Covell v. City of Seattle

• Decision Date: 02 November 1995
• Docket Number: No. 61178-5,61178-5
• Court: Washington Supreme Court
• Parties: Libby COVELL and John Backus, and that class of persons and entities similarly situated, Appellants, v. The CITY OF SEATTLE, a municipal corporation, Defendant.

Page 874

127 Wn.2d 874

905 P.2d 324

Libby COVELL and John Backus, and that class of persons and

entities similarly situated, Appellants, v. The CITY OF SEATTLE, a municipal corporation, Defendant.

No. 61178-5.

Supreme Court of Washington,

En Banc.

Nov. 2, 1995.

Eric R. Hultman, Seattle, Hugh Spitzer, Seattle, Preston, Gates & Ellis, Elizabeth Thomas, Eric D. Lowney, Seattle, Amicus Curiae.

Stoel, Rives, Boley, Jones & Grey, William C. Severson, Seattle, for appellants.

Mark Sidran, Seattle City Attorney, Sandra L. Cohen and Arlene S. Ragozin, Asst. City Attys., Seattle, for respondent.

MADSEN, Justice.

Libby Covell and John Backus, individually and as representatives of the class of persons similarly situated, appeal from a judgment upholding the City of Seattle's residential street utility charge. The principal issue is whether this charge is an unconstitutionally imposed property tax.

The statutory authority for the residential street utility charge is RCW 82.80.040. This statute authorizes every city and town to

elect by action of its legislative authority to own, construct, maintain, operate, and preserve all or any described portion of its streets as a separate enterprise and facility, known as a street utility, and from time to time add other existing or new streets to that street utility, with full power to own, construct, maintain, operate, and preserve such streets.

RCW 82.80.040.

Any city or town electing to establish a street utility "may levy periodic charges for the use or availability of the streets in a total annual amount of up to fifty percent of the actual costs for maintenance, operation, and preservation of facilities under the jurisdiction of the street utility." RCW 82.80.050. Charges imposed on businesses are to be measured by the number of employees, while charges imposed on owners or occupants of residential property are to be measured by the number of housing units. The residential charge shall not exceed two dollars per month per housing unit. RCW 82.80.050.

The proceeds collected pursuant to this statute may be used for "transportation purposes only," including operation and preservation of streets and other transportation improvements, construction and expansion of streets and improvements, and development and implementation of public transit systems. RCW 82.80.070(1).

Pursuant to this enactment, the City of Seattle passed an ordinance establishing a street utility in 1992. The ordinance calls for the collection of a street utility charge for the use or availability of the streets. Seattle Municipal Code (SMC) § 21.100.030. A second ordinance sets the residential charge at $2 per month per housing unit for single family residences and $1.35 per month per housing unit for multiple family residences. SMC § 21.101.020. The ordinance also provides that the residential street utility charge may be included in the annual King County property tax statement. SMC § 21.101.070.

On June 8, 1993, Libby Covell and John Backus filed this class action seeking a declaratory judgment invalidating the City's residential street utility charge. They challenged the constitutionality of the charges and sought a refund thereof, an injunction against the further collection of charges, and attorney fees. The trial court entered an agreed order certifying the class of all residential property owners who have paid or are paying the City's residential street utility charge.

Both sides moved for summary judgment. The trial court upheld the street utility charge and granted the City's motion, thus dismissing the complaint. The residential property owners, hereafter referred to as the Appellants, then sought direct review, which this court granted pursuant to RAP 4.2(a). We find two issues dispositive.

I

Appellants argue that the street utility charge is an unconstitutional property tax which violates the uniformity requirement of Wash. Const. art. 7, § 1. That article provides that "[a]ll taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax.... All real estate shall constitute one class...." Tax uniformity requires both an equal tax rate and equality in valuing the property taxed. Boeing Co. v. King Cy., 75 Wash.2d 160, 165, 449 P.2d 404 (1969).

The City concedes that the charges would be unconstitutional if they were property taxes, since they are not imposed in a uniform manner based on the value of property. As the street utility is now configured, the tax rate on a $60,000 house is 40 times higher than the rate on a $2,400,000 mansion. The City maintains, however, that the charges are not taxes but utility charges or regulatory fees imposed pursuant to the City's police powers. The City argues that the charges also can be characterized as special assessments or excise taxes.

We turn first to the question of whether the street utility charge is a regulatory fee. ¹ Governments may impose regulatory fees under their general police powers. Margola Assoc. v. Seattle, 121 Wash.2d 625, 634-35, 854 P.2d 23 (1993); Wash. Const. art. 11, § 11. This court has recognized that these police powers are extensive.

Municipal police power is as extensive as that of the legislature, so long as the subject matter is local and the regulation does not conflict with general laws.... The scope of police power is broad, encompassing all those measures which bear a reasonable and substantial relation to promotion of the general welfare of the people.

Hillis Homes, Inc. v. Snohomish County, 97 Wash.2d 804 808, 650 P.2d 193 (1982) (Hillis Homes I ) (quoting State v. Seattle, 94 Wash.2d 162, 165, 615 P.2d 461 (1980)). On the other hand, local governments may tax only pursuant to specific legislative or constitutional authority. Margola, 121 Wash.2d at 634, 854 P.2d 23; Hillis Homes I, 97 Wash.2d at 809, 650 P.2d 193.

Whether a charge imposed by a governmental entity is a tax or a regulatory fee depends upon three factors which have been identified in prior cases of this court. The first factor to consider, as set forth in Hillis Homes I, is "whether the primary purpose of the county [or city] is to accomplish desired public benefits which cost money, or whether the primary purpose is to regulate...." Id., at 809, 650 P.2d 193 (quoting Haugen v. Gleason, 226 Or. 99, 104, 359 P.2d 108 (1961)). If the primary purpose of the charges is to raise revenue, rather than to regulate, then the charges are a tax. Id., at 810, 359 P.2d 108. Conversely, if the primary purpose is regulatory, "the charges are properly characterized as 'tools of regulation', rather than taxes." Teter v. Clark County, 104 Wash.2d 227, 239, 704 P.2d 1171 (1985). The second factor which this court considers is whether the money collected must be allocated only to the authorized regulatory purpose. See Hillis Homes, Inc. v. Public Utility District 1, 105 Wash.2d 288, 300, 714 P.2d 1163 (1986) (Hillis Homes II ); Teter, 104 Wash.2d at 233-34, 704 P.2d 1171. The last inquiry is whether there is a direct relationship between the fee charged and the service received by those who pay the fee or between the fee charged and the burden produced by the fee payer. Id., at 232, 704 P.2d 1171; see also Hillis Homes II, 105 Wash.2d at 301, 714 P.2d 1163. Where such a relationship exists, then the charge may be deemed a regulatory fee even though the charge is not individualized according to the benefit accruing to each fee payer or the burden produced by the fee payer. Id., at 301, 714 P.2d 1163.

Appellants contend that the charges imposed here must be regarded as taxes when examined under the analysis set forth in our cases from which each of the factors above derive. We will begin, therefore, by examining the relevant case law to determine whether the street utility charges constitute an exercise of the City's police power to impose regulatory fees or its statutory authority to tax.

Turning first to Hillis Homes I, Appellants argue that, like the development fees imposed in that case, the primary purpose of the utility fees here is to "accomplish desired public benefits which cost money ..." and not to regulate any activity or entity. Hillis Homes I, 97 Wash.2d at 809, 650 P.2d 193 (quoting Haugen v. Gleason, 226 Or. 99, 104, 359 P.2d 108 (1961)). At issue in Hillis Homes I was the validity of county ordinances imposing charges on new subdivisions to pay for services such as parks, schools, roads, and fire protection. Id., at 806, 650 P.2d 193. The fees collected were to be deposited into special accounts and their use restricted to improvements that would benefit the geographic area from which payment was made. The court held that although the payments were characterized as fees, the terms of the ordinances clearly provided that the fees were to be applied to offset the cost of providing specified services and made no provision for the regulation of residential developments. Id., at 810, 650 P.2d 193. Thus, the court concluded that the fees were actually taxes, since their primary purpose was to raise money rather than regulate subdivisions. Since the Legislature had not authorized such a tax, it was invalid. Id., at 810, 650 P.2d 193.

We agree that there are strong similarities between the taxes imposed in Hillis Homes I and the street utility charges under challenge here. Although there is language in the ordinances requiring the adoption of a transportation plan along with a funding plan, most of the regulatory language is devoted to fiscal planning rather than toward the type of service or benefit for those who pay fees. One commentary demonstrates this emphasis in citing a key advantage of street utilities: "A street utility provides a reliable and predictable source of funding for planning purposes and for the repayment of loans used to pay for up-front costs of major construction and maintenance programs." Municipal Research & Services Center, The Washington State Street...