The Duty To ServeThe Duty To Serve

The Obligation of theThe Obligation of the

Community & State to Serve Community & State to Serve ItsIts

ResidentsResidents

OverviewOverviewIf a city creates a utility district, does it If a city creates a utility district, does it actually have an obligation to serve all actually have an obligation to serve all residents in the district?residents in the district?

Can a utility district force its services on Can a utility district force its services on the residents?the residents?

Robinson V Boulder, 1976Robinson V Boulder, 1976Appellees (landowners) sought to subdivide Appellees (landowners) sought to subdivide approximately 79 acres of land in the Gunbarrel approximately 79 acres of land in the Gunbarrel Hill area northeast of Boulder and outside of its Hill area northeast of Boulder and outside of its city limits. The landowners proposed a residential city limits. The landowners proposed a residential development in conformity with its county rural development in conformity with its county rural residential (RR) zoning.residential (RR) zoning.

CITY OF BOULDER

Gunbarrel Hill Subdivision

ActionsActionsBoulder County, before it would grant Boulder County, before it would grant final approval to Gunbarrel Hill, final approval to Gunbarrel Hill, requires the developer to seek sewer requires the developer to seek sewer and water services from the City of and water services from the City of BoulderBoulder

Boulder operates a water and sewer Boulder operates a water and sewer utility system. In the mid 1960's it utility system. In the mid 1960's it defined an area beyond its corporate defined an area beyond its corporate limits, including the subject property, limits, including the subject property, for which it intended to be the only for which it intended to be the only water and sewer servicing agency.water and sewer servicing agency.

Boulder contracted with and provided Boulder contracted with and provided water and sewer service to the Boulder water and sewer service to the Boulder Valley Water and Sanitation District Valley Water and Sanitation District which is located within the service area. which is located within the service area. Gunbarrel Hill is immediately adjacent Gunbarrel Hill is immediately adjacent to the district boundaries, but is still to the district boundaries, but is still within the districtwithin the district

The District & The Plan AreaThe District & The Plan Area

CITY OF BOULDER

Gunbarrel Hill Subdivision

Boulder Valley Water and Sanitation District

Gunbarrel Hill is Shot DownGunbarrel Hill is Shot DownThe landowners apply to the district for inclusion, The landowners apply to the district for inclusion, and the application was approved by the District and the application was approved by the District however, Boulder disapproved the action on the however, Boulder disapproved the action on the grounds that the landowners' proposal was grounds that the landowners' proposal was inconsistent with the Boulder Valley inconsistent with the Boulder Valley Comprehensive Plan and various aspects of the Comprehensive Plan and various aspects of the city's interim growth policy.city's interim growth policy.

The owners of Gunbarrell Hill file suit with the The owners of Gunbarrell Hill file suit with the district court on the basis that Boulder, who district court on the basis that Boulder, who controlled the sewer and water district, had a controlled the sewer and water district, had a duty to serve all seekers if they met the utility duty to serve all seekers if they met the utility standardsstandards

The Trial CourtThe Trial CourtIn terms of supplying water and sewer services, it In terms of supplying water and sewer services, it must treat all members of the public within its must treat all members of the public within its franchise area alike -- including these franchise area alike -- including these landowners. The court held that Boulder had landowners. The court held that Boulder had unjustly discriminated against Gunbarrel Hill by unjustly discriminated against Gunbarrel Hill by denying them service, while having previously denying them service, while having previously approved service extensions to neighboring approved service extensions to neighboring residential and industrial developmentsresidential and industrial developments

The court concluded that Boulder can only refuse The court concluded that Boulder can only refuse to extend its service to landowners for utility-to extend its service to landowners for utility-related reasons. Growth control and land use related reasons. Growth control and land use planning considerations do not suffice.planning considerations do not suffice.

Boulder AppealsBoulder Appeals

On appeal Boulder argues that its service program is On appeal Boulder argues that its service program is not a public utilitynot a public utility

Boulder contends that it has never held itself out as Boulder contends that it has never held itself out as being ready to serve all members of the public to the being ready to serve all members of the public to the extent of its capacityextent of its capacity

Boulder argues that its decision to deny the extension of Boulder argues that its decision to deny the extension of services to the landowners in this case was based on services to the landowners in this case was based on the proposed development's noncompliance with the proposed development's noncompliance with growth projections outlined in the comprehensive plan. growth projections outlined in the comprehensive plan. In the event of an alleged conflict between Boulder's In the event of an alleged conflict between Boulder's public utility and land use planning duties the master public utility and land use planning duties the master plan should rule and be controllingplan should rule and be controlling

The Appeals Court Finds That:The Appeals Court Finds That:Boulder's total control and dominance as the Boulder's total control and dominance as the exclusive water and sewer servicing agency in exclusive water and sewer servicing agency in the Gunbarrel area is demonstrated by the fact the Gunbarrel area is demonstrated by the fact that Boulder County planning authorities, that Boulder County planning authorities, routinely and in compliance with the city's routinely and in compliance with the city's agreement, refer area landowners in need of such agreement, refer area landowners in need of such services to Boulderservices to Boulder

The course of conduct followed by Boulder in The course of conduct followed by Boulder in providing water and sewer services to this area providing water and sewer services to this area indicates that it has held itself out to be the one indicates that it has held itself out to be the one and only such servicing agency in the Gunbarrel and only such servicing agency in the Gunbarrel area.area.

ConclusionConclusionThe Court holds that Boulder is the sole and The Court holds that Boulder is the sole and exclusive provider of water and sewer services in exclusive provider of water and sewer services in the area surrounding the subject property, it is a the area surrounding the subject property, it is a public utility. As such, it holds itself out as ready public utility. As such, it holds itself out as ready and able to serve those in the territory who and able to serve those in the territory who require the service.require the service.

There is no utility related reason, such as There is no utility related reason, such as insufficient water, preventing it from extending insufficient water, preventing it from extending these services to the landowners. Unless such these services to the landowners. Unless such reasons exist, Boulder cannot refuse to serve the reasons exist, Boulder cannot refuse to serve the people in the subject area.people in the subject area.

Dateline Builders v City of Santa Dateline Builders v City of Santa Rosa, 1983Rosa, 1983

Dateline Builders held an option on a Dateline Builders held an option on a parcel of real property located beyond the parcel of real property located beyond the limits of the city boundary, on Todd Road limits of the city boundary, on Todd Road in an undeveloped rural area known as the in an undeveloped rural area known as the Santa Rosa Plain. Santa Rosa Plain.

Todd Road

Dateline Property

City of Santa Rosa

The Santa Rosa PlainThe Santa Rosa Plain

AgreementsAgreementsThe City and the Board of County Commissions of The City and the Board of County Commissions of Santa Rosa County entered into a cooperative Santa Rosa County entered into a cooperative agreement to prevent scatter development that is agreement to prevent scatter development that is not served by city facilities and utilitiesnot served by city facilities and utilities

New subdivisions would have to be consistent New subdivisions would have to be consistent with the city’s standards and regulationswith the city’s standards and regulations

The city would allow new developments to The city would allow new developments to connect to their facilities if they furthered the connect to their facilities if they furthered the goals of compact development and contributed to goals of compact development and contributed to orderly and efficient utility serviceorderly and efficient utility service

Dateline Applies for SubdivisionDateline Applies for SubdivisionBuilders wanted to subdivide and develop its Todd Builders wanted to subdivide and develop its Todd Road property as a single family moderate and low Road property as a single family moderate and low income home tract. It was zoned for agricultural useincome home tract. It was zoned for agricultural useThe Todd Road property was not contiguous with The Todd Road property was not contiguous with the City but was contiguous to one of the City's the City but was contiguous to one of the City's trunk sewer lines. Builders had obtained FHA trunk sewer lines. Builders had obtained FHA approval for the project under a loan program for approval for the project under a loan program for homes in communities of less than 10,000 homes in communities of less than 10,000 population.population.The sewer hookup was not a condition for the The sewer hookup was not a condition for the availability of the federal funds. Builders planned to availability of the federal funds. Builders planned to build 66 single family homes and submitted a build 66 single family homes and submitted a tentative subdivision map to the Countytentative subdivision map to the County

The County Gives Conditional The County Gives Conditional ApprovalApproval

The County approved the tentative map but The County approved the tentative map but attached 24 conditions, including sewer hookup attached 24 conditions, including sewer hookup approval from the City and rezoning of the approval from the City and rezoning of the property to R-1 residential use by the County.property to R-1 residential use by the County.

For a project of the size contemplated by For a project of the size contemplated by Builders, the County required a sewer system Builders, the County required a sewer system rather than septic tanks. After that date, Builders rather than septic tanks. After that date, Builders never performed any of these conditions nor took never performed any of these conditions nor took any steps to do so.any steps to do so.

The City Shoots It DownThe City Shoots It DownDatelines’ application for a certificate was reviewed Datelines’ application for a certificate was reviewed by the City for consistency with its plan, and by the City for consistency with its plan, and development policies and standardsdevelopment policies and standards

The City determined that Builders' proposed The City determined that Builders' proposed development in an agricultural area well beyond the development in an agricultural area well beyond the City boundaries represented "leap-frog“ development City boundaries represented "leap-frog“ development inconsistent with the City's plans, policies and inconsistent with the City's plans, policies and standardsstandards

The City denied the request; builders never submitted The City denied the request; builders never submitted a subsequent or renewed application for a certificate.a subsequent or renewed application for a certificate.

Dateline AppealsDateline AppealsDateline appealed to the City againDateline appealed to the City again

Nope, says the City – “the proposal is not Nope, says the City – “the proposal is not consistent with the requirements of our consistent with the requirements of our plan”plan”

We have the capacity – but you can’t have We have the capacity – but you can’t have itit

You are not in our district and we do not You are not in our district and we do not have to extend it to youhave to extend it to you

Dateline Fights BackDateline Fights Back

The Trial Court Hears the CaseThe Trial Court Hears the CaseThe City was not a public utility charged with providing The City was not a public utility charged with providing sewer connections to Builders' proposed developmentsewer connections to Builders' proposed development

The City's urban development strategy in the The City's urban development strategy in the implementation of its general plan, development policies implementation of its general plan, development policies and standards involved fundamental policy decisions in an and standards involved fundamental policy decisions in an exercise of the police powerexercise of the police power

As a result of Builders' failure to perform any of the As a result of Builders' failure to perform any of the conditions, Builders was never in a position to receive any conditions, Builders was never in a position to receive any benefit from an approval of its application to the City for a benefit from an approval of its application to the City for a certificatecertificate

The City acted reasonably in determining that Builder’s The City acted reasonably in determining that Builder’s proposed development was inconsistent with its adopted proposed development was inconsistent with its adopted land use plan, policies and then denying the certificateland use plan, policies and then denying the certificate

The Appeals CourtThe Appeals CourtDateline argues that the City was acting in its Dateline argues that the City was acting in its proprietary capacity as a public utility and was proprietary capacity as a public utility and was the only provider of utility services for the Santa the only provider of utility services for the Santa Rosa Plain, the City's refusal to grant the Rosa Plain, the City's refusal to grant the certificate was arbitrary and constituted unjust certificate was arbitrary and constituted unjust and unlawful discrimination as a matter of lawand unlawful discrimination as a matter of law

And the City had no power to act beyond its And the City had no power to act beyond its boundariesboundaries

And even more – that Dateline was a third party And even more – that Dateline was a third party to a contract to receive sewer and water and that to a contract to receive sewer and water and that the City’s refusal constitute breach of contractthe City’s refusal constitute breach of contract

The Appeals Court’s AnalysisThe Appeals Court’s AnalysisDateline is not a third party!Dateline is not a third party!

The Court says that: “We do not think either the The Court says that: “We do not think either the City nor the County intended to compensate a City nor the County intended to compensate a developer who does not own the property he developer who does not own the property he wishes to subdivide for damages that are at best wishes to subdivide for damages that are at best speculative because he was not granted a permit speculative because he was not granted a permit to hook up to the sewer system. The “Plains to hook up to the sewer system. The “Plains Agreement”: was made for the public as a whole.Agreement”: was made for the public as a whole.

The Next FindingThe Next FindingDateline is not in Santa Rosa’s district – however, Dateline is not in Santa Rosa’s district – however, the City has extended services to developments the City has extended services to developments that met its planning criteria in the pastthat met its planning criteria in the past

Therefore, under the Plains Agreement, the City Therefore, under the Plains Agreement, the City must extend services if the development meets must extend services if the development meets all the approvals of the County and Cityall the approvals of the County and City

Dateline did not cut it. They neither complied with Dateline did not cut it. They neither complied with the conditions of the county – and they were the conditions of the county – and they were classified as “leap frog” developmentclassified as “leap frog” development

ConclusionConclusionThe City did not violate its cooperative The City did not violate its cooperative utility agreementutility agreement

It acted reasonably to deny an extension It acted reasonably to deny an extension of services to an uncooperative and of services to an uncooperative and undeserving developerundeserving developer

Dateline Provides Its Own Water Service

First Peoples Bank of New Jersey v First Peoples Bank of New Jersey v Medford Township, 1991Medford Township, 1991

BackgroundBackgroundIn the mid-1970s Medford experienced rapid In the mid-1970s Medford experienced rapid land use development that overburdened the land use development that overburdened the municipal sewer system. Consequently, the New municipal sewer system. Consequently, the New Jersey Department of Environmental Protection Jersey Department of Environmental Protection imposed a sewer connection ban. imposed a sewer connection ban.

Medford's initial response was to adopt a "Flow Medford's initial response was to adopt a "Flow Equalization Plan," which involved the use of Equalization Plan," which involved the use of holding tanks to store effluent during peak holding tanks to store effluent during peak periods.periods.

By 1983, the sewer plant was again at its limit. By 1983, the sewer plant was again at its limit. The City was under an order to increase the The City was under an order to increase the capacity of its pumping stationcapacity of its pumping station

Land use development came to a haltLand use development came to a halt

Medford Twsp. Pop. 1940 - 2000Medford Twsp. Pop. 1940 - 2000

0

5000

10000

15000

20000

25000

1940 1950 1960 1970 1980 1990 2000

New OrdinancesNew OrdinancesMedford Townships passes ordinances to Medford Townships passes ordinances to place a moratorium on developmentplace a moratorium on developmentIt also passes another ordinance that allows It also passes another ordinance that allows the Township to allocate new sewer capacity the Township to allocate new sewer capacity before the plant expansion is finishedbefore the plant expansion is finishedA land owner may apply and pay for advance A land owner may apply and pay for advance sewer permits – the number of permits would sewer permits – the number of permits would equal the number of lots that could be equal the number of lots that could be developed under the present zoningdeveloped under the present zoningThe fees from these advance sewer permits The fees from these advance sewer permits would help pay for the new expansionwould help pay for the new expansion

About The OrdinancesAbout The OrdinancesIf you buy the permits now, you get a deal! If you wait, the If you buy the permits now, you get a deal! If you wait, the cost goes up annuallycost goes up annually

The township reserves the right to “not honor the permits” The township reserves the right to “not honor the permits” if it is in the best interest of the publicif it is in the best interest of the public

In that case, the township has to repay the permit holderIn that case, the township has to repay the permit holder

Well guess what?Well guess what?

The township sent out warnings to all developers who had The township sent out warnings to all developers who had not purchased permits telling them to get with it because not purchased permits telling them to get with it because they were again reaching processing capacity based on the they were again reaching processing capacity based on the number of permits issuednumber of permits issued

Then What HappensThen What HappensA large land owner buys all the remaining unsold A large land owner buys all the remaining unsold permits for a total of $3.3 million – and wants permits for a total of $3.3 million – and wants moremore

The Township says we have issued all the The Township says we have issued all the advance permits that we can and imposes advance permits that we can and imposes another permit moratoriumanother permit moratorium

About 2 days later the Peoples Bank applies for About 2 days later the Peoples Bank applies for several permitsseveral permits

The bank goes to district court to attack the The bank goes to district court to attack the validity of the ordinancevalidity of the ordinance

The Judicial ReviewThe Judicial ReviewThe trial court found for the Township saying that The trial court found for the Township saying that they had acted reasonably within their authoritythey had acted reasonably within their authority

The Bank says – no they didn’t and appealsThe Bank says – no they didn’t and appeals

The Bank argues that:The Bank argues that:– The township should have saved some permits and sold The township should have saved some permits and sold

so many to the “big developerso many to the “big developer– The Bank contends that the ordinance does not contain The Bank contends that the ordinance does not contain

adequate standards to guide the municipality in adequate standards to guide the municipality in determining whether to exercise its option to determining whether to exercise its option to repurchase.repurchase.

StandardsStandardsThe court found that the challenged ordinance, The court found that the challenged ordinance, although not exquisitely drafted, contains although not exquisitely drafted, contains sufficient standards to withstand the Bank's sufficient standards to withstand the Bank's challengechallenge

These standards require the Township to give six These standards require the Township to give six months' written notice to a permit owner of the months' written notice to a permit owner of the Township's intent to repurchaseTownship's intent to repurchase

When deciding whether to repurchase a permit, When deciding whether to repurchase a permit, the Township acted by resolutions adopted after the Township acted by resolutions adopted after discussions at public meetingsdiscussions at public meetings..

ConclusionConclusionThis is not a case in which a municipality has This is not a case in which a municipality has rigidly refused to construct needed sewer rigidly refused to construct needed sewer capacity.capacity.

The record does not support an inference that The record does not support an inference that Medford's refusal "is the result of a determination Medford's refusal "is the result of a determination not to discharge a plain duty”not to discharge a plain duty”

Because of a municipality's greater familiarity Because of a municipality's greater familiarity with local conditions and expertise in constructing with local conditions and expertise in constructing sewer capacity, a court should supplant the sewer capacity, a court should supplant the exercise of municipal discretion only in a exercise of municipal discretion only in a compelling case.compelling case.

Differential RatesDifferential RatesCan a city control Can a city control growth and timing by growth and timing by charging differential charging differential rates for water and rates for water and sewer service to those sewer service to those located outside it located outside it service district?service district?

Must rates be Must rates be uniform?uniform?

WE ARE BACK IN KANSAS AGAIN

Mitchell v City of Wichita, 2000Mitchell v City of Wichita, 2000This is a class action suit brought by plaintiffs This is a class action suit brought by plaintiffs David Mitchell and Nolan O. Luke challenging the David Mitchell and Nolan O. Luke challenging the authority of the City of Wichita, Kansas to charge authority of the City of Wichita, Kansas to charge users of its water and sewer utility who live users of its water and sewer utility who live outside the city limits a fee for water and sewer outside the city limits a fee for water and sewer service which is 55% higher than the fee charged service which is 55% higher than the fee charged the users within the city limits. the users within the city limits.

The plaintiffs' challenge is to both the authority of The plaintiffs' challenge is to both the authority of the City to impose such a surcharge and to the the City to impose such a surcharge and to the reasonableness of the City's 55% surcharge. reasonableness of the City's 55% surcharge.

BackgroundBackgroundBasic HistoryBasic History– In 1957, the City acquired the Wichita Water Company, In 1957, the City acquired the Wichita Water Company,

a privately owned company that had previously a privately owned company that had previously provided water services to the city as well as provided water services to the city as well as nonresidents surrounding the city. nonresidents surrounding the city.

– Prior to 1957, the Wichita Water Company charged its Prior to 1957, the Wichita Water Company charged its residential water customers who lived outside the city residential water customers who lived outside the city limits of Wichita a 100% surcharge.limits of Wichita a 100% surcharge.

– After the City's acquisition of the Wichita Water After the City's acquisition of the Wichita Water Company in 1957, the City reduced the surcharge for Company in 1957, the City reduced the surcharge for nonresidents to 40%. Sometime between 1974 to 1989, nonresidents to 40%. Sometime between 1974 to 1989, this surcharge was increased from 40% to 55%. The this surcharge was increased from 40% to 55%. The surcharge has remained at 55% since that time. surcharge has remained at 55% since that time.

Mitchell and Nolan LukeMitchell and Nolan Luke

The Lukes’ Own A Transportation CompanyThe Lukes’ Own A Transportation Company

Statutory Authority In KansasStatutory Authority In KansasBoth the trial court and the Supreme Court reviewed Both the trial court and the Supreme Court reviewed the statutes authorizing municipalities to set rates the statutes authorizing municipalities to set rates and charge for water servicesand charge for water servicesSince this is a straight forward examination, the Since this is a straight forward examination, the courts conclude that since there was nothing courts conclude that since there was nothing included in the statues to prohibit differential rates – included in the statues to prohibit differential rates – then the legislative silence indicated that this then the legislative silence indicated that this decision was up to the local rate making authoritydecision was up to the local rate making authority"No person, firm, corporation, or association, nor any "No person, firm, corporation, or association, nor any city department, shall be allowed free use of water, city department, shall be allowed free use of water, nor shall there be discrimination among water users nor shall there be discrimination among water users of like classes as to rates, and rebates in rates shall of like classes as to rates, and rebates in rates shall never be allowed to any person, firm or corporation never be allowed to any person, firm or corporation or city department except as an inducement to or city department except as an inducement to prompt payment of water rates." prompt payment of water rates."

SO, What About Discrimination SO, What About Discrimination and the Duty To Serve?and the Duty To Serve?

The fact that the rates charged within the city are The fact that the rates charged within the city are different than those charged outside the city does different than those charged outside the city does not of itself characterize the rates as not of itself characterize the rates as discriminatorydiscriminatory

Although a municipality may charge higher rates Although a municipality may charge higher rates for customers living outside the city limits, rates for customers living outside the city limits, rates must still be reasonable, and persons and must still be reasonable, and persons and corporations dependent on the utilities are corporations dependent on the utilities are entitled to judicial protection against rates when entitled to judicial protection against rates when they become unreasonable. they become unreasonable.

What Is Reasonable?What Is Reasonable?What is a fair and reasonable rate comprehends What is a fair and reasonable rate comprehends more than just enough revenue to get by. Sound more than just enough revenue to get by. Sound fiscal practice would seem to dictate that fiscal practice would seem to dictate that provision be made for future contingencies and provision be made for future contingencies and that reasonable reserves be set up to provide for that reasonable reserves be set up to provide for the repair, improvement and replacement of the the repair, improvement and replacement of the physical plant and facilities comprising a water physical plant and facilities comprising a water distribution system. distribution system. The rule generally followed is The rule generally followed is that in the absence of statutory restrictions, a that in the absence of statutory restrictions, a municipal corporation which operates a water municipal corporation which operates a water system has authority to charge such rates as will system has authority to charge such rates as will yield a fair profit, so long as the rate is not yield a fair profit, so long as the rate is not disproportionate to the service rendered." disproportionate to the service rendered."

ConclusionConclusionThe Supreme Court concluded that the only measure The Supreme Court concluded that the only measure they could use was whether or not the differential they could use was whether or not the differential rate was excessive or confiscatoryrate was excessive or confiscatory

The Court notes that water rates 100% higher than The Court notes that water rates 100% higher than for district residents are common – certainly 55% is for district residents are common – certainly 55% is not out of boundsnot out of bounds

This is especially true when district residents are This is especially true when district residents are charged with maintenance and upgrade to the water charged with maintenance and upgrade to the water plant while out of district residents cannot be taxed plant while out of district residents cannot be taxed for these improvementsfor these improvements

The burden was on the Lukes to show that the rates The burden was on the Lukes to show that the rates were excessive and unreasonable – too bad – so sad!were excessive and unreasonable – too bad – so sad!

Solid Waste & Interstate Solid Waste & Interstate CommerceCommerce

Oregon Waste Systems, Inc v Oregon Waste Systems, Inc v Environmental Quality Control, 1994Environmental Quality Control, 1994

Does an ordinance by the State of Oregon Does an ordinance by the State of Oregon imposing a $2.25 per ton surcharge on the imposing a $2.25 per ton surcharge on the in-state disposal of solid waste generated in-state disposal of solid waste generated in other States and an $0.85 per ton fee in other States and an $0.85 per ton fee on the disposal of waste generated within on the disposal of waste generated within Oregon violate the neutrality provision of Oregon violate the neutrality provision of the Commerce Clause?the Commerce Clause?

Key WordsKey Words– Interstate commerceInterstate commerce– Commerce ClauseCommerce Clause– Duty to ServeDuty to Serve

The BackgroundThe BackgroundLike other States, Oregon comprehensively Like other States, Oregon comprehensively regulates the disposal of solid wastes within its regulates the disposal of solid wastes within its borders. The Oregon Department of borders. The Oregon Department of Environmental Quality oversees the State's Environmental Quality oversees the State's regulatory scheme by developing and executing regulatory scheme by developing and executing plans for the management, reduction, and plans for the management, reduction, and recycling of solid wastesrecycling of solid wastes To fund these and related activities, Oregon levies To fund these and related activities, Oregon levies a wide range of fees on landfill operators. In 1989, a wide range of fees on landfill operators. In 1989, the Oregon Legislature imposed an additional fee, the Oregon Legislature imposed an additional fee, called a "surcharge," on "every person who called a "surcharge," on "every person who disposes of solid waste generated out-of-state in a disposes of solid waste generated out-of-state in a disposal site or regional disposal sitedisposal site or regional disposal site

The FeeThe FeeThe amount of that surcharge was left to the The amount of that surcharge was left to the Environmental Quality Commission to determine Environmental Quality Commission to determine through rulemaking, but the legislature did require through rulemaking, but the legislature did require that the resulting surcharge "be based on the costs to that the resulting surcharge "be based on the costs to the State of Oregon and its political subdivisions of the State of Oregon and its political subdivisions of disposing of solid waste generated out-of-state which disposing of solid waste generated out-of-state which are not otherwise paid for" under specified statutes.are not otherwise paid for" under specified statutes.

The Commission set the surcharge on out-of-state The Commission set the surcharge on out-of-state waste at $2.25 per ton. In conjunction with the out-of-waste at $2.25 per ton. In conjunction with the out-of-state surcharge, the legislature imposed a fee on the state surcharge, the legislature imposed a fee on the in-state disposal of waste generated within Oregon. in-state disposal of waste generated within Oregon. The in-state fee, capped by statute at $0.85 per ton , The in-state fee, capped by statute at $0.85 per ton , is considerably lower than the fee imposed on waste is considerably lower than the fee imposed on waste from other States.from other States.

The ChallengeThe ChallengeOregon Waste Systems (OWS) is Oregon Waste Systems (OWS) is a private contractor who owns a private contractor who owns and operates a solid waste and operates a solid waste landfill in Gilliam County, Oregonlandfill in Gilliam County, Oregon

OWS accepts in and out of state OWS accepts in and out of state wastewaste

OWS also has a 20 year contract OWS also has a 20 year contract with Clark County, Washington to with Clark County, Washington to transport (by barge) waste to transport (by barge) waste to their facilitytheir facility

OWS challenges the OWS challenges the administrative rules establishing administrative rules establishing the higher out-of-state surcharge the higher out-of-state surcharge as contrary to the Commerce as contrary to the Commerce Clause of the U.S. ConstitutionClause of the U.S. Constitution

What Is The Commerce What Is The Commerce Clause?Clause?

““Congress shall have the Power to regulate Congress shall have the Power to regulate commerce among the several States”commerce among the several States”The Clause has always been interpreted as The Clause has always been interpreted as a negative regulatory power that denies a negative regulatory power that denies the States the power to unjustifiably the States the power to unjustifiably discriminate against or burden the discriminate against or burden the interstate flow of commerceinterstate flow of commerceJustice Cardozo explainedJustice Cardozo explained::– under a truly compensatory tax scheme, "the under a truly compensatory tax scheme, "the

stranger from afar is subject to no greater burdens stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller as a consequence of ownership than the dweller within the gates. The one pays upon one activity or within the gates. The one pays upon one activity or incident, and the other upon another, but the sum incident, and the other upon another, but the sum is the same when the reckoning is closed.is the same when the reckoning is closed.

AnalysisAnalysisThe Oregon Court of Appeals and the Supreme The Oregon Court of Appeals and the Supreme Court of Oregon upheld the differential fee – theyCourt of Oregon upheld the differential fee – they– Approved the scheme as a “compensatory tax” necessary to Approved the scheme as a “compensatory tax” necessary to

make out-of-state shippers pay their fair share of cost of waste make out-of-state shippers pay their fair share of cost of waste disposal in their statedisposal in their state

The U.S. Supreme Court notes that The U.S. Supreme Court notes that " "It was not " "It was not the purpose of the commerce clause to relieve the purpose of the commerce clause to relieve those engaged in interstate commerce from their those engaged in interstate commerce from their just share of state tax burden[s]." Nevertheless, just share of state tax burden[s]." Nevertheless, one of the central purposes of the Clause was to one of the central purposes of the Clause was to prevent States from "exacting more than a just prevent States from "exacting more than a just share" from interstate commerceshare" from interstate commerce

So What Is Justified?So What Is Justified?To justify a charge on interstate commerce To justify a charge on interstate commerce as a compensatory tax – a state must:as a compensatory tax – a state must:– "identify the intrastate tax burden for which the State "identify the intrastate tax burden for which the State

is attempting to compensate." Once that burden has is attempting to compensate." Once that burden has been identified, the tax on interstate commerce must been identified, the tax on interstate commerce must bebe

– Shown roughly to approximate - but not exceed - the Shown roughly to approximate - but not exceed - the amount of the tax on intrastate commerce. Finallyamount of the tax on intrastate commerce. Finally,,

– The events on which the interstate and intrastate taxes The events on which the interstate and intrastate taxes are imposed must be "substantially equivalent"; that is, are imposed must be "substantially equivalent"; that is, they must be sufficiently similar in substance to serve they must be sufficiently similar in substance to serve as mutually exclusive "prox[ies]" for each otheras mutually exclusive "prox[ies]" for each other

The Fatal FlawThe Fatal FlawThe Supreme Court notes that the scheme allows The Supreme Court notes that the scheme allows out of state shippers to bear the full and real cost out of state shippers to bear the full and real cost of waste disposal, but permits Oregon shippers of waste disposal, but permits Oregon shippers to bear less than the full cost of disposalto bear less than the full cost of disposalOregon argues that this is not economic Oregon argues that this is not economic protectionism – rather it is “resource protectionism – rather it is “resource protectionism”protectionism”The Court says that: “The Court says that: “Even assuming that landfill Even assuming that landfill space is a "natural resource," "a State may not space is a "natural resource," "a State may not accord its own inhabitants a preferred right of accord its own inhabitants a preferred right of access over consumers in other States to natural access over consumers in other States to natural resources located within its borders”resources located within its borders”

ConclusionConclusionBecause respondents have offered no legitimate Because respondents have offered no legitimate reason to subject waste generated in other States reason to subject waste generated in other States to a discriminatory surcharge approximately to a discriminatory surcharge approximately three times as high as that imposed on waste three times as high as that imposed on waste generated in Oregon, the surcharge is facially generated in Oregon, the surcharge is facially invalid under the Commerce Clause. invalid under the Commerce Clause.

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Fantasy Architecture AwardFantasy Architecture Award