Dispute on Fair Competition fo New Customers

In what promises to continue as a long and drawn out process, the City of Falls Church and the Fairfax County Water Authority will face off in the Fairfax Circuit Court Monday in the next phase of their classic “water war.”

A dizzying amount of procedural steps have led to this point, with all but one of five counts in the dispute stayed in two separate courts, and Monday’s trial being a bench, as opposed to a jury, trial. That is, the judge himself, Circuit Court Judge R. Terrence Ney, will decide the outcome following arguments from both sides, with expected appeals to ensue from whomever is ruled against.

The basic dispute involves a fight over whether fair competition between the two rival water systems may proceed going forward, after years of an informal agreement to serve non-overlapping “turfs” began to break down a few years ago.

Monday’s trial has been narrowed to the issue of whether or not the City of Falls Church’s practice of extracting a “return on investment” (ROI) from annual revenues of its water system, represents an unconstitutional tax on its customers in Fairfax County, as charged by the County Water Authority.

But Falls Church City Attorney John Foster reiterated in comments to the News-Press yesterday that the county water system’s position is “clearly incorrect,” adding that taking a reasonable ROI “is authorized by the (Falls Church) City Charter, approved by the State Legislature, and consistent with state law.”

He said the City of Falls Church has “looked at this issue repeatedly over the years,” and that all of its outside consultants have concurred in the appropriateness of the policy.

Contrary to the City imposing an “unconstitutional tax” on non-City, Fairfax County-based users of its water system (which is over 110,000 of the total 120,000 users), it was noted that when the City had to absorb a large increase cost of the water it buys from the U.S. Army Corps of Engineers, it made a political decision earlier this decade not to pass through the total cost to its users.

That added up, in fact, to a subsidy for county users of the Falls Church system by the City, since City taxpayers were ultimately liable for the difference. In other words, Fairfax County users benefited more by the policy than City of Falls Church users.

The City of Falls Church began to review its ROI policy in October 1998. In the Oct. 15, 1998 edition of the News-Press, the lead headline was, “Tap Water Fund? Council Explores New Avenue for Obtaining Revenue.”

The article reported, “No one at City Hall seems to know whether the figure ($1.9 million taken annually as a ROI at the time-ed.) is low, high or on the mark in terms of what’s allowable or prudent.”

It went on, “All City Hall does know, it seems, is that there’s no standard for ROI on utilities in the Commonwealth of Virginia. Council members tasked the city staff to do a thorough search, nationally, to determine if a standard exists anywhere to give them guidance for the upcoming budget.”

Then, the lead headline in the April 8, 1999 edition of the News-Press six months later read, “City Should Be Charging 33% More for Water, Expert Says,” with the subhead, “Fair Pricing Would Bring $3 Million More Per Year to City’s Operating Budget.”

In that story, the findings of consultant John Crifield of the Government Finance Group were reported, drawing the conclusions contained in the headlines.

Another consultant was subsequently retained to confirmed Crifield’s analysis.

Foster said that two weeks has been allocated for the trial beginning Monday, but that he doubted it would actually take that long.

In terms of other pending counts in the dispute, they’ve all been put off until next February, and the work of the three-judge panel formed by the chief justice of the Virginia Supreme Court will not commence until after the Fairfax Circuit Court has heard and ruled on all the counts beginning in February.

The delay was ordered by Judge Ney to give the Fairfax County Board of Supervisors an opportunity to revisit its proffer requirements imposed in the Halsted Development case at a December 7, 2009 hearing.

On Monday’s trial, Foster told the News-Press, “We look forward to telling the City’s story of its water system, and defending our practice as permitted by our state legislature-approve charter and consistent with Virginia law.”