Opinion ID: 835654
Heading Depth: 2
Heading Rank: 1

Heading: Reasonably Necessary Fees

Text: Simplot first argues that the department erred by failing to set inspection fees in an amount that was reasonably necessary to cover the cost of [the] inspection and administration of the inspection program. In Simplot's view, maintaining reserve funds was not a proper part of what was reasonably necessary. The department responds that the reserve was reasonably necessary as that phrase is used in ORS 632.940. In Springfield Education Assn. v. School Dist., 290 Or. 217, 621 P.2d 547 (1980), this court considered the interpretation of statutory terms that delegate authority to an administrative agency. Springfield delineated three categories of terms, each of which requires a different level of appellate court deference to an agency interpretation of a particular term. The first category includes terms of precise meaning, the meaning of which are easily discernible on their face and require only agency factfinding in their application. Id. at 223, 621 P.2d 547. This court reviews an administrative order applying a term of precise meaning for substantial evidence in the record. Id. at 224, 621 P.2d 547; see also ORS 183.482(8)(c). The second category includes inexact terms which constitute a complete expression of legislative policy. Springfield, 290 Or. at 224, 621 P.2d 547. A court reviews the agency's actions pursuant to those terms as a matter of law to determine whether the agency's action effectuated the legislative policy, as evidenced by the text and context of the statute. Id. at 227-28, 621 P.2d 547; see also ORS 183.482(8)(a); Coast Security Mortgage Corp. v. Real Estate Agency, 331 Or. 348, 353-54, 15 P.3d 29 (2000) (illustrating process; identifying and construing inexact statutory term). The third category consists of delegative terms, which the legislature uses when it intends to confer discretion on the agency to refin[e] and execut[e] generally expressed legislative policy. Springfield, 290 Or. at 228, 621 P.2d 547. When it is acting pursuant to a delegative term, an agency carries out a function that is essentially legislative. Id. at 229, 621 P.2d 547. This court reviews a final order applying a delegative term as a matter of law to determine whether that decision is within the range of discretion allowed by the more general policy of the statute. Id. at 229, 621 P.2d 547; see also ORS 183.482(8)(b)(A) (requiring remand if agency exercises discretion beyond range delegated by law). The department argues that the phrase reasonably necessary is a delegative term that provides it with discretion to set fees in a manner that advances the generally expressed legislative policy of the inspection statute. Simplot disagrees, asserting that reasonably necessary is an inexact term. In our view, both parties focus too narrowly on the words reasonably necessary, when the proper inquiry also must encompass the words that immediately follow: to cover the cost of inspection and administration. Viewed from that perspective, the phrase reasonably necessary to cover the cost of inspection and administration is not so general as to constitute a delegative term, because it does more than simply set a generally expressed legislative policy for the department to pursue. Instead, that phrase tells the department how to pursue the policy objective of funding an inspection program: It is to do so by setting fees that bear a defined relationship with the likely range of costs for the program. The department may determine what the cost of inspection and administration likely will be, and then it must set the fees at a level that will cover those costs. Therefore, that phrase is an inexact term that expresses a complete legislative policy, and we review the department's action to determine whether it effectuated that policy. The question remains whether the completed policy expressed in ORS 632.940 allowed the agency to set fees at a level that would allow it to establish a reserve fund. The text and context of ORS 632.940 contain several indications that a reserve fund is consistent with that policy. First, ORS 632.940 requires the department to set fees in an amount sufficient to cover the cost of such inspection and administration of this section. (Emphasis added.) By explicitly referring to the costs of administration, the legislature indicated that revenue raised by fees need not be precisely tailored to the direct costs of inspection only. In creating a reserve for administrative contingencies, the department ensured that the indirect costs of administration, as well as the direct costs of inspection, were covered. Second, ORS 632.940 requires that all fees be deposited in the Department of Agriculture Service Fund and provides that the revenues in that fund shall be continuously appropriated to the department for the maintenance of the program. That provision effectively structures the program to be self-sustaining and therefore free from possible cash flow interruptions that might require legislative assistance. The state's fiscal year ends on June 30, at the start of the peak inspection season. At that moment, the department needs to have available the inspectors and administrative resources to perform the work that will produce revenues in the coming year. If the department were required to forego a reserve and narrowly tailor its fee intake in a particular year to its expenditures in that year, then the department would risk the very funding shortfalls that ORS 632.940 appears to be intended to guard against. Finally, ORS 632.940 specifically directs the department to adjust the fees to be collected. That implies that the revenue that the department raises through fees will not always remain at the exact level necessary to support the department. For all of those reasons, we conclude that the department's practice of maintaining a reserve fund is consistent with the legislative policy behind ORS 632.940 and therefore is within the department's fee-setting authority under that statute. In addition to challenging the practice of maintaining a reserve fund, Simplot challenges the amount of that reserve. As noted previously, the department determined that four months' operating costs was an appropriate reserve. Simplot advances no cogent argument that a four-month reserve is unreasonable or inconsistent with the legislative policy described above, and we are aware of none. In fact, as noted, that specific level was recommended as part of the department's cooperative agreement with the USDA. Although the amount of the reserve fluctuated above and below the target level, the record indicates that the department, as required by ORS 632.940, continually adjust[ed] the fees by increasing them to build the reserve when it was low and reducing them when the reserve was high. That practice also appears consistent with legislative policy.