The Battle Between Taxes and Fees in Storm Sewer Finance

Local governments should get popular support for fiscal policies

Photo by Robert Lawton

The Legislature is considering a bill to change the way local governments pay for storm sewers. Some local government officials want the bill so that they will avoid legal challenges to the way they assess sewer costs to property owners. The law’s drafters, on the other hand, seem less intent at avoiding litigation than they are at avoiding the popular votes required to approve new taxes.

When it rains, storm sewers in an area redirect the water to nearby bodies of water. This works to prevent flooding.

The systems cost money, which comes from local property taxes or fees on water and sewer bills. Local governments want to have the people who use the storm sewer pay in proportion to their use. That’s a difficult thing to ask, however, since property owners don’t control the weather. A landowner could make less use of a storm sewer (and thus pay the local government less), but that would require the onerous task of digging up pavement and installing rainwater collection devices.

Local governments themselves are major users of stormwater systems, since they manage local roads, parks and other properties that feed into them. A proportional system of financing them would also mean that the local government pays for the portion that it uses. Money for that would have to come from the government’s general revenues.

Birmingham city manager Joe Valentine testified in committee that his employer needs this legislation to avoid litigation from residents. It would, he said, give the city explicit authorization to assess users their proportion of the cost, something it doesn’t have under current laws. It is fine to authorize local governments to tie storm sewer costs to the people that directly benefit from them. But this assessment authorization should require a vote of residents. The legislation instead requires only a public notice and the approval of the local government’s board.

In the past, courts have ruled that attempts to raise local revenue by using proportional assessments run afoul of state laws about local government finance. Indeed, one ruling laid out the distinguishing features between a tax and a fee. This is an important distinction because taxes are subject to taxpayer protection laws and fees are not. Under a requirement state voters approved in 1978, voters must approve all new local government taxes.

Under this bill, lawmakers would let local governments avoid that requirement because it specifically calls the assessment of costs a fee and not a tax — and the Legislature gets to define what a tax is. The bill also spells out how cost assessments meet the court’s requirements to be considered a fee and not a tax.

Local governments should try to see whether residents want to assess stormwater taxes that attempt to put the greatest responsibility on people who use the systems the most. But under the proposed law, all a local unit of government would need to do to is hold a single board meeting.

Popular approval is important, however. Consider a local government that pays for its stormwater system with general funds, composed largely of property taxes. It then, under the proposed law, moves to a proportional assessment of the costs. Residents, businesses and other governments would pay new fees for the system, but they would also continue to pay general property taxes. The practical effect of the new assessment, then, would be that the local government gets to spend general taxpayer dollars on something other than the stormwater system. A local government would also have to lower property taxes in proportion to the level of new revenue if it wanted money from the new storm sewer tax to be used for storm sewers. Otherwise, the thing that is named a storm sewer tax would have the practical effect of funding the other parts of the local government.

A local government that financed its system with sewer bills, on the other hand, would better tie costs to usage. The fees are supposed to be in proportion to usage already; a more natural fit would be to raise storm sewer fees and lower water and sanitary sewer fees.

Regardless of the justification for the proposed law — to shift responsibility for financing infrastructure among users, or to let local governments spend more — local government services and finances should be subject to popular control. It’s disappointing that local officials want a law that would say otherwise.