WATER WAR: City Found in Violation of Constitution, Charter
By GEORGE BROMLEY
Falls Church Times Staff
January 6, 2010
Judge R. Terrence Ney ruled today that Falls Church’s water system policies violate the Commonwealth’s constitution and the City’s own charter.
The decision is a victory for the Fairfax County Water Authority (FCWA), which filed suit against Falls Church in December 2008. The case was tried before Judge Ney last September in Fairfax Circuit Court.
In finding the City’s transfer of water fund surpluses to its general fund constitutes an illegal tax on Fairfax County residents, the judge wrote in part:
. . . the City here has held itself out for decades as the public water provider in eastern Fairfax County. In fact, the City’s own expert admitted that the City’s Fairfax County customers are “captive” and have nowhere else to go. They are captives to a tax that they cannot challenge by election. That is plainly unconstitutional.
Judge Ney
Concerning the Charter violation, Judge Ney wrote:
The Charter has always made clear that the water rates were to be set so that anticipated receipts equaled anticipated expenses without resulting in a surplus created by the rates themselves. The City points out that 13.07 provides that the City Council, by a two-thirds vote, may transfer any surplus to either the general fund or the renewal fund. Notwithstanding, this transfer provision confounds the broader mandate of the charter, namely, that the City should be operating the water company in a manner whereby receipts are to equal — not exceed — expenses. There should not be a “surplus” profit to transfer to any fund, by a two-thirds vote or otherwise.
In short, the City’s rate-making for its water services is plainly at odds with the mandate of its charter. Receipts with a profit do not equal expenses.
Judge Ney concluded:
Because the City is in violation of its charter and because the transferring of the profit derived from the sale of water and related service into its general fund amounts to an unconstitutionally void tax on non-residents of the City, Fairfax Water is entitled to injunctive relief. Such relief is warranted because the remedy at law is inadequate. Fairfax Water is not seeking disgorgement of fees improperly paid in the past. It only wants for what is plainly an illegal and unconstitutional practice to come to an end.
The full text of the opinion is available here.
Philip Allin, Chairman of Fairfax Water, was pleased with the decision. “Judge Ney’s ruling brings justice to the citizens of Fairfax County that have long suffered from the City’s illegal practice.”
Falls Church City Manager Wyatt Shields expressed his disappointment. “While the City has the utmost respect for Judge Ney, we are very disappointed in the ruling. We are reviewing the ruling with legal counsel and examining all options including the filing of an appeal.”
Mr. Shields noted that the General Assembly has authorized cities throughout the Commonwealth to transfer utility fund proceeds to the general fund, as a reasonable return on investment and compensation for the financial risk born by their taxpayers.
Trial on three other counts in the case is scheduled to begin on February 1.
By George Bromley
January 6, 2010
I cannot understand the Judge’s view of the Charter. The provision of the Charter that he cites merely says that if there is a long term short-fall in revenue, then fees must be raised to bring revenues up to expenses is, in context, simply meant to require the Council not to run the water system at a loss. It is not fairly read as a rule that says you can’t make profit.
If we can’t make some level of profit from the water system is there any reason to keep running it? Wouldn’t life be easier if we just sold it off (or gave it away)?
If we are not allowed ROE then we have no incentive to continue to provide water service to the Fairfax customers. So, turn off their water service. That would be interesting, eh?
Thank you, Judge Ney for finally putting a halt to the exorbitant rates charged by Falls Church City to non-residents, who are indeed “captive” to this unfair system. We congratulate your ruling, and look forward to lower water rates in the very near future.
Falls Church is not a private company providing a service for a return. It is a government-owned utility and hence under the control of the voters. Those outside the City limits pay high rates to subsidize the City’s property tax rate. If the County residents could choose their water provider in the same manner as we can choose our CATV provider, the City argument would be legit. Since they can’t, and the City has fought to keep it that way, they are being unconstitutionally taxed without any recourse.
I agree with Mr. Trauberman, to a point. Cut off the water. Fairfax Water would then be required to take over the service area. How would the residents inside the City limits like it when their County neighbors across the street started getting higher quality water, better service and lower rates than they do? That would really be interesting, eh?
We are under the same situation, but worse, in Leesburg. The city sued to hook up several new high $$ developments outside the town limits then quadrupled our rates but kept the in-town rates the same! We sued and they delayed but in the end we prevailed, so the City Council voted to raise the sewer rates to offset the loss in water revenue. I predict FC will do the same. The kicker is the water plant is located next door to these new communities and they pump in the water (several miles) to city residents. And we have no vote to change anything! I believe a law should be passed by the General Assembly preventing Falls Church, Leesburg and these other cities (why does it seem like they are small cities doing this?) from unfairly doing what amounts to taxation without representation.
Fairfax Water provides much of Loudoun’s water but unfortunately not Leesburg’s. Their quality is nationally known (top 10) and their prices are 1/2 to 1/4 Leesburg’s! Maybe they should take over Leesburg since they already provide much of LCSA’s water (Loudoun’s equivalent of Fairfax Water, they have the same rates as Fairfax) or a regional sytem where they control LCSA, Leesburg and FC’s water. How can they provide better water at 1/4 the price?
Wow. As one who has been paying the tax I am glad that the judge ruled as he did. For the city residents who think our water should now be cutoff, I have one question–Do you really think that you can have a high quality water system with only 10,000 residents? The extra 200,000 residents (estimate that I read) that help pay for the water (thus making us customers as well), are most likely needed to keep the water highly potable and also importantly, highly affordable. However, if we were cut off, I think some other provider would be more than happy to have 200,000 customers. Honestly, the Orwellian elitism promulgated and perpetuated by some Falls Church residents serves no purpose in helping to make our society better for our children. We should be thankful we have high quality water and not fight over it.
Per the previous comment:
“Honestly, the Orwellian elitism promulgated and perpetuated by some Falls Church residents serves no purpose in helping to make our society better for our children. We should be thankful we have high quality water and not fight over it.”
Why don’t we send our Fairfax neighbors some Little City coupons with the new typeface treatment and see if it makes them feel better about Falls Church City?
At some point in this water war, I remember a Falls Church City official claiming that the City’s charges for water were lower than Fairfax County’s. I’m confused — from what I can find from both the FCWA web site and the Falls Church City government site, it looks to me like FCWA rates are much lower than Falls Church City’s. This is what I can find:
Per monthly bill for a single family residence:
Falls Church charges an account charge of $25; Fairfax County $29 (yes, FCWA charges more on this one)
Falls Church charges $3.03/1,000 gal. regular usage and $4.62/1,000 gal. for peak usage. Fairfax County charges at present $1.83/1,000 gal and $2.70/1,000 gal. respectively.
Falls Church charges a sewer usage charge of $5.91/1,000 gal.; Fairfax County charges $4.50/1,000 gal for the same thing.
So by those numbers,
For 18,000 gallons in the winter quarter:
FCC – 18 x $3.03 = $54.54 + $106.38 = $160.92 + $25.00 (acct. chg.) = $185.92
FCWA – 18 x $1.83 = $32.94 + $81.00 = $113.94 + $29.00 (acct. chg.) = $142.94
Here’s the address to what FCWA charges different types of residences:
http://www.fcwa.org/rates/Rate%20Schedule%202009.pdf> (see page 5 of the document)
And the address to Falls Church water charges:
http://www.fallschurchva.gov/Content/Government/Departments/AdminServ/Rates.aspx?cnlid=2262
It’s a lot of information to process, but how does Falls Church come up with $4.50/1,000 gal. for Fairfax County’s consumption charge? It looks to me like it is $1.83/1,000, with a peak use charge of $2.70, which only applies if the customer uses over a certain, excessive amount. Even with the new sewer base charge of $5 per bill, the basic bill for a FCWA that I’d tried to calculate above would come to $147.94.
Calling better minds than mine to clarify this, please!
Finally, here’s the address to an interesting document from the FCWA, comparing rates in the region for water service.
http://www.fcwa.org/rates/rate%20comparison%202009.pdf
But all in all, why DOES Falls Church have any incentive to be responsible for the water service to such a large area anymore? It might have made sense long years ago when the surrounding Fairfax County areas were far less populated and Falls Church was the relatively more densely-populated town, but now? Seems like it’s a disproportionate burden for The Little City — not that I think that justifies charging extra and transferring that extra into their operating budget. What could Falls Church do with the energy freed up if they were relieved of that burden? Good things!
I haven’t followed this issue very closely. The City leaders seem to be taking a lot of heat for fighting Fairfax County on this but it’s not clear to me what the alternatives were. If the City ultimately loses this battle it sounds like the result will be that the City reduces the fees it charges for service. Wouldn’t that have been the same result if the City hadn’t gone to court over it? And if we have insurance to cover the legal costs then why not duke it out with Fairfax County?
Or is the idea that the City could have given up control of the Merrifield area in exchange for Fairfax County being cool with the City making a profit off of the rest of the system?
I’m not saying the City is doing the right thing (I’m not a lawyer, I haven’t read the Charter or the ruling by the judge) but if Mr. Shields is right an other municipalities in Virginia are profiting from running water systems then what’s up with that? How has it managed to work out this way for so long?
The alternative might have been for the City to not propose to raise rates for Fairfax County customers only. That proposal got the attention of Gerry Connolly, who was then Chairman of the County’s Board of Supervisors. The City got the attention of the leaders of the County again by filing a lawsuit.
Nick Benton likes to portray this fight as David versus Goliath. Goliath is of course the big County. But as a resident of Fairfax who buys water from the City, I see the City acting like a spoiled brat, and I hope that it will get what it deserves for its actions. In this case, smaller is not better, or better behaved.
I suspect Tom is getting pretty close to the truth – or at least the version I remember…. The “little city lacking leadership” fired the first shot about a decade ago when it took the advise of a hired consultant and established out-of-city water rates. Living in a neighborhood negatively impacted by the idea, I remember feeling helpless frustration when I read Slick Nick’s gleeful “Liquid Gold” front page headline in his company’s weekly distribution of litter. Party-line Connolly was lost as to how to react because there was no party line to follow. Things festered for a few years until decision makers started taking legal actions… only lawyers win when things go to court.
I think the City should merge the water and school systems just like micro$oft did with Internet Exploder and their Windows operating system. After all, all the schools have water fountains! Drop all the school funding from property taxes and manage the waterschool system as an single, independent, revenue neutral entity. True, everybody’s waterschool bills would rise, but waterschool could not be propped up financially by city (or county) tax coffers. The only problem is this plan would not result in a reduction of city property taxes – council would see the property tax money formerly paying for schools as a windfall to spend on low income housing. Wonder where that vote will end up next week… Surely we won’t vote another expense into the city budget.
George
In November you reported that the City had won the suit it filed against the Virginia Municipal League to compel VML to pick up the City’s defense costs. Did you ever obtain a copy of Judge Alper’s order and if so can that Order be posted? Has VML appealed that decision by Judge Alper. The trial of the portion of the claim by FCWA seeking money damages against the City is scheduled to start on February 1. In her opinion did Judge Alper address the scope of the coverage for the City to the claims made by FCWA. The obligation of VML to pay for defense costs may be broader than the obligation that VML has to pay for any damages that may be awarded by judge Ney. Do we know yet if VML will have to pay any damages awarded in part 2 of Judge Ney’s trial, or will any damages awarded come from City revenues? The fact that Judge Ney ruled against the City on the first portion of the case is not a good sign for the City on part 2 of the case.
At one point the Virginia Supreme Court appointed a special Court to hear the dispute between FCWA, Fairfax County and the City. Is that portion of the litigation still alive?
I assume the City will be forced to eventually appeal Judge Ney’s decision. Will the City need to wait until he resolves part 2 of the trial before an appeal can be taken? If the City appeals does the injunction barring the transfer of water funds into the City’s general funds remain in effect during the appeal?
In 2007 the City initiated litigation against FCWA in the US District Court. That suit was ultimately dismissed and the City’s appeal was also dismissed. Discussions by the City Council on litigation issues are held in closed sessions for obvious reasons. It seems to me that at some point information on the City Council’s closed door sessions should be made public so that voters have some basis to decide if council members made a bad decision, a good decision or the best decision that could make under the circumstances. Did all council members vote to sue FCWA in 2007 or was there a difference of opinion among Council members on this decision? What steps did the City leadership take in 2006 and 2007 to try to resolve this dispute with Fairfax County and FCWA before they took the litigation road? There has been some turn over on the Council since 2007, but some of the current Council members were involved in the decision to use litigation as the method to resolve the dispute over water issues. Did the City unnecessarily poke the bear or was the litigation route the only reasonable way for the City to proceed?
So far the City has lost all of the rounds of the Water Wars. I think the City leadership should schedule a public meeting to better explain to the City residents and water customers the potential long term consequences of the Court’s decision to the City and to the City’s water system.
As a City resident, one of the things I would be interested to know is the extent of legal due diligence in 2003 prior to the near-doubling of rates. I understand that there was a consultant who was brought in, but what were the qualifications of the consultant? Did we reach out to legal experts to determine whether the decision could be supported under Virginia law? Did we seek an opinion from the Attorney General, such as Warrenton did before using its water utility general fund surplus to build a recreation center? Perhaps the background on the rate increase decision is an appropriate subject for another very helpful multi-part series by the FCT. I note that that the Warranton opinion (Op. 03-029), which the City cites in a responsive document in the litigation, states that rates fixed by a locality are subject to an implicit reasonableness standard. It seems from this perspective that setting a higher rate for the purpose of generating a surplus that will be transferred to a general fund from which 90% of the utility’s customer’s will not benefit is, inherently, unreasonable.
Falls Church tax payers, get ready for a mid-year tax increase followed by a fiscal year tax increase. Not that it won’t happen in other places as well.
this is the first last gasp of a Little City being swallowed up into a big county. Maestro… cue the violins!!!
Our illustrious City Council strikes again! Combining two thoughts from the comments of Kathy Washa and John Coleman says it all: “Orwellian elitists” (City Council) “unnecessarily poke the bear” (Fairfax County). Without a contract setting the terms of water service and pricing for Fairfax, a first-year law student could tell that both the Federal and State lawsuits brought by the City were losers. There is no end to the Council’s incompetence. Just to mention a few examples: haphazard, nonsensical development; careless handling of City finances; cowardly, arrogant changing of local election dates; now the loss of two foolish lawsuits, which will have a serious impact on the well-being of every man, woman and child in this City. To call this crew “The Gang That Couldn’t Shoot Straight” would be a gross understatement.
Suppose a water system was owned by a private company. Said private company provided water in an area where it has for decades, where people who bought houses there knew that the company provided the water. That company increased its fees to maintain the service area, and expand as necessary. That company took its own risks with its maintenance and expansion. Being regulated by law, the company couldn’t make a profit, but continued to grow. Then the law changed so that the company could profit from its work so the company board voted to take a 2.2 million dollar profit yearly to its shareholders. Who would begrudge the profit?
Hey Charlie…
I most definitely begrudge you profiting from a government monopoly!
Here’s an idea… Why don’t you LittleCity’ers pay your own bills? Don’t overcharge me for water and use the slush fund to keep your real estate taxes down. Maybe even (gasp!) have your sanctimonious government spend less!
Your attitude is why so many of your FX County neighbors are happy to live outside The Little City.
Darrel: When you bought your house, Falls Church supplied your water, yes? Then you made a conscious choice to use FC water. When you buy your power from Dominion, you don’t begrudge their profit do you? How about Washington Gas? BTW, FCC buys many public services from Fairfax and Counties, like courts, legal documents, health department, some senior service, etc. I am sure that Fairfax and Arlington don’t provide services at a loss.
To me there were two very large mistakes made:
1) When we decided to transfer surpluses to the General Fund we should have made sure the methods we used were legal and aligned to the General Assembly’s decision to authorize municipalities to transfer fund proceeds to the general fund. We also should have made sure our charter, code and procedures were updated to reflect that change. Our city staff at the time (especially the city manager and city attorney) failed us in not updating the charter when we made the change. And, our council at the time failed us by not asking the right questions.
2) The second mistake was letting the contract with Fairfax County lapse and then suing Fairfax County. I understand it was an intentional move to let the contract lapse to give us more flexibility, but we didn’t really use the flexibility to be more competitive. Instead Fairfax became more competitive. We should have negotiated a new agreement with Fairfax instead of going to court. The whole legal parade was not needed and at the time I said it was a mistake.
Also, I think there should be some recognition that our water system costs differ from Fairfax Water. We get our water from a different source and we have had to fund with Arlington an upgraded water treatment plant to meet federal regulations. We have invested millions in the water treatment plant and in upgrades to water towers and water lines.
I imagine those citizens in Fairfax were pretty happy when we were able to supply water during the drought a few years back, while at the same time Fairfax Water had to ration their customers. That is the result of a different water source.
Is there a risk to the City when it supplies water? If there was a contamination or massive pipeline failure, how would the fix be paid for? Would the City residents (as owners of the system) be on the hook for this expense? As the City can only tax their residents, is there another way to pay for this? What return is allowed for taking such a risk?
I would think that the private water companies (Virginia American) are allowed to have a profit or a return on investment – why not Falls Church?
At the same time I think the City got greedy and are now going to pay for exceeding a reasonable return. (If only we could limit the return the big banks ..)