There are three general sources of funds for financing fire department operations: taxes, special assessments and fees. No single one of these sources is exclusive, and many townships rely to some extent on each of these funding sources for their fire departments. However, each source of funding provides its own advantages and disadvantages, as well as its own challenges. This E-Letter explains how townships can use each of these funding sources to its maximum advantage.
Fire Protection Millages
MCL 41.801, et seq (also known as Act 33) and other applicable statutes authorize townships to provide fire protection services. The Michigan Constitution and other laws allow townships to impose and levy property tax millages to finance fire protection, as well as other lawful township services. Tax millages require voter authorization. Often, such millages are limited to a specific period of time, after which they must be renewed at an election in order to continue. Millage renewals are subject to specific requirements under state law.
Although fire millages often cover only one municipality, it is also possible to create a multiple-unit fire authority that is supported by a tax millage levied by the authority itself under the Municipal Emergency Services Act (also known as Act 57). Such millages must also be authorized by the electors, but the voter approval depends on the total votes cast within all the participating municipalities counted together. When such a millage is employed to finance fire services, the costs of the service are allocated between all the taxpayers and between the participating municipalities principally based upon the relative taxable values of their taxable property.
Special Assessments for Fire Protection
Act 33 also allows the financing of fire services through special assessment districts, which typically include the entire township. An election is not a required prerequisite for such a special assessment, but Act 33 does allow an opportunity for a voter referendum on such special assessments if a petition is filed containing the signatures of the owners of at least 10% of the total area of the district. If such a referendum petition is filed, the special assessment requires voter approval before it can be effective.
Fire special assessments may be based on either a millage (rate per $1000 of taxable value) or a flat rate (uniform special assessment for each parcel). Flat rates may vary for different kinds of property. For example, there can be a larger special assessment for commercial or industrial property, a smaller special assessment for residential property, and no special assessment for vacant property. This is because a special assessment is legally justified based upon the “benefit” that each parcel derives from the service provided. In general, “benefit” is measured by the increase in property value that occurs as a result of the availability of the service. If a millage-based special assessment is used, it is limited by Act 33 to not more than 10 mills for fire equipment and buildings, although there is no limit on the amount that can be raised for fire department operating expenses.
For fire special assessments, Act 33 requires the Township to conduct an annual notice and hearing for the amounts proposed to be assessed for fire service. Most townships using this method conduct their annual fire protection special assessment hearings at the same time as their annual “truth in taxation” hearings.
Fees for Fire Department Responses
Even when a township uses a tax millage or special assessment to finance its fire department, it is legally appropriate to also rely in part on various fees to help support the operations of the fire department. Taxes and special assessments charge residents for making the fire department available for their use, but most residents will fortunately never use those services. Fees are designed to charge a portion of the department’s costs to those who actually use the department’s services.
Under Act 33, fire department fees must be authorized by an ordinance adopted by the township board. The ordinance should specify what fees are due for the delivery of specific services. MCL 41.806a. Many townships adopt fee schedules that determine the applicable fees based upon the number of firefighters responding and each specific piece of equipment and apparatus used for the fire response, and the time required to respond to the incident. The amount of the fees must be closely related to the township’s actual costs of providing that service. This can be a useful approach to deal with particularly severe responses that cost the township a substantial amount.
Emergency responses to unfounded or “false” fire, smoke, and/or medical alarms place unreasonable and unnecessary demands on fire department resources and pose an unnecessary risk to fire department personnel and the general public. Therefore, it is advisable in a fire cost recovery ordinance to provide for the recovery of costs associated with false alarms, especially for repeated false alarms deemed to be excessive in number. Such an ordinance can include regulations and fees that will encourage alarm devices to be appropriately designed, installed, maintained, and utilized so the burden imposed upon the general public and emergency responders by false alarms will be reduced and public safety enhanced.
Insurance Company Defenses
One advantage of using fees to finance at least a part of the fire department costs is that standard home and commercial property insurance policies carry coverage for the cost of fire run charges, so that they are paid by the insurance company, rather than by the resident. On occasion, however, an aggressive insurance company or a particular insurance adjuster will challenge the township’s right to collect a fee for fire runs. The usual argument they make is that the homeowner has already paid a tax or special assessment for fire service, and that a fee would be a “double charge” for service. There is no legal merit or authority supporting such an argument by the insurance company, however. The township can choose to use taxes, special assessment and fees, or any combination of the three, to finance its fire services. Payment of one does not prohibit charging any of the others. When pressed with litigation, the insurance companies generally give up this bogus argument.
Collection of Fees
The township may proceed in small claims in the district court, or any other court of competent jurisdiction, to sue for collection of any cost recovery charges remaining unpaid from a responsible person. The township treasurer or other authorized person may appear for the township in small claims proceedings, but if the case is removed to district court or is commenced in circuit court, the township will need legal counsel. Many townships contract with “collection agents” to collect the unpaid fees that are due, paying the agents a percentage of the collections as their fee.
If the township takes the responsibility for collecting its own fire charges, it should develop a system and forms for efficient collection. Most charges will be paid by the property owner or their insurer, but some will take additional prompting. A system of first, second, and final notices is advisable. If those do not produce results, the township may need to have their township attorney write a last demand letter, before the township files a complaint in small claims court.
Fire Insurance Withholding
One problem commonly faced in townships involves homes that are substantially destroyed by fire but then are never rebuilt or removed. Townships can avoid this problem by participating in the Fire Insurance Withholding Program administered by the State of Michigan through the Office of Financial and Insurance Services. The program was designed to assist (and provide financial assistance to) municipalities left with the clean-up, repair, or demolition costs after fires or explosions, where the property owner received insurance money and then moved away, without repairing, replacing, or demolishing the structure—leaving a structure that may or may not violate local and state building and safety codes.
Essentially, when an insurance company pays its policyholder for such losses, a certain amount of the insurance settlement will be withheld and forwarded to the township. The funds are then held in a specified escrow account until the structure is repaired, replaced, or demolished. If the structure is repaired, replaced, or demolished, the escrowed funds must be returned to the policyholder; if not, the township can use the funds to repair, replace or demolish the damaged structure, but would not be required to return the funds at that time. Currently, more than 500 municipalities participate in the Fire Insurance Withholding Program and townships are able to escrow up to approximately $7,800 from insurance settlements.
To participate in this program, the township must adopt a resolution, designate a township official to be responsible for managing the township’s participation, and fill out an enrollment and notification form and send both to the Office of Financial and Insurance Regulation. Thirty (30) days after a copy of the resolution and the enrollment and notification form are submitted to and approved by the State, the township will be enrolled in the program. Then, if there is an insured fire loss in the township, the insurance company is required to send a certain type of notice, giving the township 15 days to respond and request the amounts to be escrowed. If a loss meets the eligibility criteria for the Fire Insurance Withholding Program and the insurance company does not pay the municipality its portion of the settlement, the township has the option to file a written complaint with the State.
Hazardous Substance Responses
Some of the most costly fire responses include those involving hazardous substances, which require special equipment and expertise, long hours and high risks. Even if drafted under MCL 41.806a, however, a township ordinance may be invalid and preempted if it conflicts with the state’s comprehensive environmental laws, the National Resources and Environmental Protection Act (“NREPA”), MCL 324.20101 et seq. NREPA provides various forms of liability for persons responsible for environmental contamination. Essentially, it states that the “owner or operator of a facility [is liable] if the owner or operator is responsible for an activity causing a release or threat of release.” MCL 324.20126(1)(a). Such an owner or operator is jointly and severally liable for “[a]ny . . . necessary costs of response activity incurred by any … person consistent with the rules relating to the selection and implementation of response activity.” MCL 324.20126a. A township has standing to recover such response activity costs in a court action. MCL 324.20135(1)(b).
In 2003, a Michigan court struck down a township’s hazardous substance cost recovery ordinance as being preempted by NREPA. Howell Township v Rooto Corp, Michigan Court of Appeals (2003). That case arose out of a fire at a company’s plant in the township, causing a release into the environment of many chemical compounds (including “hazardous substances” under the NREPA). The city fire emergency personnel also responded to the fire and requested payment from the township. The township in turn asked for compensation from the company under the township’s hazardous substance cost recovery ordinance. When the company refused to pay for the emergency response costs as demanded, the township sued the company and alleged that its ordinance required the company to reimburse the township for the township’s expenses incurred in the emergency response.
The company argued that the township ordinance was preempted by NREPA, and the Court agreed that NREPA preempted and invalidated the ordinance for two reasons. First, the Court ruled that the ordinance conflicted with NREPA because the ordinance (a) did not provide a defense to liability if the release was caused by a third party, and (b) did not allow a defendant to seek contribution during a lawsuit from another potentially liable party. In these respects, the Court concluded that the township ordinance directly conflicted with NREPA because it attempted to prohibit what the statute allowed.
Second, the Court ruled that the ordinance was preempted because NREPA completely occupies the field of regulation. The Court opined that even if NREPA and the ordinance did not directly conflict, the ordinance was still invalid because NREPA is “so pervasive that it indicates the Legislature’s intent to occupy the field of regulation” and leaves no room for a local ordinance.
All townships that seek to adopt hazardous substances cost recovery ordinances will face the same obstacles. A township could choose to adopt no ordinance covering hazardous substances emergency response costs, and simply follow the provisions of NREPA for hazardous substances emergency response recovery. If there were a hazardous material release during which the township incurs expense, the township could sue the person responsible in court under NREPA. See MCL 324.20135(1)(b) (expressly granting a township, as a “local unit of government,” standing to recover such response activity costs in a civil action).
Without any ordinance, however, there may be a lack of guidance to fire agencies when they incur response costs. Also, there is a particular concern when one unit responds to an emergency situation in another unit’s jurisdiction. Attorney General Opinion 7180 (2005) states that: “A municipal ordinance imposing fees for fire service runs adopted pursuant to MCL 41.806a may only be applied within the territory of that municipality. In order for participating townships acting jointly with a village to impose fees for fire service runs within their respective territories, each must adopt its own authorizing ordinance under MCL 41.806a.” That same Attorney General Opinion states: “Section 6a of the Act explicitly authorizes the ‘legislative bodies of municipalities acting jointly’ to provide emergency fire service to adopt ordinances for the collection of fees for these services. MCL 41.806a. No provision of the Act authorizes one municipal legislative body to adopt a single fire service fee ordinance that would be effective outside its own territory and into the territories of other participating municipalities through an agreement creating a joint fire board under section 11 of the Act.” Therefore, in order to provide more local guidance and to better assure the possibility of cost recovery when one township responds in another township, we recommend that each township adopt a uniform cost recovery ordinance that tracks the requirements of NREPA.
Fire departments may often be called upon by public utilities to watch downed power lines in accident situations and during serious storms. This can create a substantial amount of cost for the fire department, especially if the incidents are prolonged or widespread. Many utilities attempt to negotiate “reasonable” charges for these fire department responses, and some utilities establish the amounts they will pay for fire responses in their written policies or tariffs. Also, the utilities will often argue that, because they pay property taxes (and the local utility is often a township’s single largest taxpayer), they should not also be required to pay fees, or should be allowed to pay significantly reduced fees.
The township needs to consider a number of issues in deciding how to handle these charges. Unlike most responses, a response to a public utility facility generally involves an issue that presents a general public safety hazard and protects more than a single property owner. So the benefits of the response are not limited to the public utility alone. Collecting from public utilities is also not as easy as it may be for other parties. In the case of utilities, most claims against them must be pursued in the public service commission, which has its own distinct rules and procedures, and will require an attorney with special skills.
In addition, if the township is successful in recovering charges from a public utility, the utility has provisions in its rate tariffs that allow the utility to spread those charges on the utility bills of its customers within the township. So, effectively, the charges will flow back to the township’s taxpayers anyway. For the above reasons, townships are well-advised to carefully negotiate the terms of any charges they impose on public utilities for their fire department responses
Bill Fahey email@example.com
Ask the Experts
Is the Township Attorney involved once the civil infraction citation is issued?
No. Some municipalities are being informed by local law enforcement and court staff that the Township attorney must be involved as soon as a civil infraction notice or citation is issued. This is not true. We routinely advise our clients to consider a civil infraction system, because it reduces attorney involvement—meaning reduced legal costs—and can be administered by township staff. Township attorneys become involved if two events occur:
1. The township, through its supervisor or code enforcement officer, issued a citation (not a notice); AND
2. The person cited then requests a formal hearing (not an informal hearing).
The township attorney is not required by law to assist in the civil infraction process unless both of these things happen.
Stay tuned for next month when we tackle another township’s pressing question. If you have current issues or legal topics you need addressed, please email your questions to firstname.lastname@example.org with the e-mail subject line: Ask the Experts. We will select a question at random each month to answer.
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Fahey Schultz Burzych Rhodes PLC, Your Township Attorneys, is a Michigan law firm specializing in the representation of Michigan townships. Our lawyers have more than 150 years of experience in township law, and have represented more than 150 townships across the state of Michigan. This publication is intended for our clients and friends. This communication highlights specific areas of law, and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.