Court Opinion

ID: 7313594
Source: CourtListenerOpinion
Date Created: 2022-07-25 21:03:24.717266+00
Date Added: 2024-06-11T08:52:06.474040
License: Public Domain

O’HERN, Justice,
dissenting.
Over fifty years ago, the three towns of Paterson, Passaic, and Clifton invested their capital in a public water works, the Passaic Valley Water Commission (PVWC). (I refer to them generally as towns, although each is an incorporated city.) The Commission sells some of its water to other towns as customers, but the founder towns run all the risks of loss. Their citizens are exposed to the consequences of catastrophic losses. N.J.S.A. 40:62-115.
Over the years, the three towns have shared the benefits and burdens of the works. They have pledged the credit of their tax base to improvements in the water works. As a result of such improvements, their water system has, we are told, the lowest water rates in northern New Jersey.
Setting water rates is an annual exercise in predicting consumption, costs, and often the unexpected in the form of drought or surplus water. On occasions, water revenues will exceed expenses. For over thirty years when excess revenues had been available, the three towns shared in the modest surpluses of the well-managed utility. Distributions were made to owner-municipalities pursuant to their agreement on the following basis: 1952 — $150,000, 1953 — $125,000, 1957 — $100,-*148000, 1962 — $350,000, 1984 — $700,000, 1985 — $375,000, 1986— $500,000.
In accordance with that long-standing practice, their agency, the PVWC, by resolution dated April 9, 1986, authorized the distribution of $500,000 in surplus funds to the owner-municipalities in accordance with the formula set forth in their agreement as follows: Paterson — $296,050, Passaic — $136,250, and Clifton — $67,700.
The Court holds now that this distribution, and implicitly all the prior distributions, were unauthorized by law. Given the proper function of courts in regard to the separation of governmental functions, I am unable to agree that the distribution of profits exceeds the exercise of the Commission’s power.
I
The PVWC was created pursuant to L. 1923, c. 195 (codified as amended at N.J.S.A. 40:62-108 to -150.2). In 1931, pursuant to the Act, the governing bodies of Paterson, Passaic, and Clifton applied to the New Jersey Supreme Court (then a trial-level court) for the appointment of a commission to acquire the water works and distribution system of a private water company, the Passaic Valley Water Company. The court appointed the Commission and the works were acquired. The statute authorized the three towns to enter an agreement with respect to the conduct of its operations. N.J.S.A. 40:62-129. The terms of the 1931 agreement provide that the PVWC is governed by four commissioners. Paterson has two representatives on the Commission while Passaic and Clifton each have one representative. Additionally, the terms of the agreement specifically authorized the proposed distribution of surplus from the PVWC revenues to the three municipalities.
But the Law Division was of the view that to operate a municipal utility at a profit “is anathema to the public interest.” Does it follow that a deficit is in the public interest? Of course not. The legislation authorizing the creation of such a water *149utility provided that as soon as practicable rates should be established so that the water works shall be self-supporting, “so as to prevent any deficit to be paid by taxation from accruing.” N.J.S.A. 40:62-127. Given the unpredictability in the rate-setting process, it would be almost impossible to strike a rate that would evenly balance expenses and revenues every year.
Accordingly, paragraph 13 of the agreement between the three towns provides that the Commission “shall transmit all monies in their hands acquired from such operations beyond what is necessary to meet its obligations, to the TEEASUEEE of the respective cities in proportion to their ownership in said water works.” The municipalities’ percentages of ownership were set forth in the agreement on the basis of their then-existing ratables, which were as follows:
City 1930 Population 1929 Assessed Valuation of Real Property
Clifton 46,875 41,941,270
Passaic 62,959 84,331,875
Paterson 138,153 183,111,610
As we know, over the years the population of the member towns has changed so that at the present time the assessed valuation of property in Clifton exceeds the combined assessment of property in Paterson and Passaic. Although that is not a legally-determinative factor in this case, it is undoubtedly the driving force behind the litigation. The question is whether the changed demographics affect the judicial role in this matter. I think they do not and that we are bound to adhere to fundamental principles of judicial review of municipal authorities.
II
Courts have but a limited role in reviewing the actions of other branches of government. See Dougherty v. Department of Human Servs., 91 N.J. 1, 12 (1982) (“[Cjourts are not free to substitute their judgment as to the wisdom of a particular *150administrative action for that of the agency so long as that action is statutorily authorized and not otherwise defective because arbitrary or unreasonable.”). Thus we generally recognize that an agency charged with the implementation of a statutory program must have a broad range of discretion to implement the program even when there is no express direction on the issue. See id. at 6. Hence the Commission’s decision how best to run its water works should be and is entitled to judicial deference until it is shown plainly to conflict with the goals of the 1923 legislation.
N.J.S.A. 40:62-116 specifically provides that property acquired by a commission created under the act shall be the property of the municipalities constituting the commission. Although the Commission takes title to the water works when the works are purchased or condemned, “the commission is nothing but an agency of the municipalities that are engaged in the enterprise.” Carr v. Borough of Merchantville, 102 N.J.L. 553, 557 (Sup.Ct.1926). Thus, in both form and substance the water commission must be considered as analogous to a municipal corporation. It is thereby entitled to the liberal interpretation of statutory provisions accorded to municipal corporations. This right is guaranteed by the New Jersey Constitution:
The provisions of this Constitution and of any law concerning municipal corporations formed for local government, or concerning counties, shall be liberally construed in their favor. The powers of counties and such municipal corporations shall include not only those granted in express terms but also those of necessary or fair implication, or incident to the powers expressly conferred, or essential thereto, and not inconsistent with or prohibited by this Constitution or by law.
[N.J. Const. of 1947, art. IV, sec. VII, para. 11 (emphasis added).]
The majority is unable to find the authority in the enabling legislation for the section of the municipal agreement that authorized the distribution of excess resources to the member towns, paragraph 13. Our predecessors in government bequeathed us statutes lean in their outline (was it the absence of word-processors?) but sufficient to the unfolding needs of society. It is well to consider in that light the terse provisions of the *151statute as originally enacted. The entire act is but seven pages in the Session Laws. L.1923, c. 195, 1923 NJ.Laws 504-10. The legislation specifically authorized the municipalities to include in their agreement to operate a joint public water works “such other provisions as may be necessary for the maintenance and efficient operation of such water works, the extension and enlargement thereof, and the proper management of its financial affairs.” N.J.S.A. 40:62-129. The absence of prolixity should be a cause for satisfaction, not hand-wringing.
It is, in my opinion, too narrow a view of municipal power to hold that paragraph 13 of the contract provision was beyond the “necessary or fair implication” of the power afforded, or unrelated to the “powers expressly conferred” on the municipalities. N.J. Const, of 1947, art. IV, sec. VII, para. 11.
The Legislature has recognized that the substantial burdens undertaken by the member municipalities require a broad sweep to their agency's powers. The 1960 amendment to N.J.S.A. 40:62-127 specifically allowed utilities like PVWC to charge higher rates to outside municipalities. The Statement accompanying the bill declared:
The purpose of this bill is simply to clarify the law permitting a commission to charge somewhat higher rates to consumers outside the owner municipalities in cases where the investment or tax liability of owner municipalities or other factors makes such a differential reasonable in the circumstances.
[Statement to L. 1960, c. 172 (Jan. 5,1961), quoted in Curtiss-Wright Corp. v. Passaic Valley Water Comm’n, 89 N.J.Super. 111, 114 (App.Div.), certif. den., 46 N.J. 136 (1965).]
All we need ask is whether PVWC’s actions were reasonable under the circumstances. The General Superintendent and Chief Engineer of PVWC, although not enthused about the distribution, was of the view that it would be beneficial to the proper management of PVWC’s financial affairs by demonstrating its responsiveness to the needs of the member municipalities.
Conceptually, we must ask as well how this situation would be handled if a single municipality were operating the water works and serving multiple customers. If in a given year *152revenues exceeded costs, we would not hold that they must be restored to customers or not deposited in the general treasury, assuming proper compliance with the local budget law, N.J.S.A. 40A:4-1 to -87 (N.J.S.A. 40A:4-35.1 limits surplus revenue transferred to a municipality so as not to exceed five percent annual costs of the operation of the utility). This is the holding of H.B. Higgs Co. v. Borough of Madison, 188 N.J.Super. 212 (App.Div.), certif. den., 94 N.J. 535 (1983). In H.B. Higgs Co., ratepayers primarily objected to Madison’s earning a surplus from its rates charged for its electric utility operations. Id. at 215. The trial court had invalidated as being unreasonable an ordinance that allowed the transfer of surplus revenues generated from the utility to the municipality’s general fund. Id. at 221. The Appellate Division reversed. It found that “a budget that generates surpluses is not inconsistent with the purposes of the Local Budget Law,” which in fact provided for anticipated surpluses. Id. at 226 (citing N.J.S.A. 40A:4-23, -32(f), -34, -35). Recognizing that such ordinances “will be upset only if patently unreasonable,” it upheld the municipality’s ratemaking ordinance as valid. Id. at 222. The court added that if the ratepayers of Madison were dissatisfied with their bills, “their remedy is through the political process.” Id. at 228. Thus, the Appellate Division held that it was not a violation of statutory authority for the municipality to operate its electric plant in such a way as to yield a surplus in certain years. Ibid.
The majority distinguishes Higgs because the customer members and the constituent members cannot exert political power to vote the management of the PVWC out of office. But the political process can work here. The customer-municipalities are quite free to purchase water from any other source. All of northern New Jersey is interconnected for that purpose. In fact, the customers are exercising their choice by buying water at the lowest available prices in the northern New Jersey metropolitan area.
The constituent-municipalities have a trump card in that if they refuse to participate in the further pledge of their collat*153eral, the bonding capacity of the PVWC would be severely limited. (Statutory authority binds the member municipalities to the issuance of bonds only for the purpose of acquisition or construction of property for the water works. N.J.S.A. 40:62-121, -133.)
In short, the political process is quite capable of solving this situation. It is somewhat disturbing that the demographics of the constituent towns have changed so substantially, but when it reaches a breaking point, the population of two-thirds of the members can change the situation. And there is a quid pro quo: presumably, any losses incurred from the acquisition of the water works would have to be borne in accordance with the formula. See N.J.S.A. 40:62-115 (municipality that withdraws from an agreement is still liable for its proportion of expenses paid or debts incurred by the Commission).
Finally, I note that the majority does not predicate its decision on the determination that the municipal action was “patently unreasonable,” although it states somewhat in dictum that it agrees with that portion of the judgment of the Appellate Division. Were that to be the basis of the Court’s decision, I would he unable to agree with it. There is simply no basis for concluding that this distribution in any way endangered the financial stability of PVWC. As noted, its General Superintendent agreed with it. The Chief Financial Officer, on whose testimony the lower courts predicated their decisions, seems to have mistakenly interchanged capital accounts with operating accounts. For example, at the end of the year 1985, the PVWC had $1.5 million in operational surplus. That is how healthy the utility is. The utility then proceeded to make capital acquisitions of $1.7 million which creates the paper deficit of $200,000. Proper accounting practices would never consider a capital acquisition of that nature to demonstrate that the utility was operating at a deficit. In 1986, the alleged $1.3 million loss was again after capital acquisitions and was also incurred because a projected rate increase had been delayed as a result of this litigation. In short, this is a well-operated water utility with *154earned surplus in the year of 1986 well in excess of this $500,000 distribution to the constituent municipalities.
We would do well to let the political process correct any problems in the defendant’s rate structure. This utility has done extremely well without courts managing its affairs.
For modification and affirmance — Chief Justice WILENTZ, and Justices CLIFFORD, HANDLER, POLLOCK, GARIBALDI and STEIN — 6.
For reversal — Justice O’HERN — 1.