County lawsuit on Oregon City fee may have statewide impact

Photo Credit: PHOTO BY JONATHAN HOUSE - Clackamas Countys Ryan Johnson and Michael Trent talk as filtered water rumbles underneath at the Tri-City Water Pollution Control Plant in Oregon City. The county is taking legal action to stop an Oregon City fee for the service districts sewer lines.The battle over a new compulsory fee may be won in a circuit court hearing Sept. 11. Or it might be won in the court of public opinion.

Tri-City Service District and Oregon City are each spending thousands of dollars and countless staff hours on their campaigns to sway public opinion over an obscure and complex issue that could have long-lasting impacts in the relationship between county and city governments across Oregon.

Here’s the issue: Oregon City voted last November to charge Tri-City — along with two dozen others — a sort of “rent” at a rate of 6 percent of gross revenue for its sewer lines on city rights of way. Tri-City is a special service district run almost entirely by Clackamas County staff and headed by the Clackamas County commission.

The idea for Oregon City’s new franchise ordinance was born from a 2013 scrap with the county on the 170-mile broadband fiber optic line the county constructed from Oregon City to Government Camp. Oregon City eventually negotiated a 6 percent fee for that project, but: “We realized how little we knew about franchise and other providers who are in the right of way,” says Public Works Director John Lewis.

This sparked a push for the ordinance that covers all 41 right of way users at the same rate instead of spending staff time on negotiating separate deals whenever something came up.

“The right of way is by far the most valuable asset the city has,” says Lance Powlison, a former contractor whom Oregon City hired in April to manage its new right of way program. Powlison says franchise fees are a pretty standard way that cities make money.

“It would be rare (for a city) to not have a franchise fee,” he says, adding that Oregon City has charged its own departments these franchise fees for at least 20 years. “It’s not like we’re asking them to do anything different than what we do to ourselves.”

His boss, Lewis, agrees. “I never envisioned the county taking the position they’ve taken with this one.”

A rent based on income?

Oregon City Mayor Doug Neeley says the franchise fee is no different than expecting rent from someone using your property.

“While public bodies do enjoy an exemption from property taxation under state law, that does not permit public bodies free use of other government property,” Neeley wrote in a letter to city residents.

But rents for human beings tend to be charged based on location and size; this one is based on income. The League of Oregon Cities says franchise fees can either be calculated based on length of pipe or gross annual receipts. In November, the Oregon City Council chose the one based on gross receipts.

“In this industry, that seemed to be the only fair way to charge rent,” Powlison says.

County officials have indicated they are open to a settlement with Oregon City that would result in their paying the lower rate option based on linear feet of sewer line, about $15,000 per year. Oregon City says charging a different rate to one entity wouldn’t be fair to the others, which include the public South Fork Water Board, who is not fighting the fee.

The result of charging based on gross receipts means that Tri-City, which serves West Linn, Gladstone, and Oregon City, is suddenly faced with coming up with $320,011 — $75,392 from the remainder of last fiscal year, and $244,619 projected for this fiscal year.

This doesn’t sit well particularly with West Linn, Gladstone and the county commissioners, who say this “hidden tax” is siphoning funds away from their constituents into Oregon City’s coffers.

In reaction, the commissioners voted June 26 as part of the county’s annual budget to charge Oregon City households — and not the other two cities making up the district — $1.76 more each month to cover the new expense. This is in addition to an already planned district-wide increase of $1.65 per month.

“It’s the only mechanism to pay for the fee because we’re a public entity,” says Clackamas County Water Environment Services spokesperson Ryan Johnson.

“It’s not like we have a big pot of cash that we can use to pay a franchise fee,” agrees Tri-City Service District Interim Director J. Michael Read. “This is a fee that has stepped out of bounds.”

In an attempt to resolve the conflict, the Oregon City council passed a resolution April 2 promising that the money recovered from Tri-City will be used exclusively to fund projects that benefit Tri-City sewers in some way. Powlison, right of way and contracts coordinator, says there are four areas of Oregon City where development is stalled until sewer issues are repaired.

But the olive branch from the city didn’t help: the county filed a lawsuit June 11.

“It’s basically an extraction of wealth,” says county attorney Chris Storey.

Case could have statewide impacts

Eyes around the state will be on the decisions that are made in the case, starting with the Sept. 11 court hearing.

“My guess is, this isn’t the first community this is going to come up in,” Read says.

If the county’s lawsuit effort fails, commissioners have vowed to get relief through the state legislature. They might find an alliance with the Southern Oregon Rogue Valley Sewer District, which had a similar legal battle with the small town of Phoenix beginning in 2012. A Jackson County Circuit judge ruled in favor of the city in that case on April 9 of this year.

“It feels very much like this lawsuit and the county’s effort is trying to reduce the city’s rights,” Oregon City’s Lewis says. “This is somewhat of a threat to all cities’ rights to home rule authority and I have a feeling that’s going to be tough to change.”

For their part, Neeley, Oregon City’s mayor, says they plan to take legal action if the county continues to charge his city’s residents a different wastewater rate than the others.

The higher bi-monthly utility bills are expected to start showing up in Oregon City mailboxes in the next week.

Hidden tax vs. reasonable fee?

Craig Gibons, Multnomah County Tax Supervising and Conservation Commission executive director, says Clackamas County (by way of Tri-City) is taking an unusual position that franchise fees are a “hidden tax.”

“I’ve never heard of the argument before and it seems to fly in the face of the way things are set up now,” Gibons says. “Franchise fees are a payment by a utility company to use city-owned right of way. They’re pretty universal.”

The Tax Foundation, a nonpartisan think tank based in Washington, D.C., describes a fee as a way to recover actual costs incurred by an activity that costs the government money. A tax, meanwhile, is a more general idea.

“Any assessment that raises money in excess of what is needed to defray actual costs is a tax,” says Tax Foundation spokesperson Matt Moon on its website.

Oregon City’s Public Works Director John Lewis says he shouldn’t have to detail the numerous and often tough-to-measure costs associated with managing 136 linear miles of city roads, including permitting, road work, keeping track of whose lines are where, managing conflicting interests, code enforcement and others.

“Even at 6 percent, I wonder if that’s going to be adequate,” Lewis says. “Often the fees that we charge don’t cover the cost.”

West Linn City Manager Chris Jordan says he is fine with charging private companies a franchise fee because they can decide whether or not to do business there. But a neighboring city is a captive audience and sewer service is not something one can go without.

“The real decision is not: ‘Can you (charge a franchise fee)’ — because we certainly believe you can — it’s whether you should,” Jordan says.

By Shasta Kearns Moore
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