The Michigan Supreme Court held that a franchise fee imposed by the City of East Lansing and charged to customers by the Lansing Board of Water and Light (LBWL) violated Michigan’s constitution because the fee constituted a new local tax that was imposed without voter approval.
Under an agreement with the City, LBWL collected franchise fees from consumers. The plaintiff filed a class action against the City arguing that the franchise fee constituted a tax that was imposed in violation of the Headlee Amendment to the Michigan constitution, which requires voter approval for all new local taxes.
In ruling for the plaintiff, the Michigan Supreme Court determined that the franchise fee operated as a tax that was never approved by voters. The court applied the Bolt factors which distinguish between a tax and fee by looking to whether 1) the fee has a regulatory purpose and not a general revenue raising purpose; 2) the fee is proportionate to the cost of the service; and 3) the fee is voluntary.
The court reasoned that the fee was imposed for a general revenue raising purpose, as the amounts collected and remitted each year went into the City’s general fund. Next, the fee was not proportionate to costs incurred by the City for granting LBWL the right to provide electricity because the fee was not collected for purposes of providing electrical services—rather, the funds were used for general purposes. Finally, the fee was not voluntary because if consumers did not pay the fee, they risked the loss of electricity, and in effect, were compelled to pay the fee. Accordingly, the court concluded that the City’s imposition of the franchise fee through LBWL operated as a new local tax without voter approval and as such, violated the Michigan constitution.
Heos v. City of E. Lansing, No. 165763, 2025 WL 377503 (Mich. Feb. 3, 2025).
