Class-action suit alleges Whitefish’s impact fees unlawful

A class-action lawsuit has been filed in U.S. District Court of Montana against the city of Whitefish alleging that the city has been charging “unreasonable, unlawful and unconstitutional” impact fees for new development.

“These impact fees greatly exceed reasonable compensation for the actual impacts of new development, remodels and renovations on water and wastewater services in the city,” the lawsuit alleges.

Plaintiffs in the suit include Jeff Beck, Robert Odenweller, Terri Odenweller, Amy Weinberg, Zac Weinberg, Alta Views, LLC and Riverview Company, LLC. All the plaintiffs are individuals or companies that applied for building permits with the city and were charged impact fees for water and wastewater services.

Impact fees are one-time charges for new development or remodels to compensate for the cost of public infrastructure required to provide services. State law allows local governments to charge impact fees, but provides limitations on how those fees may be established and calculated.

The lawsuit alleges that the city unlawfully inflated impact fee rates, overcharging homeowners and developers. It claims the city charged fees inconsistent with the impact of development, that there are inaccuracies in the way the fees were calculated and that planned future projects were erroneously included in setting fees.

Attorneys with the Laird Cowley of Missoula and the Odegaard Kovacich Snipes of Great Falls are representing the plaintiffs.

WHITEFISH CITY officials in September 2021 admitted they made an error in calculating impact fees that likely resulted in overcharges for new developments and planned to issue refunds accordingly.

City Manager Dana Smith at the time acknowledged that city staff made an error that likely resulted in overcharges, saying the city would review its records to determine refunds.

The error was initially revealed after Whitefish residents Paul Gillman and Bill Burg brought forward concerns about the city’s calculation of impact fees after Gillman began examining the impact fees after looking at constructing a home addition.

The plaintiffs in the case say that the city, at the time the lawsuit was filed in February, had not yet refunded the fees they claim were not properly collected.

During the City Council meeting on Feb. 22, Smith addressed the impact fee issue, saying that the city is completing an audit of its impact fees for building permits between Jan. 1, 2019 and July 31, 2021, and issuing refunds accordingly.

“Those funds will be remitted back to the property owners, not the developers or the contractors, because state law does call that out very specifically that it goes back to the property owner when the refund is due,” Smith said. “We have sought legal counsel and through our auditors that a refund would be due when it’s estimable and actually found. It makes sense from a financing perspective in that the property owner paid a higher cost for the build or the purchase of the home that the impact fee would be included in the cost to purchase.”

Smith said the average refund for those who were affected by the error is estimated to be about $700 to $850. The total amount expected to be refunded to those with past building permits is estimated to be $133,000, she added.

Refunds have already been issued to those with current building permits and those refunds totaled $63,000, she noted.

DESPITE THE city saying it will issue refunds, Mark Kovacich, one of the attorneys representing the plaintiffs, said refunding the amount overcharged for the fees doesn’t account for the miscalculations that are behind the fees.

“We filed the lawsuit because we want to make sure that people who paid the fees are repaid because they paid an improper amount,” he said. “The city’s calculations fall short of what they should receive.”

In addition, Kovacich said the city should be issuing refunds to the holder of the building permits rather than the current property owner because that is the individual who paid the fees.

“They’ve indicated that repayment in all cases will go to the current property owner, but in many cases, the building permit application is no longer the owner,” he said. “This is a substantial sum of money we're talking about per applicant and all of the overcharges amount to a large figure.”

City Attorney Angela Jacobs says the city is following state law by issuing refunds to the property owners and not those who were issued the building permits.

“We have acknowledged that we made a clerical error and we’re working to audit our records to provide refunds, that’s just taking time,” she said. “The impact fees were created based upon what was provided to us by our consultant and we trust that was done correctly.”

THE LAWSUIT alleges several complaints against the city regarding its impact fees.

The city in 2018 hired FCS Group, a utility rate consulting company, to study and provide an update on the maximum impact fee rate it can lawfully charge for the impacts of development. The lawsuit alleges that city officials used a report by FCS and a previous study to establish impact fee rates, but in doing so began charging fee rates that exceed the actual impacts of new development on water and water services.

The suit goes on to claim that the city in 2018 altered its impact fee assessment program in a way that water fixture unit counts on new development projects were inflated. The city calculates its water and wastewater impact fee rates based upon planned water meter size and the number of water fixture units in a project.

The suit says the city requires all plumbing and water fixtures to conform to the requirements of the International Association of Plumbing and Mechanical Officials Uniform Plumbing Code, but allegedly assigns certain fixtures to a higher and more costly category than what is set by the plumbing code, and also requires larger water meter sizes than the code does.

As a result of what the plaintiffs say is an erroneous method for counting water fixture units, the city has been charging impact fee rates that exceed the actual impacts of new development or remodels have on water and wastewater services in the city.

THE LAWSUIT also claims that the city improperly based fees on future capital improvements projects that have since changed or are no longer planned, and improperly calculated the impact of one such project.

One of the projects included in the city’s calculations for determining impact fees was an $8.4 million project dubbed the South Water Reservoir. But the lawsuit claims that little or no money has been spent on the project and yet the city continues to make changes to the project rendering it unlawful to be included in calculating fees.

In addition, the lawsuit also points out that the city used a planned $4 million solar array project for supplying electricity at the wastewater treatment plant to increase impact fee rates, but the project has since allegedly been scrapped entirely.

Finally, the suit claims a projected $10 million cost to upgrade the water treatment plant was incorrectly factored into fees when the impact was not calculated to reflect that the cost would be spread out among more future users.

THE LAWSUIT claims the city violated the taking clause of the Fifth Amendment of the U.S. Constitution that says, “[N]or shall private property be taken for public use, without just compensation.”

It also says that the city violated state law regarding impact fee rules and that the city was negligent based on state law and the Constitution in not taking reasonable care in calculating and imposing impact fee rates, and that it misrepresented itself regarding the fees thus allegedly causing the plaintiffs to suffer monetary damages.

The plaintiffs are asking that the city’s resolutions regarding impact fees be found unlawful and that refunds be paid to those who paid impact fees above what is allowed under U.S. and state law. In addition, they are seeking payment of their attorneys’ fees.

AFTER THE City Council in 2019 passed resolutions regarding the matter, Whitefish twice set new, higher impact fee rates for the infrastructure areas it collects fees for, including water and wastewater services.

Impact fees can be used for public improvements and to recoup the costs from such previously incurred by the city. Under state law, cities are required to review and update impact fee studies every five years.

Whitefish has been charging impact fees since 2007.

A class action lawsuit means that the plaintiffs have filed a lawsuit for themselves but also on behalf of others who may have applied for building permits with the city.

Features Editor Heidi Desch can be reached at 758-4421 or hdesch@dailyinterlake.com