Beneath A Blue Spring Sky, A Young Woman In An Orange Hardhat And An Orange High Visibility Vest Kneels On A Concrete Walkway That Runs Through A  Wastewater Treatment Plant

Sept. 26, 2023 – State law authorizes a city to charge municipalities a monthly license fee for sewage treatment services, the Wisconsin Court of Appeals has ruled.

In Mary Lane Area Sanitary District v. City of Oconomowoc, 2022AP1649 (Aug. 30, 2023), the Court of Appeals District II held that the license fees were not related to the cost of providing sewage services such that their amount must be tied to the city’s cost in providing the services.

Wastewater Treatment Agreements

The City of Oconomowoc (City) owns and operates a wastewater treatment plant.

Jeff M. Brown
Jeff M. Brown , Willamette Univ. School of Law 1997, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by
email or by phone at (608) 250-6126.

Two municipalities and two sanitary districts in the Oconomowoc area own and operate wastewater collection systems but have no treatment plants.

Those municipalities and districts – the Town of Ixonia (Town), the Village of Lac La Belle (Village), Ixonia Utility District #2 (IUD2), and the Mary Lane Sanitary District (MLSD) – signed intergovernmental agreements with the City in the late 1980s.

Under the agreements, the municipalities transport wastewater to the City’s plant and the City treats the water. In the 1990s, the City and the municipalities signed amended versions of the agreements.

License Fee

Under the amended agreements, each municipality pays the City a monthly charge, a share of the capital costs of the City’s infrastructure, other expenses, and a license fee.

The agreement between the City and MLSD states that the license is paid “in recognition of the receipt of sanitary sewerage service … without requiring annexation to the City.”

Similarly, the agreement between the City and IUD2 states that the City has agreed to treat the wastewater “notwithstanding a longstanding policy of requiring annexation before extending sewer service.”

The agreement between the City and the Village does not mention annexation, because under state law a city may not annex village land. But the agreement does state that the City is not obligated to treat the Village’s wastewater.

Between 2015 and 2021, the City collected the following amounts in license fees:

  • ·       $190,000 from the Village;

  • ·       $420,000 from IUD2; and

  • ·       $207,000 from MLSD.

PSC Dismisses Complaint

In 2020, the municipalities filed a complaint against the city with the state Public Service Commission (PSC) under Wis. Stat. section 66.0821(5).

That section grants the PSC the exclusive jurisdiction over complaints alleging unreasonable or discriminatory sewer rates.

The municipalities argued that the license fees charged by the City violated section 66.0821(4)(a), because the fees weren’t related to the cost of providing sewage service.

The PSC concluded that it lacked jurisdiction because the license fees were not sewage service charges under section 66.0821(4)(a) and dismissed the complaint.

The municipalities then sued the City in Waukesha County Circuit Court.

The circuit court granted summary judgment for the City. The municipalities appealed.

License Fees are Different

Writing for a three-judge panel, Judge Lisa Neubauer began her opinion by pointing out that license fees and sewer service charges are treated differently in the agreements.

For instance, Neubauer wrote, the license fees are charged at a set dollar amount unrelated to “any actual, estimated, or projected costs or expenses.”

She also noted that: 1) the purpose of the fees was not related to building, maintaining, or improving the City’s sewage plant; and 2) the license fees were charged annually instead of monthly, unlike the sewer service charges. 

Judge Neubauer acknowledged that section 66.0821(4)(a) authorizes a municipality to set sewer service charges to defray costs related to a sewer treatment system.

“But the mere fact that municipalities are statutorily empowered to establish these charges does not mean that any amount paid to a municipality by a user of the system in connection with sewerage treatment necessarily constitutes a ‘sewerage service charge[]’ that must be tied to the municipality’s costs to construct, operate, maintain, and repair the system,” Neubauer wrote.

Judge Neubauer concluded that the license fees were not sewer service charges under section 66.0821(4)(a).

Court of Appeals Case Distinguishable

The municipalities argued that, under Fred Rueping Leather Co. v. City of Fond du Lac, 99 Wis. 2d 1, 298 N.W.2d 227 (Ct. App. 1980), the license fees were illegal because they weren’t related to the cost of providing sewer service.

But Neubauer concluded that Fred Rueping was distinguishable because in that case, the city inserted the phrase “in lieu of tax charge” into the formula that it used to calculate the amount it charged customers for sewer treatment services.

This amount was based on the gross value of fixed assets times the amount of the local and school tax rate.

Fred Rueping did not address the issue here – whether a charge is a sewerage service charge in the first instance,” Judge Neubauer wrote.

“The license fees at issue here do not factor into the calculation of the charges owed by the municipalities for sewerage treatment services. Thus, they need not be tied to the costs that ‘sewerage service charges’ are required to meet under section 66.082(4)(a).

License Fees Negotiated, not Imposed

The municipalities also argued that the license fees violated section 66.0628(2), which requires that any fee charged by a municipality be reasonably related to the service for which the fee is charged.

But Judge Neubauer said the fees involved in cases interpreting 66.0628(2) were each imposed unilaterally by municipalities through legislative enactment.

“In contrast, the license fees at issue in this case were included in agreements the City negotiated with the municipalities,” Neubauer wrote.

Additionally, Judge Neubauer reasoned that the license fees were not subject to section 66.0628(2) because they were not charged for sewerage treatment services.

“The license fees are separate consideration for the City’s agreement to extend its wastewater treatment service beyond its borders,” Neubauer wrote.