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All Eyes On Hermann Lawsuit Over Hancock Amendment Many Cities Are Watching

By James B. Bartle
Several cities, large and small, including Sullivan, have their eyes on a lawsuit that has been before Judge Gael Wood, Circuit Court Judge for Franklin, Gasconade and Warren counties, and the Missouri Court of Appeals regarding violations in the Hancock Amendment and transfers of “user fees” in utility rates to the general revenue fund in the City of Hermann.
The initial lawsuit, in brief summary, was brought on by Arbor Investment Company, LLC against the City of Hermann. Arbor Investment felt that the City of Hermann had violated the Hancock Amendment of the Missouri Constitution, adopted in Nov. 1980, that prohibits a governmental body from increasing taxes without a vote of the people.
Article X, Section 22, of the Missouri Constitution provides, in pertinent part: “Counties and other political subdivisions are hereby prohibited from levying any tax, license or fees, not authorized by law, charter or self-enforcing provisions of the constitution when this section is adopted or from increasing the current levy of an existing tax, license or fees, above that current levy authorized by law or charter when this section is adopted without the approval of the required majority of the qualified voters of that county or other political subdivision voting thereon.”
In the Arbor Investment lawsuit, the group alleges that the City of Hermann increased its utility rates to allow fund transfers into the general revenue fund to help pay for city services, which they felt was a violation of the Hancock Amendment.
Judge Wood ruled in favor of the City of Hermann; however, through the Missouri Court of Appeals, the case has been sent back to Judge Wood’s courtroom.
The Court of Appeals, in their conclusion in the case, states, “We find the trial court erred in entering summary judgment in favor of the City because there is a genuine dispute of material fact as to whether and for what purpose the City increased utility fees in violation of the Hancock Amendment by setting charges at a level to increase the City’s general revenue and to subsidize general government expenditures rather than to compensate for the provision of services. Therefore, the judgment of the trial court is reversed and remanded. If it is shown on remand that the object of the fees is to fund the City’s general revenue, then this constitutes a violation of the Hancock Amendment and deserves an appropriate remedy under the Hancock Amendment.”
This case could have wide implications if found to be in violation of the Hancock Amendment. Many municipalities in the State of Missouri have for years used fund balance transfers from utility rates, such as electric, to offset deficits in their respective budgets.

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