STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS

ROBERT FORD, )

)

Petitioner, )

)

vs. ) CASE NO. 90-2052

) FLORIDA KEYS AQUEDUCT AUTHORITY, )

an agency of the State of Florida,)

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on December 4, 1990, in Key West, Florida.

APPEARANCES

For Petitioner: Joseph Galetti, Esquire

616 Whitehead Street

Key West, Florida 33040

For Respondent: Robert T. Feldman, Esquire

Feldman and Koenig, P.A.

417 Eaton Street

Key West, Florida 33040 STATEMENT OF THE ISSUES

Whether the subject System Development Fees assessment should be upheld.

PRELIMINARY STATEMENT

Petitioner, Robert Ford, is the former owner of certain property located at 1024 Eaton Street, Key West, Florida. At the time Mr. Ford purchased this property in 1975, it was used as a single family residence and contained eight bedrooms. During his term of ownership Mr. Ford added four bedrooms to the premises and changed the use of the premises from residential to commercial.

The twelve bedrooms were rented to tourists and other members of the public as guest rooms. The parties stipulated that there were no changes made to the plumbing system and that it was uncertain whether actual water consumption on the premises increased.

In December 1974, Respondent enacted by rule a System Development Fee, which is an impact fee to be charged to new or existing customers who modify, add, or construct facilities which impose a new potential demand on Respondent's water system. For single or multiple commercial units, the System Development Fee is imposed on a per "unit" basis. The term "unit" is defined by a rule adopted by Respondent.

As long as the property located at 1024 Eaton Street was used as a single family residence, Respondent considered it as one residential unit, and based its rates and fees accordingly. Respondent did not learn of the changes to these premises until 1989 when the person who purchased the property from Mr. Ford contacted Respondent's staff. Thereafter, Respondent issued the assessment that is the subject of this proceeding.

Respondent contends that each of the 12 guest rooms contained in the premises located at 1024 Eaton Street constitutes a "unit" as that term is defined by its pertinent rules. Because these premises were considered to be one residential unit at the time the System Development Fee rules were enacted, credit was given for one unit. As a result, Respondent assessed Petitioner for

11 additional "units" at the rate of $2,000 per unit, the rate in effect at the time the additional units were discovered by Respondent.

At the formal hearing, Petitioner stipulated that he was not contesting the impact fees representing the four bedrooms that he added to the premises, so that at issue were impact fees for 7 units. (The initial assessment also contained a claim for System Development Fees for certain properties located by Mr. Ford at 1026 Eaton Street. That claim was withdrawn by Respondent and was not at issue in the pending proceeding.)

At the formal hearing, Respondent called four witnesses, one of whom was accepted as an expert witness in the fields of public utility economics, public utility accounting, and public utility rate making and impact fees, and introduced 10 documentary exhibits, each of which was accepted into evidence.

Petitioner called no witnesses and offered no documentary exhibits.

A transcript of the proceedings has been filed. At the request of the parties, the time for filing post-hearing submissions was set for more than 10 days following the filing of the transcript. Consequently, the parties waived the requirement that a recommended order be rendered within thirty days after the transcript is filed. Rule 22I-6.031, Florida Administrative Code. Rulings on the parties' proposed findings of fact may be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. Respondent is a state agency whose primary purpose is to provide an adequate supply of potable water to the Florida Keys. To this end, it has acquired or constructed well fields, treatment plants, transmission pipelines, pumping stations, distribution pipelines, and other related facilities. Because of its exaggerated linear service area of 130 miles, it incurs high capital and operating costs. Chapter 76-441, Laws of Florida, Respondent's enabling act, confers upon Respondent the authority to impose the subject System Development Fee.

   
   

2. Respondent imposed the subject System Development Fee, which is an impact fee, in December 1974. Respondent's Rule 48-3.002(1) expressed the purposes of the System Development Fee as follows:

   
   

   1. The System Development Fee is an impact fee charged to new and existing customers who modify, add or construct facilities which impose a potential increased demand on the water system. This fee is charged in order

      to equitably adjust the fiscal burden of a new pipeline and expanded or improved appurtenant facilities between existing customers and new water users. All system development fees are allocated to the direct and indirect costs of capital improvements made necessary by actual and expected increased demand on the water system.

      
      

3. The term "unit" is a commonly accepted concept in the public utility industry, and impact fees are often assessed on a per "unit" basis. Respondent's Rule 48-3.002(5)(b) provides, in pertinent part, as follows:

   
   

   5.(b) Where the premises served consists of single or multiple commercial units, the

   System Development Fee shall be assessed based on each individual unit. ...

   
   

4. The term "unit", as used by Respondent is a technical term that is defined by Respondent's Rule 48-2.001(19) as follows:

   
   

   (19) "Unit" A unit is a commercial or residential module consisting of one or more rooms with either appurtenant or common bathroom facilities and used for a single commercial purpose or single residential use.

   
   

5. The number of units existing in a structure containing multiple units should be determined in accordance with Rule 48-2.007(1)(c), which provides, in pertinent part, as follows:

   
   

   ... The number of units, whether residential or commercial, will normally be determined according to applicable city or county occupational licenses, building permits, or plans of the subject structure. In cases of discrepancy or inconsistency in definition, or interpretation, the following Florida Keys Aqueduct Authority definition will control:

   A unit is a commercial or residential module consisting of one or more rooms with either appurtenant or common bathroom facilities and used for a single commercial purpose or single residential purpose.

   
   

6. Respondent is concerned with the potential use of a unit because its system must be designed by its engineers and constructed to respond to that potential use. The actual water consumption of any particular unit is not a primary consideration in determining the engineering requirements of Respondent's water system.

   
   

7. Respondent has consistently applied the System Development Fee charges on a per unit basis for the purposes stated in its Rule 48-3.002(1). The "unit", as used by Respondent, provides a reasonable basis for Respondent to impose its System Development Fees.

8. The per unit charge was $600 when first enacted in 1974, was increased to $1,500 in 1984, and was increased to its present level of $2,000 in 1986. A widely publicized amnesty program was in effect from August 1, 1984 through October 1, 1984, during which customers who had added units to their property without reporting same to Respondent could report the units and pay the System Development Fee on an installment basis. Customers were advised that after the amnesty program closed, the System Development Fee would be based on rates in effect at the time an unreported unit was discovered, not at the rate the unreported unit was constructed. This policy serves to encourage Respondent's customers to promptly report newly added "units", and the policy produces fees commensurate with the expenses to be incurred by Respondent after it learns of the new units.

   
   

9. On April 11, 1978, Robert Ford, as owner, submitted an application for water services with Respondent for residential premises located at 1024 Eaton Street, Key West, Florida. The application, which was accepted by Respondent on April 11, 1978, contained the following provision: "Where System Development Charges are applied, all conditions apply as authorized in the Customer Service Policy Booklet".

   
   

10. Petitioner changed the use of this property from residential to commercial during the time he owned the property. At the time he bought the property in 1975, it was a large, single family residence containing eight bedrooms. Mr. Ford changed the use of the property from a residence that housed a single family to a guest house that rented its rooms on a daily or weekly basis to tourists or other members of the public. He added four bedrooms to the eight bedrooms that existed when he purchased the premises so that a total of twelve guest rooms were available to rent. There were no substantial changes made to the plumbing system; no bathrooms were added and no water pipes were enlarged. No structural changes, other than the changing of the locks on the doors, were made by Mr. Ford to the eight bedrooms that existed when he purchased the property. There was no evidence that actual water consumption for the premises had increased because of the change in usage.

    
    

11. Respondent first learned in the changes Mr. Ford made to the premises at 1024 Eaton Street in 1989. Thereafter, Respondent issued the subject System Development Charge based on its determination that Petitioner had added 11 units to the one existing unit, for a total of 12 units. The assessment was based on the rate of $2,000 per unit, the rate in effect at the time the changes were discovered.

    
    

12. Petitioner agreed to pay the System Development Fee for the four bedrooms that he added to the residence. Petitioner did not contest the reasonableness of the fee currently being charged by Respondent ($2,000 per unit), but he did challenge the imposition of the current rate to the changes he made to the premises located at 1024 Eaton Street because those changes predated 1986, when the $2,000 per unit rate went into effect.

    
    

    CONCLUSIONS OF LAW

    
    

13. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes.

14. Respondent's authority to impose the subject System Development Fee, conferred upon it by its enabling legislation, is not at issue in this proceeding. Likewise, the amount of the fee currently being imposed by Respondent has not been shown to be unreasonable and the reasonableness of that fee is not at issue.

    
    

15. Petitioner has challenged Respondent's policy of imposing the System Development Fee based on the rate in effect at the time the impact is discovered as opposed to the rate in effect at the time the impact was constructed. In rate setting, an agency is given wide discretion, and it is Petitioner's burden as the party attacking that exercise of discretion to establish that Respondent has exceeded its discretion. This is a heavy burden, particularly where Respondent's policy serves to encourage its customers to promptly report newly added "units" and where the policy produces fees commensurate with the expenses to be incurred by Respondent after it learns of the new units. Agrico Chemical Co. v. State Department of Environmental Regulation, 365 So.2d 759 (Fla. 1st DCA 1978) cert. den., 376 So.2d 74 (Fla. 1979), Grove Isle, Ltd. v. State, Department of Environmental Regulation, 454 So.2d 571 (Fla. 1st DCA 1984). Petitioner has failed to establish that Respondent exceeded its discretion in adopting this policy. Consequently, if a fee is to be imposed, the fee should be based on the schedule in effect at the time the additional campsites were discovered.

    
    

16. Great deference is given to an agency's interpretation of its rules and regulations. An agency's interpretation of its own rules will not be overturned even if such interpretation is not the sole possible interpretation, the most logical interpretation, or the most desirable interpretation. An agency's interpretation of its rules will not be overturned unless the interpretation is clearly erroneous. See, Health Quest Corporation, et al. v. Department of Health and Rehabilitative Services and Arbor Health Care Co., et al., 11 FALR 5427 (1989), and ABC Liquors, Inc. v. Department of Business Regulation, 397 So.2d 696 (Fla. 1st DCA 1981); Department of Insurance v. Southeast Volusia Hospital District, 438 So.2d 815 (Fla. 1983).

    
    

17. Respondent's determination that each guest room constitutes a "unit" within the meaning of its rules is a permissible construction of those rules. That construction is consistent with the purpose of the impact fee since each guest room has a potential impact on its water system that Respondent's water system must be designed to meet. That determination is also consistent with the Respondent's interpretation and application of the System Development Fee rules since their inception.

    
    

18. Petitioner argues that the eight bedrooms that were in place when he purchased the subject property should not be subject to these fees because he made no structural changes to the eight bedrooms other than changing the locks and because the actual water consumption has not increased and may have actually decreased. This argument is rejected because it is the application of Respondent's rules, not the structural changes or water consumption, that is dispositive. Petitioner's rules treat bedrooms in a single family residence as part of one residential unit while they treat each room in a guest house that is rented commercially as a separate unit, even if those rooms are located within the same structure. It was Petitioner's conversion of this property from residential to commercial usage that resulted in the number of units within the property being determined pursuant to the rules relating to commercial properties instead of the rules relating to residential properties.

19. Petitioner has failed to establish that Respondent has clearly erred in the interpretation or application of its rules and regulations.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Respondent enter a final order which upholds the

assessment against Petitioner of the System Development Fee based on 11

additional units at the rate of $2,000 per unit.

DONE AND ENTERED this 1st day of February, 1991, in Tallahassee, Leon County, Florida.

CLAUDE B. ARRINGTON

Hearing Officer

The DeSoto Building 1230 Apalachee Parkway

Tallahassee, Florida 32399-1550 904/488-9675

Filed with the Clerk of the Division of Administrative Hearings this 1st day of February, 1991.

APPENDIX TO RECOMMENDED ORDER

The following rulings are made on the proposed findings of fact submitted by Petitioner:

1. The proposed findings of fact in paragraph 1-4 and 7-10 are adopted in material part by the Recommended Order.

2. The proposed findings of fact in paragraph 5 are rejected as being unsubstantiated by the evidence since four bedrooms were added to the premises.

3. The proposed findings of fact in paragraph 6 are adopted in part by the Recommended Order. The proposed findings of fact relating to occupancy levels are rejected as being unsubstantiated by the evidence.

4. The proposed findings of fact in paragraphs 12-14 and 16-17 are rejected as being unsubstantiated by the evidence and because of the failure to provide pertinent citations to the record as required by Rule 22I-6.031(3), Florida Administrative Code.

5. The proposed findings of fact in paragraph 15 are rejected as being unnecessary to the conclusions reached, but are treated as a preliminary matter.

The respective paragraphs in the Findings of Fact section of Respondent's Proposed Recommended Order were not numbered. For ease of reference, these paragraphs have been numbered 1-10 sequentially. The following rulings are made on the proposed findings of fact submitted on behalf of Respondent.

1. The proposed findings of fact in paragraphs 1, 7 and 10 are adopted in material part by the Recommended Order.

2. The proposed findings of fact in paragraph 2 are adopted in part by the Recommended Order. The proposed findings of fact in the fifth and sixth sentences of paragraph 2 are rejected as being unnecessary to the conclusions reached.

3. The proposed findings of fact in paragraph 3 are rejected as being unnecessary to the conclusions reached.

4. The proposed findings of fact in paragraphs 4 and 9 are rejected as being subordinate to the findings made.

5. The proposed findings of fact in paragraph 5 are adopted in part by the Recommended Order. The proposed findings of fact in the second sentence of paragraph 5 are rejected as being subordinate to the findings made.

6. The proposed findings of fact in paragraph 6 are rejected as being unsubstantiated by the evidence.

7. The proposed findings of fact in paragraph 8 are rejected as being an incomplete statement.

COPIES FURNISHED:

Joseph Galetti, Esquire 616 Whitehead Street

Key West, Florida 33040

Robert T. Feldman, Esquire Feldman and Koenig, P.A.

417 Eaton Street

Key West, Florida 33040

Floyd A. Hennen, Esquire General Counsel

Florida Keys Aqueduct Authority 1100 Kennedy Drive

Key West, Florida 33041-1239

Douglas M. Cook, Director Planning & Budgeting

Executive Office of the Governor The Capitol

Tallahassee, Florida 32399-0001

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-002052

Orders for Case No: 90-002052