As we’ve elsewhere discussed, standby service charges represent:

1. Some sort of monetary levy against and of direct benefit to real property;

2. Imposed for the mere availability to access and receive water and/or sewer services;

3. Where those services are “standing by” or “immediately available;”

4. Whether or not those services are actually being used.

So here we examine whether the RFF/BFF are legitimate standby service charges. And for the reasons which follow, we conclude they are not.

Now let’s discuss The District’s Budgets For its Community Services Fund. The RFF represents the financial shortfall between revenues and intentional overspending assigned to the Community Services Fund. In fact, it actually represents more! Why more? To intentionally 0create a funding source for future unappropriated and unbudgeted pet projects or unforeseen expenses⁷⁴.

Trait No. 7: Assuming Arguendo The RFF/BFF Are Legitimate “Fees,” Their Use Has Transformed Them Into Taxes: Clean Water, supra, at 127 Nev. 316-18 instructs that “user fees collected for capital improvement projects and sewer services (can be) transformed into a tax through a subsequent law” that repurposes their use. This is because the “[sJtatutory earmarking of (the) proceeds for [purposes other than those for which they were assessed] is more consistent with a revenue raising purpose than with an intent to recover…expenditures related to the (District’s) conferred functions…Here, while the (RFF/BFF) were collected as user fees, when the Legislature later enacted A.B. 6, section 18, requiring…the collected fees be transferred to the State’s general fund for unrestricted general use, (and as a result) they were transformed into a(n invalid) local and special tax.”¹ And that’s what we have here.

Be that as it may, let’s begin by examining the Community Service Fund’s budget for fiscal year 2020-21. If one removes the RFF subsidy ($1,735,612) assigned to actual revenues², one sees that total revenues from all other sources totaled $16,333,929. Now let’s compare this revenue to actual expenses ($15,286,400). Although the reported difference ($1,047,469) is more than actual expenses, this means that none of the RFF was necessary to pay for anything! However, rather than refunding the unnecessary portions to those parcels which were assessed, the RFF together with the $1,047,469 in positive cash flow was transferred to fund balance³.

Let’s go through the same exercise for fiscal year 2021-22⁷⁹. If one removes the RFF subsidy ($820,300) assigned to actual revenues, one sees that total revenues from all other sources totaled $18,919,402. Now let’s compare this revenue to actual expenses ($25,863,478). Although the reported difference ($6,944.076) is more than the RFF subsidy, we see that $6,123,776 was transferred from fund balance. Given the fund balance was created from prior years’ excess RFFs, all overspending was subsidized by the RFF!

Finally, let’s examine the District’s statement of budgeted revenues and expenses assigned to the Community Services Fund for fiscal year 2022-23⁷⁹. If one removes the RFF subsidy ($3,692,700) assigned to budgeted revenues, one sees that total revenues from all other sources are budgeted to total $46,416,282. Now let’s compare these revenues to budgeted expenses ($50,119,021). Although the reported difference ($3,702.739) is less ($10,039) than the RFF subsidy, we see that it was budgeted to be transferred from fund balance. Given the fund balance transfer was created from prior years’ excess RFFs, all overspending was budgeted to be subsidized by the RFF!

Recall that one of the the necessary markers as to whether a charge is a legitimate fee, is whether it is allocated directly to defraying the costs of providing (a) service³⁵. Here clearly it was not, and is not. Therefore “an exaction of money for the purpose of generating revenue is a tax.”⁴

Fees Charged in Exchange For Use of a Particular Governmental Service: When the are other than regulatory, they apply “a specific charge for the use of publicly provided services.”⁵

As aforesaid, the Board and staff have stated that the RFF/BFF represent “standby and service charges⁶ (for)…the availability of the use of IVGID’s” recreation and beach facilities.”⁷ But given (for many of the reasons stated herein) they are not even legitimate “fees,” how can they be service charges? Or standby charges? Or charges for the availability to use District owned recreation and beach facilities? And if they can’t, yet they’re collected and spent for other purposes, you have evidence of what Clean Water was speaking of.

“From 1992 through June 30, 2013…the Internal Services Fund provided self-insured Workers’ Compensation Coverage.”⁶ Under that program, the District provided coverage for up to $1,250,000 for each workers’ compensation claim. The internal service (fund)…collect(ed) charges based on compensation and pa(id) member assessments to the Nevada Public Agency Compensation Trust”⁷ (“NPACT”). Self-insurance required a minimum of $1 million of restricted⁸ reserves which was funded from former RFFs, BFFs and utility rates and charges. In fact $1,463,709 had been accumulated as of June 30, 2014{efn_note]See page 47 of the 2014 CAFR.[/efn_note]. Somewhat recently, the District enrolled “in a fully insured plan through the NPACT. The (excess) self-insurance retention from that former coverage…was returned to…(the) Utility, Community Services…and Beach…operating funds…A transfer of $800,000 occurred during 2017-18…Another transfer of $300,000 was completed in 2018-19…(And) as of June 30, 2019…(a remaining) $174,356 (was)…returned to the General Fund.”⁹ So why wasn’t this $1,274,356 returned to those who paid it, in part, with their RFFs/BFFs? The answer to this question is evidence of exactly what Clean Water was speaking of.

Another example. In August of 2015 the IVGID Board approved another one of its master plans; this one for Diamond Peak. As of May 24, 2017, $690,00 of past budgeted capital improvement plan (“CIP”) costs which had been provided by past RFFs had not been expended¹⁰. And were not going to be expended because past boards had not elected to budget further master plan CIPs. Yet rather than refunding those excess amounts to those who had paid them based upon a previous Board’s representations that they were “required,” amendments were made to the “carry forward” status of these sums, and they were permanently added to excess fund balance. So why wasn’t this unused appropriation returned to those who paid it, in part, with their RFFs/BFFs? The answer to this question is evidence of exactly what Clean Water was speaking of.

Although we can provide other similar examples of this same principle, we trust we’ve made our point. Whatever validity the RFF/BFF may have, it has been eviscerated by the way the District spends the proceeds. They have been transformed into taxes.

Trait No. 8: The RFF/BFF Are Taxes: “The Hawaii Supreme Court in Medeiros adopted a modified version of the test articulated by the Massachusetts Supreme Judicial Court in Emerson College which differentiates ‘fees’ from ‘taxes.’ One which analyzes whether the charge: (1) applies to the direct beneficiary of a particular service, (2) is allocated directly to defraying the costs of providing the service, and, (3) is reasonably proportionate to the benefit received.” Where “those criteria fit the charge, it is a fee.”¹¹ Because here they don’t, the RFF/BFF are taxes¹². Thus the RFF/BFF are not fees.

Real Property is Not Capable of Using The District’s Recreation And Beach “Facilities:” Because: NRS 318.197(1) instructs that GID “Board(s) may fix…service charges…for…facilities…furnished by the district,” and, NRS 318.201(9) instructs that GID boards may “prepare and file a final report…which shall contain a description of each parcel receiving…services (rather than facilities and)…the amount of the charge (therefore)…for inclusion on the assessment roll,” ¶4(b) of the resolution adopted pursuant to NRS 318.201(9)⁴⁰ “specifically finds that the availability of the use of IVGID’s (facilities; i.e.,) beaches; boat launch ramp; Championship golf course; Mountain golf course; tennis facilities; the Chateau and Aspen Grove; Diamond Peak Ski Resort, and Recreation Center…are all benefits…provided to said (real) properties.” Given the “ends” the District seeks to accomplish via any “means” possible, whether permissible or not, it seems clear that “the (resolution) at issue was undoubtedly drafted with [NRS 318.197(1) and  318.201(9)]…firmly in mind.”¹³

So how can parcels of real property possibly access and use District owned recreation facilities.? When we think of facilities furnished to real property we think of those physically connected to or immediately adjacent, don’t we? Like public water and sewer services where there are physical laterals connecting the public’s services to each parcel of real property benefited. And why? Because NRS 318.197(3) makes the point that there must be some physical “connection.”¹⁴ So where exactly are those regulations? The answer is nowhere! And why? Because essentially none of the District’s recreation facilities is physically connected .or immediately adjacent to the overwhelming majority of local real properties which are assessed. And as a consequence, the Board has been forced to tell the public the truth. That is that the RFF/BFF really pay for services furnished to people. These are admissions by means of conduct that the RFF/BFF really do not pay for District recreation facilities furnished to real property. It is “the owners of the parcels set forth herein (i.e., people which) are directly benefited.”⁸⁸

Moreover, since user fees imposed by a governmental entity are supposed to be “based on the rights of the entity as (the) proprietor of the instrumentalities used,”³² is it not appropriate to ask what recreation or beach “instrumentalities” (i.e., facilities) the District furnishes to those real properties which are assessed? Since the answer is NONE, and for all of the above-reasons, it seems pretty clear that the RFF/BFF do not represent charges for District owned recreation facilities furnished to real property.

Trait No. 10: The RFF/BFF Are Not Paid by Choice: This is another one of the necessary traits which differentiate “fees” from other kinds of monetary exaction. Legitimate fees “are paid by choice, in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge.”¹⁵ Those whose Incline Village/Crystal Bay properties/dwelling units are assessed have no choice insofar as payment is concerned. ¶1.0 of Policy 16.1.1 instructs that the “District will charge the prescribed Recreation¹⁶…and…Beach¹⁷ Fee(s) to all qualifying real properties¹⁸ within the boundaries of the District…in one of the following categories.” Thus if one examines the “written report (for collection on the county tax roll)” the Board approves each year⁴, one sees that all non-exempt parcels in one of the following categories [those: “Dwelling Unit(s) Included in the District Prior to June 1, 1968¹⁹…Other Parcels in the District Prior to June 1, 1968²⁰ (and)…Properties (in the District) Annexed After June 1, 1968²¹“] are assessed. Where as here the payor has no choice, and “the money (i)s used for general public purposes²² — the traditional trademark of taxation,” the charge is not a fee²³. For all of these reasons, the RFF/BFF are not fees.

Conclusion: In every one of the examples above, staff and the Board could have lived within the District’s financial means by eliminating overspending and a fiori, the financial subsidy we’ve demonstrated to cover the shortfall. But instead, they have perpetuated their financial irresponsibility by using the BFF/RFF as revenue sources to pay for continued, future overspending aka “bonds to be issued therefor!” Whatever one wants to call these charges, the simple fact-of-the-matter is that the RFF/BFF are not legitimate “fees.”³⁴ We could and separately will demonstrate that the RFF/BFF are neither “service charges” nor “standby service charges…for” services or facilities nor “charges for the availability of” beach and District owned recreation facilities the Board and staff represent²⁴. There is no legitimate justification for the RFF/BFF because they don’t even rise to the level of a legitimate governmental “fee.”

1. See Clean Water, supra, at 127 Nev. 317-18.
2. See page 131 of the 5/26/2022 Board packet.
3. Here we see that the RFF is not just a revenue source for the financial shortfall between budgeted revenues and intentional overspending. It is also the same thing for future unappropriated, unbudgeted, unrestricted pet projects or unforeseen expenses assigned by staff to the Community Services Fund.
4. See Douglas Co. Contractors, supra, at 112 Nev. 1457; State v. Boyd, supra, at 27 Nev. 256; Hawaii Insurers Council v. Lingle, 120 Haw. 51. 67, 201 P.3d 564 (2008).
5. See U.S. v. City of Huntington, W.Va., 999 F.2d 71, 74 (4th Cir. 1993); National Cable Television Ass’n v. United States, 415 U.S. 336, 341, 94 S.Ct. 1146, 1149 (1974); United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278 (1931); City of Gary, Ind. v. Indiana Bell Tel., 732 N.E.2d 149, 156 (Ind. 2000); Clean Water Coalition, supra, at 127 Nev. 315.
6. See page 168 of the packet of materials prepared by staff in anticipation of the Board’s May 22, 2019 meeting (“the 5/22/2019 Board packet“).
7. See ¶11 at page 43 of the 2014 CAFR (“the 2014 CAFR“).
8. See ¶P at page 33 and ¶3 at page 37 of the 2014 CAFR.
9. See pages 168-169 of the 5/19/2019 Board packet.
10. See page 104 of the 2017 Budget.
11. See Medeiros, supra, at 973 P.2d 742-45.
12. “That revenue obtained from a particular charge is not used exclusively to meet expenses incurred in providing the service but is destined instead for a broader range of services…’while not decisive, is of weight in indicating that the charge is a tax’…which has been defined as ‘an enforced contribution to provide for the support of government'” [see Medeiros, supra, at 391 Mass. 427 quoting United States v. Tax Comm’n of Miss., 421 U.S. 599, 606, 95 S.Ct. 1872 (1975) and United States v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278 (1931)].
13. See Rider v. County of San Diego, 1 Cal.4th 1, 15, 2 Cal. Rptr. 2d 490 (1991).
14. After all, “the Board shall prescribe and enforce regulations for the connection with and the disconnection from properties of the facilities of the District and the taking of its services.”
15. See Emerson College, supra, at 39 Mass. 424-25; Vanceburg v. Federal Energy Regulatory Comm’n, 571 F.2d 630, 644 (fn.48) [D.C. Cir. 1977], cert. denied at 439 U.S. 818, 99 S.Ct. 79 (1978).
16. According to ¶2.0.1 of Policy 16.1.1 the “Recreation Fee is the annual Recreation Standby and Service Charge assessed by the District on all real property within the District that is in one of the categories listed…”
17. According to ¶2.0.2 of Policy 16.1.1 the “Beach Fee is the annual Recreation Standby and Service Charge assessed by the District on all identified real property that was within the District on June 1, 1968, and is in one of the categories listed…”
18. According to ¶2.0.5 of Policy 16.1.1 “Qualified Real Property is property subject to payment of a Recreation Fee.”
19. See ¶I(A) at page 234 of the 5/26/2022 Board packet.
20. See ¶I(B) at page 234 of the 5/26/2022 Board packet.
21. See ¶I(C) at page 234 of the 5/26/2022 Board packet.
22. As discussed below, the money is used for general revenue purposes.
23. See Howard Jarvis Taxpayers Ass’n v. Amador Water Agency, 36 Cal. App. 5th 279, 298, 250 Cal. Rptr.3d 171 (2019).
24. See our What Are Standby Service Charges discussion.