WATER WAR: City Files Four Motions Pending Appeal

By GEORGE BROMLEY
Falls Church Times Staff

January 14, 2010

Attorneys for the City of Falls Church filed four motions January 13 in response to Judge R. Terrence Ney’s recent decision in favor of the Fairfax County Water Authority.

Falls Church asks the Fairfax Circuit Court to stay the judge’s  ruling pending the City’s appeal.  A second motion requests clarification or alteration of his order that Falls Church return FY 2009 transfers from its general fund to the water fund.

A third motion asks for reconsideration of the ruling that the City is in violation of its Charter.  Falls Church also requests that, in the absence of a stay, the Fairfax County Water Authority (FCWA) be required to post a bond of at least $4.4 million in order to cover the City’s anticipated losses in the event it obtains relief on appeal.

In arguing for a stay of the ruling, Falls Church contends it has “a substantial case on the merits’” and that “without a stay, the injunctions issued by the Court will inflict substantial and irreparable harm on the City.”   Falls Church continues to maintain that it is not in violation of its Charter and that charges to Fairfax County water customers do not constitute an unconstitutional tax.

In the City’s view, the General Assembly has explicitly authorized it to sell water to non-residents and  derive a profit from such sales and that several decisions of  the Supreme Court of Virginia and the U.S. District Court for the Eastern District of Virginia support its position.

Falls Church contends its charges to non-residents are not a tax, ” because Fairfax Water is not required to connect to the City’s water system, but rather has chosen to do so.”  The City further argues that FCWA’s constitutional objection is barred because it knew for nearly 50 years that the City received a profit from its water system and transferred that profit to its general fund, but did not challenge the constitutionality of the practice until 2008.

The City also requests that the Court alter the injunctive relief relating to FY 2009 because it is not designed to prevent a future wrong.  Transfer of water funds to the general fund for that fiscal year was authorized by the City Council in 2008 and the transfer was made in 2009, but FCWA sought no preliminary injunctive relief at that time, despite knowledge and opportunity to do so.

The memorandum states, “The relief Fairfax Water sought in connection with Count V was solely prohibitory in nature; it did not seek to reverse amounts transferred by the City i) prior to the law suit, ii) during the course of the litigation through trial, or iii) prior to any final order on the issues presented by Count V.”  The document notes it “is reversible error for a court to grant relief that is not requested in the pleadings.”

Falls Church stresses that a reversal of its FY 2009 funds transfer would result in considerable financial hardship.  The City would be unable to undo past expenditures and payments that already have been made; its unencumbered fund balance would drop to 1%, well below the 8% minimum required by City policy, forcing a precipitous decline in its bond rating; and it would be forced to raise its tax rate an additional $.14 on the dollar from its current level of $1.07.  The memorandum includes an attached affidavit submitted by Chief Financial Officer John Tuohy in support of these statements.

The motion for reconsideration concerns Section 1 of Judge Ney’s ruling that the City’s rate setting practices violates its Charter.  Falls Church contends that Sections 13.07 and 13.09 clearly authorize the setting of rates to produce receipts that exceed expenses.  The City’s position, in part, is that the Charter only mandates that if average expenses exceed average receipts for three consecutive years officials must then recommend rates designed to produce rates equal to expense.  As no evidence was presented at trial to show receipts of the utility were less than its expenses for such a period, the “three year” trigger has never been met.

In arguing that FCWA be required to post a bond, the City cites Section 8.01-63 1 of Virginia Code which states that “no injunction shall take effect until bond be given in such penalty as the court awarding it may direct, with condition . . .  to pay all such costs as may be awarded against the party obtaining the injunction, and all such damages as may be incurred [by the enjoined party], in case the injunction shall be dissolved. . . .”   The City estimates that if the injunctions go into immediate effect it will incur losses of  roughly $2.2 million annually in FY 2010 and 2011.

The text of the memorandum that supports three of the motions is available here.  The motion for reconsideration is available separately.  A hearing in the case is set for Wednesday, January 29.

The Falls Church City Council met in closed session Tuesday, January 12, and approved efforts to settle the three remaining counts in the case, one of which includes a $20 million claim against the City.   Trial is scheduled to begin on those counts February 1.