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ST ATE OF MICHIGAN IN THE SUPRtME COURT

DETROIT ALLIANCE AGAINST THE RAIN TAX, a voluntary unincorporated association, and DETROIT IRON AND MET AL CO., AMERICAN IRON & METAL CO., MCNICHOLS SCRAP IRON & METAL CO., MONIER KHALIL LIVING TRUST, and BAGLEY PROPERTIES, LLC, individually, and on behalf of similarly situated persons,

Plaintiffs-Appellants,

V.

CITY OF DETROIT, a municipal corporation, the DETROIT WATER AND SEWERAGE DEPARTMENT, and the DETROIT BOARD OF WATER COMMISSIONERS,

Defendants-Appellees.

Frederick M. Baker, Jr. (25415) Frederick M. Baker, Jr., PLLC Attorney for Plaintiffs-Appellants 200 Washington Square North Suite 400 Lansing, MI 48933 ( 51 7) 318-6190 fmbjrpllc@outlook.com

Supreme Court Case No. 158852

Court of Appeals Case No. 339176

Sonal Hope Mithani (PS 1984) Caroline B. Giordano (P76658) Attorneys for Defendants-Appellees Miller Canfield 101 N. Main St., 7thFloor Ann Arbor, MI 48104 (734) 668-7786 mithani@millercanfield.com giordano@millercanfield.com

PLAINTIFFS-APPELLANTS' (AMENDED) REPLY TO DEFENDANTS-APPELLEES' ANSWER TO THEIR

ARGUMENT ON THE APPLICATION FOR LEAVE

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TABLE OF CONTENTS

INDEX OF AUTHORITIES ...... . .. .............................................................. ii

INTRODUCTION ............. . ..... .. .... . ......................................................... 1

ARGUMENT

THE CITY'S RAIN TAX VIOLATES THE HEADLEE AMENDMENT BECAUSE IT ARBITRATILY IMPOSES ON A SELECTED FRACTION OF THE OWNERS OF IMPERVIOUS AREA THE ENTIRE COST OF THE CSO-CONTROL SYSTEM, WHICH OPERATES FOR THE COMMON GOOD OF ALL CITIZENS OF THE CITY ................................................................................................................. 3

A. The City's claim that the Rain Tax assigns the CSO-control system costs "only to users who contribute storm water to the combined system" is demonstrably false .. . ......................................... 3

B. The City's Rain Tax imposes upon a fraction of the owners of impervious surface within the City the cost of treating water discharged from, and inflows caused by, storm water discharges and infiltration solely attributable to the City's pervious surface area ...... . .. ............... .... .. ....... .. ....................................... 7

RELIEF .............. . .. . . . ............ . ............. ................................................ 10

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INDEX OF AUTHORITIES

CASES

Bolt v City of Lansing, 459 Mich 152; 587 NW2d 264 (1998) ...................................... .3

Detroit v Michigan, 803 F2d 1411 ( CA 6 1986) ....................................................... 4

Jackson County v City o,fJackson, 302 Mich App 90; 836 NW2d 903 (2013) ..................... 3

SECONDARY AUTHORITIES

DWSD, "Property Owner's Guide to Bioretention;" (How to Manage Stormwater on your non-residential property and get DWSD drainage credit)" ....................................... 6

DWSD, "A Guide to Drainage Charge Credits" ........................................................ 6

United States Geological Survey, "Runoff: Surface and Overland Runoff. ........................ 8

United States Geological Survey, "Runoff: Surface and Overland Runoff' ........................ 9

Hoard, et al., "Full Water-Cycle Monitoring in an Urban Catchment Reveals Unexpected Water Transfers (Detroit, MI, USA) ... ...... .. ... . ...................................................... 10

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INTRODUCTION

DAART incorporates here without repetition the Statements of the Question Presented and

Facts contained in its Brief in Support of its Argument on the Application.

The extra time for preparing its Answer to DAART's Argument on the Application

resulting from A.O. No. 2020-4 1 enabled the City to provide the most detailed description so far

of the design features that enable the City's combined sewer overflow ("CSO") system to achieve

the regulatory goal of preventing CSOs during "rain events." DWSD Brief, pp 5-11, 6. As the

City explains, the Rain Tax is imposed only on the owners of impervious acreage, and is the sole

source of the funds for the consn·uction, maintenance, monitoring, and operation of the CSO

system. Id., p8 . The CSO system is necessary because, without it, during rain events, the

combined sewer would emit sewage contaminated overflows to the state's waterways. Id.

DAART agrees with the City that "[t]his Court may take judicial notice of official

government documents, including government reports," DWSD Brief, at p4 n5, and joins in asking

the Court to do for the Appendix Exhibits to this Reply. DAART's entire case rests on such

documents and records. There was no discovery or testimony here, because none was needed:

From the beginning, the City implemented its highly improvisationaf2 Rain Tax without much

concern for the obvious Headlee violations documented in its own publications, beginning in 2013,

when the City emerged from bankruptcy. Instead, it sought to protect itself from Headlee claims

A day before the City' s Answer to DAART's Argument on the Application was due under this Court's Order of January 24, 2020, ordering Argument on the Application, this Court issued its Order of March 26, 2020, A.O. No. 2020-4, suspending all filing deadlines until further notice. As a result, the City had 104 days (including an extra 83 days) to prepare and file its 47-page Brief and 1000+ page Appendix, on June 8, 2020. 2 See, especially, the ad hoc "rates" adopted to quell opposition, set out in note 7.

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with the covenant not to sue in the Jvfichigan Warehousing settlement. And if it can just kill this

case, the City will be home free.

As the City admits, it had to find a new source of revenue to replace the revenues that were

stripped from it in bankruptcy, when the revenues of ( and control and operation of) its entire tri­

county water and sewer system outside the City proper were transferred to the GL WA in exchange

for a fixed annual payment to the City that was earmarked for its water system, while the City

remained subject to the same 83%/l 7% allocation of the CSO-system costs decreed in 1999 by the

federal court. DAART App, pp 17-20. The City was forced to adopt the original Rain Tax in 2013

to secure bondholder buy-in for the plan that allowed the City to emerge from bankruptcy. Id. pp

16-20. The bondholders knew that new revenue ~ould be required to continue paying the City's

83% share of CSO-related costs after it emerged from bankruptcy. The City's pretense that the

Rain Tax is "not a new charge" because the City has assessed a storm water charge in some form

since 1975, is disingenuous, and the Court of Appeals finding to that effect is insupportable: the

City switched from a water system-wide, meter-based storm water charge to an "impervious

acreage" charge that applied only in the City of Detroit, which drastically increased total storm

water charges to City residents. The 2016 charge at issue in this case is merely an extension of the

same "impervious acreage" system that was adopted in 2013. It extended the impervious acreage

charge to the owners of prope1ties without water service that were previously not subject to a

drainage charge under the old, meter-based storm water charge implemented in 1975.

DAART commends the City for providing the clearest-yet description of the design of the

CSO control system, and of the new revenue system that the City implemented to fund it. As the

following discussion reveals, the City's own description shows that the Rain Tax is just that, a tax,

not a fee.

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Two admissions in the City's Brief highlight why the Rain Tax violates the Headlee

Amendment: First, the City states that it has "estimated which of its combined [sanitary and storm]

system costs relate to storm water and assigned those costs only to users who contribute storm

water to the combined system." Brief, p. 13 (emphasis added). Please remember this false

statement; it is used to organize the argument that follows. Second, the City acknowledges that

the total "costs are being allocated to system users by applying the drainage rate to each parcel's

individually-measured impervious acreage." Id. In short, the entire cost of the CSO control

system is allocated to the owners of impervious acreage, which is the sole basis for the Rain Tax.

DAART focuses its reply on these two crucial points, which highlight the remarkable

cornucopia of reasons to conclude that the Rain Tax violates the Headlee Amendment contained

in DAART's Application, Reply, and Supplemental Briet~ all of which are incorporated here.

ARGUMENT

THE CITY'S RAIN TAX VIOLATES THE HEADLEE AMENDMENT BECAUSE IT ARBITRATILY IMPOSES ON A SELECTED FRACTION OF THE OWNERS OF IMPERVIOUS AREA THE ENTIRE COST OF THE CSO-CONTROL SYSTEM, WHICH OPERA TES FOR THE COMMON GOOD OF ALL CITIZENS OF THE CITY.

A. The City's claim that the Rain Tax _assigns the CSO-control system costs "only to users who contribute storm water to the combined system" is demonstrably false.

Like the City of Lansing in Bolt v City of Lansing, 459 Mich 152; 587 NW2d 264 (1998),

and the City of Jackson in Jackson County v City of Jackson, 302 Mich App 90; 836 NW2d 903

(2013), the City allocates no CSO-system cost to its own streets. Instead, it immunizes itself from

the Rain Tax by defining its streets as "a part of the storm water collection system." Yet, in the

same breath, the City admits that it imposes a storm water charge on the impervious area of the

County and City-owned streets within its jurisdiction. The implications of this obvious

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inconsistency become apparent when the requirements of the Headlee Amendment articulated in

Bolt and Jackson are considered. As previously briefed,3 the City's charge violates the Bolt test's

second requirement that, to be a "fee," a payment must be "exchanged for a service rendered or a

benefit conferred, and some reasonable relationship [must] exist[] between the amount of the fee

and the value of the service or benefit." Bolt, supra, 459 Mich at 161 ( emphasis added). The City

admits that the Rain Tax it imposes only on private, state, and county owners of impervious area

funds the entire cost of the CSO-system. The City also admits --- indeed, it argues -- that treating

the storm water runoff from state and county roads at its WWTP is a "service," for which a charge

is properly payable, as the Sixth Circuit held in Detroit v Michigan, 803 F2d 1411 (CA 6 1986).

See DWSD Brief, p30 n27. DAART agrees, and always has, that treating storm water runoff from

streets is a "service" for which a fee is properly imposed. Indeed, that is the only aspect of the

decision in Detroit v Michigan that was unaffected by this Court's decision 13 years later, in Bolt.

See DAART Application, pp 19-21.

Yet in the same breath, the City contends that it is not significant that it exempts the

impervious areas of City-owned streets from the Rain Tax. The City urges that the City's streets

are not impervious areas that generate storm water runoff during "wet weather events." Instead,

by the wave of a classificational wand, unlike state and county streets that are subject to a storm

water charge, the City's streets are a "pmi of the City's conveyance system," that is "they are not

'using' the system; they are the system." DWSD Brief, p 15, n16.

3 See DAART Application, p 34; Reply, p 3; Supplemental Brief, p 13, and text following those pages.

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If that were so, then the hundreds of miles :of state and county roads and freeways,4 signed

state trunkline highways,5 and unsigned state trunklines and connectors6 located in the City of

Detroit, all o_f'which are subject to the charge the City imposes for treating storm water discharged

from their impervious swjaces, pursuant to the holding in Detroit v Michigan, supra, would

likewise be exempt from any charge. If the City's streets are part of a CSO "conveyance system"

for storm water runoff, then so, too, are the impervious surfaces of the state and county highways,

and, indeed, conceptually, so too are the privately-owned impervious surfaces that convey the

storm water to that system.

But the simple truth is that the treatment of storm water discharged from and conveyed by

all of those impervious swfaces is a service rendered for the good of all, and the charge imposed

is not propmtional to the cost and value of the service when only some of the impervious surfaces

are included in: (a) calculating the amount of the charge, and (b) determining who is subject to it.

To the question the Court posed in its Order granting argument on the Application, then,

the answer is that it makes not a whit of difference whether a drainage charge is imposed to cover

the cost of preventing and treating CSOs from a combined sewer, as in this case, or, as in Bolt, to

remedy the same problem by separating the combined sewer and creating a separate storm sewer

system - each solution serves the same regulatory purpose. The mere existence of a regulatory

purpose is not enough, by itself, to satisfy Headlee. The question still remains whether the City's

selective imposition of the charge on only a fraction of the impervious surface that generates storm

water discharges in the wet weather events that require the CSO-system to be constructed is

4

5

6

Appendix, Exhibit A, "Roads and Freeways in Metropolitan Detroit," p la. Appendix, Exhibit B, "List of State Trunkline Highways in Detroit," p 8a. Appendix, Exhibit C, "Unsigned State Highways and Trunklines," p 15a.

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contrary to Bolt 's simple and fundamental requirements: A fee may be assessed "only to users who

contribute storm water to the combined svstem," and thereby receive the benefit of the system, and

when a "fee" is imposed, it is "exchanged for a service rendered or a benefit conferred," and some

"reasonable relationship[must] exist[] between the amount of the fee and the value of the service

or benefit. " Bolt, supra, 459 Mich at 161 ( emphasis added).

When, as here, the charge covers the cost of providing a service to all owners of impervious

surface, including those (the City) who are not subject to it, the relationship between the fee and

the value and cost of the service is, by hypothesis, not reasonable. The Rain Tax is even less

defensible when, as here, it is demonstrably subject to manipulation at the City's whim, based on

categories having nothing to do with the rate of the taxpayer's usage of the service or the value of

the service provided, but on exemptions based on the status of the user, which are earmarks of a

tax, and the antithesis of a fee. 7

That is why many of the members of DAART stand to lose their property if the Rain Tax

is not overturned: As the Court of Appeals correctly found, the Rain Tax does not satisfy the third

7 See Appendix, Exhibit D, "Property Owner's Guide to Bioretention," (How to Manage Stormwater on your non-residential property and get DWSD drainage credit)," p 32a.

July 1,2015$852 NIA NIA July I, 2016$750 $125 $125 NIA July 1, 2017$661 $250 $250 NIA July 1, 2018$598 $375 $375 $125

July I, 2019$602 $500 $500 $250 July 1, 2020 $626 $625 $625 $375

July 1, 2021 $651 $677 · $677 $500 July 1, 2022 $677 $677 $677 $625

July 1, 2023 $677 $677 $677 $677 _______ ....__ ____ ____.

Rate billed will be based on previous billing method, classification, and tax status. (Emphasis added).

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Bolt factor,8 because it is involuntary. Many of the property owners subject to the Rain Tax cannot

afford to pay a charge that is inflated to cover the cost of a rendering a service not only to them,

but to others who are not subject to the charge.

B. The City's Rain Tax imposes upon a fraction of the owners of impervious surface within the City the cost of treating water discharged from, and inflows caused by, storm water discharges and infiltration solely attributable to the City's pervious surface area.

When it rains, all surfaces, pervious and impervious, discharge storm water:

When rain hits saturated or impervious ground it begins to.flow overland downhill. It is easy to see if it flows down your driveway to the curb and into a storm sewer, but it is harder to notice it flowing overland in a natural setting. [ Appendix, Exhibit F, United States Geological Survey, "Surface Runoff and the Water Cycle," p 51a (emphasis added).]

Though the City chose to ignore this elementary fact in designing the Rain Tax, and chose

to use impervious area as the sole proxy for quantifying the amount of the tax and the

owners subject to it. as every school child knows, "wet weather events" (precipitation) are

the beginning of the water cycle by which water that falls on the land begins its eventual

return to the ocean. Id.

When rain falls onto the earth, it just doesn't sit there, it starts moving according to the laws of gravity. A portion of the precipitation seeps into the ground to replenish Earth's groundwater. Most of it flows downhill as runoff. Runoff is extremely important in that not only does it keep rivers and lakes full of water, but it also changes the landscape by the action of erosion. (Appendix, Exhibit G, United States Geological Survey, "Runoff: Surface and Overland Runoff," p 56a ( emphasis added).]

These elementary propositions were borne out in an EPA-funded study of an entire Detroit

catchment area (Recovery Park). The investigators discovered that, especially where extensive

8 The highest possible reduction is 80%. See Appendix, Exhibit E, DWSD, "A Guide to Drainage Charge Credits," p 41a.

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residential demolition has occurred, precipitation not only escapes the surface as runoff and

through evapotranspiration, but also when significant quantities of groundwater that percolates

through pervious surfaces infiltrates the City's combined sewer:

In addition to rainfall that fell on impervious surfaces and ended up as runoff that entered storm drains at Recovery Park, rainfall that fell on pervious surfaces percolated downward and entered the sewer system as rainfall-derived infiltration and inflow (RDII). Infiltrated water eventually reached the sewer conveyances where it would accumulate and form a positive head around and over the pipes.

*** Our results show that change in groundwater storage can play a major role in increasing the dry-weather flow in sewer conveyances due to high groundwater tables relative to the elevation of these pipes, which allow a substantial amount of inflow and infiltration. The estimated volume of baseflow in the combined sewer exceeded 14,300 m3 of water per year in both 2015 and 2016, most of which ended up being treated by the City of Detroit at their wastewater facility. Appendix, Exhibit H, Hoard, et al., "Full Water-Cycle Monitoring in an Urban Catchment Reveals Unexpected Water Transfers (Detroit, MI, USA), p78a, 85a (emphasis added).]

The City acknowledges that "during wet weather events ... it is the amount of storm water

that dictates the volume of combined flows being.treated by the system." DWSD Brief, p 12. In

a significant admission, the City also acknowledges that "wet weather events" cause not only

surface runoff from impervious areas, but also both surface runoff and "infiltration" into its

combined sewer system from the City's pervious property: The City calculated the burden to the

combined sewer system caused by wet weather events by "measurements of 'wet weather

infiltration and inflow' to determine what percentage of system-wide costs are storm-water related

treatment/disposal costs." Briet 14 nl3 (emphasis added). Thus, the City actually acknowledges

that those subject to the Rain Tax - owners of impervious area - are charged for the cost of both

surface runoff from impervious area, but also for · treating the groundwater of pervious soils that

infiltrates into the combined sewer. By hypothesis, because runoff cannot percolate through an

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impervious surface to the groundwater, the infiltration is attributable solely to pervious areas of

the City.

This conceptual admission completely undermines the validity of the Rain Tax, which is

falsely premised on the City' s mistaken assertion that the Rain Tax assigns the CSO-system costs

"only to users who contribute storm water to the combined system." DWSD Brief, p 13. This is

false, as is the City 's claim that only the storm water discharged from impervious surface areas

produces the system burden that required the construction and maintenance of the CSO-control

system. DWSD Brief, pp 13-14, nn12, 13, 14; pp 32-33. Thus, based on this incorrect premise,

the City allocates the entire cost of collecting and treating storm water discharged to the CSO­

control system exclusively to private owners of impervious area, exempting from the charge the

owners of all other surface area in the City who benefit from this service. The demonstrably

erroneous assumption the City used in devising the Rain Tax rate "methodology" results in yet

more cost-shifting, and renders the Rain Tax even more unreasonable in proportion to the value of

the service rendered to the small fraction of property owners who bear the entire cost of the CSO

system, while conveniently exempting owners of large pervious surface area, such as City-owned

parks, golf courses, and so on.

The City's arguments actually reveal that the 2016 Rain Tax cannot be reconciled with the

Bolt test. The City has imposed a charge on impervious surface owners for a service that benefits

all, to remedy a problem "caused" by all, including the City itseff The City designed the charge

to render itself immune to it, thereby shifting the cost of what it admits is a "service" when rendered

to the state and the county charge to only a fraction of those who cause the problem and benefit

from its solution.

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Finally, contrary to the City's suggestion that the sky will fall if this Court upholds Headlee,

applies Bolt, and declares the Rain Tax unconstitutional, DWSD Brief, p 44, n41, DAART here

challenges only the 2016 Rain Tax that the City applied to the owners of the relatively small

number of parcels that DAART represents. 9 Thus, this case offers what is perhaps the last

opportunity to preserve the Headlee Amendment in the storm water charge/combined sewer

context. The unreviewed circuit court class action settlement mice, and their clever covenants

never to assert a Headlee claim, are turning the state ( and the Headlee Amendment itself) into a

"Swiss cheese" checkerboard where the Headlee Amendment no longer applies in some

municipalities because covenants not to sue woven into class action settlements that benefit the

class action representatives and the municipalities that bargain for immunity to Headlee claims

more than the members of the class supposedly benefiting from the settlement, who are forever

barred from asserting their Headlee right as electors to approve any tax increase. This right is

bargained away on their behalf for a settlement that is essentially no more than Esau received for

his birthright. This Court should put a stop to that, and force the City to impose a just charge that

satisfies Headlee's constitutional requirements.

RELIEF

DAART incorporates here the relief it has previously requested in its Application and

Argument on the Application.

9 Indeed, this case remains before the Court only because the City failed to disqualify all of the named plaintiffs in this case by cooperatively revising the class definition pled in the Michigan Warehousing complaint, which was filed before the 2016 Rain Tax was adopted, to include anyone who owned property subject to both the original 2013 Rain Tax and the 2016 Rain Tax.

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Dated: June 22, 2020 Amended, June 23, 2020

Respectfully submitted,

s/ Frederick M. Baker, Jr. Frederick M. Baker, Jr., PLLC

Attorney for DAART (517) 3l8-6190

11.