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Sewer district will challenge court's city franchise fee ruling

PHOENIX — While the cost to customers is less than a dollar per month, Rogue Valley Sewer Services officials say an appeals court decision in favor of a city franchise fee could set an expensive precedent for more than 1,000 special districts in the state.

On April 9, the Oregon Court of Appeals upheld a city franchise fee of 5 percent that is levied against revenue collected by the sewer district inside the city.

Rogue Valley Sewer Director Carl Tappert said his district will challenge the appeals court's decision to the Oregon Supreme Court.

When they passed the fee in 2010, Phoenix officials said that work done by the sewer district costs the city $30,000 or more annually in street repairs. Sewer district officials disputed that, saying district crews don't damage city streets.

RVS also argued that a public sewer district is different than a for-profit business, such as a cable or telephone company, and should not be subject to a franchise fee.

"We're very concerned about the precedent this could set," Tappert said. "The first issue was, 'Could one government entity tax another?' And they kind of said yes. The other issue was whether statutes that regulate franchise fees would allow the city to tax a sanitary district.

"The city is receiving about $20,000 a year from us," Tappert said. "But if everybody piles on and does the same thing, we're then looking at about $300,000."

RVS challenged the fee immediately after it was passed in 2010, and Jackson County Circuit Court Judge Philip Arnold ruled in favor of Phoenix nearly a year later, prompting the appeals court petition.

Tappert said his agency, with support from the Special Districts Association of Oregon, will petition the Oregon Supreme Court to review the case.

Phoenix City Manager Steve Dahl said city officials felt the fee was justified in order to recoup expenses related to the sewer district's operations inside the city.

"Basically, Rogue Valley Sewer sees it as a tax against a special district. But they're using Phoenix roads, and the city is viewing this as a franchise fee similar to what Avista or Comcast would pay for private use of public right of way," said Dahl.

According to Frank Stratten, executive director of the Oregon Special Districts Association, Phoenix is the only city in the state currently charging franchise fees to a sanitary district.

Stratten voiced concern that cities and counties around the state will see the Phoenix case as a "windfall opportunity" and begin charging special districts, which is why his agency aided RVS with its appeals.

"We helped fund the appeal because we think it's a bad precedent to have governments charging other governments. It's something that ultimately affects the ratepayers, and it lessens transparency," Stratten said.

"When you have a city that imposes a franchise fee on the utility, who then has to increase rates to pay for that fee that the city is charging them? Ultimately it's the people in that city who pay a higher rate," Stratten added.

"Generally the courts and legislature frown on governments charging each other special taxes. A special district is considered a local government and has the same status under Oregon law that a city or county does. They're created by citizens — by ratepayers — and elected by voters. They're not a private, for-profit entity."

Tappert said his agency feels as if it has been saddled with the job of collecting additional taxes for Phoenix.

"It's something that kind of just doesn't feel right," said Tappert.

"One government taxing another. It really messes with your sense of justice. It seems to me that if you want money for roads, then you set up a road utility. In essence, we're tax collectors now for the city of Phoenix. They're using a sewer bill to collect a tax."

Tappert estimated an appeals process through the Oregon Supreme Court, if the case is accepted, will take a year or longer.

Buffy Pollock is a freelance writer living in Medford. Email her at buffyp76@yahoo.com.