Both Concord and Manchester adopted ordinances that require the payment of fees to obtain a permit to excavate public roads. Both ordinances require a fee of $5.00 per square foot of excavation on paved roads, plus enhanced fees for excavation occurring on roads that have been paved or otherwise upgraded within the last five years.
As a utility company operating in both cities, Liberty Utilities was required to pay these fees to open roads and perform work on its utility lines. Liberty Utilities objected to these fees, arguing both that the cities were preempted by state law and that the fees constituted illegal taxes.
First, the Court held that the regulation imposed valid fees. The Court analyzed the fees under the “rational basis test,” which requires only that municipal regulation be “rationally related to a legitimate government interest” to be valid. Under this test, municipal legislation is presumed valid unless the objector can establish otherwise. The Court agreed with the cities that the excavation fees were rationally related to the government interest of protecting city roads, based on studies that show excavation and patching of roads leads to accelerated road degradation and diminished road life expectancy.
Second, the Court held that the $5.00 per square foot fee was reasonable and did not constitute illegal taxation. RSA 41:9-a authorizes municipalities to impose fees in relation to the issuance of any license or permit which is part of a regulatory program established by the municipality. However, these fees cannot exceed an amount reasonably calculated to cover the enforcement costs. RSA 41:9-a, III. Fees that are grossly disproportionate to the actual costs associated with implementation of municipal regulation constitute a tax, and, therefore, the excess revenue is an unlawful tax unless is survives constitutional scrutiny.
Liberty argued the fee was an unconstitutional tax because road excavation and patching did not always damage the road. The Court was not persuaded by this argument; it was sufficient for the cities to demonstrate that road patching generally diminished road life expectancy. The evidence also demonstrated that the $5.00 per square foot fee was reasonably calculated to compensate for road degradation and diminished life expectancy.
Finally, the Court also held the enhanced fees for excavation of newly-constructed or upgraded roads was valid, overturning the trial court’s decision. The trial court had determined, based on testimony from city officials, that the enhanced fees were established to punish and deter utilities from opening roads. The New Hampshire Supreme Court stated that even if motive in establishing a fee was material to the analysis, deterrence is a valid regulatory purpose. Based on the studies and evidence produced to support the manner in which the enhanced fees were calculated, the Court also held that these fees were reasonable, and not unlawful taxes.