By BRIAN WALKER

Staff Writer

COEUR d'ALENE — The fate of a five-year legal fight between Hayden and a builders group over sewer capitalization fees on new homes is in the hands of a judge.

Attorneys representing the city of Hayden and North Idaho Building Contractors Association presented their closing arguments to First District Court Judge Cynthia Meyer on Tuesday.

The arguments pertained to the damages phase of the case that will determine what Hayden has to do about the funds collected from April 10, 2010, to March 4, 2016. There were about 335 new homes constructed during that timeframe.

Meyer will now make a ruling on an undetermined date on how much the city owes the builders, if anything.

Jason Risch, the attorney representing NIBCA, said he believes the association is entitled $895,072.96, the full amount the city collected, plus 12 percent interest.

"There is no question that this (payment structure) had zero to do with the current (sewer) system and was all based on expansion," Risch told Meyer, referring to the Idaho Supreme Court decision stating the method the fees were determined was not legal.

"The city calls it a capitalization fee, but it really was an illegal tax. It is illegal regardless of the amount (charged to builders). That is why we are asking for a refund."

Risch added the city had other ways to generate revenue for its sewer expansion while the legal battle ensued but didn't go that route.

Christopher Meyer, an attorney representing the city, told the judge he doesn't believe the city owes the builders any money.

Meyer testified the fee it charged was, in fact, less than what it could have charged under the formula specified by the supreme court. Hence, the city's position is that, even if it used the wrong formula to charge the fees, no refund is appropriate because no harm was suffered.

"The city's aim was not to charge a nickel more than what was needed to provide the sewer service," Meyer said. "The way the builders talk — constantly describing the sewer connection fee as 'illegal' — you would think that the public servants who adopted this fee were criminals lining their own pockets with taxpayer money.

"They were not trying to gouge the fee payers. To the contrary, they were trying to ensure that they didn't charge more than was actually needed."

The attorneys also argued over the 12 percent interest that NIBCA is pursuing.

Risch said that's the rate used in Idaho court cases involving just compensation, but he said the decision is ultimately up to the judge.

"You're the fact finder," Risch told the judge.

Meyer told the judge there's no need for an expert such as the one Risch provided to the court to advise her on what interest should be charged.

"You don't need an expert to tell you what's reasonable," Meyer told the judge. "I haven't seen any case law for that. We think you're capable of determining that issue."

About 25 people, including Hayden officials, builders and NIBCA representatives, attended the closing arguments that lasted more than two hours.

The original suit filed by NIBCA against the city in 2012 called into question the legality of Hayden’s sewer capitalization fees to cover the cost of Hayden’s wastewater disposal system. NIBCA contended the fee was illegal because its members paid for city services that are available to all residents of Hayden.

After the city was granted a judgment in its favor, NIBCA appealed it to the Idaho Supreme Court.

The supreme court vacated the district court's decision and remanded it back to the district court last February. After several motions and hearings since the remand, the closing arguments were presented on Tuesday.

The supreme court ruled the city may charge a sewer cap fee and use the funds to pay for new infrastructure to expand the city's sewer capacity without burdening existing taxpayers. It also disagreed with the formula used by the city to calculate the cap fee.

The previous fee was $2,280. The new fee to bring it into compliance with state law was set at $2,306 during a meeting in March 2016. At the same meeting, the council agreed to use a formula that calculates the fee based on the value of the wastewater facility rather than the estimated cost of future expansion of the plant.

Larry Spencer, executive director of the Idaho Property Owners Association, said he believes the property owners are entitled to the refund and was hoping the case could be delayed until that question is answered by the district court.

Spencer said one of the concerns the Supreme Court wanted answered by additional district court proceedings was who has standing to seek a refund — the builder who wrote the city a check or the property owner who likely paid more because the builder passed the cost of the fee on when they sold the home to the buyer.

Spencer said transferring property by warranty deed also transfers the right to claim of any refund of a fee that is attached to the property.

"There is no case law in Idaho about this exact scenario, but every case I have been able to find across America held that the interest is passed on to the new buyer of the property," he said.

Spencer said it is an area of law that has not been specifically decided here, and believed it was imperative it be resolved before the case is closed and a bad precedent is set.

Spencer spoke at last week's Hayden City Council meeting in an attempt to have the city request the case be postponed until the question is answered, but the city took no action.

Meyer responded to Spencer's concern, saying there are no laws authorizing refunds to the property owners and the builders must pass the fee along to the property owner. He said the law does not follow the logic of if a fee is passed on to the purchaser through an increase in the sale price, the purchaser bears the incidence of the tax.

Hayden has spent $707,507 on attorney fees on the case so far.