Oakland County v. City of Detroit By and Through Bd. of Water Com'rs, Docket No. 30710

• Citation: 81 Mich.App. 308,265 N.W.2d 130
• Decision Date: 07 February 1978
• Docket Number: Docket No. 30710
• Parties: COUNTY OF OAKLAND, a Michigan Constitutional Corporation, Plaintiff-Appellant, v. The CITY OF DETROIT, a Michigan Municipal Corporation, By and Through its BOARD OF WATER COMMISSIONERS and the Detroit Metro Water Department, Defendants-Appellees.
• Court: Court of Appeal of Michigan (US)

Page 130

265 N.W.2d 130

81 Mich.App. 308

COUNTY OF OAKLAND, a Michigan Constitutional Corporation Plaintiff-Appellant, v. The CITY OF DETROIT, a Michigan Municipal Corporation, By and Through its BOARD OF WATER COMMISSIONERS and the Detroit Metro Water Department Defendants-Appellees.

Docket No. 30710.

Court of Appeals of Michigan.

Feb. 7, 1978.

Released for Publication April 26, 1978.

Fraser, Trebilcock, Davis & Foster by James A. Park, Lansing, Robert H. Fredericks II, Pontiac, for plaintiff-appellant.

Dyer, Meek, Ruegsegger & Bullard by Richard J. McClear, Detroit, for defendants-appellees.

Before R. B. BURNS, P. J., and ALLEN and MAHER, JJ.

PER CURIAM.

The County of Oakland appeals the trial court's determination that the sewage treatment costs adopted by the City of Detroit and charged Oakland County residents are fair, reasonable and properly related to the costs incurred for providing the services received. The court ruled that the City of Detroit could charge its resident customers $.75 per 1,000 cubic feet of sewage while charging suburban customers $.89 per 1,000 cubic feet. It found the $.14 differential a reasonable 7% Rate of return on investment.

Plaintiff Oakland County alleges that defendant city has no right to charge suburban customers more for sewage treatment than city residents are charged; and that the City of Detroit, by charging more to its suburban customers, has breached contracts with three sewer districts in Oakland County. The contracts call for an assessment of "reasonable rates".

The Michigan Constitution, Const.1963, art. 7, § 24, allows a city to extend its sewer treatment lines beyond city limits. M.C.L.A. § 117.4f(4); M.S.A. § 5.2079(4), part of the home rule act, allows a city to provide in its charter for the extension of sewer service beyond city limits and to collect charges for the cost of such service. A part of the charge a city collects may include a fair rate of return on the value of the property devoted to providing sewer service.

A city's sewage rate is presumed to be reasonable in the absence of a showing that it is capricious, arbitrary, or unreasonable. Detroit v. Highland Park, 326 Mich. 78, 39 N.W.2d 325 (1949).

At issue in the instant case is the classification made by the City of Detroit by which non-residents, unlike city residents, are charged an extra rate of return for sewage treatment. Plaintiff argues that the classification is unfair and that the extra charge constitutes an unreasonable rate.

The standards to be applied in evaluating the reasonableness of a municipality's system of classification are summarized in Land v. Grandville, 2 Mich.App. 681, 141 N.W.2d 370 (1966).

" '1. The equal-protection clause of the Fourteenth Amendment does not take from the State the power to classify in the adoption of police laws, but admits of the exercise of a wide scope of discretion in that regard, and avoids what is done only when it is without any reasonable basis, and therefore is purely arbitrary. 2. A classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety, or because in practice it results in some inequality. 3. When the classification in such a law is called in question, if any state of facts reasonably can be conceived that would sustain it, the existence of that state of facts at the time the law was enacted must be assumed. 4. One who assails the classification in such a law must carry the burden of showing that it does not rest upon any reasonable basis, but is essentially arbitrary.' " 2 Mich.App. at 690, 141 N.W.2d at 374.

Plaintiff contends that since it costs the same to treat the city's and the suburbs' sewage, the sewage rate should be the same for both and that since the rate is not the same the classification is unjust.

Costs attributable solely to sewage treatment and costs associated with the financing of the sewage treatment system are the same for city and suburbs. But to focus on these costs alone is to ignore other costs related to sewage treatment which the city incurs while the suburbs do not. The city supplies police and fire protection for the treatment plant. It faces the risk of tort liability arising out of the operation of the system. Because the water department pays no taxes, the city loses a large amount from its tax base. The suburbs, however, receive sewage treatment without having to devote any of their land to a tax free utility.

City areas with connection to the sewage treatment system have higher valuations than areas which do not have the utility. The city levies and collects taxes on this enhanced value. Suburban areas, not taxed by the city, receive the same benefits of enhanced value but bear no part of the additional burden. See Faxe v. Grandview, 48 Wash.2d 342, 294 P.2d 402 (1956); Town of Terrel Hills v. San Antonio, 318 S.W.2d 85 (Tex.Civ.App.1958).

Plaintiff suggests that when city taxpayers are not liable for the utility's revenue bonds, as is the case here, no rate difference should be allowed. That city taxpayers are not directly liable for the bonds is of little moment. Plaintiff's argument ignores the above mentioned indirect costs that the city residents must pay but from which their suburban counterparts are free. Detroit taxpayers must pay for fire and police protection of the system and must compensate for the utility's tax exemption by paying higher taxes.

Hence, the rate difference is justified. One could reasonably view the extra amount which the Oakland County residents pay directly as tantamount to the sums paid, indirectly, by City of Detroit residents.

Oakland County's objections based on the Revenue Bond Act, M.C.L.A. § 141.101 et seq.; M.S.A. § 5.2731 et seq., and on the Federal Water Pollution Control Act, 33 U.S.C.A. 1251 et seq., are not properly before this Court. Plaintiff failed to raise the issues at trial and is thus precluded from asserting it here. The function of an appellate court is restricted to the test of questions which, in the court below, have been raised and saved for review. Swartz v. Laurencelle, 371 Mich. 153, 123 N.W.2d 244 (1963). This is true even if the claim may be of some merit and even if it is a constitutional question. Falk v. Macomb County Civil Service Commission, 57 Mich.App. 134, 225 N.W.2d 713 (1974).

In any event, we would reject plaintiff's claim. The revenue bond act contains no limitation or directive as to what methods of developing rates may or shall be used by the governing body of the borrower. To determine what rates and charges can lawfully be fixed by a city, this Court defers to the Home Rule Act, M.C.L.A. § 117.4f(4); M.S.A. § 5.2079(4). This section of the act specifically provides that a municipality may fix "charges" for its sewage service and that such may include a fair rate of return.

As a substantive matter, the Federal Water Pollution Control Act does not apply in the instant case. Oakland County contends it is paying more than its proportionate share of the treatment costs, as the statute requires. Since the Water Pollution Control Act does not define treatment costs, we again defer to...