Half a million and counting – Impact fee attorneys may be working on settlement

Submitted by Adam Kaufman
Legal Analyst
July 20, 2014 10:04 p.m.

The City of Fernandina Beach has paid its attorneys almost $560,000 in the last thirty-two months in its effort to justify the imposition of impact fees on new customers of its water utility. It has now been confirmed that the City has again joined in a request to delay a decision by the First District Court of Appeal in Tallahassee in a proceeding challenging those impact fees.

The request is for a postponement until August 18, 2014 of the issuance of an opinion by that Court on the ruling of now Federal Court Judge Brian Davis authorizing a class action suit against the City brought by Joanne Conlon. The Court previously agreed to delay its decision at the request of the parties until July 18. Argument before the Court of Appeal was held on January 15, 2014. Conlon initially brought suit against the City contesting the imposition of impact fees in August 2011.

The City of Fernandina Beach has verified, upon request by the Fernandina Observer, that it has paid to the law firms of Bryant Miller Olive $191,823.07, Rumberger, Kirk, & Caldwell $356,457.83 and Jacob Scholz & Assoc. $10,000 for services associated with the litigation related to the Conlon challenge to the impact fee imposition and the action by the City to attempt to validate bonds supported by those impact fees.

The disbursements made to the City’s attorneys are for the period November 28, 2011 – June 16, 2014 and reflect only those expenses that are invoiced, billed and paid as of the June 16, 2014 date.  There is no insurance coverage for these expenditures.

The City has been subject to adverse rulings in both the class action and the bond validation proceedings. It is presumed that the attorneys for the parties are now working toward a negotiated a resolution of both matters in this “impact fee” dispute

The imposition by the City of impact fees on new water utility patrons is part of a funding scheme the City used in 2002 to acquire its water utility from Florida Public Utilities (FPU) for $26,450,000. Click here for previous article, “Impact Fees: A paper napkin calculations?”

By 2009 the City had not fully paid its purchase obligation to FPU. In 2010 it issued bonds to pay $5,125,000 to FPU to complete the purchase.

In August 2013 the Fernandina Beach City Commission adopted a resolution refinancing this debt which provided for the issuance of $5,000,000 of “Utility System Refunding Revenue Bonds” which were proposed to be secured by revenues from the impact fees that the City established at the time of the purchase of the water utility. It is these bonds that are the subject of the City initiated bond validation litigation.

Also in August 2013 the City repaid $732,000 in increased water and sewer impact fees to construction companies, developers and others after it was found by the City Attorney that the increase in that assessment did not follow State law.

In the bond validation proceeding, Judge Davis, in January of this year, ruled that the City of Fernandina Beach lacked “the authority” to issue the “refunding bonds” that were to be secured by the water utility impact fees.

Davis found that the impact fees imposed by the City did not comply with Florida law and therefore could not secure the bond. The impact fees were determined to have been used by the City to purchase the water utility as a whole in violation of law and the amount of the fee was found to have been arrived at “through a wholly arbitrary negotiation process.”

Judge Davis found that impact fees have not been used to expand the water utility to accommodate new customers or to add additional infrastructure as is required and that the revenues generated from water usage rates paid by both new and existing customers have been sufficient to pay for the water utility purchase without the imposition of additional fees.

Davis observed that the City’s consultant’s calculations to support the imposition of impact fees as adopted by the City “were at best perfunctory, inaccurate and incomplete.” Davis determined that the impact fee calculation imposed an “arbitrary and irrational fee” on new users of the water utility.

The Supreme Court has rescheduled oral argument of the appeal by the City of Judge Davis’ ruling in the bond validation case to December 3, 2014.

Adam Kaufman is a semi-retired mediator and attorney. A graduate of Northwestern University School of Law, he was born and raised in the Bronx, NY. and attended NYC public schools, including Stuyvesant High School. He still serves on the American Arbitration Association Labor Panel. From 1994 – 2005, he was Regional Director for the New York State Public Employment Relations Board