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Ziegler v. The City of Reading

Commonwealth Court of Pennsylvania

August 15, 2019

Alan Ziegler, Nicolas Bene, Lissette Chevalier, Jose Munoz, and Efrain Caban, Individually and on Behalf of all Similarly Situated Persons
v.
The City of Reading, and Reading Area Water Authority Appeal of: The City of Reading

          Argued: December 13, 2018

          BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE MICHAEL H. WOJCIK, Judge

          OPINION

          MICHAEL H. WOJCIK, JUDGE

         This case returns to us following our remand to the Court of Common Pleas of Berks County (trial court) in City of Reading v. Ziegler, 142 A.3d 119 (Pa. Cmwlth. 2016). In this appeal, the City of Reading (City) challenges the order of the trial court entering declaratory judgment in favor of Appellees (Residents)[1]that the City's residential curbside recycling fee is inconsistent with the Municipal Waste Planning, Recycling, and Waste Reduction Act (Act 101).[2] The City argues that the trial court erred or abused its discretion by improperly shifting the burden to the City to defend its recycling fee; capriciously disregarding competent evidence that the City complied with Act 101; considering evidence of avoided costs of tipping fees; finding that any surplus of fees is inconsistent with Act 101; and allowing the Residents to alter their claim. For the reasons that follow, we vacate and remand for further calculations.

         I. Background

         The City is a third class city located in Berks County with a population of over 10, 000 residents, operating under a home rule charter.[3], [4] The Reading Area Water Authority (RAWA) is a municipal authority created under the Municipality Authorities Act.[5] The City delegated the responsibility for solid waste planning and plan implementation under Section 303(d) of Act 101, 53 P.S. §4000.303(d), to RAWA. The Residents either reside or maintain a place of business in the City and have paid recycling fees to the City or RAWA.

         Under Act 101, cities of the third class operating under a home rule charter with populations over 10, 000 are required to implement a recycling program. Section 1501(a) of Act 101, 53 P.S. §4000.1501(a). Pursuant thereto, the City enacted ordinances establishing its recycling program. In March 2014, the City revised its recycling program by enacting Ordinances 20-2014 and 21-2014, which are the subject of this appeal.

         Ordinance 20-2014 amended Chapter 496, Part 2 of the City's Code of Ordinances (Code), which pertains to the storage and collection of solid waste. Reproduced Record (R.R.) at 1031a-34a. Specifically, it eliminated a separate recycling fee and instituted a "Curbside Waste Collection Fee" (Curbside Fee) to cover the combined costs of collecting municipal waste, [6] recyclable materials, [7] and organic waste.[8]

         Ordinance 21-2014 amended Chapter 212 of the City's Code governing fees by setting the Curbside Fee at $303.10 per property per year. R.R. at 1036a-37a. Imbedded in the Curbside Fee is a service fee for recyclables of $91.83 (Recycling Fee). The Recycling Fee applies to owners of residential properties with four or fewer units. Although owners are permitted to opt out of the City's curbside municipal waste service by securing the services of a private hauler, they are not permitted to opt out of the City's curbside recycling service. R.R. at 1032a-33a.

         In June 2014, the Residents filed a class action complaint against the City and RAWA (collectively, the City), challenging the Recycling Fee. In Count I, the Residents sought a declaratory judgment that the Recycling Fee is "in violation of the laws of the Commonwealth," namely, Act 101 and the Solid Waste Management Act (SWMA).[9] R.R. at 17a. In Count II, the Residents sought a preliminary injunction enjoining the City from billing for current or future Recycling Fees and from pursuing the collection of any Recycling Fees currently outstanding. Id. In Count III, the Residents sought compensatory and punitive damages as well as reasonable attorney fees. Id. By joint request and agreement of the parties, the trial court considered only Count I and deferred disposition of the other two counts.

         On December 5, 2014, the trial court ruled that the Recycling Fee was permissible and entered an order granting judgment in favor of the City. The trial court later amended its order to facilitate interlocutory appeal to this Court.

         On appeal, an en banc panel of this Court vacated the order and remanded the matter to the trial court for further analysis consistent with our then recent decision in Waste Management of Pennsylvania v. Department of Environmental Protection, 107 A.3d 273 (Pa. Cmwlth. 2015). In particular, we directed the trial court to consider whether the City's Recycling Fee will have a negative impact on the recycling program's financial self-sufficiency, as that term is used in Act 101, or a deleterious effect on the efficiencies of the City's recycling program. The remand also contemplated input on these questions from the Department of Environmental Protection (DEP).

         On remand, the trial court interpreted this Court's opinion "to mean that if the [Recycling [F]ee is permitted without limits, it will relieve the City of an incentive to increase the program's efficiency and pursue other appropriate sources of funding." Trial Court Op., 1/2/18, Finding of Fact (F.F.) No. 3. "[W]hether recycling fees violate state law depends upon the particular implementation and amount of such fees because 'the ultimate financial self-sufficiency of the [recycling] program' and making sure the program is 'as efficient as it could be' are . . . 'obvious purposes of Act 101.'" Trial Court Op., at 8 (quoting Ziegler, 142 A.3d at 130). "If a recycling fee works against those purposes, it is inconsistent with Act 101 and thus preempted." Id. The trial court then held additional evidentiary hearings and considered briefs and arguments of the parties.

         Based on the evidence and arguments presented, the trial court found that Section 496-208 of the Code, as amended by Ordinance 20-2014, provides for the Curbside Fee to be set as follows:

The Director of Public Works shall submit an annual report by October 1 to City Council detailing projected expenses and revenues for the upcoming year and recommend a service fee to cover all costs associated with the collection and removal of all curbside waste. The report shall specifically detail the amount of the curbside waste fee that is imposed to cover the costs associated with the collection of municipal waste, which shall be used to determine the amount of the fee imposed upon owners of [the properties that permissibly opt for private collection of municipal waste].

F.F. No. 8 (emphasis added). Section 212-136 of the Code, as amended by Ordinance 21-2014, sets the specific fees each year and currently describes the fee variants more clearly as "[c]ombined billing rate for municipal trash and recycling service" and "[b]illing rate for recycling service only." F.F. No. 9.[10]

         The trial court found that DEP does not review municipal recycling programs to assess self-sufficiency or efficiency, and has no opinion as to the City recycling program's efficiency level. The Berks County Solid Waste Authority likewise does not play a role in reviewing or assessing the City's recycling program and has no opinion about the City program's efficiency. The City has never formally asked DEP or the Berks County Solid Waste Authority for advice or assistance in operating or assessing its recycling program. The City has not conducted its own comprehensive studies or analyses of recycling program options or efficiency. To the contrary, over the course of Court proceedings on remand, the City repeatedly discovered additional and sometimes inconsistent and unclear information about its own program costs. F.F. Nos. 10-13.

         DEP's contribution to municipal efforts toward recycling program self-sufficiency consists of a single technical report, Building Financially Sustainable Recycling Programs, dated April 2005, and other technical studies such as one dated January 2015, concerning the feasibility of the City's baler for processing recycled paper. F.F. No. 14. DEP also issued the "DEP Act 175 Recycling Program Plan, July 2004 Working Draft." F.F. No. 15. This document provides commentary explaining several perspectives on the concept of program self-sufficiency:

[A] local program can be understood as self[-]sufficient if its economic, social, and environmental benefits exceed its costs, whether or not all of these costs and benefits are reflected in the municipality's budget. At the local level, considerable benefits are experienced, even if they are not all reflected as direct recycling benefits on the municipality's balance sheet. Finally, and more narrowly, a local program can be understood as self-sufficient if its economic benefits to the municipality's budget are equal to or exceed its costs to the municipality's budget.

F.F. No. 15. This document emphasizes assessing self-sufficiency by taking into consideration costs and benefits that may not appear on balance sheets, including "the avoided costs of disposal and tax revenue," and further notes that a program's income includes "proceeds from the sale of recyclable materials, fees and avoided disposal costs, where they can be realized." F.F. No. 16.

         The City operated its recycling program "in house" from 2014 through February 2017. The City's funding for the recycling program mainly came from the Recycling Fee, periodic grants under Act 101 and the marketing and sale of recyclable materials. In 2014 and 2015, the Recycling Fee was $91.83 per property; in 2016, it was $95.04. The City recouped approximately $2.3 million of its recycling costs through the annual assessment. The marketing and sale of recyclable materials accounted for approximately $100, 000 per year. Grant money varied by year and was not available every year. See F.F. Nos. 17, 18, 22.

         According to the City's ledgers, the City's recycling program generated a surplus for the years 2014-2016:

Year

Costs

Grants

Sales

User Fees

Surplus

2016

$2, 140, 859.00

$7, 815.00

$76, 997.00

$2, 529, 117.00

$473, 070.00

2015

$2, 295, 019.00

$127, 515.00

$91, 342.00

$2, 324, 947.00

$248, 785.00

2014

$2, 323, 304.00

$98, 682.00

$110, 221.00

$2, 388, 891.00

$274, 490.00

See F.F. No. 18. The trial court found that in each year from 2014 through 2016, the user fees collected, standing alone, without including grants or sales of recyclables, exceeded the total costs of the City's recycling program.

         However, in prior years, the recycling program ran a deficit. Specifically, in 2013, the program ran a deficit of $57, 854; a deficit of $958, 914 in 2012; and a deficit of $468, 253 in 2011. In 2010, the program operated at a surplus of $104, 127. The trial court noted that it was not clear what efforts, if any, the City made to operate the program as efficiently as possible during the deficit years. F.F. Nos. 20, 21.

         As of March 2017, the City began outsourcing its recycling program (along with collection of waste, which was already outsourced) under a three-year fixed rate contract with BFI Waste Services of Pennsylvania (BFI). As a result, the City no longer markets and sells the collected recyclable materials; rather, BFI is now responsible for disposing of all waste and recyclables collected and may itself sell the recyclable materials. F.F. Nos. 19-24.

         Under the contract, the City pays BFI $3, 499, 359.36 per year, which consists of $2, 642, 745.60 for curbside trash collection at an estimated 20, 640 units and $856, 613.76 for curbside recycling collection at an estimated 26, 636 units. There is also a $41, 700 education component. When the outsourcing contract with BFI went into effect in March 2017, the City reduced its Recycling Fee to $74.04. F.F. Nos. 25-26.

         The City did not factor prior surpluses into the new rate, but instead applied those surpluses against deficits in prior years. The City anticipated a surplus in 2017, which it intended to use for some estimated transitional costs. The City retained some responsibilities and costs of the recycling program despite the contract with BFI, including purchasing and providing collection containers, administering fee collection and customer service, and conducting leaf and yard waste collection. The City anticipates an upcoming cost of $1.2 million to provide new collection bins to approximately 26, 636 units (a cost of approximately $45 per bin). Tipping fees and apportioned employee salaries for the City's handling of leaf and yard waste costs the City approximately $326, 000 per year. F.F. Nos. 27-30.

         The trial court determined that the City did not meet its obligation to consider ways to increase the efficiency and self-sufficiency of its recycling program without reliance on a fee. The City did not conduct comprehensive studies of its recycling program options. For years, the City collected fees that were greater than the total program costs, and it did not properly account for those surpluses in setting fees for future years. The fees were sufficient to cover all costs of its recycling program, which is inconsistent with Act 101. The City did not timely explore outsourcing to a private contractor, which ultimately proved to be a significantly cheaper alternative to its in-house recycling program. Before entering the private contract with BFI, the recycling program was less efficient and less self-sufficient than it could have been. The trial court concluded that the fees the City imposed enabled it to operate its recycling program without properly pursuing Act 101's purposes of efficiency and self-sufficiency.

         Upon concluding that the City's recycling fees were inconsistent with Act 101 as evidenced both by the amount of the fees exceeding the costs of recycling even before adding in revenue from sales of recyclables and Act 101 grants, and by the language of Ordinance 20-2014 itself permitting fees to "cover all costs associated with the collection and removal of all curbside waste," the trial court did not entertain any specific calculation of realizable avoided costs or the precise appropriate fee amount generally. The trial court noted that the exact extent to which avoided costs should have lowered the fees is an issue for future proceedings on damages. The trial court also declined to consider monetary damages at this juncture because the parties agreed to have the court rule solely on Count I ...


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