WATER WAR: Fairfax Residents File Against City

By GEORGE BROMLEY
Falls Church Times Staff

December 28, 2010

A group of Fairfax County residents have entered a claim against the City of Falls Church for reimbursement of water utility service payments.   The complaint, filed yesterday afternoon by an Alexandria attorney in Fairfax Circuit Court, lists 20 individual plaintiffs and one business.

This is the third claim filed against Falls Church since the Virginia Supreme Court upheld Judge R. Terrence Ney’s January 2010 ruling that the City’s practice of transferring water fund profits to its general fund was an unconstitutional tax on Fairfax customers.  In late November, the County demanded that the City return $127,877 in overcharges.  Earlier this month, two Fairfax apartment complexes filed suit for $96,558.  

Yesterday’s complaint asks for an amount equal to not less than 15% of the aggregate amount of payments each claimant made to Falls Church for each of the calendar years 2007, 2008, and 2009, plus interest.  Under the statute of limitations, claims for 2007 must be filed by Friday. 

During the 2007-09 fiscal years,  the City transferred over $8 million in water fund profits to its general fund.  In compliance with Judge Ney’s ruling, Falls Church has returned the  FY 2009 transfer of $2.25 million to the water fund.

The total amount sought by the plaintiffs surely is well below either of the previous claims.  However, this might be only the first in a series of actions brought by Fairfax residents against Falls Church.  Ninety-two percent of its water system’s customers are in the County, maintaining around 35,000 accounts.

By
December 28, 2010 

Comments

16 Responses to “WATER WAR: Fairfax Residents File Against City”

  1. COL Mustard on December 29th, 2010 8:33 am

    Here comes the class action suit!

  2. Mike Smith, Falls Church on December 29th, 2010 10:15 am

    The lawyers are circling like buzzards in search of fees. Fairfax County government just has to join in the fun, after all they are SO short of money. Shame is now officially dead as a concept in this country.

  3. John Coleman on December 29th, 2010 10:35 pm

    WTOP story on claims against Falls Church.
    http://wtop.com/?nid=600&sid=2215828

  4. Dennis Szymanski, Falls Church on December 30th, 2010 10:20 am

    Thanks for the link, John. “The Falls Church case is almost directly opposite a recent ruling by the Supreme Court of Virginia which upheld the Town of Leesburg’s right to charge its out-of- town water customers a higher water use rate. ” So, I’m not an attorney – how can this be? Better attorneys working for Leesburg?

  5. John Coleman on December 30th, 2010 12:04 pm

    Dennis

    I think the difference in the 2 cases is that Falls Church charged the same rate to all customers, but then transferred a sum each year to the City General Fund. That was deemed a tax by the Fairfax Cir Court Judge. Obviously in order to transfer some money each year the overall amount charged to customers had to exceed the cost of providing the water service.

    The Town of Leesburg charged one rate to in town customers and another rate to out of town customers. The Town had expert testimony that said that was an appropriate way to run system. Circuit Court judge had ruled against the Town of Leesburg 2 tier rate structure. The Circuit Court Judge found the 2 tier rate structure was “unreasonable, and inequitable; and that the surcharge for water and sewer service for out-of-town residents [is] impracticable, inequitable, non-uniform, and unlawful”. The VA Supreme Court reversed the Circuit Court based on the standard “fairly debatable standard” that is to be used in reviewing legislative actions of the Town. While the Town charged a higher rate to out of town customers it looks like the town retained all funds in the Water Fund to use for operation of the water system and for reserves . The Town apparently did not transfer funds to the Town General Account to help underwrite non water/sewer expenses. The opinion of the VA Supreme Court is at http://www.courts.state.va.us/opinions/opnscvwp/1091455.pdf

    My recollection (always questionable beyond 2 days) is that at one point the City debated having a 2 tier water rate structure, but that Fairfax/Gerry Connolly had strong objections to a 2 tier rate structure.

    Would have been nice if the Supreme Court had granted a writ in the Falls Church case and consolidated it with the Leesburg case for one Opinion.

    Wonder how much of a reserve account the FC Water system retains? Are there any bonds outstanding for water and sewer improvements?

    Based on the Leesburg case looks like FC could have a 2 tier rate structure and use money generated to fund system, increase recerve account and to pay down any outstanding bonds.

    Current comments by leadership in the City seem to be few and far between. I realize City is faced with claims for overpayment and wants to avoid statements that come back to haunt. Would be nice for leadership to give City residents/customers a full accounting of current cost of the water wars and what actions the City can take at this point.

  6. Paul Freedman on December 30th, 2010 5:58 pm

    “Based on the Leesburg case looks like FC could have a 2 tier rate structure and use money generated to fund system, increase recerve account and to pay down any outstanding bonds.”–John, well, yes, but if I understand your comment correctly, as the City originally transferred money in excess of the operating needs of the fund to the general budget, such a practice would not cancel the ruling that a ROI transfer to the general budget was improper–that Falls Church couldn’t point to a two-tier practice to eliminate indemnities for its prior practice which are our current problem.

    I am still unclear precisely as to what the issue with the ROI was; I’ve been told, perhaps by you that the Charter was contradictory, that it permitted a ROI but on the other hand forbade transfer of “profit’ above operating expenses for the water system. I’m still unclear as to exactly the infraction Judge Nye found and where in the charter he located the infraction.

    Also, since he phrased this as an “illegal tax” does that give Hyland the class-action handle to get a writ against our Commissioner of Revenue under general tax regulations to refund all overcharges to all customers? A non-lawyer would intuit not, that there are taxes and there are taxes as defined for purposes of collection and refund by the Commissioner of Revenue but would that be correct, do you think?

  7. Lou Mauro on December 31st, 2010 12:20 am

    John,
    Thanks for putting in the time and effort to research the relevant opinions and formulate a possible explanation. Very helpful.

  8. Andy Rankin (Falls Church) on December 31st, 2010 11:19 am

    If the water system does have loans that it is paying back then couldn’t one option be for the City to refund a few years of transfers to the water system (not to the customers) and then the water system would use that money to pay down the loans?

    I guess this kind of encapsulates my view on the situation. The water system was built (years ago) by the City. Over the years the City has taken on risk, and loans, to keep it going. If the City can’t take a return on that investment then we might as well start paying down the loans to reduce our risk – either way, the water would cost the same.

  9. Barry Buschow on January 3rd, 2011 10:57 am

    So, many Fairfax citizens enjoy our Memorial Day parade, July 4th fireworks, Tinner Hill Festival, Watch Night, etc. Why don’t we start paying for these events out of the water fund instead of the General Fund as a “thank you” to all our “Loyal customers” that enjoy our Farmers market and events throughout the year??

  10. Andy Rankin (Falls Church) on January 3rd, 2011 1:24 pm

    Barry, I mentioned that one time to Dan Maller, who has spent a lot of time learning about all this water stuff (from what I can tell) and it sounded like not something the water system could do. Another idea I had was for the water system to invest in development planning in and around the City. It seems like the water system, and it’s customers, could benefit if it served more dense commercial developments. The cost of delivering water to those buildings would be low but would generate revenue that could help drive down the overall cost to customers.

  11. Vince Forcier, Falls Church/Fairfax County on January 15th, 2011 4:31 pm

    Excellent points by all.

    As a non-city resident water customer, I can assure you that the problem here is not the higher cost of water. The problem is the ROI. Since 2003 (I believe) the city has funded city operations for city residents with funds from the water system. The 10% of water customers that live in the city are happy to pay the overcharges, they are smart enough to know it is a net gain for every city resident. I know many city residents who agree that 100,000 Fairfax county residents helping to fund Falls Church police and schools is just dead wrong. I have been one of the Fairfax County residents who has pressed my supervisor to address this issue.

    I would encourage every business in the city to take a hard look at how the city treats 100,000 potential customers. I am not the only water customer who avoids doing business in the city over this issue alone. I would also encourage city residents to consider the fairness of the ROI, not just the revenue. Had the city abandoned the ROI when complaints were first lodged, and issued an apology, I doubt that there would have been many refund requests.

  12. Andy Rankin (Falls Church) on January 15th, 2011 5:46 pm

    Vince, I’m one of the people who thinks the idea of a return on investment is fair – since apparently there are private utilities that make a profit from operations. It turns out the law won’t allow it and so I guess the City won’t take it anymore.

    If the City sells the water system to a private operator I assume they will take an ROI.

  13. TFC on January 16th, 2011 10:27 am

    Please correct me if I am mistaken. I thought the crux of the decision was not that ROI was unlawful, it was the transfer of the proceeds to the General Fund that was found to be wrong/in error.

  14. Erin Stevens, Falls Church, on January 19th, 2011 11:35 pm

    Questions: 1. Are there any choices for water purchase for the citizens of either the City of Falls Church and/or Fairfax County residents who have been required to buy only the City of Falls Church water?

    2. a. What was the most recent year that the City of Falls Church attempted, but not successfully, to annex a portion of Fairfax County?
    2.b. Is the land area defined in the unsuccessful annexation similar to and/or the same as the land area of Fairfax County(not in the City of Falls Church) where citizens are required to buy water from the City of Falls Church?

    3. Did the City of Falls Church notify the Fairfax County Board of Supervisors on the proposal for implementaion that the water purchase monies from Fairfax County citizens were to be added to the the general fund of the City of Falls Church , with rate on investment? Thank you.

  15. Peter, Falls Church(Fairfax County) on February 9th, 2011 2:25 pm

    Who else is ready to bring a lawsuit to recover our money? The law says we have been getting robbed by Falls Church for years. Falls Church will not just offer up a refund, we have to sue them. Linda Smyth (Providence District Supervisor) has informed me that this is a “private matter” and that means Fairfax County can’t help us. We are on our own. Our neighborhood association president may be organizing something. It might bring more power if multiple associations/HOAs joined together into a single massive lawsuit.

    For those within Falls Church who have benefitted from our illegal tax revenue, “you’re welcome”. Perhaps a boycott is in order? No more Elevation Burger, Brown’s Hardware, Four P’s, etc. from Fairfax County residents until this is resolved.

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