City of Wooster v. Graines

• Decision Date: 03 July 1990
• Docket Number: No. 89-403,89-403
• Citation: 52 Ohio St.3d 180,556 N.E.2d 1163
• Parties: The CITY OF WOOSTER, Appellee, v. GRAINES, Trustee, Appellant.
• Court: Ohio Supreme Court

Page 180

52 Ohio St.3d 180

556 N.E.2d 1163

The CITY OF WOOSTER, Appellee, v. GRAINES, Trustee, Appellant.

No. 89-403.

Supreme Court of Ohio.

Submitted March 6, 1990.

Decided July 3, 1990.

H. Lloyd Cornelius, Director of Law, for appellee.

Paul M. Greenberger and Ellen S. Mandell, for appellant.

HOLMES, Justice.

It is beyond dispute that Section 4, Article XVIII of the Ohio Constitution authorizes a municipality to own and operate a utility. ¹ Therefore, Wooster, as a municipality, had the authority to establish and maintain the sewer utility as long as the rates to be charged and the revenue collected therefrom complied with the mandates of R.C. 729.49 and 729.52.

R.C. 729.49 provides in pertinent part:

"The legislative authority of a municipal corporation which has installed or is installing sewerage, a system of sewerage, sewage pumping works, or sewage treatment or disposal works for public use, may, by ordinance, establish just and equitable rates or charges of rents to be paid to the municipal corporation for the use of such services, by every person, firm, or corporation whose premises are served by a connection thereto. * * * " (Emphasis added.)

R.C. 729.52 provides in pertinent part:

"The funds received from the collection of sewer rentals under section 729.49 of the Revised Code shall be deposited weekly with the treasurer of the municipal corporation. Money so deposited shall be kept as a separate and distinct fund and shall be known as the sewer fund. * * * [Such] fund shall be used for the payment of the cost of the management, maintenance, operation, and repair of the sewerage system and sewage pumping, treatment, and disposal works. Any surplus in such fund may be used for the enlargement or replacement of the system and works, for construction and reconstruction of main and interceptor storm sewers, for the payment of the interest on any debt incurred for the construction thereof, and for the creation of a sinking fund for the payment of such debt, but shall not be used for the extension of a sewerage system to serve unsewered areas or for any other purpose * * *."

In his second, third and fifth propositions of law, appellant claims that the large amount of surplus in the fund demonstrates that the sewer rates are unjust and inequitable in violation of R.C. 729.49 because the charges exceed what is needed for the use of such services. He further argues that the surplus is being used for purposes other than those contemplated in R.C. 729.52, and that resultantly such surplus funds derived from the sewer fees amount to an illegal tax.

Appellant argued before the lower courts, and again here, that the law announced by this court in the case of Cincinnati v. Roettinger (1922), 105 Ohio St. 145, 153-154, 137 N.E. 6, 8, should apply. The Roettinger court stated:

" * * * While it is universally conceded that rates and charges not in excess of the amount necessary to meet such purposes are not classed as taxes, it does not follow that such excessive amount would not be classed as taxes. While it is quite well settled that charges for service and conveniences rendered and furnished by a municipality to its inhabitants are not taxes, yet where the charge is in excess of the entire cost of the service and convenience, the reason for the rule no longer prevails. * * * "

In response, Wooster has asserted throughout these proceedings that it has complied with R.C. 729.49 and 729.52 because the sewer funds are segregated from other funds, the funds are for the exclusive use of the sewer utility and the excess revenues are being held for future sewer projects within the city. As previously noted, a "prioritized list" of these future projects was compiled after several engineering studies and Wooster estimated that the total cost for these projects would exceed $13 million. Upon these points, the trial court stated in its conclusions of law in its judgment entry:

" * * * As established by the testimony of city administrators, the storm sewer fund is segregated from all other funds and is used to collect cash to pay for capital expenditures related to sewer projects. This procedure is codified in Sec. 6.06 of the Charter of the City of Wooster. The funds accumulated would then be spent on the prioritized sewer projects. There is absolutely no evidence that any funds would be diverted for general governmental expenses. And, in light of the prioritized list of sewer fund projects, as well as their estimated cost, the Court cannot say that the rate established by WOOSTER is unreasonable or unrelated to GRAINES' use of the system."

Upon this issue we are in agreement with the lower courts. As stated, municipalities in Ohio do have the authority pursuant to Section 4, Article XVIII of the Ohio Constitution to own and operate a utility. The trial court here determined that Wooster was empowered to "establish and maintain a public utility and charge the public for sewer services provided, provided that the rates are just and equitable."

The trial court found that there was "no question that storm sewer services have been provided to GRAINES's property and that the amount due and owing for the services is accurately reflected in the complaint. * * * " It further found that Ordinance No. 1985-34 "was passed under a valid exercise of the powers granted to Wooster City Council. * * * "

On the question of retained earnings the trial court cited Cincinnati v. Roettinger, supra. In that case, this court held in paragraph one of the syllabus as follows:

" * * * [S]urplus revenues derived from water rents may be applied only to repairs, enlargement or extension of the works, or of the reservoirs, and to the payment of the interest of any loan made for their construction, or for the creation of a sinking fund for the liquidation of the debt."

The trial court found in the instant case it was not faced with the issue of transfer of surplus funds, and Roettinger appeared to "sanction the practice of accumulating surplus funds so long as those funds are maintained in a segregated account and expended for a project related to the account. * * * " To support its position the trial court cited the following language from Roettinger:

" * * * That is to say, they [the authorities controlling the fund] 'may' either do nothing whatever with the surplus, which would automatically and necessarily operate to bring about a reduction of rates and charges, or maintain the rate and apply the surplus thus produced to extensions, new construction, or interest and principal of debts." Id. at 151, 137 N.E. at 8.

This court has held as syllabus law in State ex rel. Gordon v. Rhodes (1952), 158 Ohio St. 129, 48 O.O. 64, 107 N.E.2d 206, that:

"Where fees charged by a municipality for the parking of motor vehicles on and off the streets are not unreasonable in amount or designed to bring to the municipality revenue other than sufficient to cover the cost and expense of providing necessary parking facilities for such motor vehicles on and off the streets of the municipality, the charging and collection of such fees will not represent the levy of a tax." Id. at paragraph two of the syllabus.

From a study of the above cases it is clear that retained earnings in the storm drainage enterprise fund are proper as long as they are not diverted to purposes other than those authorized in Chapter 925 of the Wooster Codified Ordinances, relating to storm drainage. There has been no evidence introduced which even suggests an attempt on the part of Wooster City Council to divert any of these funds to any purpose other than it has provided for in Chapter 925 of the Wooster Codified Ordinances. In Section 925.03(c), the council has provided:

"Such [storm drainage] charges shall be paid monthly by those liable therefor and placed in a Storm Drainage Fund into which all of such charges so collected shall be deposited and kept as a fund to be used only for the purposes stated herein." (Emphasis added.)

In Himebaugh v. Canton (1945), 145 Ohio St. 237, 30 O.O. 471, 61 N.E.2d 483, this court held in paragraph one of the syllabus as follows:

"Water rates or charges or 'rents' collected by a municipality cannot be classed as taxes so long as their use is limited to the waterworks purposes enumerated in Section 3939, General Code; but if employed as a mere device to lessen the burden of taxation for general governmental purposes, such funds should be considered in the category of taxes."

The trial court here, in reviewing all of the materials before it upon the motions for summary judgment, determined that Wooster "has established a prioritized list of storm sewer projects to improve storm drainage in its corporate boundaries. * * * Wooster and its engineers estimated that the total cost of these projects would exceed $13 million. Eric Oswald, Wooster City Engineer, testified that construction of all of the projects identified on the prioritized list would take a number of years. * * * "

The trial court further determined the evidence before it showed that the sewer rates established by Wooster City Council are based upon 3,050 square feet of impervious surface being a "unit of service," and that this unit of service is applied uniformly to all improved properties in the city of Wooster.

The trial court found as a fact that "Oswald also testified that the parking lot on Graines' property (College Hills Shopping Center) contains a number of catch basins for storm water and that according to plans in the Engineering Office, the catch basins drain into the city's storm sewers. This particular storm sewer discharges into a natural stream, and this, in turn, flows into the Little Apple Creek, all of which are an integral part of the storm drainage system of the City of Wooster."

Also, the court...