Opinion ID: 2339485
Heading Depth: 2
Heading Rank: 1

Heading: May a municipal utility impose a connection fee for the privilege of tying into a new or existing system?[3]

Text: At least insofar as existing systems are concerned, it appears to have been assumed that, provided there is equality of treatment, a municipal utility may impose a reasonable connection fee for the privilege of tying into the system. Colonial Oaks West, Inc. v. Township of East Brunswick, 61 N.J. 560, 567 (1972) (upholding a $120 fee that included a portion of the cost of increasing the capacity of the township's water supply and system in order to provide the    service). That a municipality could impose such a charge was implicitly suggested in S.S. & O. Corp. v. Township of Bernards Sewerage Auth., 62 N.J. 369 (1973), where the Court held invalid a $900 connection fee, but did so because it irrationally distinguished between `development' homes and similar dwellings in the community connecting within the same time period. Trump Plaza Corp. v. Atlantic City Mun. Util. Auth., 192 N.J. Super. 376, 386 (Law Div. 1983) (citing S.S. & O. Corp., supra, 62 N.J. 369); see also Piscataway Apartment Ass'n v. Township of Piscataway, 66 N.J. 106, 108-09 (1974) (upholding municipal power to impose costs of constructing lateral sewer lines on new connectors). The further significance of S.S. & O. Corp. is its reliance upon Justice Mountain's opinion in Deerfield Estates, Inc. v. Township of East Brunswick, 60 N.J. 115 (1972). Although invalidating East Brunswick's effort to impose the cost of water improvements upon a subdivision developer, Deerfield recognized the municipal power to meet the costs of construction in three ways: There are three principal ways that a water main extension project may be financed. First, it may be undertaken entirely at municipal cost and expense.    In the second place the municipality may undertake the project as a local improvement and assess the cost against the owners of the properties benefited pursuant to the procedure outlined in N.J.S.A. 40:56-1, et seq. The third course is to require that the work be done at the expense of the developer either with or without a formula providing for partial or total reimbursement. Recourse to this third alternative, as to which there has hitherto existed some question, may be had only where appropriate [municipal] legislation permits the imposition and when it is fair and equitable that this be done. [60 N.J. at 131 (footnote omitted).] The overarching theme that permeates the third course is that it be fair and equitable. Id. This is the same theme sounded in Airwick Indus., supra, which emphasized the equitable and uniform nature of the charges required. 57 N.J. at 120. It was echoed in the holding of S.S. & O. Corp., supra, in which the Court would have sustained equal connection fees, but found that a charge that was $700 or $900, depending upon whether the property was an individual dwelling or part of a development, was not fair and equitable. 62 N.J. at 383-84. Finally, the theme was repeated by Justice Schreiber in White Birch Realty, supra: [t]here may be any number of ways in which a computation of a fair share can be fixed, and a utilities authority is free to adopt any one which will accomplish the result of fairly apportioning system costs among the users. 80 N.J. at 176-77. In upholding the rates and fees imposed below, the trial court in Meglino expressly recognized, in its oral opinion, the principles outlined above: regardless of what method [of financing] is chosen, equality of treatment is obviously the polestar found in all of the cases cited to this issue. We agree. Provided charges are fair and equitable, we believe a municipal utility may impose a rate or connection fee that includes a capital-recovery component. The same rationale should apply regardless of whether the municipality seeks to finance the expansion of an existing system, or the creation of a new one. This Court has never imposed on municipalities an orthodoxy of ratemaking. H.P. Higgs Co. v. Borough of Madison, supra, 188 N.J. Super. at 224-25 (rates imposed by municipality are not suspect merely because they diverge from those followed elsewhere). Nor has it been enough that a court differed from [the municipality] as to the basis for the rates. This is not the function of a court in reviewing whether the fixing of rates was arbitrary or unreasonable. By their very nature sewer rates cannot be fixed so that they will apply with exactness. Phoenix Assocs., Inc. v. Edgewater Park Sewerage Auth., 178 N.J. Super. 109, 121 (App.Div. 1981), aff'd sub nom. Phoenix Apartments, Inc. v. Edgewater Park Sewerage Auth., 89 N.J. 2 (1982). The property owners, however, contest the relevance of the principles of Airwick, S.S. & O., and White Birch, claiming there is an absence in N.J.S.A. 40:63-7 and 40:62-78 of language that parallels the provisions of authorities law authorizing the imposition of connection charges for water and sewer systems. [4] For example, they note that the language of N.J.S.A. 40:63-7 refers to the imposition of rents or charges for usage, while, in contrast, the language of N.J.S.A. 40:14A-8, governing sewerage authorities, and N.J.S.A. 40:14B-21 and -22, governing municipal water and sewage-disposal authorities, specifically refers to authority to charge and collect rents, rates, fees, or other charges for direct or indirect connection. [5] The court below noted that the authorities-law provisions, N.J.S.A. 40:14A-8,:14B-21 and -22, were amended to specifically empower utility authorities to charge connection fees as a means of recouping capital costs, but that similar statutes governing municipal utilities were not so amended. It consequently concluded that the latter, absent authority form, necessarily lacked a similar power. Meglino, supra, 197 N.J. Super. at 304-05. That argument, however, runs counter to other principles relevant to the relationship between a municipality and an authority discharging these essential functions. As Justice Heher said in another context, [a]n objective analysis of the relation between these several governmental units and the nature of the service in the context of the statutory policy reveals the fallacy of plaintiffs' reasoning. County of Camden v. Pennsauken Sewerage Auth. 15 N.J. 456, 468 (1954). In that Court's view, utility authorities serve as alter egos of municipalities in the service of essential public needs. Id. at 465. While a separate and distinct economic and governmental unit, [a municipal sewerage or utility authority] is but the means of discharging the local governmental responsibility for the public health, comfort, convenience and welfare   . Id. There appears to be no reason to conclude that the Legislature would have intended to constrain municipalities in the discharge of the same essential governmental functions. This Court has held that we should not assume the Legislature intended its grants of power to municipalities to be limited by existing states of technology or management. We are enjoined by the Constitution    [and] the Home Rule Act    to interpret statutes liberally in favor of the existence of local power to deal with local needs. Whelan v. New Jersey Power & Light Co., 45 N.J. 237, 251 (1965) (sustaining municipality's power to enter into hydro-electric power contract with regional utility company). Further, our courts have regularly looked to authority law for guidance as to municipal ratemaking, H.P. Higgs Co., supra, 188 N.J. Super. at 226-27, and the path of the law with respect to the appropriateness of connection fees has proceeded on parallel courses. Authority law has been informed by reference to municipal law. See S.S. & O. Corp., supra, 62 N.J. at 380-82 (drawing analogy between connection fees charged by sewerage authority and those imposed by municipality for water service); Ellis v. Larchmont Pharmacy Plaza, Inc., 208 N.J. Super. 359, 363-64 (App.Div. 1986) (same); Reahl v. Randolph Township Mun. Util. Auth., 163 N.J. Super. 501, 513-14 (App.Div. 1978), certif. denied, 81 N.J. 45 (1979) (liberally construing Municipal Utilities Authorities Law to facilitate dealing with local concerns). Municipal law, in turn, has been informed by reference to authority law. Luv Condominium Ass'n v. Borough of Stanhope, 192 N.J. Super. 159, 165-66, 169-71 (App.Div. 1983) (invoking authorities law to determine whether municipally-imposed sewer charges, rates, and connection fees were appropriate). Given these principles, we cannot agree that the Legislature intended to give municipalities less of an ability to recoup capital costs than that given a municipal utilities authority. It has been contended before us that allowing municipalities to charge connection fees as a capital-cost-recovery mechanism would subvert the democratic safeguards  most notably the public-hearing provisions  of utilities authority law and the provisions of N.J.S.A. 40:56-21 to -30 governing assessments for local improvements. The contention that municipalities would be less accountable under the proposed scheme is unpersuasive. First, it overlooks that under N.J.S.A. 40:49-2, municipalities, no less than authorities, must proceed by advertisement in the local paper and open public hearing before final passage of any ordinance fixing rate or connection charges. Manning v. Borough of Paramus, 37 N.J. Super. 574, 580 (App.Div. 1955). And, as noted earlier, if community members object to the fees or rates imposed by a municipality, they ultimately retain the power to induce reform at the local level through elections. In re Complaint by Township of Morris, supra, 49 N.J. at 204. We note, in addition, that management accountability within the authority structure has been called into serious question. See State Commission of Investigation, Report and Recommendations on County and Local Sewerage and Utility Authorities 385 (1983) (discussing the multitude of ills that plague sewerage authorities). However, there is one substantive concern implicated by the analogy to special-assessment law that occasions us to limit the sweep of our decision to the records before us. Underpinning the special-assessment law is the constitutional principle that [e]xaction of more than the special benefit to the property owner would constitute a taking of private property for public use without compensation. McNally v. Township of Teaneck, 75 N.J. 33, 43 (1977). Consequently, special-assessment law requires that a proposal to specially assess property shall include a statement of the costs actually incurred in making the improvement less contributions by other governmental agencies or sources, and concludes that [t]he total amount of the assessment levied upon the real estate benefited by the improvement shall not exceed the cost thereof, less any such payment or contribution. If the benefits so assessed shall not equal the cost less such contribution the balance shall be paid by the municipality. [ N.J.S.A. 40:56-24.] [6] Recent amendments to N.J.S.A. 40:14A-8,:14B-21, and -22 now provide a uniform method for calculating a permissible fair share connection fee. Although the amendments, L. 1985, c. 526, are limited in application to utility authorities, and therefore are not controlling of municipally operated utilities, the formula reflects the overriding principles that are applicable here. The Senate Committee on County and Municipal Government stated in amending the authority-law provisions: Under the uniform connection fee formula established by this bill, a connector will pay a charge based upon the actual cost of the physical connection, if made by the authority, plus a fair payment towards the cost of the system. The fair payment is to be computed by deducting from the total debt service and capital expenditures previously made by the authority the amount of all gifts, contributions or subsidies received by the authority from any federal, State or local government or private person. The remainder is then divided by the number of service units served by the system, and the results are apportioned to the connector based upon the number of service units attributed to him. The bill requires that, in attributing service units to a connector, the estimated daily flow of water or sewerage for the connector shall be divided by the average daily flow for an average single family home in the authority's district. This permits the authority to attribute a larger number of service units to a commercial building, for instance, than to a single family home. [Senate County And Municipal Government Comm., Statement to S. 1487 (1984).] Because of the similarity of principles involved, and because the Legislature has mandated that in making special assessments municipal governments bear the cost of necessary public improvements that exceed the local benefit, we do not contemplate that municipalities will seek to use connection fees in a way that would contravene that statutory policy. In most cases we believe that insistence upon equality of treatment in the imposition of water and connection fees will coalesce with the concerns of special-assessment law. Rutan Estates, Inc. v. Town of Belleville, 56 N.J. Super. 330 (App. Div.), certif. denied, 30 N.J. 601 (1959), illustrates that point. In that case, Belleville proposed to assess specially the last remaining portion of the community for the extension of water and sewer service, a charge it had never imposed on any other region of the community. 56 N.J. Super. at 333-34. Because there was not equality of treatment, the court refused to permit the special-assessment procedure to be invoked. Id. at 336. Judge Gaulkin explained: We need not determine in this case whether a municipality must pay for the extension of mains in every instance in which its water utility is operating at a profit and the extension will be a sound investment. All we need, and do, determine here is that when water mains have been built throughout a municipality without assessment and the water utility is in the position here stipulated it is arbitrary and discriminatory, and therefore unlawful, to demand that the last remaining unserved parcel, representing a small fraction of the municipality's total area, pay for the extension of mains to serve it. [ Id. ] Hence, we perceive that the symmetry of the two concepts can be recognized in the municipal-ratemaking process. The concepts have been viewed as interrelated. See Lake Intervale Homes, Inc. v. Township of Parsippany-Troy Hills, 28 N.J. 423, 441-42 (1958) (municipal ordinance imposing cost of water main extension on developer invalidated because of lack of standards analogous to those in a local-improvement ordinance); see also Divan Builders, Inc. v. Planning Bd. of Wayne, 66 N.J. 582, 603 (1975) (off-site drainage requirement set aside because of disregard of the fundamental principle prohibiting discrimination in cost apportionment). In each case the fundamental issue is fairness in apportioning the expenses. Cf. Drake v. Town of Boonton, 106 N.J. Super. 79, 84-85 (Law Div. 1969) (while municipality has power to charge single individual for cost of constructing water main to property, it must provide mechanism for reimbursement if other owners subsequently tap into main). With the qualification noted that we find nothing in this record that suggests that the costs imposed will exceed the benefits provided, we hold that pursuant to N.J.S.A. 40:63-7 and:62-78, a municipality may recoup a fair share of capital costs from residents seeking to tie in to an existing or new water or sewer system.