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Oregon Cities Can “Soak the Poor” with Surcharges

By Sarah Foster

Two years ago the Oregon Supreme Court gave municipalities a way to raise revenues without going to the voters for approval: they can now simply add a “surcharge” (fee) to monthly water bills.

In a Jan. 19, 2007, decision the court upheld an earlier one by the Oregon Tax Court, thereby ending a five-year legal battle between the city of Jacksonville and 12 residents who considered the fee an unconstitutional tax.

The Supreme Court ruled that the surcharge – intended for police and fire services -- isn’t a property tax, so Jacksonville did not circumvent the restrictions set forth in state constitution.

The Jacksonville Decision, as it’s called, sets a “legal precedent for other financially strapped jurisdictions that are looking for ways to raise money,” Paul Wyntergreen, Jacksonville city administrator, told the Medford Mail Tribune.

“This has, I’m sure, far-reaching implications throughout the state,” Wyntergreen said. “Medford has already followed suit with their own surcharge which is basically patterned after Jacksonville. I’m sure other cities will be in line to do something similar in these times of severe fiscal restraint.”

But cities aren’t the only entities that are hard pressed these days for money. So are the residents.

And the Jacksonville decision is severely impacting low- and middle-income people in the small former gold-mining community, which has a population of between 2,500 and 2,700.

That’s because the surcharge is not necessarily paid by the property owner, but by occupants and business owners. This means a condominium owner, a senior on Social Security in a mobile home park, or the owner-occupant of a small, modest home pays the same fee per month as the owner of a $300,000 home – and there are a number of new, expensive houses in the area.

And those fees add up. The surcharge in Jacksonville was originally $15 a month per unit, then went to $20, and is expected to go as high as $40 or $45.

“I would say that 80 percent of the people in here live month-to-month, and have only a minimum savings account,” said the assistant manager of a local mobile home park.

“There are a number of newcomers in town who are relatively wealthy and for whom $20 or $40 more a month is nothing,” she added. “To them it’s a small price to pay for services. But for someone in here, $40 is a make it or break it, eat-or-don’t-eat type of payment.

“There are people here who run out of money before their check arrives each month – they barely get by as it is,” she said.

Theoretically, a person can apply for a reduction, but that involves a lot of paper work, and the assistant manager – who handles the exemption forms for the residents at the park -- said she hasn’t heard of a case where the fee was completely cancelled. At best it might be lowered a few dollars.

“I don’t see any residents in here where the total amount has been waived,” she said. “None of them. People send in their forms to see if they qualify for a reduction, but even if they qualify it knocks only three or four dollars off. Big Deal!”

Businesses Hit

Paul Hayes, owner of Cottage Antiques and one of the plaintiffs in the lawsuit, pays $20 a month on that property because he owns it and his is the only business in the building.

Like Hayes, Georgeanne Crum was also a plaintiff and owns a commercial building – but hers has five small businesses in it, which means the surcharge is $100 a month.

“I pass this on to my tenants,” says Georgeanne. “I tell them, ‘I want you to pay the $15 (it’s $20 now) because I want you to know what you’re paying for. We’re not putting it in our pockets.’ I’m doing this so that if there’s ever a vote where it comes to the people, they’ll understand.”

Crum added that although her building has spaces for five businesses, only four are occupied at the moment and she has to pay the fee on the empty one.

It’s the same for rental residences. Besides mobile homes, small apartment complexes and duplexes are billed per unit, whether occupied or not. That’s $40 a month for a duplex. An eight-unit would be $160. ($1,290 a year) Some owners will pay the entire fee, others don’t. But it has to be paid or the water will be shut off.

The surcharge is estimated to have generated $230,000 a year for “public safety,” and the pressure is on the city council to increase that to $40.

Voters Say No

What several Jacksonville residents have described to this reporter as “a complete mess,” started in 2002 when voters rejected a $2.8 million five-year levy on the November ballot, intended to sustain operations of the local fire department and fund a changeover from a volunteer to a full-time force, with paid career firefighters, new equipment, a new truck and a new fire station. This would have been paid for by the property owners, but the voters as a whole felt it was either too expensive or not necessary or both. In any case, they said no.

By all accounts, the volunteer fire department was performing “excellently.”

“Jacksonville is a very small community,” exclaimed one resident. “How large a fire department do we really need? Do we really need a glass building and eight fire trucks?”

With the levy shot down, the city administration – aided by an ad hoc committee – went back to the drawing board and came up with the idea of a surcharge. The new fee wouldn’t be just for a new fire department. It would beef up the police force as well. The entire package was labeled “Public Safety.”

The city council unanimously approved (some said rubberstamped) the surcharge at its April 1 meeting the following year – despite an outpouring of public comment against it.

Former city Mayor Clara Wendt told the council the fee was “unacceptable,” and accused them of “taking the coward’s way out and soaking its citizens” by supporting the surcharge.

Having lost the fight in the council chamber, a group of a dozen or so citizens banded together, hired an attorney, and in September 2003 filed suit in the Oregon Tax Court, claiming the surcharge was an unconstitutional tax that violated Measure 50, a provision placed in the state constitution in 1997 that consolidated existing levies.

For the plaintiffs it was not a fight about the fire department, but because the surcharge was seen as an end run around constitutional restrictions on tax levying without voter approval.

“We opposed it for two reasons,” Paul Hayes recalled. “One, we felt it was without question a tax. And two, there was no cap on it. It was completely open-ended, and as a result it has gone up.”

Hayes continued: “Normally police and fire are considered property tax items and go into the general fund. That’s why we fought it. We said these are property tax items and should be voted on.

“Also, from the owner’s standpoint, a property tax is deductible – a fee is not. So by not being part of the property tax, it’s not deductible from your taxes. It is on my apartment rental, because it’s an expense of the rental. But for the owner of a home it’s not a deductible item. You can’t deduct that $20 a month ($240 a year) the way you can deduct property and sales taxes.”

Cities Follow Suit

In the wake of the Supreme Court ruling, several communities near Jacksonville -- Phoenix, Rogue River, Gold Hill, Shady Cove, and Talent – have passed or attempted to pass similar surcharge ordinances. How many across the state have done so is not clear, but Wyntergreen predicts others will follow.

In Phoenix, Ore., (pop. 4,000) the city council passed a surcharge in May 2007, just a few months after the Supreme Court handed down the Jacksonville Decision. This was a $20 monthly fee, intended to cover a $700,000 budget shortfall for police, fire protection and public works. But Steve Brown, an Ashland police officer who lives in Phoenix, circulated a petition and obtained enough signatures that the city was forced to place a measure before the voters to repeal the surcharge. This was overwhelmingly approved in a special election that September.

Brown told the Mail Tribune the referendum had two purposes: to decide the fate of the monthly fee and to make certain voters had a say in how their money is spent.

“I was just hoping that everybody got a chance to vote on it,” Brown said. “It’s a two-fold issue, but the primary issue is that when government tries to take your money they should give the voters a chance to say whether they approve of how the government’s going to spend it.”

An attorney this reporter spoke with – who requested that he not be named -- said he sees no way around the court ruling, except citizen involvement, presumably like the kind shown by folks in Phoenix. He said that from now on the best way to fight a surcharge is to make sure a city council doesn’t pass one in the first place – but if it does, to vote the council members out of office with the understanding that the next council will repeal the fee.

“Unfortunately, if [a city council] follows the rules the Supreme Court said they could follow, they can pretty much do what they want,” he said.

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