Opinion ID: 1058837
Heading Depth: 2
Heading Rank: 1

Heading: reasonable correlation test

Text: The Developers' first assignment of error invites this Court to hold that utility connection fees must meet an independent test of validity in that such fees must bear a reasonable correlation to the benefits derived by the property owner. The Developers contend we established such a test for utility connection fees in McMahon. We disagree. In McMahon, we determined that a locality may require landowners who possess adequate supplies of potable water provided by their privately owned wells to connect with the municipal water supply for a fee. 221 Va. at 103, 267 S.E.2d at 131. We also affirmed the finding of the trial court 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 Va. at 134. However, the issue in McMahon, and the other cases cited by the Developers, Tidewater Association of Homebuilders, Inc. v. City of Virginia Beach, 241 Va. 114, 400 S.E.2d 523 (1991), and Mountain View Limited Partnership v. City of Clifton Forge, 256 Va. 304, 504 S.E.2d 371 (1998), was whether the ordinance in question was illegal because it was an impermissible revenue-producing device in the form of an invalid special assessment or the like. The Developers have neither alleged nor argued that the 2001 Ordinances are of that nature. Our decision in McMahon does not set out a separate reasonable correlation test for utility connection fees. Rather, the examination of a municipal fee alleged to be an impermissible revenue-producing device focuses on whether a reasonable correlation arose between the benefit conferred and the cost exacted to clarify if the levy in question are fees rather than special assessments. 221 Va. at 107-08, 267 S.E.2d at 133-34. The landowners in McMahon argued that the ordinance requiring the mandatory water connection was not a valid health measure but rather an impermissible revenue-producing device. Id. at 107, 267 S.E.2d at 133. We determined that the ordinance was a public health measure and as such, was a valid exercise of the City's police power. Id. at 107, 267 S.E.2d at 134. Our observation that there existed a reasonable correlation... between the benefit conferred and the cost exacted served only to negate[] the landowners' contention that the ordinance was adopted solely as a revenue measure. Id. at 107-08, 267 S.E.2d at 134. Our subsequent decisions applying McMahon's reasonable correlation observation were in similar circumstances. [4] In Tidewater Association of Homebuilders, a group of homebuilders challenged a city ordinance imposing a Water Resource Recovery Fee to recover the capital costs of building a water pipeline. 241 Va. at 117, 400 S.E.2d at 525. The homebuilders alleged the City had no legal authority to levy and collect the fee, that the fee was an unauthorized tax, and that the timing and amount of the fee were arbitrary and capricious exercises of the City's authority. Id. Specifically, the homebuilders contended that the City acted without authority because the fee was an impact fee as defined by former Code § 15.1-498.2, [5] and thus should have been established by statute in order to be valid. Id. at 119-20, 400 S.E.2d at 526. Further, they alleged that the fee was an impermissible tax because there is no particularized benefit to those who pay the fee. Id. at 120, 400 S.E.2d at 527. Holding that the ability to finance the cost of providing [a water system] is inherent in the authority to provide it, this Court determined that the fee was a form of proprietary fee for a particular service. Id. at 119-20, 400 S.E.2d at 526-27. [W]ithout the [pipeline], new developments or connections to the existing water system would not have been possible. Id. at 121, 400 S.E.2d at 527. We held that those who are paying the fee for the new connections ... are receiving an immediate benefit  access to the present City water system which would be unavailable without the project. Id. Citing McMahon, we noted that because there was a reasonable correlation between the benefits of the service provided and burdens of the fee paid, ... the fee was valid and not solely a revenue measure or special assessment. Id. In Mountain View, apartment complex owners contested the validity of an ordinance nearly doubling refuse collection and disposal fees. 256 Va. at 307, 504 S.E.2d at 373. Specifically, the owners contended that under Tidewater and McMahon, 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. Id. at 310, 504 S.E.2d at 374-75. At trial, the City of Clifton Forge presented evidence that the landfill used at the time the higher fees were enacted was set to close and that anticipated expenditures associated with that closing merited the fee increase. Id. at 308-09, 504 S.E.2d at 374. In explaining our prior holdings in McMahon and Tidewater we observed that: [W]e merely concluded that since the costs of the planned services exceeded the fees imposed for those services, there was no merit to the contention that either of the ordinances constituted an impermissible tax. Id. at 311, 504 S.E.2d at 375. Based upon this precedent, we determined the challenged ordinance in Mountain View 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. Id. at 312, 504 S.E.2d at 376. Our decision in McMahon and its progeny establish that the judicial inquiry as to a reasonable correlation relating to a municipal fee is directed to whether that fee is a bona fide fee-for-service or an invalid revenue-generating device. Mountain View, 256 Va. at 312, 504 S.E.2d at 376. The reasonable correlation test is not an independent determination of reasonableness in the context of the fairly debatable standard applied to the legislative enactment of a local governing body. Instead, it is determinative of whether a fee enacted by a locality is a permissible exercise of its police power as opposed to an impermissible revenue-producing device in the form of a special assessment, impact fee or the like. In the case at bar, the Developers neither pled nor argued that the 2001 Ordinances enacted fees that constituted an impermissible tax as a special assessment, impact fee, or the like. Neither do the Developers challenge the County's authority to enact and levy the connection fees as a valid exercise of the County's police powers. Instead, they contend only that the fees are unreasonable and contrary to law as not reasonably related to the benefit conferred on the Developers. Therefore the reasonable correlation test has no application to the 2001 Ordinances, and the trial court did not err by refusing to apply such a review.