ASSOCIATED HOMEBUILDERS OF GREATER EAST BAY INC v. CITY OF LIVERMORE (1961)

This is an appeal by the City of Livermore from a judgment declaring invalid two City of Livermore ordinances which provided for the payment of sewer connection charges. The judgment also allowed recovery of residential sewer connection charges by respondent, the assignee of several home builders.

The Livermore City Council by unanimous vote on April 9, 1956, adopted Ordinance No. 332, which provided in Section 2 for a sewer connection charge of $150 per dwelling unit. It also provided that sewer connection charges for commercial, manufacturing plants and other establishments should subsequently be fixed by resolution or ordinance, but none was so fixed and only residence owners paid a charge. Section 3 of the ordinance provided for the establishment of a ‘Sanitation Fund’ into which all sewer connection charges were to be deposited. This special fund was to be used for ‘expanding the sanitary sewer system of the City of Livermore and/or the servicing of any bonded indebtedness of the City of Livermore hereinafter incurred for sanitary sewer purposes.’ Section 4 of the ordinance made the payment of the connection charge a prerequisite to the issuance of a building permit. On July 7, 1958, Ordinance No. 382 was unanimously adopted by the Livermore City Council repealing Ordinance No. 332. Like the ordinance which it repealed, Ordinance No. 382 provided for a sewer connection charge of $150 per dwelling unit, but in addition established a schedule of sewer connection charges for commercial, industrial and other type buildings. Section 3 of the ordinance established a ‘Sewer Expansion Fund’ into which all sewer connection charges were to be deposited. The use of this fund was restricted to ‘expanding the sanitary sewer system of the City of Livermore and/or the servicing of any bonded indebtedness of the City of Livermore hereinafter incurred for sanitary sewer purposes.’ Section 4 of the ordinance provided that building permits should issue only upon the payment of the sewer connection charge. Other sections of the ordinance provided for reimbursement to subdividers or other property owners who were required to construct sewer mains of a larger capacity than the minimum needed to serve such property, by assessing a prorated charge against other parcels of land benefited by the increased capacity.

Prior to the enactment of the two ordinances in question, the City of Livermore provided by legislation for annexation fees, inspection fees, benefit districts and charges for extension of street or house laterals. General obligation bonds had also been issued to defray the cost of plant construction and trunk and interceptor line installations.

Respondent's assignors paid the sewer connection charges required by Ordinances Nos. 332 and 382; some payments were made under protest, others were not.

The court found that there was no reasonable relation between the amount of the prescribed connection fee and the actual cost incurred by the City of Livermore by reason of the connection to the sewer system and therefore that the ordinances were not police power enactments but were in fact revenue raising measures, made under the guise of the police power. Accordingly, the court held that as a matter of law Ordinances Nos. 332 and 382 were unconstitutional. The court also held that appellant, as a general law city, had no legislative authority to levy the charge which in the opinion of the court constituted a tax and therefore that the ordinances were invalid and void as tax measures. The court also found that the classifications established by the ordinances were discriminatory in nature for the reason that there was no valid distinction between residential buildings, which constituted one class under the ordinances, and other types of buildings which were placed in a separate classification by the ordinances.

Appellant contends that the sewer connection charge imposed pursuant to the two ordinances constitutes a valid exercise of the police power, but if not they are nevertheless valid as revenue measures. Appellant concedes that as a general law city it derives its power to tax from the general laws of the state, but it contends that Health and Safety Code, § 5471, specifically authorizes a municipality to levy a sewer connection charge.

Sewer Connection Charge As An Exercise Of The Police Power.

Every intendment will be indulged which favors the validity of legislation enacted pursuant to the police power, because upon its proper application rests the safety, health and welfare of the community. Yet the police power may not be used as a subterfuge for the enactment of a measure designed for revenue purposes alone. The courts have consistently held that the levy of a sewer connection charge by a municipality is a valid exercise of the police power incident to that entity's burden of constructing, maintaining and improving a sewer system. Harter v. Barkley, 158 Cal. 742, 745–746, 112 P. 556; City of Glendale v. Trondsen, 48 Cal.2d 93, 101–103, 308 P.2d 1; Longridge Estates v. City of Los Angeles, 183 Cal.App.2d 533, 6 Cal.Rptr. 900. See also dissenting opinion City of Los Angeles v. Offner, 55 Cal.2d 103, 10 Cal.Rptr. 470. However, respondent argues that since the cost of the sewer system and of the laterals, as well as inspection fees for making connections, were all provided by ordinance in addition to the sewer connection charge, there is no specific consideration furnished by the city in return for the charge. It follows, respondent argues, that the purpose of the connection charge can only be to raise revenue, which makes it a tax measure. Respondent overlooks the service furnished the building owner, which service is distinguishable from capital outlay or the inspection cost of making the physical connection. The municipality has a continuing burden in the operation and maintenance of its sewer system. Furnishing such service for the protection of the health and safety of the community clearly supports a consideration under the police power. If respondent intends to argue, as its brief implies, that any service furnished under the police power for which a fee is charged must be based upon a specific and ascertainable consideration capable of evaluation, it takes too narrow a view of the police power.

The same is true of respondent's corollary argument, that since the sewer connection fee collected by the municipality was required to be placed in a special fund to be used for ‘expanding the sanitary sewer system of the City of Livermore and/or the servicing of any bonded indebtedness of the City of Livermore hereinafter incurred for sanitary sewer purposes,’ it therefore bears no relation to the service furnished to the householder. Respondent argues that this use of the revenue deprives the sewer connection charge of its police power attributes. But as we have pointed out, the service furnished by the city is the use of a sewerage system by the householder. In an area of expanding population, the demand upon a sewerage and disposal system is not static. As the population increases the burden on the system increases, making it necessary to continually expand and improve the entire sewage disposal system. It is impossible to tell at which point in the community's development or by which additional connection the need for expansion arises. The significant fact is that each connection adds its burden to the system, and when the burden is sufficiently great, the system must be enlarged and improved. It cannot be said that the connector derives no benefit from the connection fee even though other provision has been made to finance the original capital outlay. The recent case of Longridge Estates v. City of Los Angeles, supra, 183 Cal.App.2d at page 539, 6 Cal.Rptr. at page 905 supports our position. The court held:

‘The power to make a reasonable charge for the connection to and use of the sewers was a proper incident to the exercise of police power by defendant to provide them. Harter v. Barkley, supra, 158 Cal. 742, 112 P. 556. There was evidence that sewage from the Longridge subdivision traverses the city sewage system for about 14 miles and from Laurel Hills about 10 miles until it reaches the point of disposal at Hyperion, and that the facilities thus used cost about $106,000,000. Plaintiffs point out that others had already paid for or had assumed the burden of paying for much of this system before the ordinances were passed which are now before us. This in no way suggests that new subdivisions should not be required to pay their fair share of the cost of expansion, repair, and replacement made necessary, in part, by their share in the use of this vitally essential service. * * *

‘The money collected from plaintiffs was placed, together with other like payments into a special trust fund of the city for use exclusively for the construction of outlet sewers. (Municipal Code, Sec. 64.19.1.) This was obviously a legal and businesslike procedure directed in part to assist the city in the discharge of the duty required by law to provide for the disposal of sewage arising within the city. People v. City of Los Angeles, 83 Cal.App.2d 627, 189 P.2d 489. This was a public purpose and neither plaintiff can avoid its proper share of responsibility, even though the benefit to that plaintiff from the dollars which it pays into this fund cannot be specifically pointed out. City of Glendale v. Trondsen, 48 Cal.2d 93, 308 P.2d 1.’

The fact that a fee charged pursuant to a legitimate exercise of the police power carries with it some of the attributes of a tax or revenue measure, does not per se negative the police power aspects of the legislation nor require the court to declare it invalid. An analysis of charges or fees of various types imposed pursuant to the police power discloses that many of them possess some attributes of a tax. One who attacks legislation ostensibly enacted pursuant to the police power has the burden of showing that the fee imposed bears no relation to the police power and that it is purely a tax measure. The enactment cannot be declared invalid simply because the fee charged possesses some of the earmarks of a tax. In relation to the dual nature of the sewer connection charge, we believe the ordinance here involved is analogous to the rubbish charge discussed in City of Glendale v. Trondsen, supra, where the court said at page 102 of 48 Cal.2d, at page 6 of 308 P.2d:

‘* * * In the instant case the ordinance is in many respects a police measure. Section 8, supra, in effect provides that every occupant of buildings must pay the charges for rubbish collection which means that they must pay whether or not they use the collection service. This is, so far as the constitutional question is concerned, if anything, less stringent than the requirement that they use the service as held in the authorities, supra, dealing with sewer and water. In those cases it was held that a charge could be made for the service even though the occupants did not want it. In most of those cases the charge was said not to be a tax but rather a service charge but it is not important whether, on this phase of the case, it be called a tax or a service charge; it is justified under the police power. As long as there is no restriction in the Constitution or charter the ordinance must be held valid. It is not claimed that the charge is excessive or discriminatory (a denial of equal protection), and it appears that a benefit is received by the occupants of all property as all the probabilities point to the existence of the accumulation of rubbish described in the ordinance on all occupied property. The benefit is the availability of the collection service to all occupants—the regular service of collection and the right to accumulate rubbish, like the benefit of sewage facilities although the occupant does not choose to use them. As said in Carson v. Brockton Sewerage Comm., 182 U.S. 398, 405, 21 S.Ct. 860, 862, 45 L.Ed. 1151; ‘Notwithstanding the former case, we think the court was correct in holding in this case that the petitioner and other property owners whose lots abutted on this public sewer did receive a benefit not common to the inhabitants of the city generally, in being permitted to discharge into it the contents of their private sewers, that the amount of such benefit was determinable by the city council, and that in its action there was nothing violative of the Federal Constitution.’ (See Patterson v. City of Chattanooga, 192 Tenn. 267, 241 S.W.2d 291; Sharp v. Hall, 198, Okl. 678, 181 P.2d 972.' [Emphasis supplied]

Therefore, the test is not whether the fee has some of the characteristics of a tax, but whether basically it constitutes a reasonable exercise of the police power. If it does, it must be upheld as valid.

Sewer Connection Charge As A Revenue Measure.

Appellant contends that if it be conceded that the sewer connection charge is a tax or revenue measure, nonetheless it is authorized by Health and Safety Code, § 5471. The pertinent portion of section 5471, Health and Safety Code, reads as follows:

‘Any entity shall have power, by an ordinance approved by a two-thirds vote of the members of the legislative body thereof, to prescribe, revise and collect, fees, tolls, rates, rentals, or other charges for services and facilities furnished by it, either within or without its territorial limits, in connection with its sanitation or sewerage systems; * * *’.

Appellant contends that a sewer connection charge is a ‘fee’ and that it is therefore specifically enumerated in the charges which may be imposed pursuant to section 5471. Appellant argues that a sewer connection charge also comes within the meaning of the term ‘or other charges for services and facilities furnished * * *.’ Both briefs contain some interesting discourse on the semantics of the two terms but we are inclined to agree with appellant's argument that a sewer connection charge is either a ‘fee’ or ‘other charge’ within the purview of Health and Safety Code, § 5471. A sewer connection charge implements and is consonant with the purposes of the section, namely, to provide and maintain a sewerage system for a municipality. We cannot agree with respondent's argument that since sewer charges are specifically mentioned in a subsequent code section concerning county sewer districts (Health & Saf. Code, § 5474) which was enacted at the same time, the legislative intent was to exclude sewer connection charges from section 5471. The legislative history of the two sections does not bear out respondent's interpretation. Section 5471 was originally enacted in 1945 as section 5470. Amendments, of no import to the question before us, were made in 1949 and 1951, as well as in 1953 when the section was renumbered 5471. Section 5474 was not enacted until 1953. The reenactment and renumbering of section 5471 at the time section 5474 was enacted was but a recodification of section 5471 which had been in existence some eight years. We cannot read into the statute the legislative intent which respondent asks us to perceive. We find support for our position in City of Los Angeles v. Offner, supra. Although there is no discussion of the import of Health and Safety Code, § 5471, by the majority, in the dissent we find the following at page 115 of 55 Cal.2d, at page 477 of 10 Cal.Rptr.:

‘The rule is well settled that a city is entitled to require payment of a reasonable charge as a condition to connection with or use of its sewer system. * * * Health and Saf.Code, § 5471 * * *.’

Justice Traynor and Justice Dooling concurred in this interpretation of section 5471 by the Chief Justice.

Respondent can derive no comfort from the majority opinion in City of Los Angeles v. Offner, supra. The sewer connection charge in that case was assessed at the rate of $400 per acre regardless of the nature of the property or the number of connections per acre. The majority opinion held that the charge constituted a property tax which was not assessed in proportion to the value of the property. Hence the sewer connection charge was held invalid because it was said to violate Section 1 of Article XIII of the California Constitution. If the connection charge in our case is to be considered a tax, it is not an ad valorem tax but an excise tax which each building owner is required to pay in order to connect to the sewer and avail himself of sewerage services and facilities furnished by the municipality. Since it is not an ad valorem tax, it cannot be said to run afoul of Section 1, Article XIII, of the Constitution. The sewer connection charge before us, if considered a tax, is similar in nature to the rubbish collection charge discussed by the court in City of Glendale v. Tronsden, supra, 48 Cal.2d at page 103, 308 P.2d at page 7, as follows:

‘* * * Considering the charge as a tax, it is more like an excise tax than any other kind. It is not a property tax because it is not on an ad valorem basis. It does not purport to tax property or any interest therein, possessory or otherwise. The charge is made against ‘occupants' of property graduated according to the nature of the buildings occupied. The charge is not against the property. We do not have, therefore, any question of double taxation or possible invalidity for a failure to assess it according to value. See Fox Bakersfield Theatre Corp. v. City of Bakersfield, supra, 36 Cal.2d 136, 222 P.2d 879. * * *’

Are The Classifications Reasonable?

Respondent also contends that both ordinances are unconstitutional in that the classifications established are discriminatory, capricious and unreasonable. Basically, the ordinances divide sewer users into two classes: residential and commercial. The classification ‘commercial’ includes industrial plants, schools, public buildings and commercial buildings. We find nothing unreasonable in placing residential buildings in one classification and non-residential buildings in another, since it is obvious that non-residential users make much greater use of the city sewer system and place a greater burden on the facilities than residential users. The principle here involved is stated in Fox Bakersfield Theatre Corp. v. City of Bakersfield, 36 Cal.2d 136, 142, 222 P.2d 879, 884 as follows:

‘* * * No constitutional rights are violated if the burden of the license tax falls equally upon all members of a class, though other classes have lighter burdens or are wholly exempt, provided that the classification is reasonable, based on substantial differences between the pursuits separately grouped, and is not arbitrary. Citations. * * *’

Ordinance No. 332 enacted in 1956 properly established the classifications residential and non-residential. It provided for a fee of $150 for a residential sewer connection but failed to fix a fee for the non-residential classification. The ordinance recited that fees for non-residential connections were to be established by the council, but up to the time of the repeal of the ordinance in 1958, no charge had been fixed for any non-residential sewer connection. Clearly, this failure to complete the classifications by fixing fees for each was discriminatory, and the ordinance was invalid.

Ordinance No. 382, enacted in 1958, and by which Ordinance No. 332 was repealed, not only established the same classifications, but additionally fixed connection fees for both residential and non-residential connections. Thus, Ordinance No. 382, both in form and in application, complied with the requirements set forth in the Fox Bakersfield Theatre Corp. v. City of Bakersfield case, supra.

Payment Under Protest—When Necessary.

Appellant contends that if either ordinance is held to be invalid then only those who paid sewer connection charge under protest may recover. Since some of the respondent's assignors paid sewer connection charges under Ordinance No. 332, which we have concluded is invalid, the question is whether the judgment may be affirmed as to those who failed to pay under protest. We think so. The basic rule is that one may not recover payments voluntarily made, and this rule applies to charges paid to municipalities. Appellant admits that payment under protest destroys the voluntary nature of a payment. But so does payment under compulsion. The question is, what amounts to compulsion or coercion? Here respondent's assignors were required to pay the sewer connection charge or forfeit the use of their property. As we have previously stated, the fee involved was incidental to the exercise of the police power. Residents of the municipality were required to connect to the city sewer system because uncontrolled sewage disposal constitutes a menace to the health of the people in the community. Each resident was required to connect to the municipal sewer system for the express purpose of protecting the health and welfare of all of the people in the area. Failure of a householder to pay the charge and connect to the sewer system meant the loss of the use of his residence. We believe the facts of the case bring it within the principle adopted by the Supreme Court in Flynn v. City and County of San Francisco, 18 Cal.2d 210, appearing at page 217, 115 P.2d 3, at page 7:

‘* * * ‘Among the instances of the relaxation of the strictness of the original common law rule is the case of payments contrained by business exigencies, that is payments of illegal charges or exactions under apprehension on the part of the payers of being stopped in their business if the money is not paid. It has been stated that the general rule with regard to duress of this character is that where, by reason of the peculiar facts a reasonably prudent man finds that in order to preserve his property or protect his business interests it is necessary to make a payment of money which he does not owe and which in equity and good conscience the receiver should not retain, he may recover it.’ * * *'

The judgment is affirmed as to sewer connection charges paid pursuant to Ordinance No. 332. The judgment is reversed as to sewer connection charges paid pursuant to Ordinance No. 382.

STONE, Justice pro tem.

DRAPER, Acting P. J., and SHOEMAKER, J., concur.