disposing of solid waste generated out-of-state which are not otherwise paid for" under specified statutes. • The Commission set the surcharge on out-of-state waste at $2.25 per ton. In conjunction with the out-of-state surcharge, the legislature imposed a fee on the in-state disposal of waste generated within Oregon. The in-state fee, capped by statute at $0.85 per ton , is considerably lower than the fee imposed on waste from other States.

46. The Challenge • Oregon Waste Systems (OWS) is a private contractor who owns and operates a solid waste landfill in Gilliam County, Oregon • OWS accepts in and out of state waste • OWS also has a 20 year contract with Clark County, Washington to transport (by barge) waste to their facility • OWS challenges the administrative rules establishing the higher out-of-state surcharge as contrary to the Commerce Clause of the U.S. Constitution

47. What Is The Commerce Clause? • “Congress shall have the Power to regulate commerce among the several States” • The Clause has always been interpreted as a negative regulatory power that denies the States the power to unjustifiably discriminate against or burden the interstate flow of commerce • Justice Cardozo explained: • under a truly compensatory tax scheme, "the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident, and the other upon another, but the sum is the same when the reckoning is closed.

48. Analysis • The Oregon Court of Appeals and the Supreme Court of Oregon upheld the differential fee – they • Approved the scheme as a “compensatory tax” necessary to make out-of-state shippers pay their fair share of cost of waste disposal in their state • The U.S. Supreme Court notes that " "It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden[s]." Nevertheless, one of the central purposes of the Clause was to prevent States from "exacting more than a just share" from interstate commerce

49. So What Is Justified? • To justify a charge on interstate commerce as a compensatory tax – a state must: • "identify the intrastate tax burden for which the State is attempting to compensate." Once that burden has been identified, the tax on interstate commerce must be • Shown roughly to approximate - but not exceed - the amount of the tax on intrastate commerce. Finally, • The events on which the interstate and intrastate taxes are imposed must be "substantially equivalent"; that is, they must be sufficiently similar in substance to serve as mutually exclusive "prox[ies]" for each other

50. The Fatal Flaw • The Supreme Court notes that the scheme allows out of state shippers to bear the full and real cost of waste disposal, but permits Oregon shippers to bear less than the full cost of disposal • Oregon argues that this is not economic protectionism – rather it is “resource protectionism” • The Court says that: “Even assuming that landfill space is a "natural resource," "a State may not accord its own inhabitants a preferred right of access over consumers in other States to natural resources located within its borders”