The city of Atlanta has collected almost $59 million in illegal taxes and fees from its own water department, which then passed on those costs to water and sewer customers, a lawsuit contends.
The suit, filed Wednesday in Fulton County Superior Court, seeks class-action status on behalf of all Atlanta water and sewer customers. Since 2009, the suit says, the city has treated its Department of Watershed Management like a private utility — and also like a cash register — and required it to pay franchise fees and taxes for the right to use the city’s resources.
“As a practical matter, the notion of the city of Atlanta charging itself a fee for the use of its own city-owned streets, right-of-ways and alleys is plainly nonsensical,” the suit says. The city has no authority under state law or the state constitution to collect such fees from the watershed department, the suit says.
The suit says Atlantans’ water bills do not contain a line for fees or taxes, so ratepayers wouldn’t know that tens of millions of their dollars were begin funneled through the water department and into the city treasury. In addition, the city sells water to four counties and several other cities in Fulton County; it was not clear Thursday whether residents and businesses in those communities were helping to pay the extra fees.
A spokeswoman for Mayor Kasim Reed said the city has not been served with the lawsuit. Typically the city does not comment on pending litigation.
“I’m very interested in hearing the city’s explanation for this,” said Jimmy Hurt, an Athens attorney representing the plaintiffs. “It’s beyond our belief that anything like this can be legal.”
Atlanta resident Freda Stokely and Brookhaven resident Steven Newton, whose SJN Properties owns a 14th Street condo, are lead plaintiffs in the suit. The suit says the city has collected $9.8 million a year from watershed over the past six years. It seeks to recover $58.8 million, plus interest; attorneys fees; and a judge’s order prohibiting the city from doing this anymore.
Atlantans are already paying some of the highest rates in the country to finance $4 billion in water and sewer upgrades required by federal regulators. Watershed has more than 180,000 residential and business accounts across the metro area. A single account could be an apartment complex with hundreds of residents, or a single-family house.
Among its customers outside Atlanta are the cities of Fairburn, Union City and Sandy Springs; and Fulton, DeKalb, Coweta, Clayton and Fayette counties. Hurt said he did not know if the agency was passing on the fees to these local governments.
The lawsuit comes amid a rocky stretch for Watershed and Atlanta officials.
In past months, the department has been plagued with theft and accusations of mismanagement, with hundreds of thousands of dollars in equipment missing or stolen, according to city officials and police reports. Missing or stolen items include a backhoe worth $80,000, copper, pipes and 28 industrial water meters, each weighing 700 pounds and worth $5,210.
Reed’s administration, city auditor Leslie Ward, the Atlanta Police Department and the Atlanta City Council are now investigating the agency.
Watershed Commissioner Jo Ann Macrina came under fire for awarding several agency leaders five-figure pay raises even as her department was being investigated for mismanagement. But Reed reversed the salary hikes following a media inquiry last month.
The city came up with the idea to begin levying fees on its watershed department in 1998, the lawsuit says. That year, the City Council passed an ordinance enabling Atlanta to collect a “franchise fee utility charge” from the revenue of the city’s water and sewer operations.
The ordinance noted that Georgia Power, Atlanta Gas Light and BellSouth provided services to city residents and said the city levied franchise fees on them for use of city rights-of-way and streets.
“The city should be compensated for the use of its streets and rights-of-way by the water and sewer system the same as it is compensated by the other utilities,” the ordinance said. The ordinance also noted this was a “common practice” in other cities, such as Dallas, Los Angeles, Philadelphia, Memphis and Wichita.
The city did not begin collecting the fees until January 2009, when the City Council formally ratified an amended version of the ordinance, the lawsuit says. After that, the suit contends, the illegal taxes and fees were collected from the watershed department which then began passing those costs on to water and sewer customers.
