El Paso Apartment Association v. City of El , 415 F. App'x 574 ( 2011 )

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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 9, 2011
No. 10-50069 Lyle W. Cayce
Clerk
EL PASO APARTMENT ASSOCIATION; EPT APACHE ARMS LIMITED
PARTNERSHIP; EPT CORTESIA DEL REY APARTMENTS LIMITED
PARTNERSHIP; EPT SANTA FE VILLAGE APARTMENTS LIMITED
PARTNERSHIP; EPT DESERT TREE APARTMENTS LIMITED
PARTNERSHIP; ET AL,
Plaintiffs – Appellants
v.
CITY OF EL PASO; EDMUND G. ARCHULETA, In His Official Capacity as
President and Chief Executive Officer of the El Paso Water Utilities Public
Service Board,
Defendants – Appellees
Appeal from the United States District Court
for the Western District of Texas
No. 3:08-CV-145
Before KING, D EMOSS, and PRADO, Circuit Judges.
PER CURIAM:*
Plaintiffs–Appellants, owners and managers of apartment complexes in
El Paso, Texas, challenged the stormwater drainage fee assessed on their
properties, arguing that the fee violates the Equal Protection Clause of the
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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Fourteenth Amendment and that it is an unconstitutional occupation tax under
Texas law. The district court granted summary judgment to
Defendants–Appellees, the City of El Paso and Edmund Archuleta, the CEO of
the El Paso Water Utility Public Service Board. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The facts of this case are largely undisputed. The Municipal Drainage
Utility Systems Act (the “Drainage Act”), Tex. Local Gov’t Code Ann.
§§ 552.041–552.054, permits a municipality in Texas to establish a public utility
for the provision of stormwater drainage services. The Drainage Act permits a
municipality to assess a drainage fee to each piece of improved property served
by the drainage utility “on any basis other than the value of the property, but
the basis must be directly related to drainage.” § 552.047(a).
Severe storms in August 2006 caused substantial flooding in El Paso,
Texas (the “City”). In response, the City enacted Ordinance 16668 in June 2007,
creating a stormwater drainage utility under the Drainage Act. The City
delegated the management and operation of the utility to the El Paso Water
Utilities Public Service Board (the “Board”). Prior to the ordinance, the City’s
streets department provided limited storm water drainage services that were
financed by the City’s general tax fund.
In December 2007, the Board adopted an order implementing the drainage
utility and assessing a drainage fee on each piece of improved real property in
the City, with the exception of certain exempt properties, based on the amount
of impervious cover on the property. The order defines “impervious cover” as
“any area that has been disturbed from its natural condition in such a way as to
reduce the ability of the surface to absorb and infiltrate water into the soil.”
Impervious cover includes “buildings, pavement, parking lots, driveways,
sidewalks, and any other man-made structure or surface.”
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The Board classified the properties in the City into two primary rate
classes: residential and non-residential. The residential property class includes
all single family, duplex, and triplex properties. The residential class is divided
into three subclasses: (1) “small” properties with 1,200 square feet or less of
impervious cover; (2) “typical” properties with between 1,201 and 3,000 square
feet of impervious cover; and (3) “large” properties with more than 3,000 square
feet of impervious cover. The non-residential property class is not subdivided
and includes apartment buildings with four or more units, commercial and
industrial properties, and all other properties not classified as residential.
The Board used different methods to determine the amount of impervious
cover on residential and non-residential properties. For the approximately
140,0001 residential properties in the City, the Board determined that it would
be cost- and time-prohibitive to measure the actual impervious cover on each
property. Instead, the Board estimated the amount of impervious cover on
residential properties using data from the El Paso Central Appraisal District
(“CAD”), which is used primarily for property tax purposes. The data includes
a measurement of the surface area of the main building and the area of any
structural additions such as garages and tennis courts, but the data often does
not include the area of paved driveways, sidewalks, or patios, though it is
possible that the CAD data may capture some of these areas. For the
approximately 11,400 non-residential properties, the Board measured the actual
square footage of impervious cover using a combination of the CAD data, GIS
and aerial photography, and site visits. Unlike the CAD estimate used for
residential properties, the actual measurement of impervious cover on non-
residential properties includes private driveways, sidewalks, and parking lots.
1
The record suggests that the City now contains over 160,000 residential properties
and over 13,000 non-residential properties. We use the statistics the parties supplied in their
briefs.
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After calculating the total amount of impervious cover in the City, the
Board apportioned its estimated annual revenue requirement of $17 million
between the residential and non-residential classes, assigning each class its
proportionate share of the revenue requirement. Following some other
adjustments for collection rates and billing costs, the Board arrived at the
following current rates: “small” residential properties are assessed a flat rate of
$1.49 per month; “typical” residential properties are assessed a flat rate of $2.97
per month; and “large” residential properties are assessed a flat rate of $5.94 per
month. Charges for non-residential properties are assessed based on Equivalent
Residential Units (“ERU”), which are equal to 2,000 square feet of impervious
cover. The monthly charge per ERU is $3.03, and the total fee is calculated by
dividing the property’s impervious square footage by 2,000 and multiplying that
number by $3.03. Certain kinds of property, such as those owned by state
agencies and publicly or privately owned institutions of higher education, are
statutorily exempt from paying drainage charges. Tex. Local Gov’t Code Ann.
§ 580.003(a). The Board also decided to exempt federally-owned properties and
provide a lower rate to school districts, churches, and social-service agencies.
After the new stormwater drainage fees went into effect, several
apartment complex owners and managers challenged the classification of their
properties as non-residential and the fees assessed on their properties.
Represented by their trade association, the El Paso Apartment Association
(referred to collectively with the apartment complex owners and managers as the
“Apartments”), they filed suit in the United States District Court for the
Western District of Texas against the City and Edward Archuleta, the President
and CEO of the Board. The Apartments alleged in their complaint that the
Board’s rate structure violates their right to equal protection of the laws, that
it violates the Fair Housing Act of 1968, and that the drainage fee is an illegal
“occupation tax” under Texas law.
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At the close of discovery, the defendants moved for summary judgment,
arguing that there were no material facts in dispute and that the Apartments’
claims failed as a matter of law. The district court granted the motion for
summary judgment, and the Apartments filed the instant appeal, contending
that the district court erred in granting summary judgment with respect to their
Equal Protection and Texas state law claims. The Apartments do not challenge
the district court’s ruling on their Fair Housing Act claim.
II. STANDARD OF REVIEW
We review a district court’s grant of summary judgment de novo, applying
the same standard as the district court and viewing the evidence in the light
most favorable to the non-movant. Daniels v. City of Arlington, 246 F.3d 500,
502 (5th Cir. 2001). Summary judgment is proper when “there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” F ED. R. C IV. P. 56(a). A dispute is genuine “if the evidence is
such that a reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
III. EQUAL PROTECTION CLAIM
The Apartments’ first claim is that the Board’s use of different methods to
measure the impervious cover of residential and non-residential properties
violates the Equal Protection Clause. “The Equal Protection Clause of the
Fourteenth Amendment commands that no State shall ‘deny to any person
within its jurisdiction the equal protection of the laws,’ which is essentially a
direction that all persons similarly situated should be treated alike.” City of
Cleburne, Tex. v. Cleburne Living Ctr., 473 U.S. 432, 439 (1985) (quoting U.S.
C ONST. amend. XIV, § 1). These protections extend to administrative as well as
legislative acts. Engquist v. Oregon Dep’t of Agric., 553 U.S. 591, 597 (2008).
“[U]nless a classification warrants some form of heightened review because
it jeopardizes exercise of a fundamental right or categorizes on the basis of an
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inherently suspect characteristic, the Equal Protection Clause requires only that
the classification rationally further a legitimate state interest.” Nordlinger v.
Hahn, 505 U.S. 1, 10 (1992). “[A] classification must be upheld against equal
protection challenge if there is any reasonably conceivable state of facts that
could provide a rational basis for the classification,” and the burden is on the
challenger to “negative every conceivable basis which might support [the
classification].” Heller v. Doe, 509 U.S. 312, 320 (1993) (citations and internal
quotation marks omitted).
At the outset, the Apartments do not dispute that the provision of
stormwater drainage services is a legitimate governmental purpose. They also
agree that the Board may charge properties in the City for those services based
on each property’s square footage of impervious cover. Impervious surfaces, such
as buildings, driveways, and sidewalks, prevent stormwater from being absorbed
into the ground. The resulting runoff burdens the stormwater drainage system.
Therefore, the amount of impervious cover on a particular piece of property is
directly related to that property’s use of the stormwater drainage system. Given
the legitimacy of the Board’s objective, we conclude that the Board’s use of two
different methods to measure the impervious cover on the properties in the City
is rationally related to its decision to charge each property for stormwater
drainage services.
Faced with the task of measuring the square footage of impervious cover
on over 150,000 properties in the City, the Board determined that the most
efficient way to go about this task was to use the existing CAD data, which
provided a rough estimate of each property’s impervious cover. However,
according to the Board, the CAD data was flawed in several respects for many
of the properties classified as non-residential so the data could not be used to
estimate the impervious cover for those properties. Furthermore, the CAD data
did not include a large amount of impervious cover usually found on non-
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residential properties, such as private driveways, sidewalks, and parking lots.
The Board therefore decided to actually measure the impervious cover of each
non-residential property, spending six months and over $400,000 measuring the
impervious cover on approximately 11,400 non-residential properties in the City.
Although the CAD data for the residential properties was also missing the
square footage of private driveways and sidewalks, the Board did not
individually measure the impervious cover for each residential property because
it was not feasible to do so. The Board estimates that measuring the actual
impervious cover of all residential properties may cost over $5.6 million and take
more than six years. The cost and delay of measuring the actual square footage
of impervious cover for residential properties provide a rational basis for treating
the residential and non-residential classes differently.
The Apartments argue that the Board’s decision to measure the actual
square footage for some properties, including driveways, sidewalks, and parking
lots, but use an estimate, which does not include driveways, sidewalks, and
parking lots, for other properties was arbitrary and irrational. The Apartments
suggest that the Board should have measured for non-residential properties only
those types of impervious surfaces that are captured by the CAD data for
residential properties, i.e., the Board should not have included private
driveways, sidewalks, and parking lots in the impervious cover measurement for
the Apartments’ properties because those areas are not included in the CAD
estimate for residential properties. That argument misapprehends both the
purpose and effect of using different methods to measure the impervious cover.
The Board has not granted an exemption or given a discount to residential
properties for the driveways and walkways that may not be captured by the
estimate of impervious cover derived from the CAD data; the Board simply has
no effective way to measure the actual area of impervious cover and include it
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on the drainage bill for residential properties, so the Board instead used an
estimate of the impervious cover on residential properties.
Moreover, the Equal Protection Clause does not require the level of
mathematical exactitude that the Apartments seek. See Heller, 509 U.S. at 321(“A classification does not fail rational-basis review because it is not made with
mathematical nicety or because in practice it results in some inequality.”
(citation and internal quotation marks omitted)). The Apartments have not
demonstrated that the Board’s use of an estimate for residential properties
resulted in excluding so much impervious cover in the City that the method is
wholly unrelated to the Board’s objective of charging for stormwater drainage
services based on impervious cover. Cf. Mass. Bd. of Retirement v. Murgia, 427
U.S. 307, 315–16 (1976) (holding that a mandatory retirement statute did not
violate the Equal Protection Clause even though it had the effect of excluding
from service some qualified officers). The Board avers, and the Apartments do
not dispute, that only four percent of the impervious cover in the City is excluded
from measurement because the Board uses the CAD estimate, rather than actual
measurements, for residential properties.
The Apartments also suggest that the Board could have remedied the
perceived inequality by adding the size of an “average” or “typical” driveway to
the impervious cover estimate for each residential property. The Board
considered and rejected such an approach because there is no such thing as a
“typical” driveway in the City: some residential properties have no driveway at
all, some have very small driveways, and some have very large driveways.
Adding the size of an “average” driveway to the impervious cover for each
residential property would not increase the level of precision in measuring the
impervious cover on residential properties and could result in charging some
residential properties for impervious cover they do not have.
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Finally, the Apartments contend that the Board’s decision to place
apartment buildings with four or more units in the non-residential class and
apartment buildings with three or fewer units in the residential class was
arbitrary and irrational. The Board asserts that it classified the Apartments’
properties as non-residential in part because the Board used its existing billing
system, in which the Apartments’ properties are not classified as residential, to
bill for stormwater drainage services. The Apartments provided no evidence or
argument why this was not a rational choice. Therefore, the Apartments have
not met their burden to prove that the Board’s classification and rate structure
has no rational basis.
IV. OCCUPATION TAX CLAIM
The Apartments next allege that the stormwater drainage fee is an
unlawful occupation tax under the Texas state constitution. Under Texas law,
an occupation tax is “a form of excise tax imposed upon a person for the privilege
of carrying on a business, trade or occupation.”2 Conlen Grain & Mercantile, Inc.
v. Texas Grain Sorghum Producers Bd., 519 S.W.2d 620, 624 (Tex. 1975). The
Texas state constitution provides that an occupation tax imposed by a city
cannot “exceed one half of the tax levied by the State for the same period on such
profession or business.” T EX. C ONST. art. VIII, § 1(f). If the state has no tax for
a particular occupation, or if the tax imposed by the city exceeds one half of the
2
The district court held that the stormwater drainage fee is not an occupation tax
because the fee is not assessed on any particular profession or business, such as the business
of owning or operating a multi-family apartment building. Rather, it is assessed on every
property in the City, except those that are exempt. The district court further questioned
whether a utility fee such as the stormwater drainage fee can ever be an occupation tax. See
Bexar Cnty. v. City of San Antonio, 352 S.W.2d 905, 907 (Tex. Civ. App.—San Antonio 1962,
writ dism’d) (holding that a charge for sewer services was a utility fee and not a tax because
“a city may make a reasonable charge for the benefits received by those who use its sewers”).
The Board urges us to affirm the district court on these bases. Because we conclude that the
stormwater drainage fee does not meet the standard for an occupation tax under Texas law,
we do not address the argument that a fee such as the one at issue here could never be an
occupation tax.
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state’s tax, the city’s tax is unconstitutional. Id.; City of Houston v. Harris Cnty.
Outdoor Adver. Ass’n, 879 S.W.2d 322, 326 (Tex. Civ. App.—Houston 1994, writ
denied). It is undisputed that the state does not assess a stormwater drainage
fee to property owners. Therefore, if the stormwater drainage charge is a tax,
rather than a fee, it is unconstitutional.
We start with the presumption that the stormwater drainage fee assessed
by the Board is valid, and the burden is on the Apartments, as the parties
attacking the fee, to demonstrate that it is invalid.3 Bexar Cnty. v. City of San
Antonio, 352 S.W.2d 905, 907 (Tex. Civ. App.—San Antonio 1962, writ dism’d);
see also City of Fort Worth v. Gulf Refining Co., 83 S.W.2d 610, 618 (Tex. 1935)
(holding that an annual fee for filling stations “is under the law prima facie
valid, and unless its unreasonableness has been made to appear it must be
sustained”). To determine whether a fee is in reality an occupation tax, Texas
courts consider “whether the primary purpose of the exaction, when the statute
or ordinance is considered as a whole, is for regulation or for raising revenue.”
City of Houston, 879 S.W.2d at 326. “Revenue,” as used by Texas courts, “means
the amount of money which is excessive and more than reasonably necessary to
cover the cost of regulation.” Producers Ass’n of San Antonio v. City of San
Antonio, 326 S.W.2d 222, 224 (Tex. Civ. App.—San Antonio 1959, writ ref’d
n.r.e.); see also Tex. Boll Weevil Eradication Found., Inc. v. Lewellen, 952 S.W.2d
454, 461 (Tex. 1997) (“The critical issue is whether the assessment is intended
to raise revenue in excess of that reasonably needed for regulation.”). Whether
3
We note that the Apartments do not attack the validity of the Drainage Act or the
validity of the City’s ordinance creating the stormwater drainage utility and delegating its
operation to the Board. Furthermore, the Apartments do not contend that the schedule of
drainage fees established by the Board does not comply with Drainage Act’s requirements that
drainage fees be “nondiscriminatory, equitable, and reasonable.” Tex. Local Gov’t Code Ann.
§ 552.047(a). We therefore express no opinion on these subjects, and we address only the
question whether the drainage fees at issue are unlawful occupation taxes.
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a fee is reasonably necessary to cover the cost of regulation is a question of fact.
City of Houston, 879 S.W.2d at 326.
The Texas cases addressing this issue have generally distinguished
between license or regulatory fees and occupation taxes. The stormwater
drainage fees at issue in this case do not fit neatly into the category of a license
or regulatory fee, but the cases involving challenges to these sorts of fees are
instructive and neither party has suggested that the provision of stormwater
drainage services is not within the police or regulatory power of the City. See
Lewellen, 952 S.W.2d at 462. (“The abatement of nuisances is within the
regulatory power of the State.”). In Lowenberg v. City of Dallas, 261 S.W.3d 54(Tex. 2008) (per curiam), the court held that the fee charged annually to
commercial buildings was an occupation tax because “the revenue generated
greatly exceeded any regulatory cost” to collect fire prevention information on
the buildings and incorporate the information into a database. Id. at 58.
Similarly, in City of Houston, the court held that a permit fee charged to
billboard operators was an unconstitutional occupation tax because a detailed
accounting study confirmed that the fee generated revenue that exceeded the
cost to regulate the billboard operators. 879 S.W.2d at 329–30. On the other
hand, in Producers Association, the court upheld a dairy inspection fee because
the fee generated only approximately $30,000 in revenue when the annual
inspection costs were over $38,000. 326 S.W.2d at 224.
Here, the Board submitted evidence that the reasonable cost to provide
stormwater drainage services to the City is approximately $17 million per year.
The Apartments have provided no evidence to suggest that this amount is
unreasonable or that it does not represent the Board’s actual cost to provide the
City with stormwater drainage services. On the contrary, the Apartments
appear to agree that the annual cost to provide stormwater drainage services to
the City as a whole is approximately $17 million. Because the Apartments
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provided no evidence that the Board collects more than $17 million per year from
the stormwater drainage fee, we conclude that the fee is not an unlawful
occupation tax.
Nonetheless, the Apartments argue that the drainage charge is not
reasonably related to the provision of stormwater drainage services to their
properties. See City of Houston, 879 S.W.2d at 326–27 (noting that a license or
regulatory fee “must bear some reasonable relationship to the legitimate object
of the licensing ordinance” (emphasis omitted)). The Apartments suggest that
we ought to examine their fees on an individual basis to determine whether the
amount paid directly benefits each individual payor. While Texas courts do
require that the amount of the fee be related to the level of regulatory or
licensing services received by the payors, they do not require perfect
correspondence between the fee charged and the service received. See id. at
329–32; see also Producers Ass’n, 326 S.W.2d at 224 (examining the total
revenue generated by the inspection fee, rather than each producer’s individual
fee, to determine whether the fee was an unlawful occupation tax).
Even were we to examine the drainage fee with such precision, the
Apartments have not provided any facts from which a fact-finder could conclude
that the amount they are charged exceeds the Board’s cost to provide stormwater
drainage service to their properties. See City of Houston, 879 S.W.2d at 326
(“Before such legislation will be declared void, the unreasonable and oppressive
nature of the exaction must be clearly apparent from the record.”). The
Apartments simply assert that the actual cost to provide stormwater drainage
services to their properties must be lower than what they are being charged
because certain properties in the City, including those owned by school districts,
religious organizations, social-service agencies, and state and federal agencies,
pay a reduced fee or no fee at all. The Apartments argue that the fees they pay
are thus being used to subsidize the provision of services to these so-called
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“socially-favored properties.” However, the fact that the Board has classified
properties and charged different rates to the properties in the City does not, by
itself, automatically lead to the conclusion that the fees charged to the
Apartments’ properties are unrelated to the services they receive. The
Apartments provided no evidence regarding the amount they allege is used to
subsidize the provision of services to other properties; nor have they provided
any evidence regarding the amount that they allege they may have overpaid.
The Apartments’ remaining theories that the drainage fees are unrelated
to the provision of stormwater drainage services are afflicted with the same lack
of evidence necessary to create a genuine factual issue. See Matsushita Elec.
Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (“[T]he nonmoving
party must come forward with specific facts showing there is a genuine issue for
trial.” (emphasis and internal quotation marks omitted)). First, the Apartments
claim that the drainage fee is unrelated to stormwater drainage services because
ten percent of the fees collected are allocated to various “Green Projects,”
including the acquisition of “open spaces, greenways, arroyo and wilderness
areas in their natural state,” but the Apartments have provided no evidence that
the acquisition of open space is unrelated to stormwater management. Second,
the Apartments claim that certain of their properties are assessed a drainage fee
even though the properties present little risk of creating stormwater runoff that
would burden the drainage system because the properties have their own
drainage ponds. The Board provides a twenty-five percent credit to certain
properties with drainage ponds, and it has set up a system whereby property
owners can apply for complete exemption. However, the Apartments do not
contend that any of their properties place no burden on the drainage system, or
that they applied for and were denied an exemption for any of their properties.
Finally, the Apartments take issue with the Board’s adjustment to the drainage
fee for its expected revenue realization rate (the amount billed to all properties
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vis-à-vis the expected collection amount). The Board used a seventy-five percent
revenue realization rate for non-residential properties and a ninety-eight percent
revenue realization rate for residential properties. The Apartments do not
contest the factual basis for the adjustment—i.e., that the Board will not collect
every dollar billed—they simply claim that this adjustment for non-residential
properties was unreasonable without providing any evidence that the Board
should have used a different realization rate or none at all.
The stormwater drainage fee charged by the Board does not produce
revenue in excess of the cost necessary to provide stormwater drainage services
to the City. In addition, the Apartments have provided no evidence from which
we, or a reasonable jury, could conclude that the drainage fees charged to the
Apartments are not reasonably related to the stormwater drainage services
provided. Therefore, we hold that the drainage fees are not unconstitutional
occupation taxes under Texas law.
V. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
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