Lafayette city-parish government is facing a class-action lawsuit seeking refunds that could total more than $400 million for thousands of current and past customers of the city-owned utility system.
At issue is a hefty annual payment Lafayette Utilities System makes each year into the city’s general fund to support city services — the most recent was about $22 million.
The lawsuit, filed this week in state court by a group of plaintiffs that includes a well-known local restaurateur, alleges the annual boost to the general fund is supported by what amounts to an unconstitutional fee on each LUS bill above and beyond the fair cost of utilities.
The annual transfer to the general fund is called an in-lieu-of-tax payment because it is meant to substitute what LUS would pay the city in taxes and fees if it were a private utility.
“This ILOT (in-lieu-of-tax) charge constitutes an unlawful circumvention of the Louisiana Constitution and disguises the true level of taxation borne by the community,” the lawsuit states.
Loss of the annual LUS payment would be a financial disaster for city-parish government, and the amount of the past payments being sought in the lawsuit is more than four times the city’s general fund budget.
But the financial threat of the litigation is unclear.
In-lieu-of-tax arrangements are not unusual with publicly-owned utility systems, and there appear to be no similar legal challenges in Louisiana.
“The use of in-lieu-of-taxes by community-owned utility providers, like LUS, has legally been in use for many decades. In the case of LUS, it has been in place for over 60 years,” said LUS Director Terry Huval. He referred further questions to City-Parish Attorney Paul Escott, who declined comment
The case was filed by the Opelousas firm of Morrow, Morrow, Ryan & Bassett, which has deep experience in class-action litigation.
The firm declined comment.
Plaintiffs in the case include Nidal Balbeisi and one of his many restaurants in Lafayette, Agave Cantina, a popular spot downtown for Mexican fare. He could not be reached for comment on Friday.
The lawsuit seeks a refund of the portion of LUS customer payments from 1976 to present that were used to fund the annual in-lieu-of-tax payments, as well as a legal declaration that the payment by LUS is an improper tax that violates the state constitution’s prohibition on taxing public enterprises.
If a judge grants class-action status for the case, the number of plaintiffs could be massive.
LUS has more than 65,000 electric customers, and the lawsuit seeks to include all business and residential customers back to 1976 who are still residents of Louisiana and who are not employed by city-parish government.
The lawsuit does not ask for a specific dollar amount in damages, but the in-lieu-of-tax payments total more than $400 million since 1976.
There has been a recent trend of similar class-action lawsuits in California seeking ratepayer refunds for utility charges that are inflated to allow for a public utility company to boost a city’s general fund.
The California cases were prompted by a recent change in that state’s laws regarding taxes and fees.