EAST LANSING — The city has agreed to a $7.8 million settlement to end a lawsuit over the 5% franchise fee it imposed on its Lansing Board of Water and Light customers beginning in 2017.
A state Supreme Court ruling in February brought to close nearly five years of litigation, including two appeals, that started in 2020 when East Lansing resident Jim Heos sued the city to challenge the fee. The Supreme Court ruled the fee was in fact a tax and therefore would have required voter approval through a provision added to the state constitution in 1978, which the city did not get.
In a news release sent at 4:30 p.m. on Friday, June 20, the city said that on June 17, the City Council approved a tentative $7.8 million settlement, pending approval by Ingham County Circuit Court Judge Wanda Stokes.
“While disappointed with the Supreme Court’s decision, the City Council is determined to seek an appropriate resolution through negotiation and move forward with the terms of the settlement, once approved by the (court),” City Manager Robert Belleman said in a statement.
Individual refunds will be set by a formula and East Lansing will not be the entity processing them, according to the release. Stokes will approve the formula before its implemented. Additional details were not released by the city.
Andrew Abood, one of the attorneys who who brought the suit, did not immediately return a message seeking comment. In April, he told the State Journal the refund amount could be about $9 million.
MORE: Judge: East Lansing wrongly ticketed residents for overnight parking
The state Supreme Court opinion was split, but only on the question of whether Heos had standing to sue. The justices, however, saw a clear answer to the question of whether the fee was an illegal tax.
“More difficult cases may arise where a tax is placed on a party and that third party chooses to pass the fee along to another,” Justice Brian Zahra wrote in the majority opinion. “Questions may arise when it is difficult to determine who has the legal obligation to pay the fee or when there are issues of traceability. Such is not the case here: the City clearly required the consumers of LBWL to pay the fee to LBWL, which was required by contract to collect and remit such taxes to the City.”
Delta Township also implemented a franchise fee for customers shortly after East Lansing did so in 2017, and in 2020, an Eaton County judge ruled Delta Township’s fee was illegal. A class-action lawsuit was settled, and the township owed BWL customers more than $2 million.
BWL is owned by the City of Lansing and pays the city about 6% of its total revenue in lieu of taxes. That amounted to about $25 million in 2022.
BWL provides some service to much of the Greater Lansing area, including about 89% of East Lansing electricity customers, as of 2023. Consumers Energy, which serves the remainder, declined to collect a fee from its customers after the city requested the utility do so in 2017.
The Supreme Court ruling noted that BWL staff had raised concerns at the time that the fee could violate the law.
The settlement is significant, as it represents about 15% of the city’s roughly $51 million annual budget.
It’s also the latest legal setback for the city.
A judge in May ruled against the city, and in favor of four people who said the city wrongly ticketed them, for parking violations on city streets.
In late 2023, the city settled a long-running lawsuit with Country Mill Farms and its owner Stephen Tennes, who sued the city for excluding the farm from the city’s farmers market because of religious beliefs. The city agreed to pay about $42,000 in damages and another $783,800 to cover Country Mills’ legal costs. The city incurred another $292,000 in expenses for its own legal costs in that case, as of October 2023, but later recovered about $185,000 from its insurers.
Contact reporter Matt Mencarini at mjmencarini@lsj.com.
This article originally appeared on Lansing State Journal: East Lansing will pay $7.8 million to settle lawsuit over illegal fee for BWL customers
Reporting by Matt Mencarini, Lansing State Journal / Lansing State Journal
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