Attorney says City of Pocatello liable to pay back fees illegally obtained from 2010-2014

The City of Pocatello must repay its utilities customers after illegally charging users millions of dollars in fees over a period several years, according to counsel for the fee payers, Nathan Olsen.

“Liability has been determined. All we have left to do is to do the math,” Olsen said.

The issues began in 2005, when the city decided to operate its utilities like private entities, adding extra “rate of return” fees, which where then moved into the city’s general fund.

Later, under a PILOT program (payment in leu of taxes) the city began charging its own water and sewer departments property tax, a fee that was then passed down to customers.

According to former Pocatello Mayor Roger Chase, the fees were only meant for new properties.

“When I was mayor, we implemented a fee…a hookup fee for new construction. And the idea behind that was that you’d be buying into the system, of the city’s utility system,” Chase said.

“And we thought that that would be fairer than going back to the citizens and having them pay for the new development. And so it was just a means to lower taxes.”

This money was then moved into the city’s general fund, allowing it to be spent on unrelated expenses. Things like legal fees and human resources.

“For instance…the water department will pay a portion of the legal fees department, the legal fees in the city. There’s a cost there for those utility fees to cover those costs, it goes to the general fund,” Chase explained.

The only thing Pocatello residents were paying for, according to Chase, was system upkeep.

“The people that lived in Pocatello and were on the system, what they paid for was maintenance of the system over the years and plus some expansion of the system. But it was just an effort to do that, because our taxes have always been really high in Pocatello and we were trying to find a way to move away from taxes as our main source of revenue. And that was the idea behind it, to see if it could offset some of those costs.”

But Olsen says the practice broke the law.

“We learned that there was this illegal program in place, where the city was collecting utility fees well in excess of what is allowed under law,” he said.

In 2006, Mayor Chase, seeking legal input about the fees, wrote a letter to the Attorney General.

In his response, a Deputy Attorney General claimed that the fees went against a 1991 ruling and were “not appropriate.”

But the advice was ignored since the city still felt they had an argument.

“That was reckless decision. In my opinion, that was obviously a huge mistake,” Olsen said. “They are paying the consequences for that.”

“We talked to our attorneys and they said that we think this is legal, we can try it. And we were wrong,” Chase said.

In 2011, the Building Contractors Association of Southeastern Idaho sued the city over the legality of the PILOT. The district court ultimately ruled the charge unlawful and in 2013 ruled that the city must stop using the PILOT as a part of user fees.

According to court documents, “When the City discontinued the PILOT component in the bills sent to users…their monthly bills decreased by about ten percent.”

But by the time the city had stopped, they had already pulled in nearly $30 million.

“We got that number from the city,” Olsen said. “We requested all of the records from the city, including the numbers they collected under this improper program and that’s the number they gave us in total.”

Chase said there was no way the numbers were that high.

“We didn’t collect $20 million…I would guess that it was less than a million,” he said.

Even though it is nearly $30 million the plaintiffs say the city took, the Gate City will only have to pay back the damages incurred from 2010 to 2014.

Once the case is closed and the fee payers are notified with the amount they are to receive, the city must find a way to pay them back. But how?

“From a legal standpoint, it doesn’t matter,” Olsen said. “They improperly took the fees, they gotta find a way to pay it back.”

It would be to the city’s benefit to return the money sooner than later, since interest grows each day it goes unresolved.

“All the more reason to get this done,” Olsen said.

“As this case is pending litigation, the City of Pocatello does not have a comment at this time,” Pocatello PIO Logan McDougall said in an emailed statement today.