In a decision that is reverberating across the state, the Appeals Court, in Denver Street LLC v. Town of Saugus (pdf), has affirmed a Superior Court ruling that the Town of Saugus’s sewer inflow and infiltration (I&I) “reduction contribution” is an illegal tax, rather than a permissible fee. Since most cities and towns in Massachusetts impose similar charges, this decision will add to existing pressure on municipal budgets for sewer system improvements.
Due to the age of its sewer system, the Town of Saugus experiences sewer overflows during heavy rains. To prevent sewage from backing up into homes and businesses, the Town sometimes discharges untreated sewage directly into the Saugus River, which in turn flows into Rumney Marsh, an Area of Critical Environmental Concern. As you might imagine, the Massachusetts Department of Environmental Protection (DEP) does not look kindly on the discharge of raw sewage into the Commonwealth’s waterways. As a result, DEP and the Town entered into an Administrative Consent Order requiring the Town to stop issuing new sewer connection permits until it came up with a plan to address sewer overflows into the river.
Under the Town’s plan, applicants who want to connect to the sewer system are required to “buy” gallons of sewer flow from a “sewer bank.” The price: $30 for each gallon of proposed new flow. Four applicants for sewer connection permits paid this “contribution” under protest and then filed suit in Superior Court, arguing that it was an illegal tax rather than a permissible fee. The plaintiffs also sought the return of their contributions.
The Superior Court ruled that the Town’s plan imposes an illegal tax, and the Appeals Court affirmed. The test for determining whether a fee is valid is set out in Emerson College v. City of Boston (pdf). To qualify as a valid fee, (i) the charge must be in exchange for a particular government service that benefits the party paying the charge in a manner not shared by other members of the community; (ii) the party paying the charge must have the option of not using the service and thereby avoiding the charge; and (iii) the charge must be designed not to raise revenue but to compensate the municipality for services actually provided.
Focusing on the first and third Emerson College factors, the Appeals Court found that Saugus’s I&I reduction charge does not benefit the fee-payer in a way not shared by the community. The court also found that the charge doesn’t compensate the Town for services it provides related to new connections to the sewer system. Adding insult to the Town’s injury, the Appeals Court upheld the lower court’s reimbursement order, requiring the Town to repay all of the charges it had collected, plus statutory interest of 12% on that sum.