Michigan Association of Home Builders v. City of Troy ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
MICHIGAN ASSOCIATION OF HOME UNPUBLISHED
BUILDERS, ASSOCIATED BUILDERS AND September 28, 2017
CONTRACTORS OF MICHIGAN, and
MICHIGAN PLUMBING AND MECHANICAL
CONTRACTOR ASSOCIATION,
Plaintiffs-Appellants,
v No. 331708
Oakland Circuit Court
CITY OF TROY, LC No. 2010-115620-CZ
Defendant-Appellee.
Before: O’BRIEN, P.J., and JANSEN and MURRAY, JJ.
PER CURIAM.
JANSEN, J. (dissenting)
Plaintiffs allege that “significant monthly surpluses” of fees generated under defendant’s
contractual arrangement with SAFEbuilt and deposited into defendant’s general fund evidence a
violation of both MCL 125.1522(1) and the Headlee Amendment, Const 1963, art 9, § 31. The
trial court granted a motion for summary disposition pursuant to MCR 2.116(C)(10) after finding
that, as a matter of law, (1) defendant’s practice of depositing fee surplus funds into the general
fund for past shortfalls does not violate MCL 125.1522(1), and (2) defendant’s building
department charges, including any surplus, constitute fees rather than taxes. The majority adopts
the trial court’s reasoning and affirms. Because I do not agree that defendant’s practice of
raising revenue with building department charges comports with MCL 125.1522(1), I
respectfully dissent.
In its entirety, MCL 125.1522(1) provides:
The legislative body of a governmental subdivision shall establish reasonable
fees to be charged by the governmental subdivision for acts and services
performed by the enforcing agency or construction board of appeals under this
act, which fees shall be intended to bear a reasonable relation to the cost,
including overhead, to the governmental subdivision of the acts and services,
including, without limitation, those services and acts as, in case of an enforcing
agency, issuance of building permits, examination of plans and specifications,
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inspection of construction undertaken pursuant to a building permit, and the
issuance of certificates of use and occupancy, and, in case of a board of appeals,
hearing appeals in accordance with this act. The enforcing agency shall collect
the fees established under this subsection. The legislative body of a governmental
subdivision shall only use fees generated under this section for the operation of
the enforcing agency or the construction board of appeals, or both, and shall not
use the fees for any other purpose. [Emphasis added.]
This Court’s role in interpreting a statute is to, as closely as possible, decipher and carry out the
expressed legislative intent. McCormick v Carrier, 487 Mich. 180, 191; 795 NW2d 517 (2010).
The clearest indicator of Legislative intent, and the initial focus of any statutory analysis, is the
plain language of the statute itself. Id. at 191-192. “We interpret the words in the statute in light
of their ordinary meaning and their context within the statute and read them harmoniously to
give effect to the statute as a whole.” Johnson v Recca, 492 Mich. 169, 177; 821 NW2d 520
(2012) (quotation marks, alterations, and citation omitted). “In doing so, courts ‘must give effect
to every word, phrase, and clause in a statute and avoid an interpretation that would render any
part of the statute surplusage or nugatory.’ ” Id., quoting State Farm Fire & Cas Co v Old
Republic Ins Co, 466 Mich. 142, 146; 644 NW2d 715 (2002).
I believe that on its face, MCL 125.1522(1) reflects intent to limit building department
fees imposed to the cost, within reason but as closely as possible, to the department of providing
those particular services. The statute allows the building department to cover the cost of
providing the acts and services mandated under the CCA, consistent with the long-established
principle that a fee must be related to the cost of the actual goods or services provided. The
statute is intended to provide a mechanism through which a city may fully fund its building
department, but not to generate additional revenue.
To allow defendant’s building department to run deficits by choice and then overcharge
future users to make up for those deficits undermines the purpose of the statute, which is to
ensure a direct and reasonable relationship between the acts and services performed by the
department and the cost of providing those services to each individual served. Although the
statute allows defendant to apply an incidental surplus to the costs of operating the building
department, it does not allow defendant to create a surplus in order to recoup what defendant
contends was a deficit from prior years.
Although defendant concedes that it has retained SAFEbuilt to provide the acts and
services of its building department, it charges fees to cover the cost of compensating SAFEbuilt
with an intentional 20-25% surplus. Defendant claims that some of these funds are then used to
cover indirect costs of operating the building department, such as covering 40% of the building
code official’s salary and maintaining the building it leases to SAFEbuilt. However, I believe
that a 20-25% surplus is unreasonable on its face. Indeed, defendant used its building
department fees to raise $269,483 in surplus funds in 2012, $488,922 in 2013, and $325,512 in
2014, for a total of $1,083,917 deposited directly into defendant’s general fund over the course
of only three years. This “surplus” is not negligible. Common sense indicates that it is not
incidental. The amount of surplus generated, on its own, indicates that defendant is engaged in a
revenue-raising venture. Regardless of whether it is raising the revenue to cover alleged prior
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shortfalls, or any other cost of operating the building department, such an endeavor violates the
clear meaning of MCL 125.1522(1).
Also telling is what the record does not include. The record is suspiciously devoid of any
building department budgets, despite the fact that at least one building department employee
testified that detailed building department budgets were scrupulously maintained. The record
contains no evidence to support defendant’s claim that it actually ran a deficit during any
previous budget years, or to explain what expenses the building department incurred during those
years to create a more than $6 million shortfall. As proof that it suffered a deficit, defendant
relies solely on past Comprehensive Annual Financial Reports (CAFRs) which, in describing
defendant’s general revenue and expenses, list a total amount for “[c]urrent year building permit
revenue” and a total amount of “[r]elated expenses” before reporting the building department’s
yearly net shortfall. As their name implies, these CAFRs simply report a building department
deficit, they do not prove that one actually existed. Defendant processes all of its financial
transactions through one general fund. Without a specific building department budget, it is not
clear whether and how defendant incurred such massive deficits. And although the majority
suggests, in a footnote, that there is no evidence to “contradict testimony elicited on behalf of
defendant regarding its methods of accounting and asserting the accurate representation of the
fees and service costs collected and expenditures incurred in the operation of the Building
Department,” it conspicuously fails to mention that the record contains no such representation of
fees and expenditures.
Defendant concedes that it made a management decision to subsidize its building
department during the period of alleged deficit with general funds and keep building department
fees low during that time period. Perhaps defendant’s choice was pragmatic, but it was a choice.
It clearly chose not to charge fees reasonably related to the cost of performing services during
those years, and it now attempts to shuffle funds back into its general account through the back
door of operational “surplus.” The statute does not allow defendant to charge current payers and
permit applicants more than what is reasonable in order to make up for losses it chose to incur by
failing to charge previous permit applicants appropriately under the statute. To hold that under
MCL 125.1522(1), a city may engage in such creative budgeting would create a poor precedent.
Under the majority’s interpretation of the statute, a city might permissibly choose to create a
shortfall in any given year and unfairly charge unreasonable rates in subsequent years,
completely defeating the goal of ensuring that each individual fee-payer pays for the acts and
services he or she is provided.
While I believe defendant’s practice of depositing excess surplus funds into its general
fund to repay alleged prior shortfalls constitutes a clear violation of MCL 125.1522(1), and
therefore eliminates the need for this Court to address the constitutional issue presented, I believe
that defendant’s actions may also have implications under the Headlee Amendment. I disagree
with the majority’s conclusion that the fees charged by defendant are related to or associated
with the provision of specific services provided by the building department. Rather, for the
reasons discussed, I believe that defendant’s sizeable surplus was the direct result of defendant’s
attempt to raise revenue by charging excessive fees. Further, I would argue that while the person
paying a reasonable building department fee receives a corresponding benefit “not generally
shared by other members of society,” Bolt, 459 Mich. at 164, it is the public that receives the
benefit of the excess funds generated by defendant’s revenue-generating practice. These excess
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funds, which are not reasonably related to a regulatory purpose or the cost of services provided
to their payer, are deposited into defendant’s general fund and used for the benefit of all
residents. Because I am unconvinced that defendant’s building department fees are solely
regulatory, rather than revenue-generating, I believe questions remain regarding whether
defendant’s fee surplus constitutes a tax under the Amendment.
I would reverse.
/s/ Kathleen Jansen
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