BILLINGS – Six rate payers are suing to stop the city of Billings from imposing franchise fees on water, sewer and garbage services that are directed to the city’s general fund.
The six plaintiffs are alleging in a suit filed in Yellowstone County District Court that the fees amount to an illegal sales tax designed to raise revenue for the city. They are asking Judge Mary Jane Knisely to certify the suit as class action on behalf of 30,000 Billings rate payers, the plaintiffs stated In a Thursday press release.
The six plaintiffs are Terry Houser, Terry Odegard, state Sen. Roger Webb, Mae Woo and Kathryn and Thomas Zurbuchen. All are Billings residents.
The city collected $2.3 million in franchise fees in 2017, which were transferred to the general fund to pay for parks, police, fire and other services. The city charged a 4 percent fee for water, 4 percent for sewer and 5 percent for garbage disposal.
The fees are typically tacked on top of the cost of the service. According to Montana state law, a franchise fee is the costs a government or business can impose for a public service as a privilege of its valuable property right. The fees are limited by state law to have a direct relationship to the service.
"These illegal sales taxes aren’t being used for a special fund for water and sewer services," said Matthew Monforton, one of the attorneys for the six residents. "They’re being put into the general fund so they can pay for other things. Whether they’re called franchise fees or not doesn’t matter. If it looks like a tax, and gets yanked out of your pocket like a tax, then under state law, it’s a tax."
The plaintiffs cited a 2003 Montana Supreme Court decision that struck down a similar franchise fee that Billings tried to collect on "utility services" provided by Montana Dakota Utilities, Montana Power and Yellowstone Valley Electric.
The plaintiffs said they first reached out to the city about the current matter in August 2017. They agreed to negotiate a settlement until this month.
They said the city rejected their offer to forego the suit seeking a refund of past franchise fees in exchange for the city killing future franchise fees.
“None of us wanted to hurt our City financially by forcing the City to repay millions of illegally collected taxes,” Tom Zurbuchen said in a statement. “We just wanted our great City to conduct its business according to established law. We were ignored as individuals.”
"For this next year, they’ve taken it out of the budget, but there’s nothing preventing the city council from adding back in when the legal pressures are off the city," Monforton said. "The problem is the City Council has never agreed to rescind its ability to impose that sales tax at a later date. And we want to make sure that there’s a court order in place that protects the residents of the city from this ever happening again."
The city attorney, Brent Brooks, said in a message to Q2 News that the city and its outside counsel, Moulton Bellingham, are reviewing the suit. He added that the city does not have franchise fees included in the budget for the upcoming fiscal year.
In April of 2017, Councilman Larry Brewster said the franchise fees are unlawful.
Tonight, Brewster told Q2 that if revenue from franchise fees goes into the general fund for a purpose other than the service, then he believes they are illegal.
Reporter David Jay contributed to this story.