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Virginia Politics
Posted at 12:00 PM ET, 09/29/2011

Falls Church accuses Fairfax County of wanting monopoly on supplying water

Falls Church is accusing Fairfax County of a power grab in a long-running water war whose potential spoils involve millions of dollars in supplying new development in Tysons Corner and Merrifield.

After Fairfax County took a step this week toward creating exclusive service zones for county-controlled water and setting rates for all county residents — including those who receive service from municipal utilities, such as Falls Church’s — the city accused the county of moving to build a monopoly through the Fairfax Water Authority.

“We think the business community in Tysons Corner and Merrifield likes having a choice between water providers,” Falls Church Mayor Nader Baroukh said in a written statement Wednesday. “Establishing Fairfax Water as the exclusive water provider would take that choice away for the business community.”

Falls Church city manager Wyatt Shields also suggested that Fairfax County’s aggressive stance could put the two jurisdictions on a collision course for another legal battle, this time with statewide implications. That’s because the county appears to be basing their action on an unprecedented legal theory that counties have the power to regulate municipal utilities, Shields said.

“This is a brand-new idea,” Shields said Wednesday. “It would not withstand a legal challenge.” Creating an exclusive zone of service also conflicts with the consent decree that ended a previous lawsuit between Fairfax Water and Falls Church, he said.

Shields also denied allegations by county officials that the city has set artificially low hookup rates to lure new customers -- such as Tysons Corner developers — while passing on the cost of system expansion to existing customers.

“Our availability fees are set to fully cover our expansion to meet new development, and we’re careful about that,” Shields said. “That claim is baseless.”

But Fairfax County Board of Supervisors chairman Sharon S. Bulova (D) stuck to her guns.

“It’s not a power grab,” Bulova said Thursday. “We’re looking out for our constituents who are being gouged by Falls Church water rates. It’s not fair, and we’re going to fix it.”

The Fairfax Board of Supervisors acted unanimously Tuesday to consider taking action recommended by the Consumer Protection Commission to address what its chairman says is unfair billing.

A report by the Consumer Protection Commission found that under Falls Church’s new rates, effective Oct. 1, a typical Fairfax County resident will pay $62.13 per quarter — or about 60 percent more — than the $38.76 charged by Fairfax Water for the same amount of water. And the disparity will increase over time, the commission said.

The commission recommended that the board use the authority conferred by the Virginia General Assembly to fix rates for all customers in Fairfax County so that no resident would pay more than the rate set by Fairfax Water — unless Falls Church, or another municipal provider within the county, could demonstrate why a higher rate was necessary.

The commission also recommended enacting zones of exclusive county-controlled water service for future development.

The Board’s decision Tuesday set the stage for possibly enacting those recommendations through an ordinance later this year — and the likelihood the conflict over water service will continue.

“Whiskey is for drinking – water is for fighting,” Supervisor Penelope A. Gross (D-Mason) said, quoting Mark Twain.

The dispute’s origins arise from the city of Falls Church’s treatment of customers who live in Fairfax County but receive water service from the City of Falls Church. The city’s water utility serves about 34,000 accounts. Ninety percent of those are in Fairfax County, or about 100,000 county residents. Most water service elsewhere is supplied by Fairfax Water Authority , which is a separate legal entity, with the ability to issue bonds and own land, whose members are appointed by the Board of Supervisors.

In years past, Falls Church billed customers in excess of the cost of providing service and transferred the surplus revenues to the city’s general fund. From 1981 to 2008, the City of Falls Church directed more than $58 million in surplus water revenues to its coffers — a practice that city officials say is common among municipal utilities.

That came to a halt in January 2010, when Fairfax County Circuit Court Judge R. Terrence Ney ruled that the Falls Church utility’s practice was, in effect, imposing an unconstitutional tax on county citizens. His order also forbid Falls Church from collecting profits on its water in the future.

Though the city has desisted, its top officials Wednesday defended the practice, saying most municipal utilities return excess revenues to their general funds because its taxpayers guaranteed the capital bonds that helped build the water utility.

“It is generally the case that a utility will get a return on equity and transfer it into the general fund,” Shields said Wednesday. He also said the city’s charter, approved by the Virginia General Assembly, long ago authorized such transfers.

Although the Virginia Supreme Court declined to hear an appeal of Ney’s decision, Shields said, he also noted that the state’s highest court has ruled in favor of the municipal utility in a similar spat between Loudoun County and the town of Leesburg.

In November 2010, the Virginia Supreme Court upheld the Leesburg Town Council’s decision — based on the findings of an Annapolis-based consulting firm also employed by Falls Church — to double water and sewer consumption rates for out-of-town customers in Loudoun County, with the imposition of a surcharge that was not levied on city residents. Loudoun County Circuit Court Judge Thomas D. Horne found the surcharges unfair, saying the town had failed to produce evidence of their necessity, and prohibited the town from imposing them.

But the Virginia Supreme Court overruled, saying the court had intruded on a function that had been properly decided by a legislative body. In its opinion, Leesburg v. Giordano, the high court said the town’s legislative body had produced “fairly debatable” evidence that the charges were reasonable and thus should not be overturned by a court.

This year, the Fairfax County water war flared again after Falls Church moved to boost its water rates by 30 percent over the next five years. At the Fairfax County Board of Supervisors’ request, the Consumer Protection Commission investigated and found questionable justification for the rate increases, including an 8 percent increase adopted by the Falls Church City Council earlier this month.

“If you talk to some people in McLean, they’re extremely frustrated. They feel they’re being gouged by Falls Church,” Bulova said Thursday.

For example, the commission said, Falls Church contracted with a consultant, Municipal and Financial Services Group, that calculated rates according to formulas for a for-profit utility and a public nonprofit — and then recommended rate increases that were identical from fiscal 2012 to fiscal 2016.

The commission also said Falls Church undercharges new hookups to win new customers and expand its territory but overcharges existing customers to pay for the increased costs associated with new service. In other words, the commission said, Falls Church’s rate schedule forces existing customers to subsidize the system expansion—a contention city officials deny. Shields said its consultant fully explored availability fees as part of its rate study and properly calculated that hookup fees were adequate to pay for expected growth.

The commission also said Falls Church’s lack of cooperation hindered its ability to understand fully how the city calculated its new rates.

Shields also defended the city’s decision not to address 58 questions posed by the commission. The city manager said that soon after learning that the commission would be looking into Falls Church’s rates, he contacted county officials and offered to cooperate. But then the commission handed the city 58 questions, many of which were more properly suited to an adversarial rate hearing, and it would have cost the city’s consultant at least $70,000 to answer them, Shields said.

Falls Church’s mayor said Wednesday he hoped to work out a mutually beneficial arrangement. But he also said negotiations would be easier if Fairfax County adopted a less confrontational stance.

“I can’t speak for the county but my view of it is, it’s an election year for them, and it’s issue of control and power over who’s going to be supplying water in Tysons and Merrifield,” Baroukh said in a telephone interview Wednesday.

Said Bulova: “When people charge that things are politically motivated, the bottom line is that we look after our constituents, and that’s what we do whether it’s an election year or not.”

By  |  12:00 PM ET, 09/29/2011

 
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