Opinion ID: 2540016
Heading Depth: 2
Heading Rank: 1

Heading: History of Hancock Amendment Jurisprudence

Text: Arbor argues that the utility charges at issue in this case were not user fees paid in exchange for services. As noted, Arbor concedes that there is no impropriety in transferring money from one city account to another. It argues, however, that the fact that the utilities have sufficient funds to make these transfers and that they collect the gross receipts charges and the communications fees show that the charges made by the utilities are more than user fees and should be held to constitute hidden taxes. Alternatively, even if they are fees rather than taxes, Arbor contends, they should be found to run afoul of the Hancock Amendment, specifically, article X, section 22(a) of the Missouri Constitution, because they can be used by the city to help defray customary governmental expenditures without a public vote.
Article X, section 22(a) provides: Counties and other political subdivisions are hereby prohibited . . . from increasing the current levy of an existing tax, license or fees . . . without the approval of the required majority of the qualified voters of that . . . political subdivision voting thereon. In Roberts v. McNary, 636 S.W.2d 332, 336 (Mo. banc 1982), this Court initially interpreted the tax, license or fees language of section 22(a) to include virtually any pecuniary exaction by a political subdivision. Keller overruled this aspect of Roberts and held that raising fees paid for municipally provided services or goods do not need to be submitted to the voters each time they are raised, because revenue measures that operate to compensate a political subdivision for benefits supplied are not taxes and do not run afoul of section 22(a). 820 S.W.2d at 305. Keller itself provides a good example of this distinction between user fees and taxes. The Keller plaintiffs challenged the constitutional validity under section 22(a) of an increase in the schedule of charges imposed by a county ambulance district for actual ambulance services rendered. Id. at 302. The evidence showed that prior to the increase, the ambulance district charges were sufficient to cover its expenses, but that it nonetheless increased its charges by 25 percent to 100 percent for various services. Id. at 310 (Holstein, J., dissenting). Plaintiffs objected to this increase, arguing that the increase in the revised schedule of charges should have been submitted to the voters for approval under the Hancock Amendment. Id. at 302 (principal opinion). Keller took up the task of ascertaining the meaning of section 22(a) in light of its context and the voters' intent. Id. at 303. In examining the portion of section 22(a) of the Hancock Amendment requiring a vote of the people for an increase in a tax, license or fees, Keller remarked: If the people of Missouri intended to prohibit localities from increasing any source of revenue without voter approval, a general term like revenue or revenue increase could have been used. Instead, the people of Missouri characterized fees in § 22(a) as an alternative to a tax. This characterization suggests that what is prohibited are fee increases that are taxes in everything but name. What is allowed are fee increases which are general and special revenues but not a tax. Id. Keller found additional support for this interpretation in the use of the word levy in section 22(a) because [i]n ordinary usage, a tax is levied, but a fee is charged and a `fee' can only be levied if the `fee' is actually a tax. Id. Keller then addressed the history and logic of the Hancock Amendment. It determined that the Hancock Amendment was designed only to limit non-voter-approved increases in taxes. It was not intended to replace traditional methods of controlling other increases in charges or revenue received by municipalities or quasi-governmental organizations such as the ambulance district. In this regard, the Hancock Amendment, in order to keep the public burden of taxation under control, does not prohibit these organizations from shifting the burden to the private users of these services. Id. at 304. To assist future courts in analyzing whether a charge is a user fee that is within the discretion of the public entity to increase, or instead is a tax that must be submitted to the voters before being increased, Keller set forth five factors that courts should consider: 1) When is the fee paid?Fees subject to the Hancock Amendment are likely due to be paid on a periodic basis while fees not subject to the Hancock Amendment are likely due to be paid only on or after provision of a good or service to the individual paying the fee. 2) Who pays the fee?A fee subject to the Hancock Amendment is likely to be blanket-billed to all or almost all of the residents of the political subdivision while a fee not subject to the Hancock Amendment is likely to be charged only to those who actually use the good or service for which the fee is charged. 3) Is the amount of the fee to be paid affected by the level of goods or services provided to the fee payer?Fees subject to the Hancock Amendment are less likely to be dependent on the level of goods or services provided to the fee payer while fees not subject to the Hancock Amendment are likely to be dependent on the level of goods or services provided to the fee payer. 4) Is the government providing a service or good?If the government is providing a good or a service, or permission to use government property, the fee is less likely to be subject to the Hancock Amendment. If there is no good or service being provided, or someone unconnected with the government is providing the good or service, then any charge required by and paid to a local government is probably subject to the Hancock Amendment. 5) Has the activity historically and exclusively been provided by the government?If the government has historically and exclusively provided the good, service, permission or activity, the fee is likely subject to the Hancock Amendment. If the government has not historically and exclusively provided the good, service, permission or activity, then any charge is probably not subject to the Hancock Amendment. Id. at 304 n. 10. Keller cautioned, however, that the above criteria are merely helpful in examining charges denominated as something other than a tax. No specific criterion is independently controlling; but, rather, the criteria together determine whether the charge is closer to being a `true' user fee or a tax denominated as a fee. Id. In so determining, Keller said courts should be guided by the fact that: The phrase `license or fees' in § 22 indicates an intent to prevent political subdivisions from circumventing the Hancock Amendment by labeling a tax increase as a license or fee. . . . This language requires courts to examine the substance of a charge, in accordance with this opinion, to determine if it is a tax without regard to the label of the charge. Id. at 305. Keller reasoned that, based on the above criteria, property taxes, sales taxes, franchise taxes, and income taxes, among others, are subject to the Hancock Amendment. Id. Although Keller did not detail its application of each of the five factors to the Keller facts, at various points in the opinion it found that the fees were charged only when services were provided and charged to those receiving them, not the general public; that the fees were for a service and their amount varied under a set schedule depending on the service provided; and that ambulance services are a type of service that often is privately provided but that a municipality may provide when private services are not present or are inadequate. Id. at 302, 304. Consideration of these facts favored finding that the charges were a fee not a tax, and Keller so held, stating that this Court holds that increases in the specific charges for services actually provided by an ambulance district are not subject to the Hancock Amendment. Id. at 305. In so holding, Keller rejected the Keller dissent's argument that the Hancock Amendment prohibited increases in fees by political subdivisions in every case without restriction and that requiring voter approval of all user fee increases was not necessarily a bad policy. Id. at 310 (Holstein, J., dissenting). Rather, the Keller majority stated, courts are not in the business of setting utility rates, for How much to charge users is for those elected to run the organizations. If the decisions are unpopular, the directors may be voted out of office. The only requirement placed on the directors by the Hancock Amendment is that any increase in taxes must be approved by the voters.  Id. at 304 (emphasis added).
A few years after Keller was decided, this Court again addressed section 22(a) in Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217 (Mo. banc 1993). At issue in Beatty were wastewater charges imposed by the Metropolitan St. Louis Sewer District, a governmental entity overseen by an appointed six-member board of trustees that was authorized to impose ad valorem taxes and establish charges for sewer services. Id. at 218. Beatty made clear that, in place of Roberts' holding that literally any fee increase should be considered a tax increase and, thus, subject to the Hancock Amendment, Keller had  suggested a five-pronged analysis to  assist in determining whether a governmental charge is a tax within the meaning of Article X, Section 22(a), or user fee not subject to constitutional controls. Id. at 220 (emphasis added). In applying the first Keller factor (When is the fee paid?), Beatty remarked that the question posed there is not whether the political subdivision provides a service but the regularity with which the fee is paid. Id. (the first Keller test concerns itself only with timing). Beatty resolved the first Keller factor in favor of appellants because the fee was imposed and paid on a periodic basis. With respect to the second factor (Who pays the fee?), Beatty concluded that this consideration favored MSD because [w]hile it is true that almost all residents of the district pay the charge, it is also true that only those persons who actually use MSD's services pay the charge. Id. Beatty resolved the third factor (Is the amount of the fee to be paid affected by the level of goods or services provided to the fee payer?) in favor of the appellants because the vast majority of the sewer charges were uniform among all users whereas for a governmental charge to appear to be a user fee under Keller's, third criteria, the charge imposed must bear a direct relationship to the level of services a `fee payer' actually receives from the political subdivision. Id. at 221. As to the fourth Keller factor (Is the government providing a service or good?), Beatty found that MSD prevailed because it clearly provided a service in return for a direct benefit. Finally, Beatty concluded the fifth Keller factor was inconclusive given the mix of public and private entities that have supplied sewer service historically. Id. As such, the five Keller factors in Beatty were inconclusive, with two supporting each side and one neutral. Beatty sub silentio identified a sixth factor, stating that its uncertainty as to which party the five Keller factors favored was heightened by the fact that unpaid sewer charges trigger a lien against real property by operation of law. Id. To resolve the uncertainty resulting from the fact that the Keller factors that did not point clearly in favor of or against finding that the charges were a tax, Beatty held that ties go to the taxpayer, stating that where genuine doubt exists as to the nature of the charge imposed by local government, we resolve our uncertainty in favor of the voter's right to exercise the guarantees they provided for themselves in the constitution. [4] Id.
This Court derives several lessons from the discussions in Keller and Beatty. First, it is axiomatic that the Hancock Amendment is intended to prohibit municipal fee increases that are taxes in everything but name; true user fees simply are not subject to section 22(a). Indeed, Arbor's brief itself recognizes that it would be unworkable to require the voters to determine whether a city snack stand can increase its charges for food when its own food service cost rises, or whether other true user fees can be increased in response to the increased price of gasoline, and agrees that such increases are not and should not be required to be submitted to the voters under section 22(a). But, Arbor says, even if this means utility charges otherwise would be true user fees, they should be treated differently and increases in them be made subject to the Hancock Amendment because the city has a monopoly on utility services. At another point, it suggests that the Keller factors should apply only to a new fee for service, and not for an increase in such a fee. These attempted distinctions fly in the face of Keller and the Hancock Amendment itself. As Keller held, the Hancock Amendment is intended to preclude an increase in taxes, including taxes masquerading as fees, without a public vote. This Court must decide the questions before it based on this law, not on what is argued to be a better policy. Nothing in the text of the amendment or in this Court's prior cases would permit treating as taxes any increase in fees, or at least doing so if a municipality is the sole provider of the services in question, while considering newly imposed fees, at least if those fees are for non-exclusive services, actually to be fees. [5] User fees are not taxes and are not subject to the Hancock Amendment. Second, while the five factors set out in Keller's footnote 10 are those this Court believes are most likely to assist courts in determining the tax versus fee issue, they are not intended to be exhaustive. Keller itself cautioned that the factors are helpful, but that no one criteria is controlling and that evaluating the criteria together can determine whether a charge is closer to a true user fee or a tax. 820 S.W.2d at 304 n. 10. In other words, consideration of the Keller factors is a necessary step, but the purpose of their use is not because an arithmetic score will be determined that decides whether the particular charges in question pass or fail but rather is to assist the courts in determining the ultimate issue of whether the charge is a user fee or a disguised tax. [6] For these reasons, while a court should first consider the five Keller factors and while in most cases they will be dispositive, when the balance is a close one other factors also may need to be considered. In Beatty, that included the fact that any unpaid charges became a lien on the estate, making the charges more in the nature of taxes than fees.