Cynthia B. Faulhaber | Miller, Canfield, Paddock and Stone, P.L.C. | 150 West Jefferson Suite 2500 | Detroit, Michigan 48226

1. Michigan Townships Association (MTA)
2. Michigan Association of Counties (MAC)
3. Michigan State Bar Public Corporation Law Section (PCLS)

The question is whether Lansing’s storm water service charge is a valid user fee or a tax. In its analysis, this Court applied standards applicable to regulatory, not user, fees and in the course of doing so, misapplied or ignored its own substantial authority on the question dating back decades. In cases it previously decided, this Court created an analytical framework that recognizes the four sources of revenue for governmental purposes. The first and primary source of revenue are taxes, which this Court has previously defined as a means of raising
revenue for the general purposes of government. A second source are regulatory fees, including license fees (such as driver’s licenses and registration fees, hunting and fishing
licenses and building permits) which this Court has clearly
distinguished from a tax. A third source of revenues are user fees, which are charged to the users of public improvements, such as garbage, water, sewer, parking systems, etc., for the “facilities, services and commodities” of the system. The fourth source of revenues are special assessments. However,
since none of the parties have claimed that the storm water service charge is a special assessment, it is not necessary to analyze this revenue source. In place of this firmly established law, this Court has now apparently established a test that inartfully combines the tests for regulatory and user fees. The
new test places in dispute every user fee previously imposed
by every municipality across the state and, just as importantly,
questions the proprietary of future user fees and the public
financing mechanisms in place to finance the construction of such public improvements.

The Michigan Supreme Court ruled that the stormwater service charge imposed by Lansing was unconstitutional and void on the basis that it was a tax for which voter approval was required
and not a valid use fee. The Court established three criteria for distinguishing between a fee and a tax: 1) a user fee must serve a regulatory purpose rather than a revenue-raising purpose; 2) a user fee must be proportionate to the necessary costs of the service; and 3) a user fee must be voluntary—property owners must be able to refuse or limit their use of the commodity or service. The Court found that the charge failed to satisfy the first and second criteria.

A property owner challenged the City of Lansing’s newly imposed stormwater utility fee, arguing that the fee was a tax levied without voter approval in violation of the Headlee Amendment to the Michigan Constitution (Mich Const 1963, art 9, sections 25 and 31). Lansing had imposed the stormwater fee
on virtually all properties in the city to pay for the city’s stormwater and sanitary sewer separation project costs as permitted under state statute.