T. Costa and K. Costa, and Elmtowne Gardens, LLC v. City of Allentown
153 A.3d 1159
| Pa. Commw. Ct. | 2017Background
- In 1999 Allentown adopted a rental-registration and licensing Ordinance requiring annual registration and periodic inspected licenses for residential rental units; City charges $75 per unit (increased to $75 in 2010).
- Appellants (owners of multiple rental units) paid the fee and sued, seeking declaratory relief, an injunction, and refunds, arguing the $75 fee is an unlawful special tax and exceeds costs of the Rental Program.
- Appellants presented experts (CPA Boland and two private-code-enforcement witnesses) who limited attributable costs to direct, program-specific costs (registration, inspections, disruptive-conduct reports) and compared private-sector charges that they said were far lower.
- The City presented expert CPA Knox, who used a full-cost approach including direct and certain indirect costs (personnel time, police calls attributable to rentals, some overhead allocations) and concluded revenues approximately matched costs.
- The trial court (nonjury) credited the City’s evidence, rejected Appellants’ narrow direct-cost theory and the private-industry witnesses as not credible, found Appellants failed to prove the fee was grossly disproportionate or an unlawful tax, and denied relief. Commonwealth Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $75 fee must be limited to direct, newly created costs of the Rental Program (no indirect costs) | Costa: Fee must be limited to actual and probable direct costs (registration, inspections, disruptive-conduct reporting) that would vanish if program ended | City: Fee may include all costs attributable to the regulatory program, including indirect burdens on existing services; Court may reallocate existing costs | Held: Court rejected the all-direct-cost approach; indirect costs (e.g., police calls, personnel time) properly attributable may be included; plaintiffs failed to meet burden to exclude such costs |
| Whether the fee is an unlawful special tax (grossly disproportionate to program costs) | Costa: Revenues exceed program costs by large margin; fee therefore is a tax, not a regulatory fee | City: Plaintiffs failed to prove total costs; City entitled to include attributable indirect costs; fee not shown to be grossly disproportionate | Held: Plaintiffs did not carry burden to prove gross disproportionality; court declined to declare fee an unlawful tax |
| Whether private industry could perform the program for much lower cost (so City fee is unreasonable) | Costa: Two private-code-enforcement experts testified private firms could perform services for ~13.7% of City fees | City: Private-sector cost comparisons are not dispositive for a general regulatory scheme; court found those witnesses not credible or persuasive | Held: Court credited City credibility findings; plaintiffs’ private-sector evidence rejected; not persuasive to invalidate fee |
| Standard of proof and credibility determinations in bench trial | Costa: Relied on expert calculations and uncontradicted testimony | City: Emphasized plaintiffs’ failure to quantify indirect costs and highlighted weaknesses in plaintiffs’ experts | Held: Trial court as factfinder may reject testimony; credibility findings will not be disturbed on appeal; burden remained on plaintiffs to prove unreasonableness |
Key Cases Cited
- Mastrangelo v. Buckley, 250 A.2d 447 (Pa. 1969) (defines license fee must be commensurate with cost of issuing and supervising the license)
- Thompson v. City of Altoona Code Appeals Bd., 934 A.2d 130 (Pa. Cmwlth. 2007) (municipality may include costs beyond budget increases; indirect costs attributable to program are includable)
- Flynn v. Horst, 51 A.2d 54 (Pa. 1947) (license fee will be struck down if grossly disproportionate and essentially a tax)
- Warner Brothers Theatres, Inc. v. Borough of Pottstown, 63 A.2d 101 (Pa. Super. 1949) (discusses scope of costs attributable to licensing vs. special-service analysis)
- In re Funds in the Possession of Conemaugh Twp. Supervisors, 753 A.2d 788 (Pa. 2000) (bench-trial credibility determinations are for the trial court and are ordinarily not disturbed on appeal)