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Businesses sue Duluth for 'unfair' stormwater fees

The plaintiffs contend the city is placing an undue financial burden on commercial property owners.

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Gary Moline, president of Moline Machinery LLC, stands outside his business in March 2021. Tyler Schank / File / Duluth News Tribune
Tyler Schank

Gary Moline, president of Moline Machinery LLC, said he has no beef with paying his fair share to help maintain Duluth’s stormwater system.

However, he maintains the current way the city apportions that upkeep cost is anything but fair, and Moline has joined Walsh Windows in a high-stakes class-action lawsuit to dispute the charges, with millions of dollars potentially on the line.

Duluth’s stormwater fee system has drawn plenty of scrutiny as plans were unveiled several months ago to increase user charges by 11.25% annually for each of the next six years, resulting in an anticipated cumulative hike of 89% by 2026.

PREVIOUSLY: Duluth businesses question stormwater fee hikes Several local manufacturers are crying foul and questioning the fairness of a growing financial charge.
Eric Shaffer, Duluth’s chief engineer of utilities, said in March that the higher fees are necessary to cover the cost of upgrading an aged and failing stormwater sewer system.

The cost of needed improvements will be steep, but Moline contends businesses and owners of nonresidential properties are being hit harder than others by billing practices he describes as a “very unfair system.”

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As Moline dug into the numbers, he became particularly alarmed by the formula Duluth uses to determine how much different property owners should pay. Fees for owners of nonresidential properties are based on the amount of impervious surface they have on site. This area is then converted into what’s called equivalent residential units, often called ERUs. An ERU is supposed to represent the typical amount of impervious surface found on residential properties in the city.

The city of Duluth defines an ERU as 1,708 square feet — a far smaller measure than most other cities use. For instance, Superior and Hermantown respectively have adopted ERUs of 2,933 and 9,100 square feet.

When Moline shared his concerns about what he viewed as Duluth’s undersized ERU value, city staff agreed to hire an independent consultant to review the number.

According to minutes from the Duluth Public Utilities Commission, the firm of Short Eliott Hendrickson Inc. looked at a representative sampling of residential properties and recommended Duluth increase the size of its ERU to 3,099 square feet, potentially boosting the current area by more than 81%.

The recommended change would substantially lower the number of ERUs assessed to nonresidential properties, potentially reducing the amount they pay by a corresponding amount.

“It’s a potentially big impact on the city, and they don’t like it, for sure,” Moline said.

Despite the consultant’s findings, Duluth has made no adjustments to the ERU so far, and Kate Van Daele, a public information officer for the city, declined to comment on the city’s future plans regarding the calculation of stormwater runoff fees while litigation is pending.

Duluth City Councilor Joel Sipress, who also serves on the utilities commission, said: “The PUC was in the process of determining how to move forward with that consultant’s report. But at the last PUC meeting, we put that on hold, because of the current litigation.”

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The lawsuit claims Duluth’s ERU was set 24 years ago and was to be reviewed and adjusted as necessary every five years, yet it has remained unchanged for the past 24 years.

The complaint seeks retroactive business refunds, claiming: “The city has overcharged the owners of nonresidential properties millions of dollars and, correspondingly, undercharged the owners of residential properties.”

Moline said the rate system is flawed in another respect, as well, in that it offers preferential treatment for waterfront properties.

“Duluth is a city that’s along the lake. We’re 22 miles long, and they’ve come up with a system that more or less exempts 20% of significant properties, even though they’re still users of the system,” he said.

“So, all of the financial burden is falling on others that are quote, ‘inland.’ And that’s not right,” Moline said.

Moline Machinery’s monthly stormwater fees went up 43% — from $544.06 in 2020 to $776.54 this year. The business employs 76 people in Duluth.

Walsh Windows, which employs 35 people, saw its monthly stormwater fee jump 47% — from $346.28 last year to $509.18 in 2021.

Three additional local businesses have already joined in the suit: Industrial Weldors & Machinists Inc., Demolicious and Reasor Properties Inc.

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Moline suggested the city of Duluth has taken a short-sighted approach to paying for its stormwater system.

“They’re just not recognizing what this is doing to some of their most valuable businesses. I think we feel a little snubbed here, and we’re looking for a solution,” he said.

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