A recent order by a panel of the Michigan Court of Appeals has upheld the validity of the City of Jackson’s rental inspection charge as a valid municipal fee and not an impermissible tax under the Headlee amendment to the Michigan Constitution. In Legacy Five LLC v City of Jackson, the Michigan Court of Appeals determined that the City’s inspection charge was valid, relying on the Michigan Supreme Court case of Bolt v City of Lansing, 459 Mich 152 (1998).
The Court of Appeals issued an order denying the relief requested by the appellant, Legacy Five LLC. Legacy Five LLC had argued that the inspection charge constituted an impermissible tax imposed by the City in violation of the Headlee amendment to the Michigan Constitution because it was enacted by the City without a vote of City electors. The appellant sought to have the charge declared unconstitutional, relying on the Michigan Supreme Court’s decision in Bolt.
The City adopted the inspection charge in accordance with the provisions of Section 126(12) of Michigan’s Housing Law, which permits cities, townships and villages to conduct inspection programs and establish and charge a reasonable fee for those inspections. MCL 125.126. Under the Housing Law, the fee cannot exceed the “actual, reasonable cost of providing the inspection for which the fee is charged.”
Under Bolt, which involved the validity of the City of Lansing’s storm water management fee, the Supreme Court noted that in order for a municipal fee to be considered a valid user fee and not an illegal tax, the fee must (1) serve a regulatory purpose rather than a means to raise revenue; (2) be reasonable and proportionate to the particularized benefit conferred to the user paying the fee and the costs to provide the service to that user; and (3) be voluntary.
In the Court’s order in Legacy Five LLC, the Court of Appeals noted that the inspection charge served a valid regulatory purpose by providing funding of “measures to ensure a supply of sanitary, safe, and habitable rental housing within the city’s borders.” Further, the Court noted that, although the charge resulted in the City collecting revenue, generating revenue from a valid regulatory fee where the revenue is used to support the regulatory purpose is not violative of Bolt. The Court of Appeals reviewed the costs to administer the rental property inspection program and determined that the costs of the program exceeded the revenue derived from the inspection charges, thereby indicating to the Court that the charge was proportionate to the cost of the City’s valid regulatory efforts.
On the third prong of the Bolt analysis, the Court determined that the “compulsive nature” of the inspection charge did not invalidate the charge. Relying on Bolt (and consistent with numerous cases following Bolt), the Court held that the charge serves a valid regulatory purpose and where the charge is proportionate to the costs of that regulatory purpose, the “voluntariness” prong of the Bolt test is nonetheless satisfied even if a property owner cannot avoid paying the charge.
As noted in our August 2013 newsletter, property owners continue to file lawsuits challenging the validity of municipal user fees and charges. These challenges require municipalities to carefully review municipal fees and charges in light of the Bolt analysis and case law following, so as to ensure the user fees and charges are valid user fees and not invalid taxes.