Ferndale Settles Water/Sewer Bill Lawsuit, Checks to be Mailed to Residents

Ferndale Settles Water/Sewer Bill Lawsuit, Checks to be Mailed to Residents
(Crystal A. Proxmire, March 16, 2015)
Some Ferndale homeowners will be getting a refund on their water bills after the City of Ferndale has reached a $4,250,000 settlement with attorney Kickham Hanley who represented Lawrence Wolf in a suit over fees the city had been charging for storm water treatment and debt service of the George W. Kuhn Drain. The settlement came over a year after the suit was first filed in Oakland County Circuit Court.
A FAQ section on the City of Ferndale website explains the case, stating “The underlying issue in the lawsuit revolves around how the City of Ferndale can recover the disputed costs for storm water treatment and the City’s portion of debt service for the George W. Kuhn Drainage District – whether the City can charge a fee or must rely on some other mechanism to recover the costs.  (There is no dispute that the costs of participating in the system must be paid back to Oakland County. Plaintiffs allege that the City of Ferndale has been taxing residents by collecting a debt service charge and a storm water disposal charge in its calculation of water and sewer rates. Michigan’s Headlee Amendment limits state and local governments’ ability to collect taxes without voter approval, so such a tax would be unjust. However, the City maintains that these charges were user fees to offset the cost of treating water through the George Kuhn Retention Treatment Facility—not taxes.”
Residents who are eligible to be included in the class action lawsuit have received notice of the settlement. There is nothing more they need to go to collect, simply wait for the check to come in the mail. People paying a water bill after January 20, 2008 are eligible, and should receive notice in the mail.
Greg Hanley, who worked on this case said that check should be mailed in mid-to-late April as long as the process goes smoothly.  The amount per household will vary based on the amount paid, but Hanely said there are roughly 10,000 current customers and 4,000 customers who lived in Ferndale and have moved away. The firm has a list from the City and uses forwarding addresses to track down former residents.
The law firm and plaintiff keep a third of the judgment plus expenses, leaving roughly $3 million to be dispersed.
The City says it is common for cities to assess storm water and debt service fees in their water rates, but that a 2013 ruling by the Michigan Court of Appeals opened the door to class action cases like this one. Royal Oak and Birmingham are also in litigation over this issue by the same attorney.
The website further explains why the fee existed as part of the water bill:
“Ferndale’s system is a combined sanitary and storm water system, which is different than a separated system that has one system of pipes for sanitary flow and a separate system of pipes for storm water flow. Our combined system is designed so that treatment is provided through the George Kuhn Retention Treatment Facility. This treatment provides a benefit to the users of the system. In the case of the city referenced above, no treatment was provided to the storm water flow. 
The dispute in this case and others like it is whether the storm water utility fee constituted a user fee or a tax. While there is no rule to be applied in making this determination, in general, a “tax” is designed to raise revenue and a “fee” is exchanged for a service rendered or benefit conferred. The City of Ferndale maintains that there was a benefit to the users of the combined sanitary system—the City treated the combined sewage at the George Kuhn retention treatment facility; therefore, passing that cost on to its customers was a permitted user fee and not a tax”
Hanley said his position as an attorney is that tax increases should be voted on by voters, and that is why he does this type of litigation.  “You can’t impose taxes without voter approval,” he said.  He added that another benefit of having it as a property tax assessment is that those who itemize can now deduct it from their taxes.
Instead of including the fees on the water bill, residents can expect to see two new Drain Code Assessments on their 2016 winter tax bills, as permitted under the Michigan Drain Code of 1956.
The first assessment will compensate Oakland County for the City’s portion of the Oakland County George W.  Kuhn Drainage District debt service.  The second assessment will compensate Oakland County for 40% of storm water treatment charges assessed by the Oakland County Water Resource Commission on the City of Ferndale for the operation, maintenance and use of the Kuhn Drain System, including the Kuhn treatment facility.
For a house with a taxable value of $100,000 the total tax increase should be approximately $400. A more comprehensive chart can be found on the FAQ page.
“The costs for the system remain the same, the only thing that has changed is defining which bucket to place the charges in. Ferndale’s combined sanitary system is designed so that treatment is provided through the George Kuhn Retention Treatment Facility. This treatment provides a benefit to the users of the system and so the City had in the past incorporated the charges from Oakland County into water rate calculations. Moving forward, the City will have to move charges from the water rate bucket to the tax bill bucket,” said Acting City Manager Joe Gacioch. “Costs for storm water treatment passed on by Oakland County remain the same, the settlement agreement just changes the venue.”
The City has been setting aside money out of water bills for operations, maintenance and repairs to the water system, so that as these things come up they will not have to seek loans or issue bonds. The money in the water and sewer fund did not come from the fees collected. Those fees went to the cost of the debt service and sewer treatment.
While the City maintains it did nothing wrong, they determined that a settlement would be less expensive than a lengthy court case. When asked for comment, Mayor Pro Tem Dan Martin said that those with questions should be referred back to the City of Ferndale website or to Hanley.
More info can be found at http://www.kickhamhanley.com/class-action and on the City of Ferndale Website at http://www.ferndalemi.gov/Services/Utilities

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