330 P.3d 65
Or. Ct. App.2014Background
- City of Gresham (home-rule) adopted a Utility Licensing Ordinance requiring utilities that occupy public rights-of-way to obtain 10‑year licenses and pay a license fee set by council resolution.
- In 2001 the city set the fee at 5% of gross revenues; in 2011 the city passed a resolution increasing the fee to 7% to avoid service reductions.
- Plaintiffs Northwest Natural Gas, Portland General Electric, and Rockwood Water PUD (all operating under Gresham licenses) sued for declaratory relief, arguing ORS 221.450 preempts any city charge above 5% because it limits privilege taxes to 5% for utilities operating “without a franchise.”
- The trial court granted summary judgment to plaintiffs, holding the city’s license fee was a privilege tax within ORS 221.450 and the 7% increase was void.
- On appeal the court considered whether the phrase "without a franchise from the city" in ORS 221.450 meant that a municipal license/ordinance-based permission can itself constitute a "franchise."
- The appellate court held the city licenses are franchises (a governmental grant of a special privilege to occupy rights-of-way, irrespective of form), so ORS 221.450 (which applies only to utilities operating without a franchise) did not limit the city’s 7% fee; judgment reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ORS 221.450 preempts the city’s 7% utility‑license fee | ORS 221.450 caps privilege taxes at 5% for utilities operating without a franchise, and the city’s fee is a privilege tax so the 7% is preempted | ORS 221.450 applies only to utilities operating without a franchise; Gresham’s licensing scheme grants franchises, so the statute does not apply and the city may set the fee at 7% | The licenses issued under the city ordinance are franchises; ORS 221.450 does not apply, so the city’s fee increase is not preempted — reversal and remand |
| Whether a municipal license created by ordinance can be a "franchise" under ORS 221.450 | A franchise requires a negotiated contract/granted agreement; a unilaterally imposed license is not a franchise | A franchise is the governmental grant of the special privilege to occupy rights-of-way, regardless of form (contract, ordinance, permit) | Franchise status depends on the substance of the governmental grant (special privilege to occupy rights-of-way), not the form; ordinance-based licenses can be franchises |
| Whether plaintiffs’ licenses allowed unilateral fee increases by the city | Plaintiffs emphasized licenses are unilaterally modifiable by ordinance and thus not contractual franchises | City pointed to license terms (GRC 6.30.110(1)(a)) making fees subject to council resolution and thus within the franchise terms | Court accepted that franchise grants can have contract-like aspects and that the ordinance’s license terms can authorize fee-setting by council; plaintiffs did not contest franchise-term construction on appeal |
| Whether Rockwood (a PUD) can be charged the fee as a municipal corporation | Rockwood argued a city cannot tax another municipal corporation without express statutory authorization | City relied on home-rule authority and precedent rejecting exemption of PUDs from municipal fees | Appellate court rejected Rockwood’s alternative argument based on precedent (Rogue Valley) and affirmed that PUD status does not automatically bar city fees |
Key Cases Cited
- LaGrande/Astoria v. PERB, 281 Or 137 (interpreting limits of municipal authority and preemption analysis)
- Western Union Tel. Co. v. Hurlburt, 83 Or 633 (municipal grants to use streets for public service constitute franchises, not mere licenses)
- Elliott v. City of Eugene, 135 Or 108 (special privileges granted by government—e.g., exclusive garbage hauling—constitute franchises)
- Northwest Natural Gas Co. v. City of Portland, 300 Or 291 (franchises may take various forms; courts interpret franchise terms)
- US West Communications v. City of Eugene, 336 Or 181 (dicta distinguishing franchise agreement vs. privilege tax but not construing ORS 221.450)
- Rogue Valley Sewer Servs. v. City of Phoenix, 262 Or App 183 (rejecting argument that PUD status bars municipal fees)