Digital Exclusive: City of Ocala starts to release transcripts on fire fee litigation

Judge Robert Hodges has a bench conference with attorneys Jason Zimmerman, Robert Batsel Jr. and Derek Schroth, left to right, during the $80 million City of Ocala Fire Fee lawsuit hearing at the Marion County Judicial Center in Ocala, Fla. on Tuesday, May 10, 2022. More than 250 concerned citizens packed courtroom 1 for the final hearing of the lawsuit at the courthouse. [Bruce Ackerman/Ocala Gazette] 2022.

Shortly after the court entered its Final Judgment against the City of Ocala requiring the city to refund $80 million dollars in fire user fees the courts deemed an illegal tax, the Gazette started asking for the shade minutes from the city.

After five months of asking, we’ve received the first ten transcripts and are told two more batches of transcripts need to be reviewed before release.

Shade minutes are from meetings publicly noticed, but where only the attorney, city council members and the city manager can attend to discuss litigation with a court reporter taking minutes of every word said during the meeting. The mayor does not attend these meetings, as under the city’s charter, it’s ultimately up to the council to make these decisions.

The transcript records become available to the public at the conclusion of litigation. The Gazette will be sharing all the transcripts with the public as we receive them. The transcripts can be downloaded using this link: https://www.dropbox.com/sh/ojeuhfe2lyl5jao/AABNKK6jllAtz4D_ttqjZ6ova?dl=0

The lawsuit, spanning 8 years, included four appeals and established case law that will likely serve to protect other communities from the pitfall the city fell into trying to find creative ways to raise money from a larger group of people than their tax base.

The Gazette will summarize our findings after receiving all the transcripts related to the litigation from the city, but meanwhile, we are posting the transcripts so that everyone interested can read them also.

For those of you who need context for how the litigation came about, we provide the summary below.

How we got here

Under well-established Florida law, fire services can only be funded through impact fees, special assessments, and ad Valorem taxes collected from property owners.

The city decided to test that rule in 2006, when it began exploring how to fund an estimated $5 to $8 million budget shortfall to fund fire services from those who wouldn’t usually be subject to the fees such as nonprofits, government entities, and renters.

At the time, the city council was made up of Daniel Owen, Mary Sue Rich, Kent Guinn, Kyle Kay, Charles Ruse, Jr., and Randall Ewers was mayor.

The city manager was Paul K. Nugent, and the city attorney was Patrick G. Gilligan.

The council commissioned a fire service fee study from Burton & Associates to explore funding fire services through fire service fees and fire service impact fees, rather than the customary way of ad valorem taxes or special assessments.

Included in the study, dated January 8, 2007, was a legal opinion from Terry E. Lewis of the firm of Lewis, Longman, & Walker.

Lewis tested the validity of the city’s fire service fees against eight factors established by the Florida Supreme Court to determine whether a specific charge was a “user fee” or a “special assessment.”

While many of the factors were met, his report cautioned that two of the eight factors were problematic: namely “whether the charge is for a traditional utility, and whether the charge is statutorily authorized as a fee.”

As to whether fire fees could be charged as traditional utilities, Lewis explained, “The term, ‘traditional utility,’ is usually defined by examples [such] as the provision of electricity, natural gas, water, trash disposal, and sewer services, and [an] argument may be made that fire protection falls within the category of municipal services.”

As to whether statutes gave the city authority to impose a fee, he found “no specific grant of statutory authority to the city to impose a fee for fire protection services. The city must rely on its general constitutional grant of home rule powers and Section 166.201, Florida Statutes (which is a broad, general grant of authority, which doesn’t mention fire service fees), to adopt the fee.”

Lewis expressed concern that the charge could be considered an assessment, or a tax, based on whether it was considered a voluntary charge or not. Lewis plainly cautioned, “The fire service fee proposed by the city appears to be mandatory.”

In Lewis’s opinion, the firm interpreted the city’s proposed fire fee “a valid user fee”; however, “we have found no case law specifically validating such a scheme by a municipality or county. The fire service fee can be challenged with a claim [that] it is actually a special assessment or tax, which must be adopted by the city through the procedures outlined in Chapter 197, Florida Statutes, or by referendum approval. While we believe the analysis above and case law support a favorable result for the city, if a legal challenge arises, we reiterate that no Florida court has directly addressed this issue of whether a fee may be charged or provide municipal fire services, and such a case would be one of first impression.”

The city’s attorney, Patrick G. Gilligan, issued an opinion on the fire protection service user fee on July 14, 2006, to then-city manager, Paul Nugent, echoing agreement with Lewis for the most part, but taking one exception to his “analysis of the mandatory nature of the fee.”

Gilligan felt the concern was mitigated by how caselaw defined the word “mandatory.”

He explained, “Property owners can avoid the fee either by not developing the property or renting out the property-making the fee arguably voluntary.”

In 2006, the collection of fire fees began when the city added a monthly fee to every city resident’s Ocala Electric Utility bill. It was collected until the start of 2021.

Every city resident who had electric service paid approximately $15 per month to pay for fire services in the City of Ocala. Businesses, including nonprofit ones were charged much higher monthly rates based on the type of facility they operated and how many square feet it was.

There were a few changes to the ordinance through the years, but in December 2013, Gilligan received a letter from attorney Derek Schroth, notifying the city of their representation of Discount Sleep of Ocala, LLC, d/b/a Mattress Warehouse, and all other City of Ocala water utility customers. The letter requested city records and demanded the city “rescind the ordinance, and any amendments thereto, and refund all fire user fees paid by the putative class within 45 days.”

The letter from Schroth offered to work out the dispute in pre-suit mediation “in an effort to avoid the time and expense of litigation.”

On February 2, 2014, Schroth filed a lawsuit against the City of Ocala for a declaratory judgment, challenging the basis for the city’s home rule authority to collect the mandatory fire fees and asking for a common fund to be established for paying refunds and attorney’s fees.

At the time the litigation was filed, John McLeod, Jay Musleh, James Hilty, Brent Malever, and Mary Sue Rich made up the council, and Kent Guinn had transitioned to his role as mayor.

The city manager was Matthew Brower, and Gilligan was still the city’s attorney.

In June 2020, after years of litigation, the initial concern was that the fire fee did not qualify as a “user fee,” and thus, an invalid tax was confirmed by the appellate court.

Also, the court found that the fee was mandatory since “the only options to avoid payment were to forgo the city’s water, sewer, and electric services-all unrelated to fire service-or to move outside of the city. Neither presents a real choice.”

The case was not mediated even once during the eight years and litigation, and settlement discussions were oddly unproductive considering the city had attempted something no other community in the state of Florida had done.