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Local Government

Paul Martin, Esquire

City's utility charges were a fee, and not unauthorized taxes; the charges did not violate the Hancock Amendment, even though the charges exceeded the cost of providing the service. Arbor Investment Company v. City of Hermann, No. 91109 (Mo. banc, May 31, 2011), Stith, J.

The City of Herman provides, and charges for, different utility services. From 2000 through 2006, the city transferred funds from the revenues generated by the utilities' service charges to the city's general fund. Plaintiffs' class action alleged that the utility charges violated the Hancock Amendment, because the charges had not been approved by the voters and they exceeded the costs of providing the services. On cross motions for summary judgment, the trial court held for the city, and the plaintiffs appealed. 

Held: Affirmed.
The plaintiffs argued that the trial court misapplied the five-factor test of Keller v. Marion County Ambulance District, 820 S.W.2d 301 (Mo. banc 1991). The Missouri Supreme Court, while taking pains to note that the Keller test was only intended to be a guide for distinguishing a tax from a fee, applied the test and concluded that it supported the trial court's judgment. The plaintiffs argued further that the Keller test should not be applied when the government was the exclusive provider of services, but the court rejected the claim, noting the many possibilities of "exclusive" government service and the vagaries of providers entering and leaving the market. The plaintiffs also argued that any "profit" should be considered a tax, regardless of Keller. While the court acknowledged that the result may be different if revenues grossly exceeded the service cost, that was not the instant case, and the court also stated that the act of setting the utility charges was up to the elected officials, who could be voted out of office if their choices were not acceptable to the electorate.

The Missouri Bar Courts Bulletin, 11-Aug

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