The state’s high court has ruled that a sewer connection fee temporarily charged by the town of Saugus was not an illegal tax, reversing the decision of two lower courts and saving the town $1.5 million in refunds to eight developers and property owners who challenged the fee.
The Supreme Judicial Court on June 29 ruled in favor of an appeal filed by the town, which argued the fee was necessary to comply with a state order to upgrade its decrepit sewer system, and to halt the illegal discharge of raw sewage into the Saugus River.
The court found the fee bore three traits that distinguish it from a tax: A party receives a particular benefit for paying it; it is paid by choice; and it is meant to help government cover an expense, not raise revenue.
In a 10-page opinion, the court wrote “ . . . developers were paying a reasonable amount, for a particularized benefit: accelerated access to the town’s sewer system.” The ruling also noted developers could have waited until the town lifted a moratorium on sewer connections. The town also was not relying solely on the fees to finance a $27 million sewer system upgrade.
Saugus Town Manager Scott Crabtree called the decision a “huge win” during a selectmen’s meeting held Thursday night to discuss the opinion. The town will use the $1.5 million to stabilize sewer rates and repair the aged system.
‘What the court has done is allow a city or town the flexibility to fashion its own program.’
“This money will alllow us to continue to improve our infrastructure,” Crabtree said.
A lawyer representing four local developers who filed the first lawsuits challenging the fee said he may ask the SJC to reconsider its ruling.
“We feel this is a departure from the earlier decisions,” James Senior, a North Reading lawyer, said in a telephone interview.
Friday is the deadline to request another hearing before the court. “It’s a case of interpreting law,” Senior said. “The [lower] courts saw it one way, and the SJC went in a different direction. . . . We don’t feel we caused any expense for the town to be compensated for. That’s always been our position.”
Saugus imposed a sewer connection fee in 2005, as part of a consent order with the state Department of Environmental Protection to remove waste water from seeping into sewer pipes and to stop discharging untreated sewage from a pumping station on Lincoln Avenue into the Saugus River.
The order put a moratorium on new sewer tie-ins until millions of gallons of waste water could be removed from the system. But developers and property owners were also given the option to pay a fee to tie into the system. For every one gallon they would add to the sewer system, they had to pay to remove 10 gallons of waste water, at a rate of $3 per gallon. As progress was made, the ratio was later reduced to 4:1.
Four developers — Denver Street LLC, Oak Point Realty Trust, Vinegar Hill Estate Trust, and Central Street Saugus Realty LLC — were charged a total of $670,460. Each filed separate lawsuits in Essex Superior Court, arguing the fees amounted to an illegal tax. The cases were consolidated, and in March 2009, Judge Frances A. McIntyre ruled the fee was an illegal tax, and ordered that developers should be paid refunds, at a 12 percent annual interest rate.
Saugus filed an appeal with the state Appeals Court, which in January 2011 affirmed the ruling. The town then appealed to the SJC. The state attorney general’s office, along with environmental groups the Conservation Law Foundation and the New England Legal Foundation, submitted briefs supporting the town’s position before the SJC.
Ira H. Zaleznik, a Boston lawyer who represented the town, said he argued that the fee was only one part of the town’s financing plan to replace the sewer system. “It was a different emphasis at the SJC than in the lower courts,” he said.
Since the developers filed suit, four more challenges to the fee were made. But Zaleznik said he would use the SJC ruling to dismiss three lawsuits pending in Superior Court, and a fourth refund request filed with the Board of Selectmen, which is also the town’s sewer commission.
The ruling could impact other communities that face a legal challenge to a water or sewer fee, he said.
“What the court has done is allow a city or town the flexibility to fashion its own program,” he said. “If you have reasonable rates and if you’re not trying to rehabilitate the entire system, then you could have this kind of fee.”
Saugus no longer charges the sewer connection fee. But the consent order with DEP will remain in effect, at least until Saugus completes the $27 million upgrade to 120 miles of sewer lines running through town. “We’re ahead of schedule and under budget,” Crabtree said.
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