POCATELLO — Pocatello Mayor Brian Blad said the city will use its reserves to cover a $4.5 million settlement to a class-action lawsuit regarding the collection of illegal fees for city services, thereby minimizing the burden on taxpayers.
“We do not anticipate this use of reserves will impact the city on a day-to-day basis,” Blad said during a Tuesday afternoon press conference, called a day after Sixth District Judge Stephen Dunn granted preliminary approval to the settlement.
The settlement would require the city to mail checks this fall covering the fees collected on utility bills paid from April 2012 to April 2014, based on a two-year statute of limitations.
The case was originally filed in 2014 by Ricky G. and Logan Robinson, Hill-View Mobile Home Parks and Ed Quinn. The Idaho Supreme Court ruled in favor of the plaintiffs’ assertion that the fees on city water, sewer and sanitation services were improper. In 2018, Dunn granted class-action status to affected utility customers.
None of the current city leaders were in office in 2005, when the city decided to operate its utilities as for-profit entities, like private utilities. The city added an extra charge on utility bills, which it called a “return on equity” fee, and moved the profits to its general fund, where they could be applied toward unrelated expenses. The city generated additional funding through a tax on its own utilities which it called “payment in lieu of taxes,” or PILOT.
On Dec. 9, 2011, the Building Contractors Association of Southeast Idaho challenged the PILOT tax, and Judge Dunn ruled it was unlawful. Dunn prohibited the city from collecting the PILOT tax near the start of Fiscal Year 2014, resulting in a 10 percent decrease in utility bills, according to court documents.
On April 15, 2014, Logan Robinson, who was the owner of Hill-Vu Mobile Home Park in Pocatello, filed suit to force the city to refund both the PILOT tax and the “return on equity” fee. His attorneys, Olsen and Michael Gaffney, both of Idaho Falls, argued the city is legally allowed only to collect fees sufficient so that its services “shall be and always remain self-supporting,” which may include reserves but prohibits transfers for unrelated uses.
On appeal, the Idaho Supreme Court concurred, ruling: “The PILOT was not a reasonable user fee to reimburse the city for the cost of government services. It was an exaction that was designed to be in addition to what would be a reasonable charge for the water and sewer systems to remain self-supporting.”
The city will may notice of the settlement to eligible class members next week, Blad said. Current city service customers will automatically be included in the one-time payment, unless they move to opt out. Former customers will be required to file an application with the city.
Blad said no payment amount for individual class members has yet been set.
“The court will hold a hearing to determine the fairness and adequacy of the settlement on September 16 at 2 p.m.,” Blad said. “On October 15, at 2 p.m., the court will decide the amount of attorney fees and costs to be awarded to class counsel. This hearing will also be conducted at the Bannock County Courthouse.”
Attorneys representing the plaintiffs estimated in January the city owed in excess of $20 million in fee collections and interest. The $4.5 million would cover two years of fee collections and $1 million in interest.
Blad said the court must still determine how to address certain issues, such as how to respond to residents of trailer parks, whose utility bills were paid by a landlord and passed on to them indirectly.
Details of the settlement are available online at pocatello.us/settlement. Residents who have questions may call city legal staff at 208-234-6507.
City Councilman Jim Johnston believes a lawsuit is poor way to repay taxpayers in the class, many of whom will also cover the bill for the settlement.
“Of course I would like to see any benefit come back to the city rather than the attorneys,” Johnston said. “I wish there was maybe more that we could do, but this is what we’ve been ordered to do and we’ll do it, as inefficient as it may be.”