The city of Coeur d’Alene has no authority to impose impact fees on new construction, the Idaho Supreme Court has ruled.
The ruling also affects the city of Hayden, which was charging builders impact fees until District Court ruled the fees illegal in August.
The cities have accumulated fees that sit unused in special accounts. Coeur d’Alene has collected almost $500,000, and Hayden has collected almost $300,000.
City officials said Wednesday they are unsure whether they will have to return those fees.
Hayden used some of its fees for improvements to Honeysuckle Avenue last fall.
“Some contractors indicated that no matter how the lawsuit came out, we could go ahead and use their impact fees for the purpose that they were collected,” said Hayden City Clerk Lyla Truesdale.
Coeur d’Alene Mayor Al Hassell said he is disappointed by the news of the court ruling.
“It’s a real setback for the community as a whole,” he said. “Now we have to sit and wait for the Legislature to act. That’s the next step.”
The Legislature has allowed only Ada County to impose impact fees, designed to provide the facilities required by growth. Without specific authority, Coeur d’Alene has no power to impose the fees, which in reality are taxes, the court said.
The Legislature has been considering a bill proposed this session by the Idaho Building Contractors Association which would allow all counties to impose fees on new construction. The bill has been approved by a subcommittee of the House Revenue and Taxation Committee and will be up for a hearing before the full committee later.
In November 1993, Coeur d’Alene imposed a “development impact fee” on any change to improved or unimproved real estate, the use of any principal structure or land or any other activity requiring a building permit.
The state builders group, through Rod Underhill of Underhill Construction and Remodeling, challenged the fee and won a ruling from District Judge Craig Kosonen voiding the fees.
The fees ranged from $720 to $882 for a single family dwelling.
The district judge ruled it was a tax, not a regulatory action.
In Hayden, developer Alan Eborall sued the city over $13,000 he was required to pay the city. The two cities pooled their resources to appeal the district rulings against them.
In a unanimous decision written by Justice Linda Copple Trout, the Idaho Supreme Court held that imposing a new tax is something that must be authorized by the Legislature.
The Supreme Court rejected the argument that it was a fee, not a tax.
“This is clearly a revenue raising measure, not a regulation,” the court said.
The city’s ordinance said the money was to be used for “capital improvements” with no limitation on the location of those improvements or whether they will be used solely by those creating the new developments.
A fee is a charge for direct public service rendered to the particular consumer, while a tax is a forced contribution by the public at large to meet public needs, the court said.
“The fee is imposed on certain individuals for use by the public at large, and we thus hold that it is a tax and therefore not within the legitimate regulatory powers of the city,” the court said.
Between the recent court decisions and legislative efforts to disallow franchise fees, cities are not going to be able to keep up with growth, Hassell predicted.
“It’s going to be a bigger problem in the future,” he said. “Our sources of revenue are drying up. We don’t want to pass the costs of growth onto the taxpayers.”