(Source: MIRS.news, Published 02/03/2025) East Lansing's 5 percent franchise fee for Lansing Board of Water & Light (LBWL) customers is a tax, the Michigan Supreme Court held on Monday. 

In an opinion from Justice Brian Zahra, the court held that a municipality cannot circumvent the Headlee Amendment by "enlisting a cooperative nongovernmental entity" to accept the franchise fee knowing it would be billed to customers for general revenue raising. 

"We hold that such an arrangement violates the Headlee Amendment because the purposed 'fee' operates as a tax that has not been approved by the voters of the municipality," Zahra wrote. " … This is clearly a tax imposed by the City on taxpayers, who are also consumers of LBWL." 

Justice Richard Bernstein agreed with the majority's conclusion that the franchise fee was a tax, but he disagreed that the plaintiff, James Heos, was a taxpayer, and as a result, his claims were filed too late. 

The financial impact of the decision on the city was not immediately known. However, the court's opinion noted that since 2017, the LBWL remitted that franchise fee to the city at a rate of about $1.4 million per year. 

In 2017, the LBWL began collecting a 5 percent franchise fee, which was put into city customers' bills for nearly three years before Heos, an East Lansing resident, filed a class action lawsuit alleging the fee was an impermissible tax imposed in violation of the Headlee Amendment. 

The city sought dismissal, arguing Heos missed the one-year statute of limitations, and the trial court sided with Heos. 

However, the Michigan Court of Appeals held that Heos' claims were time-barred because he failed to file his Headlee Amendment claim within the one-year statute of limitations and the panel held that Heos was not a taxpayer. 

The high court held that the franchise fee collected "provides no benefit, through electricity or otherwise" to the plaintiff, and it was not proportional to the city's costs for granting LBWL the right to provide electrical services. 

The city acknowledged the revenue collected goes into the city's general fund and is used for any purpose deemed appropriate. 

"Because the City's voters were never offered an opportunity to adopt the Ordinance approving the franchise fee by majority vote, it runs afoul of the Headlee Amendment," Zahra wrote. 

Chief Justice Elizabeth Clement did not participate in the opinion because of a potential interest in the controversy, and Justice Kimberly Ann Thomas did not participate because it was considered before she assumed office.