Case Title: Mountain View Ptnrshp v. City of Clifton Forge

Citation: 

Docket Number: 972275

State: virginia

Court: Virginia Supreme Court

Date: 1998-09-18T00:00:00Z

Document:
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 
                     
 
1In 1993, the 1991 Ordinance was repealed and a new 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. 
                     
 
2After 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. 
 
4
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 § 15.2-25053 
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.  
                                                                  
 
3This 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 
                     
 
4This 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