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Why Did the City Spend $700k on the Lawsuit?

Why spend $700k to avoid paying $900k plus 6.5% interest, plus attorney fees of $250k or higher (We were looking at over ~$1.35 million to settle).

 The short answer is that the City of Hayden has a duty to its citizens to be fiscally responsible with the public’s money.  In 2007, the City was charging a CAP fee of $774.00.  That fee was based upon a study that was more than 10 years-old, and had the net effect of significantly underfunding the City’s wastewater program.  At the same period of time Hayden, and the rest of the area was experiencing significant growth, at never before seen rates.  The explosion in growth forced the City to evaluate its wastewater system to determine the system’s ability to keep pace with demand.

The City determined, correctly, that significant expansion was needed to allow for growth to occur.  As the Supreme Court stated in 2015, the City can spend collected CAP fees to build new/additional infrastructure capacity.  The City could have utilized the equity buy-in formula, the Loomis formula, and had it done so the City’s CAP fee in 2007 would likely have been more than $2,600.00.  Instead, the City, with the assistance of its planners and engineers determined what the future need would be and then collected only enough to meet that anticipated need, $2,280.00.

When the lawsuit was initiated in 2012 by NIBCA, the City was segregating, and continues to segregate, the CAP fees and spend them for the wastewater system.  The fees that had been collected between 2007 and 2012 were not sitting in the bank when the suit was initiated.  The majority of the fees had already been utilized, as they were intended, to construct additional capacity to facilitate new construction such as the growth that benefitted the NIBCA members.  The City did not have the money sitting in the bank to pay it to NIBCA to settle the suit.

The majority of the expenses incurred in defending the suit were as a result of the initial action in District Court several years ago.  It should be noted that at the time they were incurred the expenses were beneficial to the City and its tax payers as the District Court ruled that the City was correctly collecting and expending the funds. 

Following the success at the District Court level, NIBCA appealed the decision to the Idaho Supreme Court. The City, at that time, was vindicated in its expenses of nearly $600,000.00, a majority of the cost of the litigation. 

Had the City paid NIBCA it’s requested $900k in 2012 the question would have been why did the city pay $900k without a fight? 

While the City did not prevail at the Supreme Court, the City did receive guidance from the Court in the form of how the fees are to be collected, and how the fees may be spent.  As a result of the guidance from the Supreme Court the City modified its method of collection which resulted in a potential fee of more than $2600.00. The City Council, in an effort to promptly come into compliance with the Supreme Court’s ruling, adopted a new fee of $2,306.00. Still charging less than the minimum amount allowed using the Loomis method.

Was the exercise expensive, absolutely.  However settling the matter without clear guidance on what was and was not allowed would most certainly have invited further demands for refunds, and likely have resulted in future litigation costing the city and its taxpayers more money in attorney fees and associated litigation expenses.  The City now is confident in its method for collection of fees and the manner in which those collected fees may be utilized.

The amount being sought was much closer to $1.5 million and the amount to defend the City while much higher than expected resulted in a savings estimated at $350K.  Most of the cost was upfront around the trial up through the Supreme Court ruling, from 2012 to 2015. 

“Growth Paying for Itself”—NIBCA vs. City of Hayden

Ultimately this case is about having growth pay for itself so that citizens that have already paid their connection fee aren’t paying for someone else’s.   After the Supreme Court said the City needs to use this specific formula it was shown and not refuted in the case that the amount the City charged for sewer Capitalization Fees (CAP) was actually lower than what the City could have charged.   The District Court just ruled and said the builders should pay the $774.00, the City was charging $2,280.00, and the evidence showed under the Supreme Court formula that we could have been charging at least $2,600.00.  Our fee was close to, but lower than, what we could have been charging to support the ability of the City to provide capacity for the builders to use.  The City was trying to protect its ability to have growth pay for itself so that existing citizens wouldn’t bear that responsibility.    

The City is the defendant in this case and can either pay everything they are asking for or continue to defend.  The amount they were asking for was well in excess of a million dollars.  We did try to mediate and settle the case but were unsuccessful. 

The City tried for years to bring NIBCA to the table to help explain the CAP fee process.  Soon after the case was remanded in 2015 from the Supreme Court to the District Court, the City Attorney tried to walk the opposing counsel, Jason Risch through the City’s FCS/Loomis study (how the City got to the new fee) and NIBCA’s attorney refused the offer.  The Mayor has tried to work with NIBCA to help explain the situation.  There was one local builder who was a member of the class and opted out of the lawsuit because he felt that it would not be ethical for him to accept money from the City to reimburse him for a cost that he passed onto his clients. 

The City has continually strived to be a good steward of the citizens’ money and tried to be fair and even handed in collecting only the money necessary to ensure that growth pays for itself.