This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
SEWER RENTS -- Imposition of (at amount that would generate excess revenues for general municipal purposes) -- Rates (fixing of at amount that would generate excess revenues for general municipal purposes)
GENERAL MUNICIPAL LAW §§94, 453; STATE CONSTITUTION, article IX, §1(f): A village may not fix its sewer rents at an amount that would generate revenues in excess of costs attributable to the sewer system, in order to provide funds for general village purposes.
You ask whether a village may fix its sewer rents at an amount that would generate revenues in excess of costs attributable to the sewer system, in order to provide funds for general village purposes.
It is a well-established general principle that a municipal fee for a service must be reasonably related to the municipality's cost of providing the particular service (1992 Opns St Comp No. 92-40, p 103 and citations therein; see NY Tel. v City of Amsterdam, 200 AD2d 315, 613 NYS2d 993). Further, it has generally been held that a fee imposed for the purpose of generating revenue to offset the cost of general governmental services constitutes a tax and may not be imposed by a municipality without express statutory authority (id.). Accordingly, in the absence of express statutory authority, a municipality may not impose a user fee designed to generate revenues in excess of the cost of providing a service for the purpose of offsetting the general cost of government (id.).
Article IX, §1(f) of the State Constitution provides that no local government may be prohibited by the State Legislature from making a "fair return" on the value of property used and useful in its operation of a gas, electric or water public utility service, or from using such "profits" for the payment of refunds to consumers or for "any other lawful purpose." General Municipal Law §94 provides affirmative authority to municipal corporations operating gas, electric or water utilities to earn from and out of such operation an amount equivalent to taxes that the service, if privately owned, would have paid to the municipal corporation, and a "fair return" on the value of property used and useful in such service, over and above costs of operation and necessary and proper reserves. Section 94 further provides that "profits" resulting from the operation of the water, gas or electric service may be used for refunds to consumers, or "for the payment or expenses and obligations incurred by [the] municipal corporation for municipal purposes." We have interpreted this provision as authorizing a village to use "profits" from village water rents to fund general village purposes (1991 Opns St Comp No. 91-28, p 84).
There is, however, no similar authority for a village to earn a "fair return" from the operation of a municipal sewer service and use "profits" resulting therefrom for general village purposes. Article 14-F of the General Municipal Law (§450 et seq.; the "Sewer Rent Law"), which provides a comprehensive uniform statutory scheme for sewer rents (1978 Opns St Comp No. 78-228, unreported), expressly limits the purposes for which sewer rent monies may be used solely to certain listed sewer-related purposes (General Municipal Law §453; cf. Watergate II Apartments v Buffalo Sewer Authority, 46 NY2d 52, 412 NYS2d 821).
Accordingly, a village may not fix its sewer rents at an amount that would generate revenues in excess of costs attributable to the sewer system, in order to provide funds for general village purposes.1
February 22, 2001
Donald H. Myers, Mayor
Village of Moravia
1 For informational purposes only, we call your attention to a bill currently pending before the State Legislature (A. 4686) that would amend General Municipal Law §94 to add sewer utilities to the provisions of that section.