Present: All the Justices
MOUNTAIN VIEW LIMITED PARTNERSHIP,
AND CLIFTON WOODS LIMITED PARTNERSHIP
v. Record No. 972275 OPINION BY JUSTICE BARBARA MILANO KEENAN
September 18, 1998
THE CITY OF CLIFTON FORGE
FROM THE CIRCUIT COURT OF THE CITY OF CLIFTON FORGE
Duncan M. Byrd, Jr., Judge
In this appeal, we decide whether a former ordinance
setting rates for refuse collection constituted an impermissible
tax and whether the rate classifications contained in the
ordinance were reasonable.
I.
In June 1991, the City Council for the City of Clifton
Forge (City) enacted an ordinance increasing refuse collection
charges in the City based on a classification system of
residential and commercial users (1991 Ordinance). 1 The fees
imposed by the 1991 Ordinance varied in accordance with the
described classifications. For example, single family
residences receiving weekly service were charged $13.50 per
month. Apartment house owners who collected refuse in
"dumpsters" and received weekly or biweekly service were charged
$12.55 per month for each residential unit. Rooming house
1
In 1993, the 1991 Ordinance was repealed and a new
ordinance was enacted (1993 Ordinance). The 1993 Ordinance set
rates for refuse collection based on anticipated volume assigned
to "equivalent dwelling units."
owners receiving weekly service were charged $6.75 per room per
month. Stores, businesses, restaurants, banks, and office
buildings requiring one collection per week also were charged
$13.50 per month. However, some businesses, such as beauty
shops, dry cleaners, and service stations, were charged higher
fees, due to the nature of the waste that they generated.
Mountain View Limited Partnership owns and operates an
apartment complex known as Mountain View Apartments, which
consists of 54 residential units. Clifton Woods Limited
Partnership owns and operates an apartment complex known as
Clifton Woods Apartments, which contains 66 residential units.
Both complexes are located within the City of Clifton Forge and
each uses one "dumpster" for the disposal of solid waste. The
"dumpster" at the Mountain View complex is emptied by the City
twice per week, while the "dumpster" at the Clifton Woods
complex is emptied once per week.
Before July 1991, Mountain View Limited Partnership and
Clifton Woods Limited Partnership (collectively, Mountain View)
paid the City a refuse collection fee of $7.00 per month for
each residential unit. Under the 1991 Ordinance, Mountain View
was required to pay $12.55 per month for each residential unit.
In October 1992, Mountain View filed a motion for judgment
and motion for declaratory judgment against the City,
2
challenging the validity of the 1991 Ordinance. 2 The issues
raised at trial were whether the fee imposed by the 1991
Ordinance constituted an impermissible tax and whether the fee
classifications contained in the Ordinance were valid.
At trial, Thomas C. Trinkle, the managing general partner
of Mountain View, testified that other local jurisdictions
charged comparable apartment complexes refuse collection fees at
a flat rate of $28 a month and $132 a month. He also testified
that the City of Covington charged $5.23 per dwelling unit per
month for refuse collection.
At Mountain View's request, Jason Hartman, a certified
public accountant, made a comparative analysis of the City's
annual financial reports pertaining to refuse collection for
fiscal years 1990-91 through 1995-96. Hartman testified that
these documents showed a total accumulated surplus of about
$832,000 over the six-year period. As of June 1996, the
accumulated surplus was $615,742.12. This amount included a
$125,000 loan made in June 1996 from the solid waste fund to
other governmental units included in the City's general fund.
2
After the 1991 Ordinance became effective, Mountain View
refused to pay the applicable garbage collection fee. The City
filed two separate motions for judgment against Mountain View
seeking payment of fees and penalties plus interest for the
failure to pay garbage collection fees. The parties agree that
if the ordinance is valid, Mountain View owes the City $59,046
plus interest of 10% per year from November 1, 1993, until paid,
3
Hartman stated that the City maintains its solid waste fund
as a unit of the "general fund" of the City. He explained that
the general fund is a "governmental fund," which is analyzed
under accounting principles by tracking the flow of financial
resources, rather than by measuring individual costs and related
revenue for those costs.
Hartman testified that in order to determine whether a
proprietary fee approximates the cost of providing a service,
the "enterprise fund" method of accounting should be used. The
governmental fund and the enterprise fund methods differ in the
manner in which future expenses are listed. Under the
governmental fund method, an expense is recorded only in the
year the expenditure is made, while the enterprise fund method
accounts for future expenses prior to the actual expenditure.
Hartman agreed, however, that both methods of accounting are
appropriate for use by a municipality, and that there is no
requirement that one method be used over the other.
Hartman further noted that in 1995 and 1996, the City's
expenditures for solid waste management almost doubled. He
explained that this increase was due to the fact that, in these
years, the City allocated to the solid waste fund 25% of the
costs incurred by other departments in performing duties related
for services rendered between November 1, 1992, and September
30, 1995.
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to solid waste management. Although Hartman was "skeptical" of
this allocation, he acknowledged that there are many ways to
estimate a proper allocation of costs, and that accounting
principles dictate only that the method be reasonable and
consistent.
Stephen A. Carter, the City Manager of Clifton Forge from
June 1989 through June 1994, testified that the City paid for
refuse disposal based on volume. He stated that since it is
impractical to weigh refuse collected at every separate location
in the City, the 1991 Ordinance classifications were created in
an attempt to account for the difference in the volume of refuse
generated by various commercial and residential users.
Carter explained that the City raised the refuse collection
fees in 1991 based on an expected increase in operating costs
and future expenditures relating to the closing of the landfill
used by the City. Carter stated that, in 1991, the City
disposed of its solid waste in the Peters Mountain Landfill,
which was scheduled to close in the "near future."
Based on a consultant's report detailing the cost of
complying with state and federal regulations relating to
landfill closings, the City determined that its current fee
structure would not support the expenses related to the Peters
Mountain closing and other anticipated expenses. Carter stated
that the City Council enacted the increased fees in the 1991
5
Ordinance to ensure that the City could meet its anticipated
expenses, and that an unexpected delay in the landfill closing
resulted in a surplus in the solid waste fund.
Beginning in fiscal year 1994, Carter decided to allocate
to the solid waste fund the cost of work performed by other City
departments on solid waste management, which previously had been
billed to those other departments within the City's general
fund. After discussions with managers of the relevant city
departments, Carter determined that about 25% of the costs
incurred by other City departments were related to solid waste
management. Other city employees testified that Carter's
estimate was reasonable.
Thomas Price Smith, the City's independent auditor,
testified that he reviewed the 25% allocation and concluded that
it was reasonable. Smith also stated that, in his experience
performing audits for about 70 counties, towns, and cities in
Virginia, many local governments maintain a solid waste fund
surplus.
Smith explained that maintaining a surplus is desirable
because a municipality must plan for future expenses. He
testified that if a local governing body "spend[s] down" to zero
at the end of its fiscal year, the governing body will have no
funds with which to operate in the first month of the new fiscal
year. Smith also stated that the State Auditor of Public
6
Accounts requires that solid waste expenditures be reported
under the governmental fund method of accounting.
Richard Magnifico, the current city manager, testified that
the City no longer uses the Peters Mountain Landfill and
presently disposes of its solid waste at the Alleghany transfer
station. He explained that "tipping fees," the cost for
disposing of each ton of solid waste, increased from
approximately $20 per ton at the Peters Mountain Landfill to $65
per ton at the Alleghany transfer station.
Magnifico projected that the City's solid waste fund would
have a zero or a negative balance by the next fiscal year. He
attributed this situation to the costs associated with the
closing of the Peters Mountain Landfill, the increased "tipping"
fees, the purchase of a new garbage truck for $78,000, and the
purchase of a recycling truck for $30,000 and recycling
containers for $22,000.
After hearing this evidence, the trial court held that the
1991 Ordinance imposed a valid fee, rather than an impermissible
tax, and that there was sufficient evidence of the
reasonableness of the Ordinance classifications to render the
issue fairly debatable. Thus, the trial court upheld the 1991
Ordinance and entered judgment in favor of the City in the total
amount of $59,046 plus interest.
7
II.
On appeal, Mountain View argues that the City enacted the
1991 Ordinance as a means of generating revenue to pay for the
cost of performing other municipal functions. Mountain View
asserts that under McMahon v. City of Virginia Beach, 221 Va.
102, 267 S.E.2d 130, cert. denied, 449 U.S. 954 (1980), and
Tidewater Ass'n of Homebuilders, Inc. v. City of Virginia Beach,
241 Va. 114, 400 S.E.2d 523 (1991), the fee imposed by the
Ordinance was an impermissible tax, because the fee exceeded the
actual cost of providing the service and there was no reasonable
correlation between the benefit conferred and the burden
imposed.
Although Mountain View concedes that the City may collect
fees and maintain a surplus to pay for anticipated expenses, it
contends that the present evidence in support of the need for a
surplus is incredible as a matter of law. Mountain View argues
that the surplus in the solid waste fund of at least $615,000
far exceeded the estimated costs associated with the closing of
the Peters Mountain Landfill, particularly since those costs
were payable over a period of 30 years.
Mountain View also asserts that the City's allocation of
25% of costs from other municipal departments to the solid waste
fund, and the loan in the amount of $125,000 to other
governmental units included in the general fund, indicate that
8
the City improperly used the revenue generated by the 1991
Ordinance to support other city functions. Mountain View
contends that, through use of the governmental fund accounting
method, the City has attempted to hide its use of funds
generated from solid waste collection fees to support other
municipal functions. We disagree with Mountain View.
We first consider the principles set forth in McMahon and
Tidewater. In McMahon, the City of Virginia Beach had enacted
an ordinance requiring landowners to connect their properties to
the municipal water supply system, even if the owners did not
intend to use any water from the system. 221 Va. at 104, 267
S.E.2d at 132. Several landowners filed a declaratory judgment
suit against the City alleging, among other things, that the
water connection fee was an impermissible tax. The trial court
disagreed, ruling that the fee was valid. Id. at 106, 267
S.E.2d at 133. We affirmed the trial court, holding that
"because the charges imposed by the ordinance would not exceed
the actual cost to the City of installing the waterlines in the
streets in front of the landowners' residences, a reasonable
correlation arose between the benefit conferred and the cost
exacted." Id. at 107, 267 S.E.2d at 134. Thus, we concluded
that the evidence refuted the landowners' contention that the
ordinance was adopted solely as a revenue-generating measure.
Id. at 108, 267 S.E.2d at 134.
9
Later, in Tidewater, we addressed the validity of a
Virginia Beach ordinance that assessed a "water resource
recovery fee" on all new connections to the City's water system.
241 Va. at 117, 400 S.E.2d at 525. The fee was designed to
finance, in part, the acquisition of water from Lake Gaston for
use by the City's residents. A homebuilders' organization
challenged the ordinance alleging, among other things, that the
ordinance imposed a tax rather than a valid fee. Id. at 120,
400 S.E.2d at 527. The trial court upheld the ordinance. Under
the principles set forth in McMahon, we approved the trial
court's ruling and held that under the facts presented, there
was a reasonable correlation between the benefit of the service
provided and the burden imposed by the fee. Id. at 121, 400
S.E.2d at 527.
We did not hold in either case that a fee charged by a
municipality could not exceed the projected cost of providing
the service, or that a municipality may not maintain a surplus
in anticipation of future expenses. In fact, Code § 15.2-2505 3
expressly provides that a locality may include in its budget a
reasonable reserve for contingency expenditures. Under the
facts presented in McMahon and Tidewater, we merely concluded
that since the costs of the planned services exceeded the fees
10
imposed for those services, there was no merit to the contention
that either of the ordinances constituted an impermissible tax.
See Tidewater, 241 Va. at 121, 400 S.E.2d at 527; McMahon, 221
Va. at 107, 267 S.E.2d at 134.
In Tidewater, we implicitly acknowledged that a
municipality may collect fees in anticipation of future expenses
when we stated that the City was not only making significant
expenditures presently, but would be required to make future
expenditures to implement the project. 241 Va. at 122, 400
S.E.2d at 528. We also stated in McMahon that a municipality
may enact ordinances in anticipation of future problems, and
that there "is no requirement that protective measures be
limited to actions taken after a crisis." 221 Va. at 107, 267
S.E.2d at 134.
In accordance with these principles, we hold that a
municipal ordinance setting a fee for refuse collection and
disposal is not an invalid revenue-generating device solely
because the fee set by the ordinance generates a surplus. The
relevant inquiry, as set forth in McMahon and reaffirmed in
Tidewater, is whether there is a reasonable correlation between
the benefit conferred and the cost exacted by the ordinance.
3
This section, effective December 1, 1997, does not differ
substantively from Code § 15.1-161.1, which was in effect on the
date of trial.
11
Tidewater, 241 Va. at 121, 400 S.E.2d at 527; McMahon, 221 Va.
at 107, 267 S.E.2d at 134.
In applying this test to the 1991 Ordinance, we consider
the evidence in the light most favorable to the City, the
prevailing party at trial. Hudson v. Lanier, 255 Va. 330, 331,
497 S.E.2d 471, 472 (1998); Cardinal Dev. Co. v. Stanley Constr.
Co., 255 Va. 300, 302, 497 S.E.2d 847, 849 (1998). We will not
disturb the trial court's decision unless it is plainly wrong or
without evidence to support it. Code § 8.01-680; Hudson, 255
Va. at 333-34, 497 S.E.2d at 473; Cardinal, 255 Va. at 302, 497
S.E.2d at 849.
We conclude that the record contains sufficient evidence to
support the finding of a reasonable correlation between the
benefit conferred and the cost exacted by the 1991 Ordinance.
The evidence showed that the benefit conferred by the Ordinance
included the refuse collection service itself, as well as
payment of projected costs relating to landfill closing
regulations, greatly increased "tipping" fees, and new
equipment.
The maintenance of a budget surplus to pay for future costs
was supported by the testimony of Thomas Price Smith, the City's
auditor, and Jason Hartman, Mountain View's accounting expert.
Both witnesses testified that municipalities commonly maintain
surpluses in solid waste funds, and Smith added that such a
12
practice is desirable to ensure that a municipality can meet the
public's needs. The evidence also showed that the City's solid
waste fund surplus essentially has been depleted due to recent
expenditures necessary for the provision of solid waste
collection services.
We disagree with Mountain View that a different outcome is
required based on the City's allocation of 25% of its costs from
other departments to the solid waste department. This
allocation was supported by Stephen Carter's testimony, as well
as the testimony of Richard Magnifico, and Lee Anna Tyler, the
City's accounting supervisor, who confirmed that the 25% figure
was a reasonable estimate of the amount of work performed by
other departments relating to solid waste management. Even
Mountain View's expert, Hartman, agreed that the practice of
allocating costs from other departments is reasonable, and that
formal studies are not required to determine an appropriate
allocation.
We also find no merit in Mountain View's contention that
the $125,000 loan made from the solid waste fund to other
governmental units included in the City's general fund is
evidence that the 1991 Ordinance is a revenue-generating device.
13
Under Code § 15.2-1105, 4 cities have authority to borrow money.
Moreover, since the evidence was not refuted that this loan
always has been accounted for as part of the solid waste fund
surplus, the record does not show that this money was improperly
diverted to other governmental units within the general fund.
The City's use of the governmental fund accounting method
also does not alter our decision. Both accountants who
testified agreed that the City's use of this accounting method
was proper, and that accounting principles do not require the
City to use the enterprise fund accounting method. The City's
use of the governmental fund method also assists the City in
complying with the requirement of the State Auditor of Public
Accounts that the City use this method of accounting in its
reports to that office. Therefore, under the principles set
forth in McMahon and Tidewater, we conclude that the evidence
supports the trial court's determination that the 1991 Ordinance
imposed a valid fee.
III.
Mountain View also argues that the trial court erred in
ruling that the classifications contained in the 1991 Ordinance
were reasonable. Mountain View notes that Carter, the former
city manager, conceded that the cost associated with refuse
4
This section, effective December 1, 1997, does not differ
substantively from Code § 15.1-843, which was in effect on the
14
collection from businesses is no different from the cost
involved in refuse collection from apartment buildings. Thus,
Mountain View contends that the 1991 Ordinance was invalid
because it charged apartment building owners more for the same
service provided to business customers. We disagree with
Mountain View's argument.
We review Mountain View's challenge under well-established
principles that afford the 1991 Ordinance a presumption of
validity. See Twietmeyer v. City of Hampton, 255 Va. 387, 390,
497 S.E.2d 858, 860 (1998); Town of Narrows v. Clear-View Cable
TV, Inc., 227 Va. 272, 280, 315 S.E.2d 835, 839-40 (1984), cert.
denied, 469 U.S. 925 (1985). "Municipal corporations are prima
facie the sole judges of the necessity and reasonableness of
their ordinances, and the presumption of their validity governs
unless it is overcome by unreasonableness apparent on the face
of the ordinance or by extrinsic evidence which clearly
establishes the unreasonableness." Tweitmeyer, 255 Va. at 390-
91; 497 S.E.2d at 860 (quoting Town of Narrows, 227 Va. at 280,
315 S.E.2d at 839-40); accord National Linen Service Corp. v.
City of Norfolk, 196 Va. 277, 279, 83 S.E.2d 401, 403 (1954).
A party challenging the validity of an ordinance has the
burden of proving that the ordinance is unreasonable.
Twietmeyer, 255 Va. at 391, 497 S.E.2d at 860; Town of Narrows,
date of trial.
15
227 Va. at 280, 315 S.E.2d at 840; Board of Supervisors v.
Lerner, 221 Va. 30, 34, 267 S.E.2d 100, 102 (1980). When the
presumptive reasonableness of an ordinance is challenged by
probative evidence of its unreasonableness, the municipality
must present evidence that the ordinance is reasonable. If the
evidence of reasonableness is sufficient to render the issue
fairly debatable, the ordinance must be sustained. However, if
such evidence is insufficient to make the issue fairly
debatable, the evidence of unreasonableness defeats the
presumption and the ordinance cannot be sustained. Tidewater,
241 Va. at 122, 400 S.E.2d at 528; Town of Narrows, 227 Va. at
280-81, 315 S.E.2d at 840; Board of Supervisors v. Snell Constr.
Corp., 214 Va. 655, 659, 202 S.E.2d 889, 893 (1974).
We accord the trial court's ruling on this issue a
presumption of correctness. We also give full credit to the
presumption of validity of the 1991 Ordinance and examine the
record to determine whether the evidence supports the court's
ruling. Twietmeyer, 255 Va. at 391, 497 S.E.2d at 860; Town of
Narrows, 227 Va. at 281, 315 S.E.2d at 840; see Tidewater, 241
Va. at 122, 400 S.E.2d at 528.
Applying these principles, we conclude that the evidence
supports the trial court's ruling that the City's evidence of
the reasonableness of the 1991 Ordinance classifications was
sufficient to make the issue fairly debatable. The City
16
presented evidence that it was impractical to weigh refuse at
the point of collection. The evidence also showed that the fee
for an apartment complex was based on a charge per residential
unit to account for the greater volume of waste generated by
this type of facility. The fee charged for other types of
residential dwellings, such as rooming houses and single family
residences, also was based on a per unit basis.
Although the size of Mountain View's "dumpsters" was the
same as those used by some businesses, there was no evidence
that the amount of waste generated by these facilities was the
same. Thus, we conclude that the record supports the trial
court's ruling that the 1991 Ordinance was valid because the
evidence of reasonableness of the classifications was fairly
debatable.
For these reasons, we will affirm the trial court's
judgment.
Affirmed.
17