To talk to residents about a settlement in an expensive franchise fee lawsuit, and how it could impact an upcoming public safety levy, the City of Billings must first get a judge's permission.
The city and residents have been locked in a class-action lawsuit over franchise fees that for decades had been added to residential sewer and water bills. Two years ago, a group of citizens who contend those fees were illegal sued the city and eventually got class status that includes every property tax payer in Billings.
But, because the city is funded by residents, that means residents essentially sued themselves. So, win the suit or lose it, residents will have to pay.
Already, attorney fees in the case are more than $1.4 million, and that price tag will grow by many millions more if the city is ordered to rebate part of the franchise fees. And, all of this comes at a time the city is hurting for money, currently facing a budget deficit of up to $7 million, according to the suit. As it is, the city has nearly drained its reserve account to stay afloat, the city’s attorneys stated in a court filing.
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Two years ago, residents had offered to settle the case for $20,000, the suit states. The city refused.
The case has gone to a mediator who suggested a settlement that both sides are still wrangling over.
Whatever amount the city agrees to in the settlement, paying it could require deep cuts into city services. The alternative is to raise taxes, which the city can’t do because it’s already maxed out by city charter on how many mills it can levy.
That has the city spooked about its Sept. 15 public safety mill levy vote. And, that’s why city officials want to warn voters that if they don’t pass the levy, the budget and service cuts needed to pay the settlement could imperil public safety.
The lawsuit is the reason the city can’t address voters without getting permission. State rules of legal conduct generally prohibit parties in a pending civil action from talking to each other to avoid any appearance of attempted coercion. A ruling on the city’s request is pending from District Judge Gregory Pinski, the Cascade County judge who is overseeing the case.
The city wants to issue a statement about a settlement offer and discuss the lawsuit with the City Council and news media.
City officials have promoted the upcoming public safety mill levy as a way to continue funding police confronting the city’s rising crime rate, and to expand the fire department. “Violent crime in Billings has doubled over the last 12 years and Billings needs to build and staff additional fire stations,” the city’s attorneys said in a court filing.
“City residents must understand that budget cuts and public safety personnel reductions are likely if the mill levy does not pass. These impacts are worsened by the ongoing costs of this case to the city,” the city’s attorneys said.
‘Staggering incompetence’
Those potential cuts, and the mounting cost of the lawsuit, are the city’s own fault, the attorney representing Billings residents has said in filing. Matthew Monforton is a Bozeman lawyer who served one term as a Republican state representative in 2014. His co-council in the lawsuit is Kristen Juras of Great Falls, who is currently Republican Greg Gianforte’s running mate for Montana governor.
By accepting the $20,000 settlement offer in March 2018, the city could have walked away before the lawsuit was even filed, said Monforton in one brief.
He further called the city’s proposed press release to residents a deception that would “falsely shift the blame for years of costly and unnecessary city litigiousness.”
Now, after two years of “frivolous, dilatory litigation” by the city, the plaintiffs’ attorneys have racked up nearly $800,000 in fees and the city has paid at least $564,000 to an outside law firm, as of July 31, according to court records.
“Had the city been governed by rational decisionmakers and properly advised by attorneys,” the city could have ended this, Monforton said.
The potential multimillion-dollar expense is the “result of staggering incompetence by city officials and years of inexcusable fee churning by its attorneys."
Asked by The Billings Gazette to comment, Doug James, one of the attorneys handling the case for the city, said in an email, "because of the rules governing class action cases, we cannot discuss the cases until we receive a ruling from the court."
Franchise fees
Beginning in 1992, the city has tacked on 4 or 5% in monthly franchise fees to its water, wastewater and garbage disposal bills. Typically, a franchise fee is charged by a utility or other entity and paid to the city as a sort of rent for using public property to run its pipes, or poles or wires.
But, in this case, “the term ‘franchise fee’ is a lie,” Monforton said in the suit. “ … The franchise fees were not fees and there never was any franchise involved. The city water, wastewater services and solid waste disposal services directly to customers rather than contracting with a franchise.”
Roger Webb of Billings is a former Republican state senator who was among the original group of residents filing the lawsuit. He told The Gazette that since 1992, the city has collected as much as $50 million in the franchise fees. The proposed settlement could force the city not only to pay the attorney fees for both sides, but to rebate a portion of the franchise fees. He understands the rebate could be between $18 million to $20 million, with taxpayers in the city each getting about $300 in rebate.
When the resident group filed its original suit in May 2018, the city dropped the franchise fee, something the plaintiffs contend in briefs is an acknowledgement the fees couldn’t be defended in court.
It wouldn’t be the first time the city has collected a franchise fee it later had to halt because of a court challenge.
While attorney Bill Cole successfully campaigned for the mayor’s office in 2017, he said the city “has had a bad track record in the Montana Supreme Court on a lot of fees that have been determined to be taxes and that go beyond their statutory authority,” he was quoted as saying in a court brief. The city has lost “about four different lawsuits on that question over time,” he said.
The city “has been desperate in the past because it has bucked up against the” the mill levy cap, Cole said.