Recent State Supreme Court Decision on Connection Fees
The State Supreme Court recently decided a major case regarding connection fees for wastewater treatment plants and collection systems: 612 Associates v. North Hudson Sewerage Authority.
WMM participated in the case as amicus curiae on behalf of the Bergen County Utilities Authority (“BCUA”). WMM served as General Counsel of the BCUA from 2004 through 2011, and it currently serves as Special Counsel.
Connection fees are premised on the obligation of a developer to pay his “fair share” of the cost of the system into which he is connecting, i.e., the costs which the current customers have paid over the years, towards the cost of the infrastructure which will service the developer’s property. Connection fees constitute an important part of the BCUA’s revenue stream.
The issue in 612 Associates was which sewerage authority can impose a connection fee on a new development - - the authority which has the collection system into which the flow is directly discharged from the property or the authority which treats the flow. The developer started the action against the North Hudson Sewerage Authority (“NHSA”), which had the collection system to which the property was connected and against the North Bergen Municipal Utilities Authority (“NBMUA”) which had an indirect connection to the property (through the NHSA lines) and which treated the flow. The developer contended that he only should have to pay one connection fee, and he sought a court ruling as to which authority could impose the fee.
At the trial level, the developer, the NHSA and the NBMUA all stipulated that only one connection fee was payable and entered into a consent order whereby the developer deposited the higher of the two connection fees into an escrow account. The developer then dropped out of the case, and the NHSA and the NBMUA litigated the legal issue as to which of them was entitled to keep the connection fee.
The trial judge ruled in favor of the NHSA, because she interpreted the statute as requiring that the connection fee be paid to the authority with the direction connection to the property. The NBMUA filed an appeal with the Appellate Division.
Because virtually all of the BCUA’s customers have indirect connections to the BCUA system, the decision of the trial court had the potential to eviscerate that important stream of revenue. Accordingly, WMM sought and obtained leave from the Appellate Division to appear as amicus curiae on behalf of the BCUA.
The amicus briefs filed by WMM with the Appellate Division and with the State Supreme Court were pivotal in defining the issue in the case and in the decision. Both the Appellate Division and the Supreme Court adopted the position which WMM advanced for the BCUA.
WMM argued that the decision of the trial court was wrong, in part, because it was premised on the incorrect assumption that only one connection fee was payable. Rather, WMM argued that both the authority with the collection system and the authority with the treatment plant could impose a connection fee, provided that both fees were non-duplicative.
WMM obtained leave of court from the Appellate Division to supplement the record within information as to its practices and the practices of similarly situated authorities. That supplemental information provided the foundation for the decisions issued by the Appellate Division and by the Supreme Court.
The NHSA and the NBMUA both had treatment plants. WMM argued that it would be unfair to require the developer to pay a connection fee to the NHSA which included the cost of the NHSA treatment plant, because the property would not be using that plant. Rather, WMM argued that the NHSA and the NBMUA both should be allowed to impose a connection fee, but that the connection fee of the NHSA should be based only on the cost of the collection system which it will be using. In other words, the cost of the NHSA treatment plant should be carved out of the calculation of the NHSA connection fee, because the property would not be using that infrastructure.
The Appellate Division and the Supreme Court both accepted the arguments advanced by WMM and issued a decision on that basis. Because the parties in the 612 Associates case had deposited a single connection fee into escrow, the Supreme Court upheld the allocation of a single fee between the two authorities which the trial court decided after the case was remanded by the Appellate Division The Supreme Court specifically noted that there should be no need for such allocations in the future, since both authorities would be entitled to impose a non-duplicative connection fee.
Like many county and regional sewerage or utility authority, the BCUA services member municipalities which have their own collection system, but do not have their own treatment plant. WMM argued that a developer in such a situation should pay his fair share of the collection system and his fair share of the connection system, because the systems of both authorities were essential to the treatment of the flow. Without both systems, the flow could not be treated. Because the BCUA and its member municipalities had totally separate systems, WMM argued there was no duplication, and so both should be allowed to impose a full connection fee.
Again, the Appellate Division and the Supreme Court accepted the arguments advanced by WMM and issued decisions which confirmed the right of authorities similarly situated to the BCUA to impose a full connection fee.
The 612 Associates case clarified a significant issue in wastewater treatment law. The decision is consistent with the underlying purpose of connection fees, i.e., to require a developer to pay his fair share of the cost of each sewerage system to which he is connecting and thereby partially reimburse the current users of the system who paid for the infrastructure over the years.
From the point of view of the BCUA, the decision confirmed the ability of the authority to impose a connection fee based on the cost of its treatment plants and trunk lines. This was extremely important to the BCUA, because the loss of connection fees would have required the BCUA to impose higher user charges to its member municipalities for the treatment of their flow.
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