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Knob Hill Development LLC v. Town of Georgetown

Court of Appeals of Indiana

September 11, 2019

Knob Hill Development LLC; ASB LLC; RPO Construction, Inc.; Written Builders LLC; Appellants-Petitioners,
v.
Town of Georgetown, Indiana, Appellee-Respondent.

          Appeal from the Floyd Superior Court The Hon. Susan L. Orth, Judge Trial Court Cause No. 22D01-1803-MI-307.

          ATTORNEYS FOR APPELLANTS J. Christopher Janak Paul D. Vink Bradley M. Dick Bose McKinney & Evans LLP Indianapolis, Indiana ATTORNEY FOR AMICI CURIAE THE NATIONAL ASSOCIATION OF HOME BUILDERS AND INDIANA BUILDERS ASSOCIATION Jason A. Lopp McNeely Stephenson New Albany, Indiana

          ATTORNEYS FOR APPELLEE L. Rachel Lerman Barnes & Thornburg LLP Los Angeles, California Nicholas K. Kile Barnes & Thornburg LLP Indianapolis, Indiana Kristi L. Fox Fox Law Offices, LLC New Albany, Indiana ATTORNEYS FOR AMICI CURIAE ACCELERATE INDIANA MUNICIPALITIES AND INDIANA MUNICIPAL LAWYERS, INC. Douglas D. Church Alexander P. Pinegar Church Church Hittle & Antrim Noblesville, Indiana

          Bradford, Judge.

         Case Summary [1]

         [¶1] Knob Hill Development LLC; ASB LLC; RPO Construction, Inc.; and Written Builders LLC ("Builders") are all real-estate developers who appeal from the trial court's refusal to invalidate a 2018 ordinance passed by the Town of Georgetown ("the Town") setting charges for new customers of the Georgetown Municipal Sewage Works ("the System"). Builders contend that the system development charge ("SDC"), a/k/a connection fee, in the ordinance is arbitrary, capricious, and contrary to law. Builders also contend that a provision of the ordinance that automatically increases the SDC 2% each year is contrary to law. Because we disagree with Builders' first contention but agree with the second, we affirm in part, reverse in part, and remand with instructions.

         Facts and Procedural History

         [¶2] Builders each own property that is or will be connected to the System, which was constructed in the early 1990's and had its flow treated by the City of New Albany at the time. In 1994, the Town received approximately $3.8 million in grants ("the 1994 Grant") and, in 1998, the federal government forgave approximately $1.25 million in loans to the Town ("the 1998 Loan Forgiveness"). In 2004, the Town adopted an ordinance to finance expansions to the System, which began charging SDCs per equivalent dwelling unit ("EDU") upon connection. The SDCs were initially set at $2300 and $4800 per EDU for new in-town and out-of-town connections, respectively, to increase $100 per year after 2004.

         [¶3] In or around 2011, the Town determined that it should build its own treatment plant, which it did, with the plant having an initial capacity of 350, 000 gallons per day. The Town received a $3.5 million grant pursuant to the American Recovery and Investment Act ("the ARRA Grant") to fund construction of the treatment plant. In the years since, the Town has almost outgrown the plant's original capacity and is in the process of expanding it to treat 700, 000 gallons per day. The Town has devoted $3.1 million borrowed from the Indiana State Revolving Fund and over $900, 000 in Town funds to the expansion. On February 20, 2018, the Town adopted Ordinance Nos. G-18-03 and G-18-04, which established monthly sewer user fees and new SDCs, respectively. Ordinance No. G-18-04 imposed a new SDC of $7140 per EDU for both in-town and out-of-town customers with the SDC to increase 2% each year.

         [¶4] On March 1, 2018, Builders filed a petition objecting to the rates and charges set in Ordinance Nos. G-18-03 and G-18-04. On June 19, 2018, the trial court conducted an evidentiary hearing. Doug Baldessari had advised the Town regarding the SDCs in Ordinance No. G-18-04 and testified at the hearing. Baldessari relied on the Water Environment Federation manual, "Financing and Charges for Wastewater Systems," ("the WEF Manual") which included the following guidance for setting SDCs:

Increasingly, in response to the stated goal to charge new customers for the full cost of growth, and thereby avoid the subsidization of new customers by existing customers, many state laws allow utilities to implement a combined fee approach. This approach is rapidly gaining favor in many jurisdictions. It generally applies when the current system facilities could serve future customers and a portion of the wastewater capital improvement program is also related to growth. The combined fee approach includes two separate elements
(1) System reimbursement component. Includes a portion for new customer to pay for an equitable share of existing facilities.
(2) Incremental new capacity component (also referred to as growth-related improvement component). Includes future facilities that will be constructed to accommodate growth.

Plaintiff's Ex. 3 p. 192.

         [¶5] With this guidance in mind, Baldessari testified that he had used a combined method in which the new SDC would be determined by adding (1) the value of the utility divided by the number of existing EDUs to (2) the net cost per EDU to finance new development. Baldessari's calculations, dated February 8, 2018, are shown below:

         GEORGETOWN (INDIANA) MUNICIPAL SEWAGE WORKS CALCULATION OF EQUIVALENT DWELLING UNITS AND NET EQUITY PER EDU

         Equivalent Dwelling Unit - Current:

         Annual Operating revenues (12 months ended 10/31/17 unaudited)

Collection and treatment $1,064,200
Divided by 12 months 12
Monthly revenues 88,683
Divided by average residential bill (4,000 gallons per month) 58.30
Equivalent Dwelling Units - Current 1,521
Existing System Equity
Total estimated existing system equity at 12/31/17 $8,607,778
Divided by existing number of Equivalent Dwelling Units (EDUs) 1,521
Equity per existing EDU $5,659

         [….]

         GEORGETOWN (INDIANA) MUNICIPAL SEWAGE WORKS CALCULATION OF ESTIMATED COSTS PER EDU TO SERVE NEW DEVELOPMENT

         (Per Consulting Engineers)

         Capacity and Growth Projects

Projects Necessary to Increase Capacity:
Future WWTP Expansion (add 350,000 gpd) $3,000,000
Future Upgrades to East Lift Station 200,000
Future Upgrades to West Lift Station 200,000
Future Upgrades to Misc. Small Lift Stations 200,000
Net cost of projects to serve new development 3,600,000
Divided by estimated number of proposed EDUs (l) 1,145
Net Cost Per EDU to Serve New Development $3,144

         [….]

         GEORGETOWN (INDIANA) MUNICIPAL SEWAGE WORKS SUMMARY OF CALCULATED CAPACITY FEES

Equity per existing user

$5, 659

Net cost per EDU to serve new development

3, 144

Calculated System Development Charge

$8, 803

Rounded (Use)

$8, 800

Current Fee - Inside Town 2018

$5, 100

Current Fee - Outside Town 2018

$7, 140

Proposed Fees - Inside and Outside Town

$7, 140

Proposed Fees - Inside and Outside Town $7, 140 Plaintiff's Ex. 5 pp. 2-4.

         [¶6] When calculating the total value of the utility, Baldessari testified that grants given to a utility for the purposes of keeping rates down at the time, such as the 1994 Grant, the 1998 Loan Forgiveness, and the ARRA Grant (collectively, "the Grants"), did not have to be left out. Baldessari testified that the SDC set by Ordinance G-18-04 "doesn't make the inside-of-town customers pay for growth that they don't share in[, ]" Tr. Vol. II p. 91, and that leaving items such as the ARRA Grant out of the calculations would likely leave the Town short of the SDCs needed for growth-related improvements in the ...


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